Corporate Capture in Jeepney “Modernization”

From Positively Filipino

By Glenis Balangue

The Duterte administration has suspended classes on October 16-17, anticipating that the transport strike of jeepney drivers and operators to protest the phaseout of jeepneys may paralyze transportation nationwide. Yet, the government has been sweeping under the rug concerns not only of small drivers and operators but also of the riding public: displacement, lost livelihoods and impending fare increase. The replacement of jeepneys is referred to as transport modernization and those against it as anti-modernization. But behind the seeming noble objectives are big business interests that the government refuses to compromise.

Half-step forward

The government has laid down the groundwork for the eradication of existing jeepneys by 2020 through a series of issuances. The Department of Transportation (DOTr) issued the Omnibus Guidelines on the Planning and Identification of Public Road Transportation Services and Franchise Issuances or Department Order 2017-011 (Omnibus Franchising Guidelines) on June 19, 2017. This order concretizes the planned phaseout of public utility vehicles (PUVs) that are considered not roadworthy. It also lays down new franchising rules that only allow corporations or cooperatives with a fleet of 15 vehicles and up to apply for new routes. It restricts jeepneys and other small-capacity vehicles on major roads.

Local government units (LGUs) have to come up with local transport plans, which will detail the route network, modes, and required number of PUVs for each mode to deliver services. This will be the Land Transportation Franchising and Regulatory Board (LTFRB)’s basis for establishing the PUV route in the locality, the mode of transport and the number of franchises that will be issued. A new route rationalization plan that aims to limit the routes that small-capacity PUVs like jeepneys ply will also be based on the Omnibus Franchising Guidelines.

Aiming to have less emissions and more efficient mass transport is laudable. The transport sector accounts for 70-80% of air pollution in Metro Manila. But the government is doing this without regard to hundreds of thousands of drivers and small operators who will be displaced for as long as it is able to usher in a new arena for big business. Ironically, the government is once again making the poor pay for the cost of government neglect of mass transport.

Two steps backward

The government targets to replace some 250,000 jeepneys nationwide. The jeepney phaseout will impact drivers and small operators and the riding public in three major ways: 1) unaffordability of allowed substitutes despite the loan offered by the government; 2) corporate capture; and, 3) higher fares.

The Omnibus Franchising Guidelines requires a certain make of PUVs in order to qualify for a franchise. Pending unit specifications to be issued by the LTFRB, public utility jeepneys (PUJ) should be “below seven meters in length with door locations that allow boarding and alighting only from curbside, not from the rear”. Other features include a Global Navigation Satellite System (GNSS) receiver, free Wi-Fi, closed circuit television (CCTV) with continuous recording of past 72 hours of operation, automatic fare collection system for units within highly urbanized independent cities, a speed limiter, and dashboard camera. The LTFRB has yet to provide for the age limit of PUVs based on the year of the oldest major component such as chassis and engine/motor of the vehicle.

The Omnibus Franchising Guidelines also mandates the LTFRB to give priority to brand new and “environmentally-friendly” units in the allocation of certificates of public convenience (CPCs), the franchise needed to be qualified as a public utility vehicle, and deployment, based on route categories. The requirements are: a) units with electric drive and/or combustion engine that complies with Euro IV or better emission standards, b) units that comply with LTFRB-set age limit of oldest vehicle part, and c) refurbished/rebuilt vehicles that pass the type approval system test and issued a Certificate of Compliance with Emission Standards (initial registration) and roadworthiness test (renewal) of the Land Transportation Office (LTO).

There is a glaring lack of high capacity transport modes at present. Yet, the Omnibus Franchising Guidelines also restricts jeepneys on major roads, only allowing them as feeder services, operating in arterial and local roads to link neighborhoods and communities to other higher capacity modes such as rail and bus. PUJs are designated to serve routes with passenger demands of 1,000 passengers per hour per direction (pphpd). In cities, they will operate on a maximum length of 15 kilometers while in others, 35 kilometers.

Expensive units, insufficient financing scheme

Drivers and small operators have repeatedly decried the phaseout because they cannot afford electric or e-jeepneys (airconditioned: Php1.4 to Php1.6 million; non-airconditioned: Php1.1. to Php1.4 million), jeepneys with Euro IV engines (Php1 – 1.5 million), solar-powered vehicles (up to Php1.6 million). According to transport group Piston (Pinagkaisang Samahan ng Tsuper at Opereytor Nationwide), most of the jeepney operators only have Php200,000-400,000 as capital per jeepney and most are single operator (operator is also the driver or driver is a family member) units.

The government approved a jeepney loan program through the Land Bank of the Philippines (LBP) worth Php1 billion. Borrowers can avail of a loan package of Php1.2 million to Php1.6 million to buy either an air-conditioned electric, hybrid or Euro-IV jeepney. The LBP estimated that it could finance 650 to 700 units of e-jeepneys. Those who will avail of the loan would pay a downpayment and pay the rest using a “boundary” (the amount a jeepney driver needs to turn over to the operator per day, net of fuel expenses) payment scheme of Php800 a day for seven years at 6% interest. After seven years, the borrower will own the jeepney. The LBP will finance up to 95% of the acquisition cost of the jeepney, while the borrower will pay the remaining amount as equity. The Development Bank of the Philippines (DBP) has also set up a loan portfolio of Php1.5 billion to fund the acquisition of some 700 to 900 PUV units.

The government meanwhile approved a subsidy of Php2.2 billion to subsidize the equity of the jeepney loan of around 28,000 drivers/operators in the next three years starting with 250 borrowers in 2018. This is equivalent to a subsidy of Php80,000 per borrower, which will be coursed through the LBP.

Even then, drivers and small operators will find it hard to pay for the Php800 loan amortization daily for seven years as they already have difficulties paying the current Php450 boundary. Even the prospect of owning the jeepney after seven years is not enough for them to accept a scheme that will compel them to cough up such high payment conditions.

Impending fare hikes

Fare hikes are inevitable. One of the reasons why PUJ fares remain affordable is the relatively low capitalization, operation and maintenance expenses. Global Electric Transportation Ltd. (GET), the operator of COMET (Community Optimized Managed Electric Transport – a fleet of around 30 lithium battery-powered vehicles), admitted that because they are competing for the market of PUJs, they have to base their fare rates on that of PUJs.

Filipino commuters have been burdened by fare hikes with the government’s policy of putting mass transport in the hands of private corporations. The government’s turnover of the LRT 1 operations and maintenance to a private corporation resulted in the assurance of fare hikes for the private operator. The government also increased rail fares by as much as 87% in 2015 in order to make mass transport projects attractive to private investors.

Corporate capture

The Omnibus Franchising Guidelines basically mandates the LTFRB to consolidate operators and favor the establishment of “bigger coordinated” fleets of PUVs, including giving incentives and higher priority to operators with larger fleet sizes. The LTFRB will determine and implement the rule of “least possible number of operators” in a given route.

As part of the route rationalization policy, the government will require a minimum of 15 units per PUV fleet to be granted a franchise on new and development routes. Effectively, with the implementation of the Omnibus Franchising Guidelines, the government will close or shorten traditional PUV routes to reserve these for high capacity transport such as light rail transit and rapid bus transit, therefore displacing PUVs on these routes altogether.

These provisions will assure that current jeepneys will be replaced and new types of PUVs will be introduced. Hence, the scale of operation will also shift from single-operator or small fleet operator to corporations that have the capitalization to provide and maintain a big fleet of PUVs.

The government argues that drivers, instead of being subjected to the “boundary” system, can be salaried workers of these corporate fleet managers, with benefits as workers. However, transport group Piston claims that, in their experience fleet management still practices a quota system, which, like the boundary system, subjects drivers to high quotas, and therefore longer work hours, before they can receive their wages. Piston also decries that older drivers may have lesser chances of meeting education and age requirement of fleet managers, hence losing their source of livelihood completely.

Facilitating foreign interests

Finally, while drivers and small operators find e-jeepneys or jeepneys with Euro IV engines to be unaffordable, replacing some 250,000 jeepneys in the country would mean big business not only for foreign manufacturers of parts and assemblers of vehicles. Based on the minimum cost of Php1.2 million per unit, the replacement of 250,000 jeepneys is a market of Php300 billion.

The government is planning to use public money to subsidize foreign car manufacturers to facilitate their entry to this big, new market of PUV assembly. Under the Comprehensive Automotive Resurgence Strategy (CARS) Program, the government will fund assemblers of so-called eco-friendly PUVs. The CARS program has a Php27-billion subsidy for six years for assemblers to be given fixed investment support (FIS) and/or Production Volume Incentive to revive the car assembly industry in the Philippines beginning 2016. The Board of Investments has closed the third slot of CARS (the two being Mitsubishi and Toyota) in order to focus on PUV assemblers. For 2018, the Department of Trade and Industry (DTI) is asking Php1.64 billion to fund the incentive promised to carmakers.

This faulty version of jeepney modernization underscores the fundamental weaknesses of our economy. The government’s replacement for jeepneys will again be largely assembled from imported components by local assemblers or imported already built. Even PUVs assembled in the Philippines under the CARS program will still be primarily imported as the main platform and rolling chassis will still be built abroad by foreign companies such as Hino, Isuzu, Fuso and Foton while Euro IV engines will be sourced from India, China and Japan.  Even the COMET was designed and manufactured by US company, Pangea Motors, LLC. Likewise, one of the largest makers of the e-jeepney at present is a Taiwanese company and member of the Electric Vehicle Association of the Philippines (EVAP), Teco Electric and Machinery Co. Ltd. It has exported e-jeepneys from its factories in Taiwan to fleet managers in Metro Manila such as the Ejeepney Transport Corp. plying the business district of Makati.

 Why not palit jeepney and driver-managed cooperatives?

If indeed the government wants to usher in clean transportation, it should ensure that the burden is not on the shoulders of drivers and operators who only try to eke out a living. Instead of prioritizing subsidies for foreign car manufacturers, the government can use the CARS fund to initially subsidize jeepney drivers/operators so as not to displace them by the mere cost of new units. It is a noteworthy investment for the government to do so, given that the proliferation of this mode of transport has been a result of the chronic lack of livelihood opportunities and neglect of mass transportation in the first place.

The palit jeepney program can be complemented by an assured regular maintenance program at no or minimal cost to the operator/driver. This should address the added burden of having to be subjected to expensive maintenance for a technology that is still concentrated on a few big businesses.

This palit jeepney program, which can occur in phases, can be done through a program for government procurement of jeepneys based on a scaled-down price through volume. It can be complemented by a program of technology transfer to ensure that a genuine domestic PUV manufacturing sector, not only of body parts but primarily of the main components, is being developed.

The government should also maintain the option of single operators/drivers for franchising. At the minimum, it can restrict corporate fleet managers in cities to only one route. It can also limit franchises to genuine cooperatives or associations composed of small operators/drivers that are already operating. The government should set a fare-setting policy that is not market-based but founded on the principle that public transportation is a service that has to be reliable, safe and affordable for commuters. This rests on the recognition that public transport is a public utility and should not be left to the profit-seeking interest of the market.

 

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