Infrastructure-Transportation

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.

 

TRAINInfraNotForPoor

by Audrey de Jesus

Among the hyped claims of the Department of Finance (DOF) about the government’s tax reform package is how taxes paid by the poor will go back to them in the form of infrastructure projects and social services. The reality however is that the taxes will go largely to big-ticket infrastructure projects in and around the National Capital Region (NCR) that the poor will hardly benefit from.

TRAIN: easy money for the rich

Currently undergoing Senate deliberations, the Tax Reform for Acceleration and Inclusion (TRAIN) bill is the first of five packages under the Duterte administration’s Comprehensive Tax Reform Program (CTRP). The DOF’s version of the CTRP aims to raise an additional Php157 billion in revenues per year, while the version passed by the House of Representatives (HOR) will raise Php130 billion.

Under TRAIN, there will be higher consumption taxes through the removal of value-added tax exemptions, such as on socialized and low-cost housing and power transmission; new excise taxes on fuel, sugar-sweetened beverages (SSB), and automobiles; and reduced personal income tax rates, estate taxes, and donor’s taxes.

Despite DOF claims that the poor benefit most from their tax reform program, the truth is that the poorest majority of Filipinos bear a heavier tax burden than the rich.

The poorest 60 million Filipinos will pay Php47.0 billion in additional taxes next year, or 2.3% of their combined family income of some Php2.0 trillion. Meanwhile, the highest income 40% will pay Php47.6 billion, or only 0.8% of their total family income of some Php4.1 trillion.

This means the highest income 40% who have twice as much income as the poorest 60% of Filipinos will be paying virtually the same amount in additional taxes. Measured as a share of their total income, the poorest 60% will pay three times as much as the highest income 40% including the richest Filipinos.

TRAIN to nowhere?

Aside from covering up how much the CTRP will burden the poor, the DOF claims that the poor will mainly benefit from these tax revenues, as these will be used for the government’s infrastructure program and social services.

Studying the 2018 Budget of Expenditures and Sources of Financing (BESF) that the Duterte administration submitted to Congress is revealing. The 2018 national government budget submitted to Congress presumptuously assumes that the TRAIN will be passed and implemented next year. Yet the government’s spending pattern is not consistent with the claim that TRAIN will benefit mainly the poor.

It is misleading for the DOF to say that the TRAIN is for funding infrastructure AND social services.  TRAIN is really about funding the infrastructure program, while much-needed social services continue to take a back seat, as seen in the proposed 2018 national budget.

The 2018 BESF shows that there is an exceptional 27.5% increase in infrastructure spending in 2018 to Php1.1 trillion from Php861 billion in 2017. The government reportedly needs an estimated Php8 to 9 trillion over the next five years, or Php1.6 to 1.8 trillion per year, to fund its ambitious “Build! Build! Build!” infrastructure program.  The Duterte administration is clearly counting on additional tax revenues to help fund this.

However, social services spending increases by only 5.4% including just a 5.2% increase in social welfare, a 5.8% increase in education, and a 9.2% increase in health, among others. These increases are unremarkable and follow the same trend as in previous budgets even before TRAIN.

The DOF itself also explains that government infrastructure spending will increase from 4.3% of the gross domestic product (GDP) in 2017 to 6.1% in 2022, i.e. a 1.8 percentage point increase. In contrast, over the same period, health spending will only marginally increase from 0.9% to 1.0%; social protection from 1.9% to 2.0%; and education from 4.4% to 4.9 percent. Cumulatively, spending in health, social protection and education will increase from 7.2% to 7.9%, or just a 0.7 percentage point increase.

There are actually even notable cuts to the social service budget. The housing budget will be markedly cut by 68.9 percent. Under the health budget, Department of Health (DOH) hospitals will see an average 24% cut in their maintenance and operating expenses, and many regional hospitals will see cuts of 30-40 percent. The budget for preventive health programs will be cut by Php16.7 billion or 52%, including those focusing on significant public health concerns like tuberculosis, malaria and HIV.

Infra for the poor?

The DOF claim that the much higher infrastructure spending will go primarily to the poor is also misleading.

Comparing the regional distribution of the government’s flagship infrastructure projects by value and poverty incidence by region, there is a general trend of higher infrastructure spending in regions of low poverty incidence, and of low infrastructure spending in regions of high poverty incidence.

For instance, the NCR has the lowest official poverty incidence of 3.9% but takes up the largest chunk of flagship projects at Php343 billion, while the Autonomous Region of Muslim Mindanao (ARMM) with the highest official poverty incidence of 53.7% accounts for among the least flagship projects at just Php5.4 billion. Central Luzon (CL; Region III) and part of Southern Tagalog (ST; Region IV-A), which also have low poverty incidences of 11.2% and 9.2% respectively, are also among the top recipients of the flagship projects. (See Chart)

It may be argued that infrastructure spending has to consider the nature and degree of economic activity, population density, geographic conditions, and a host of other considerations. But none of these detracts from how infrastructure spending is biased away from poor regions and, indeed, is biased away from the kind of infrastructure projects that the poor directly need and will be directly using.

The flagship projects, which are concentrated in urban areas, especially in NCR, CL and ST, will mainly benefit big foreign and local corporations. Such targeted big-ticket infrastructure like mass transit, roads and bridges, railways, seaports, airports, communication and information, will primarily serve and boost the profit-making enterprises of these corporations that contribute little to develop and strengthen domestic industries.

Tax the rich, not the poor

As much as the DOF claims otherwise, the Duterte administration’s tax reform program is ultimately anti-poor and pro-rich. The poor majority will have to fork over more of their already meager incomes to pay higher consumption taxes. Revenues generated from these taxes will go towards infrastructure projects that hardly benefit them, while funding for much-need social services will be cut or remain stagnant.

Instead of further burdening the poor, the Duterte administration should be challenged to implement a genuinely progressive tax reform program and aggressively collect taxes from the wealthy and big corporations. It can raise hundreds of billions of pesos by increasing direct income taxes on the wealthiest Filipinos and by correctly collecting taxes especially on the biggest corporations.

The revenues generated from a progressive tax system should then fund infrastructure projects spread throughout the country that will support real development of local industry and agriculture. It should also be used for much-need social services and development that will truly benefit the poor. ###

Photo from www.update.ph

by Arnold Padilla

#PeoplesSONA2017 / IBON Features — One of the anticipated highlights of President Rodrigo Duterte’s second State of the Nation Address (SONA) is his grand infrastructure plan dubbed Build! Build! Build!. There are concerns that it would result in a heavy debt burden. The issue is valid. After all, the price tag of what economic managers call as the “boldest infrastructure program” ever is a whopping Php8 to 9 trillion.

Economic managers, however, assure the public that they have everything figured out. The plan is that government appropriations, not debt, will mainly fund the so-called “golden age of infrastructure”. The Finance department’s tax reform package aims to raise Php157 billion in additional revenues a year; the version passed by the House could generate Php130 billion.

At Php8 to 9 trillion, the annual cost of building infrastructure from 2017 to 2022 would be Php1.6 to 1.8 trillion. Clearly, the additional revenues from the tax package will not be enough even as it bleeds the poor dry.

In reality, the infrastructure program would be mostly debt-funded. But again, the public is being told that a debt crisis will not rear its ugly head. In fact, the Budget department expects that by the end of President Duterte’s term, the debt-to-GDP ratio would even fall to 38.1% from 40.6% in 2016.

Such optimism hinges on the economy not only sustaining its expansion but posting even more rapid growth. To outpace debt, the gross domestic product (GDP) must grow by 6.5 to 7.5% this year and 7-8% between 2018 and 2022.

It is tough to be as upbeat as administration officials given the structural weaknesses of the economy and amid a global crisis. For this year, debt watchers and creditors put Philippine GDP growth at 6.4 to 6.8% – below the range being hoped for by the economic managers. That’s the most bullish the projections could get.

Whatever rate the GDP grows by, the budget deficit is sure to increase as government ramps up infrastructure spending. The plan is to let the budget shortfall climb to 3% of GDP as infrastructure spending reaches as high as 7.4% of GDP.

While a bigger deficit means greater borrowing, there is supposedly no need to be anxious as the Budget department claims they will borrow in a fiscally sustainable way. Eighty percent of the deficit would be funded by domestic debt and only 20% foreign. Such borrowing mix lessens foreign exchange risks that could cause public debt to balloon.

Japanese and Chinese loans

But a review of what the Duterte administration has identified as its flagship infrastructure projects tells a different story. To be sure, the flagships – numbering 75 as of June – are just a fraction of the more than 4,000 infrastructure projects that government plans to do. They nonetheless represent the largest ones in terms of cost and are the top priorities for implementation.

Of the 75 flagship projects listed by the National Economic and Development Authority (NEDA), 48 will be funded by foreign debt or official development assistance (ODA). Only 14 will be bankrolled through the national budget or General Appropriations Act (GAA). Just two projects are planned to be implemented via public-private partnership (PPP) while 11 have yet to be identified which mode to use.

As of June, only 53 out of the 75 flagships have estimated costs totaling PhpPhp1.58 trillion. Of the 53, 41 are ODA-funded projects worth Php1.40 trillion. The remaining Php181 billion would be funded through the GAA. In other words, almost 89% of the total cost of projects with already determined amounts will be paid for by foreign debt.

Just nine of the 41 ODA-funded flagship projects have identified donors/creditors, based on NEDA’s June list. These are Japan with three projects worth Php226.89 billion; China, three projects (Php164.55 billion); South Korea, two projects (Php14.06 billion); and World Bank, one project (Php4.79 billion).

The Japanese and Chinese are backing the Duterte administration’s largest mega-projects, an indication of how the two economic behemoths see “development cooperation” as one of the key arenas of their competition in the region. Japan is funding the Php211.46-billion PNR North 2 (Malolos-Clark Airport-Clark Green City Rail); Php9.99-billion Cavite Industrial Area Flood Management Project; and the Php5.44-billion Malitubog-Maridagao Irrigation Project, Phase II.

Meanwhile, China is bankrolling the Php151-billion PNR Long-haul (Calamba-Bicol); Php10.86-billion New Centennial Water Source – Kaliwa Dam Project; and Php2.70-billion Chico River Pump Irrigation Project.

Although not yet identified in the latest NEDA list, Japanese and Chinese loans are also being linked to other big-ticket rail projects. These include the Php134-billion PNR South Commuter Line (Tutuban-Los Baños); the Php230-billion Manila Metro Line 9 (Mega Manila Subway Project – Phase 1); as well as the Mindanao Rail Project, of which the first phase (Tagum-Davao-Digos) costing Php35.26 billion will be funded via the GAA.

Gains beyond interests

Over-reliance on debt is obviously problematic but by itself tapping concessional loans to build much needed infrastructure is not a wrong policy. Sadly, ODA is shaped not by genuine development cooperation but by the narrow agenda of lending governments and the corporate interests they represent. Thus, potential economic and social development gains for a borrowing country are greatly weighed down by bloated costs of ODA-funded infrastructure.

Big infrastructure lenders like Japan and China profit not only from the interests accruing from their loans to build rails and roads. The larger gains they make are from the conditionalities they tie to these loans such as requiring the Philippines to exclusively source from Japanese and Chinese firms the goods and services needed to build the rails and roads.

Lenders dictate the technology, design and construction of the infrastructure to accommodate their own suppliers and infrastructure firms. As such, Japanese and Chinese contractors are also favorably positioned to corner operation and maintenance contracts once the rail systems and other infrastructure are privatized under the Duterte administration’s hybrid PPP scheme.

Lastly, creditors also favor the development of infrastructure in areas where they have business interests. This explains the concentration of Japan-funded infrastructure in Central and Southern Luzon where export zones with Japanese investments are concentrated. China’s interest in building infrastructure in Mindanao is tied to its plantation and mining interests in the region.

All these make the cost of infrastructure development in the Philippines more expensive and the debt burden onerous. Tied loans for infrastructure development create commercial opportunities for Japanese and Chinese companies that are otherwise not available to them. In China’s case, infrastructure lending in poor countries is even used to create employment for their own workforce at the expense of local labor.

At a time of prolonged global recession and slowdown in profit rates of the industrial economies, these opportunities become even more important. Alas, these opportunities only arise by undermining the debtor’s own development needs.—IBON Features

Photo from Silent Gardens

​“Build, build, build” is said to be the foundation of the Duterte administration’s development plan, which his economic managers are packaging as “Dutertenomics”. The plan is supposed to usher in a “golden age of infrastructure”.

But despite the attempt at branding, Dutertenomics is neither new nor unique. Its cornerstone of massive infrastructure development is still built on the neoliberal agenda of opening up additional profit-making prospects for big local and foreign business, including through “development” lending, building and operating the infrastructure themselves and/or constructing facilities that would benefit their commercial interests.

Worse, the ambitious plan may not usher in a golden age of infrastructure but instead a golden age of oligarchic and foreign interests in infrastructure while the public bears more onerous financial burden arising from greater debts and taxes.

AmBisyon Natin

There is no denying of the urgent and huge infrastructure needs of the country, especially transport. The Philippines has the worst overall infrastructure and worst transport infrastructure (roads, railroads, port and air transport) among major countries in Southeast Asia, according to the 2015-2016 Global Competitiveness Report of the World Economic Forum (WEF). The intolerable traffic in Metro Manila and the state of disrepair of the public transport system illustrate the dismal shape of transport infrastructure in the country.

Thus, infrastructure, specifically the transport sector, has been made the cornerstone of Dutertenomics. It is a key component of AmBisyon Natin 2040, a vision to make the Philippines a “prosperous, predominantly middle-class society” that President Rodrigo Duterte has adopted as guide for long-term national development planning.

AmBisyon Natin listed priority sectors that include the development of infrastructure such as roads, ports, airports, bridges and communication (“Connectivity”) as well as housing and urban development. It also identified “investment in high-quality infrastructure to make the cost of moving people, goods and services competitive” as one of the policy instruments to make the aspirations of AmBisyon Natin a reality.

The Philippine Development Plan (PDP) 2017-2022 is the first medium-term plan anchored on AmBisyon Natin. Under this PDP, the Duterte administration aims to make its six-year term the so-called “golden age of infrastructure” with spending on infrastructure increasing substantially (i.e. 5.1% of gross domestic product or GDP in 2016 to 7.4% in 2022). Concrete and measurable indicators have been set for transport infrastructure (road, rail, air and water transport); water and power resources; and social infrastructure (classrooms, health centers, housing units).

The “golden age of infrastructure” includes an initial list of 64 big-ticket projects for implementation or in the pipeline that are mostly transport infrastructure such as major road networks, railway systems, bus rapid transit systems, and airport and seaport modernization. These are on top of 15 ongoing infrastructure projects, which are either locally funded, with official development assistance (ODA), or through public-private partnership (PPP).

 

Hybrid and unsolicited PPP

PPP, which is essentially the neoliberal privatization of infrastructure development and commercialization of services, will continue to be the main program to meet the country’s infrastructure needs. The PDP will promote PPP by addressing “bottlenecks in PPP planning and implementation” and pursuing “reforms to enhance the business environment” to encourage investors. To do these, among the legislative agenda under the PDP is the amendment of the BOT Law and its implementing rules and regulations (IRR).

In the previous Aquino administration, such policy reform has taken the form of the PPP Act that will among others institutionalize state guarantees on financial and regulatory risks of PPP projects. In the current 17th Congress, bills to introduce the PPP Act and BOT Law amendment have already been filed in both chambers. There are also moves to introduce foreign investment liberalization through the PPP Act.

As of March 28, there are 15 awarded PPP projects worth Php310.51 billion, based on the latest status report of the PPP Center. Of these, four are completed and operational (Php31.77 billion); seven are under construction (Php150.01 billion); and four are under pre-construction (Php128.73).

The country’s richest and most influential oligarchs control these PPP projects. The San Miguel Corp. (SMC) group accounts for 45.9% of the total cost of ongoing and/or completed PPP projects as of March 2017. The Manny V. Pangilinan (MVP) and Ayala tandem, meanwhile, comprises 21.5% on top of MVP’s own projects comprising 18.9 percent. All in all, the SMC, MVP, and Ayala groups collectively control 10 of the 15 ongoing and/or completed PPP projects worth Php275.15 billion or equivalent to 88.6% of the total cost.

These same oligarchs are positioning themselves to corner more infrastructure projects as the Duterte administration promotes unsolicited projects and the so-called hybrid PPPs to push its grand infrastructure plan.

Unsolicited projects proposed by the big oligarchs now total Php2.6 trillion, mostly in the transport sector as they see opportunity in the traffic crisis. These big oligarchs take advantage of unsolicited projects to build infrastructure that they will not only profit from but would also benefit their other business interests (e.g. SM’s unsolicited proposal to build a Php25-billion toll road that will link its malls in Pasay and Makati). This further weakens the central role that government should be playing in rationally planning and deciding which key infrastructure projects are needed, where to put them, and how they serve the overall development plan.

Hybrid PPP, on the other hand, is a worse form of PPP because it puts even heavier load on the public sector than the already onerous burden it shoulders under a regular PPP. In a regular PPP, the private sector will raise funds to build the infrastructure, and then operate and maintain (O&M) it in a fixed period to recover investments and earn profits. In a hybrid PPP, the public sector will finance the construction of the infrastructure through official development assistance (ODA) loans and then give the O&M to the private sector. The public will thus be burdened with direct debt servicing for the ODA loans (in a regular PPP, debt is often a contingent liability), profit guarantees and other perks for the private operator, and high user fees.

With preference for unsolicited projects and hybrid PPP, and the pending Traffic Emergency Bill – supposedly meant to address the traffic crisis – the stage to favor certain big oligarchs is set. With emergency or special powers, the Executive could fast track the implementation of transport infrastructure projects through negotiated contracts in the pretext of solving the urgent traffic crisis.

 

Increased foreign role

Meanwhile, as bilateral relations with China warm up under Duterte, the administration is actively seeking Chinese financing for big-ticket infrastructure projects through bilateral ODA loans, as well as multilaterally through the China-led Asian Infrastructure Investment Bank (AIIB), to fulfill the so-called “golden age of infrastructure”.

Reports say that China is set to finance Php172.4-billion worth of infrastructure projects this year. This is part of the 15 projects identified for Chinese financing under the Duterte administration estimated at a total of $6.96 billion (Php349.92 billion). Earlier reports indicated that one of the projects that China will finance is the South Line of the North-South Railway Project (NSRP) for $3.01 billion (Php151.33 billion). China also expressed initial interest in bankrolling “Duterte’s dream” of Php218-billion, 830-kilometer Mindanao railway system.

Aside from China, other imperialist financial institutions are also lining up to fund Duterte’s “golden age of infrastructure”, also mostly in the transport sector. The Japan International Cooperation Agency (JICA) has committed to finance three mega-transport projects with a combined cost of $8.8 billion (Php442.42 billion). Eleven other projects are being pitched as well to Japan for possible funding including irrigation and flood control projects. The US-controlled World Bank, on the other hand, is providing $64.6 million (Php3.25 billion) for the first line of the Metro Manila bus rapid transit (BRT) system.

With increased ODA borrowing to fund infrastructure development, Duterte’s economic team has been pushing for a package of tax reforms that would be shouldered more heavily by the poor and ordinary income earners. The tax reform package entails additional burden that includes higher value-added tax (VAT), expanded and higher excise tax on all petroleum products, as well as the sugar excise tax. While the poor bear the brunt of these reforms, the rich get tax benefits such as lower corporate income tax as well as tax cuts in real estate and property-related transactions. And these rich include the oligarchs that corner the infrastructure projects (including those to be funded by ODA) the costs of which the taxpaying public will shoulder.

In addition to financing PPP projects, increased role for foreign interests is expected as the push to further liberalize infrastructure development continues. The US, for instance, has renewed calls to lift constitutional restrictions on foreign investments to allow and encourage American firms to participate in the Duterte administration’s PPP program. Another route being promoted by the US for American involvement in PPP is through the relaxation of limits set under the Foreign Investment Negative List (FINL). Meanwhile, Duterte himself has said that he is supportive of lifting constitutional limits on foreign investments through Charter change (Cha-cha).

Already, the PPP Center under the current administration has launched a UK-funded (Php4.35 million) Development of Foreign Investment Framework Project that “will facilitate the legal and institutional push to further build a favorable PPP business environment for foreign investors”. The output of this project will be translated into inputs to the PPP Act and its IRR.

Another pending legislative proposal to allow full foreign participation in key infrastructure sectors is HB 446 that seeks to amend the Public Service Act and redefine public utility. When passed, it will open telecommunications, transport and power industries to 100% foreign ownership.

Policy issue of profit-driven infrastructure

Ongoing PPP/infrastructure/transport projects continue to burden the people. The Php62.7-billion MRT-7 project (SMC) – the second largest among active PPP projects – for instance, is fraught with onerous contractual terms that are disadvantageous to taxpayers (state guarantees on private debt, amortization payments, etc.) and end-users (guaranteed fare adjustments) while causing massive displacement among urban poor and farmer communities. The same thing is true with the LRT-1 (MVP-Ayala) PPP project.

Ultimately, it all goes back to the policy issue of private sector and profit-driven infrastructure development that the so-called Dutertenomics promote. The country needs to urgently address its infrastructure crisis but as IBON has repeatedly raised in the past, infrastructure development for transport as well other key sectors carried out with profit-driven agenda contradicts and undermines the role of infrastructure in improving the living condition of the people and serving the overall economic development and general public interests of the country.–IBON Features

(Exchange rate used: Php50.2752 per US dollar, March 2017 average, BSP – http://www.bsp.gov.ph/statistics/spei_new/tab12_pus.htm)

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