Infrastructure

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. ###

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