MRT fare subsidy is like CCT

Published by rudy Date posted on May 13, 2011

I don’t know why the DOTC Usec/spokesman even dared to appear on TV Patrol last Tuesday evening if he cannot explain his department’s position on the proposed MRT fare increase. He also looked so pathetic as he failed to explain on a live nationwide newscast why DOTC is proposing to give a private sector company P15 billion to temporarily run the MRT/LRT for four years. Of course anchor Noli de Castro was frustrated and he said so in so many words just as he was closing the newscast.

From the confused explanation, I gather that they decided to increase the MRT fare but not the date it will be effective… too many things going up in price, the spokesman said. Yun naman pala, so why announce a decision to increase in the first place? He is just giving the administration’s critics one more thing to denounce P-Noy on.

The confusion betrayed by the DOTC spokesman is because they have a wrong understanding of what they ought to be doing. They seem to think that it is their sacred mission to reduce the subsidy on the fares as quickly as possible. They ought to proceed on the assumption that subsidizing fares on public mass transport is a form of conditional cash transfer to help the middle and lower classes of society with their transport costs.

Mass transit systems are somehow subsidized one way or another in key world cities. They have empirically found out that the use of taxpayer money to fund mass transit ultimately saves taxpayer money in other ways, and therefore, is a benefit to the taxpayer. A lack of mass transit results in more traffic, pollution and road construction and maintenance (such as those never ending weekend “reblockings” on EDSA) to accommodate more vehicles, all costly to taxpayers. There are other reasons why government must support mass transit systems like reducing congestion and vehicle emissions that cause air pollution and greenhouse gases. A mass transit system like the MRT/LRT is a key aspect of a green initiative.

Of course, a mass transit system enables those who cannot afford private transportation to get to their places of work or schools, a definite social plus, given the meager disposable income of our working class. Government currently forks over P7 billion to P8 billion in subsidies to the MRT-LRT to keep fares within reach of more riders, and I am sure many economists will agree that is tax money well spent.

DOTC is apparently mindlessly trying to bring down that subsidy by raising fares. Now they are saying they cannot implement the increase anyway, an obvious conclusion any idiot would have discerned from the start, unless they want to spark more serious anti-government sentiment in the wake of rising inflation due to high oil product and food prices.

In fact, the Department of Energy has launched a fuel subsidy program for jeepney and tricycle drivers to keep their fares low to benefit their riders. Thus, the principle had been established that public transport users, presumably lower socio-economic classes, need some form of transport subsidy. That makes a fare rise for MRT/LRT users not only very untimely but probably, even unfair. What needs to be determined is the right amount of subsidy.

The main sources of financing mass transit systems abroad are ticket revenue, government subsidies and advertisement. The percentage of revenue from passenger charges is known as the farebox recovery ratio and is not normally expected to cover costs. Other income may come from land development and rental income from stores and vendors, parking fees, and leasing tunnels and rights-of-way to carry fiber optic communication lines.

It is unfortunate that past administrations (FVR?) signed a contract for the MRT that was so badly designed to favor the private sector proponent. A past administration gave away the right to keep revenues from such other sources of income such as advertising. That could have been used to help subsidize fares. Malls that connect to the MRT should have also been made to pay for the privilege.

As I mentioned earlier, the contribution of mass transport to reducing pollution in city streets is also a prime reason why a public subsidy for the MRT/LRT is called for. People in Metro Manila are now suffering from chronic sinusitis and other lung related illnesses because of the pollution from all those vehicles from buses, jeepneys and cars. Maybe a pollution levy can be imposed on every car registered and the collection be used as part of the mass transport subsidy. A properly managed MRT/LRT that has sufficient capacity to meet demand will allow cars to be removed from the road, lowering gas emissions and traffic congestions.

By way of background, DOTC will bid out on July 11 a four-year operation and maintenance (O&M) contract for the MRT line (Taft Avenue in Pasay City to North Avenue in Quezon City) and the LRT (from Taft Avenue in Baclaran to Roosevelt Muñoz Avenue in Quezon City that would pay the winner P15 billion. A separate contract for the LRT and MRT’s capacity expansion, meanwhile, will be bid out separately.

On that P15 billion bonanza for the winner of the O and M contract for the MRT/LRT, Noli asked the DOTC usec to explain why this is needed. Noli was saying that the money can be used to subsidize the MRT/LRT fare instead. Unfortunately, the DOTC spokesman’s answer was not responsive to the question. Maybe that deal is hard to explain.

Noli was just echoing the point earlier raised by Sen Ralph Recto. Normally, when you bid out a project in a PPP or BOT process, the government gets something for it. But this time, government gives out a bundle. DOTC Secretary Ping de Jesus explained the following day that the amount is what government would have spent to do the job itself. But I have talked to an expert who told me the P15 billion is out-of-scale because the actual O&M costs in 2010 was only Php3.0 billion.

There is also no incentive to be efficient under the proposed O and M deal. With just 4 years, the operator will just exact as much juice from the assets and reduce expenses – to hell with the conditions of the assets at end of the period. As I mentioned in a previous column, I was told a shrewd operator would need no more than Php300 million working capital to run it.

The problem with DOTC is its failure to make the terms of reference for the proposed O and M deal public.What do we get as part of the deal? Does it cover all power and spare parts costs? But power & parts costs are variable in nature so a fixed cost contract may not be appropriate. Besides if the deal is only temporary, just for four years and will not reduce cost to government, why do it at all?

And my basic question is: How can this be a PPP project when it there is no private-sector investment at risk that would add to the Infra Investment to GDP ratio?

What is DOTC really up to? –Boo Chanco (The Philippine Star)

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