The four winning projects were announced and Manila Bay Integrated City is on its way. How difficult was it to reach this point and what obstacles did you need to overcome?
Rafael "Butch" Francisco - The number one obstacle in many was to conceptualize the idea of an integrated development along Manila Bay. We thought that a simple concept of having an integrated development would be able to attract more investors to put up retail, dining, and entertainment complexes, similar to what we see in Las Vegas, for example, where the revenues from non-gaming activities would overtake the revenues from gaming, and we proposed this to some potential investors. Unfortunately, they asked us several questions and one of them was if they were to engaged in operating a casino, how long would they be able to operate the casino? Meaning, PAGCOR being the sole regulating operator of casinos in the Philippines, how long would it grant them the authority? We mentioned to them that our charter would expire in 2008 so they would have about five to six years to operate the casino…

That was not attractive enough to them…
No way would they invest having only five years of casino gaming. What kind of time is that?
Secondly, could we grant them a license? They studied our charter and asked how we were going to grant them a license when our charter says only PAGCOR can operate as well as regulate casinos in the Philippines?
We said that we would create an Economic Zone in which we would follow the model that has been tested in Clark and Subic, where a casino can be operated provided it's licensed by PAGCOR. We don't call it a license, we call it authority because in our charter, licensing is not directly allowed but we have been granted authority. We have granted operators or private companies permission to operate bingo parlors and with that model we can give them authority to operate the casino. It wasn't too clear for them or for us, the licensing process, and they asked if there was another model that could be followed.
We said we could try the lease arrangement model which we tested in the slot machine arcades. Proponents can come and operate slot machine clubs in the Philippines under a lease arrangement with PAGCOR, meaning they build the facility, put up the investment, hire PAGCOR to manage the arcade for them and in return we share the revenues.

What is the percentage?
60-40. 60 to PAGCOR, 40 to the proponent. They liked this, but assuming that worked, they still wanted a longer authority to operate, not only until 2008. So this was an obstacle that made us go to Congress and ask for an early extension of our franchise. The Congress didn't give us an easy time. It took two Congresses [each mandate takes three years], but we finally got the approval and the extension of the bill of PAGCOR for another twenty five years.

Church opposition

Certainly there were other concerns regarding PAGCOR's role in gaming?
We are a country with 90 percent Roman Catholics and the church has always opposed, in general, any form of gambling. In our constitution the church and state are separate. If the state would pass a law which allows a form of gambling the church would respect the law. But of course if they have a chance to be heard they will always oppose it.

It seems you succeeded in spite of the church and now I can see PAGCOR's growth in authority and the church seems much more open to the idea now?
Yes. Public relations work has been one of the important factors we use. The lack of knowledge of PAGCOR operations and why it exists, it's an area that many Filipinos do not know about. So we had to explain what PAGCOR is and where its revenues go. They see PAGCOR as a casino operator, they knew that revenues were generated by PAGCOR for the government but they didn't know that PAGCOR today is the second largest revenue source for the government, after taxes. Aside from this, I would say about 10 percent of its remaining profits go to foundations, to communities that are asking help or financial assistance. And these foundations or poor communities are supported by the church.

So, from now on the Catholic Church will not be an obstacle for the intentions of growth, especially with these new projects?
I'm sure the Catholic Church will remain an obstacle for other activities related to gambling. We want to expand our casinos in other places but have their opposition. If it's simply gambling, the church will usually oppose it and we respect its decision.
But a project of an integrated complex that somehow can open up a new approach, which can provide great recreation and entertainment, and where casino gaming is incidental to the project…

Doubling revenues in three years

How much can this project – Manila Bay Integrated City – help gaming revenues to grow in the Philippines? I heard that expectations are around 30 percent.
Right now our revenues are about US$ 600 to 700 million. In 2010, once the first facility [integrated entertainment city] opens, that will exceed US$1 billion or even reach US$1.5 billion.

What is your target number of gaming facilities for the whole country? At this moment there are 13 casinos and now you will launch this entertainment and gaming city…
We don't intend to add more casinos. We are focused on this project for the next five years.

However, it seems PAGCOR is already caressing the idea of a second phase for the Integrated City Project. What locations are being considered?
One location we would consider is in Clark field where we have come to an agreement with the Clark Authorities in leasing several hectares of land to develop a similar project to the one we will be doing here along Manila Bay. But again the model we would use is inviting investors to come and submit concepts of what can be done in this area. As a commitment we will put up some structures first. We are thinking of first building a residential community because we have more than 12 thousand employees and we have casino operations in that area of the province and housing is a basic need for our employees.

How many projects were submitted to the Manila Bay Development?
Seven projects were submitted.

Why did you choose those four?
There was a criterion in terms of reference. Not just on the basis of concept. We also looked at their investment capability. When we went to the stage of looking at their investment capability only four came up with compliance, by depositing US$100 million as an initial fee to be allocated to start the project.

As a guarantee that their interest would not fade way?
As a guarantee, although for the guarantee US$400 million will be needed for the first phase.

Wynn developments in future

Last year it was in the news that Steve Wynn's company was very interested in investing in the Philippines. They were looking into several locations and had expectations of investing up to US$1.5 billion, but I didn't see a Wynn project within the four projects. However, there is the Aruze which is a close partner of Wynn. Is this, in your opinion the possible entry door at a later stage for Steve Wynn?
Yes, this is a door for Steve Wynn. In fact Mr. Okada the chairman of Aruze and Mr. Steve Wynn have talked about Mr. Okada's plans to invest in Manila, which Mr. Steve Wynn gave his approval for being open to any future proposals that Mr. Okada may want to take to him. Right now the approval is for Mr. Okada's project not Mr. Steve Wynn's project. But Mr. Steve Wynn is open to any other new proposals that Mr. Okada may want to bring up.

If the Philippines continue on this path do you think that sooner or later the market should be liberalized and PAGCOR should become just the regulatory body instead of running casinos as well?
It has been tested in the past. When PAGCOR was first created, casinos were privately operated. PAGCOR entered into a management contract with a private company to operate the first casino in the Philippines and it lasted until 1986, about ten years.

Are you talking about Stanley Ho?
Yes. In 1986 there was a change of government and a new policy was introduced. Recently the board has passed a resolution to strengthen the regulatory policy and procedures of PAGCOR because of this integrated development complex we are moving into. But as far as casino operations are concerned, the board still wants to consider operating its own casinos.

Competitive taxes

What are the incentives you're giving to investors?
We have assured them that fiscally they only pay PAGCOR once they invest in the project. As far as gaming revenues are concerned, just a straight 25 percent, no other taxes. PAGCOR's share to the government is taken care of by PAGCOR itself.
As far as gaming equipment is concerned, when they bring it into the country, their customs duties are waived because it's gaming paraphernalia. To gain further financial incentives, we declare the area as an economic zone. Under the economic zone status the final tax they will pay to the government is five percent for all non-gaming revenues – retail, dining, and entertainment activities.
Also, PAGCOR has committed to provide the required labor, the manpower. So you can say that we will be their employment agency.

The Philippines is known globally as an exporter of talent and Filippinos are renowned for quality service and being good entertainers. Are you confident that the supply of quality labor will not be a problem for the integrated city project and for other similar projects in the future?
Yes. We have assured the investors that if they maintain a level of competitiveness in terms of salaries we can even attract workers that are abroad today to come back and work for them.

It is always going to be difficult to beat Macau, on gaming revenues, especially now. How confident are you that the Philippines will give Macau a run for its money?
I don't think we are aiming for that. I think Macau is the Vegas of Asia, I must admit. The Philippines is not into becoming the Vegas of Asia. We hear stories in the media that we are building a Vegas. What we are building here is not Vegas in terms of number of casinos, but looking at the non-gaming side of Vegas: retail, dining, entertainment. That is where we are going to beat Macau.

by Paulo A. Azevedo in Manila