The privatization of development initiatives and state responsibilities must be stopped and reversed (Image from http://www.mtdsltc.com)
In its August 13 editorial, the Philippine Daily Inquirer asked, “When it comes to toll fees, when is an increase ‘reasonable’ and when is it ‘stupefying’”? It argued that the South Luzon Tollway Corp. (SLTC) is entitled to a rate hike considering the “improvements it has done” to the South Luzon Expressway (SLEx).
The newspaper chided critics of the toll hike and reminded them that the cash-strapped government could not subsidize motorists using the expressway. The challenge to the Aquino administration, the editorial pointed out, is to “find that delicate balance” between the need of SLTC to recoup its investments and the need of the public for real relief. It then proposed to remove the 12 percent value added tax (VAT) from the new SLEx toll to “ease the burden on ordinary motorists”.
Still staggering
Removing the VAT, which in the first place should have been excluded from toll rates, will certainly provide immediate relief for some 300,000 motorists that use SLEx every day. Without the VAT, the new rates will go down by P10.2 (for cars and jeepneys) to almost P30.6 (for trailers and large trucks). But does removing the VAT make the SLEx toll hike acceptable and justified? Will the new rates be more reasonable and less stupefying? Taking away the VAT, SLEx toll will increase by 240 to 248 percent, which is still a staggering one-time increase by any standard.
SLTC’s supposed “entitlement” to a rate increase of such magnitude stems from the flawed policy of privatization of infrastructure development, or what President Noynoy Aquino calls Public-Private Partnership (P3). Privatized infrastructure narrowly measures the viability of a project in terms of how much and how fast the contractor will profit from his investment. On the contrary, publicly funded infrastructure measures a project’s success using a broader set of economic and social benefits.
Return on investment
Regulators, in evaluating the toll hike asked by SLTC, simply factored in the doubling of the number of lanes, the installation of TV cameras, and electronic collection system, among other physical improvements in the 27.3-kilometer superhighway. All these reportedly cost SLTC P11.8 billion, which it will recoup through a guaranteed 17 percent return on investment (ROI).
The guaranteed ROI is contained, according to news reports, in the February 2006 Supplemental Toll Operation Agreement (STOA) between SLTC and the Toll Regulatory Board (TRB). The 30-year STOA allows SLTC, which is 80 percent owned by Malaysia-based MTD Capital Bhd and 20 percent state-owned through the Philippine National Construction Corp. (PNCC), to rehabilitate and operate the SLEx.
ROI is a popular indicator used to calculate the profitability of an investment. In its broadest sense, it means total gain from investment (X) minus total cost of investment (Y) divided by total cost of investment (Y), thus: ROI = (X – Y) / Y. At an ROI of 17 percent annually and investment of P11.8 billion, the guaranteed profit of SLTC is pegged at not less than P2 billion a year for 30 years.
Guaranteed profits
With the newly approved toll, however, SLTC will apparently profit much more than P2 billion annually. At a traffic volume of 300,000 vehicles a day, SLTC will earn annual gross revenues of P11.79 billion (of which P1.41 billion will go to the VAT). This means that in one or two years, it can easily recoup its P11.8 billion investment and settle its liabilities, and then neatly profit from its monopoly of SLEx until 2036. See the table below.
Of course, the projected P11.78 billion annual revenues will depreciate over time but it is more than compensated by the annual increase in vehicular traffic in SLEx, which some estimates peg at more than 10 percent a year.
The heavy focus on profitability that is inherent in any private enterprise instead of net economic and social gains make infrastructure projects pursued through P3s such as SLEx ultimately anti-development and anti-people, and therefore makes “that delicate balance” the Inquirer editorial is looking for practically impossible.
Zero ROI
On the other hand, a zero ROI is not necessarily bad in the context of core infrastructure like SLEx and other toll roads, MRT and LRT, water distribution, etc. that should be publicly controlled. According to the US Federal Geographic Data Committee (FGDC) in its paper “Economic Justification: Measuring Return on Investment (ROI) and Cost Benefit Analysis (CBA)”, while it takes an ROI ratio greater than zero to be attractive, “A sub-zero ratio may not automatically ‘kill’ a project, because it may result in a required capability that doesn’t currently exist”, said the FGDC. (FGDC is an interagency body that publishes the National Spatial Data Infrastructure.)
It further pointed out that “Not all government functions are required to have a positive rate of return as they are in the business world. Government is required to provide certain services to the public, and so is more tolerant of low ROI”.
Thus, if government did not privatize SLEx, there is room to compute its toll using a multi-faceted approach that takes into account not only the direct financial gains from the investment but indirect and long-term development gains as well. Note, for instance, that 60 percent of landed and export products to and from Luzon pass through the SLEx and as much as 20 percent of its traffic volume are commuter buses and cargo trucks. As such, it produces economic benefits for the country that are not captured by private profits.
Raising revenues
But the government is bankrupt and could not undertake infrastructure projects, proponents of P3s and privatization will claim. People’s organizations have long been campaigning for the de-liberalization of the economy, repeal of automatic debt servicing, cancellation of odious debt, etc. aside from curbing high-level bureaucratic corruption, tax evasion by the biggest foreign and local corporations, etc. to raise much needed revenues for infrastructure and other development and social needs of the country.
But the government is corrupt and inefficient unlike the private sector, privateers will argue. Should we then just allow the CEOs of Meralco, San Miguel, Metro Pacific, and the transnational corporations (TNCs) to run the government instead of elected political leaders? Practically, this has been already the case in the Philippines especially under imperialist globalization, and now more increasingly under the Aquino administration.
Concrete and doable alternatives to privatization are available. The neoliberal privateers should not be allowed to burden the people and undermine development with onerous and outrageously increasing user fees like the SLEx toll, or the MRT fare, water and power bills, etc. The privatization of development initiatives and state responsibilities must be stopped and reversed. The people and not the corporations should run the government.
A Radical's Nut 
You have to consider din the “elasticity” of the planned hike. yung 300,000 mong motorista, kokonti yan pag mahal na. so ang remedyo, taasan uli.
tsaka wag ka na gumamit ng mga words tulad ng “comprador.” hindi na yan nagegets ng mga ipinanganak noong 1990 pataas.
sa price elasticity of demand, hindi naman elastic ang traffic volume sa slex. monopoly yun, like most infrastructure. kung pupunta ka ng southern tagalog o bicol, ano ba ang viable o practical alternative mo sa slex? sa comprador, it’s a precise political economic term. pero tama ka. marami nga ang hindi familiar dito. kaya ang solusyon, dapat mas lalong gamitin at ipaliwanag.
South Luzon Tollway has an average traffic count of 160,000 vehicles per day, not somebody’s ‘estimated’ 300,000! Some 28% of these travel the whole stretch from Alabang Viaduct to Calamba. The rest exit between Susana Hgts. and Sa. Rosa. At only P.78 centavos per kilometer, class 1 vehicles now pay the sum of 1 peso to exit in Susana and P11 to exit in Sta. Rosa. If they go the whole way to Calamba, they pay P22 pesos! Less than the cost of a can of coke for the entire 28kms. Less than half of what they pay to park in a vacant lot with a gravel surface.
I think you’ll agree this is a ridiculous amount compared to P4.80 per km in Skyway Ilalim, P9.60 per km in skyway ibabaw, P3.30 per km in Coastal road, P2.20 in Nlex, etc. Even the proposed P2.68 per km new rates doesn’t quite stand out in comparison.
While SLTC completed the road 1 and ahlf years ago nd allowed motorists to use it with no change in toll fee, it only began to collect P.78 per km. toll this May 2010.
Do you have any suggestions on how it will be able to keep the toll plazas open, pay the elecric bills, pay the bank, keep the patrols going, the cameras running, the ambulance on stand by, the firetrucks, towtrucks, and maintenance equipment at posts, and the employees on the payroll?
I hope one day we will have the capacity to build our own roads, plant enough rice, develop our own resources just like our Asian neighbors, so we can stop begging and whining.
the 300,000 traffic volume estimate came from public works usec rafael yabut as cited in a business mirror report. there are different estimates actually. the inquirer editorial, for instance, pegged it at 250,000. i used the 300,000 and assumed that it’s an official estimate since it came from a dpwh usec. differing figures could have been avoided if the trb and sltc conducted public consultations so we can all look at official assumptions used in computing the new toll rates, the actual traffic volume and collections using the old rates, etc. but my argument is more than transparency in the calculations. i’m arguing against the concept and policy of privatization of infrastructure development. sltc may be able to “justify” its rate hike based on the pre-determined roi and the terms contained in the stoa, but the fees will still be onerous for motorists. why should we set the rates based on a pre-arranged roi of a private company? infrastructure development must be pursued as public investment and charges should be computed based on a comprehensive cost benefit analysis and not guaranteed private profits, which is the case in slex and other ppp projects. in this context, it’s not an issue if you pay less than the price of a can of coke for using the toll road. besides, if the price of coke suddenly quadrupled, you can always choose not to buy coke and even gain more in terms of improved health and savings. slex users do not have this option and the repercussions are totally different.
Sir, SLEX users do have an option. The national roads are open and at times, I use the one from Alabang to Calamba. But of course most people want the speed, safety and convenience of expressways. Not to mention actual savings in time saved and reduced vehicle maintenance cost.
SLTC definitely is not a privateer. Like many investors, SLTC took a lot of risks, and is paying for them. Cost overruns are not loaded into the toll fee computation. The roi which was determined only after undergoing the tedious procedures of government regulators is turning out lower than industry rate. The date of when investment recovery should start keeps getting pushed back — as of know for reasons still unstated. But SLTC has complied and continues to comply with their contractual obligations. It must be right that they expect the government to do be as honorable.
Speaking of privateers, I wonder how we would behave if we ever developed the capability to become investors in other countries. But maybe the deeper question is will we ever be?
first, the heavily congested natl road is not a viable alternative that regular users of slex will seriously consider for reasons you already mentioned. sltc effectively has a captive market. second, with the rate hike, savings in travel time and vehicle maintenance cost will not accrue to motorists but to sltc (in the form of profits). kung hindi man lahat (thus, zero net gain for the public), a significant portion or worse mas lugi pa ang motorista at commuters. third, such savings, if any, must translate to increased economic productivity or help generate economic surplus for industrialization but this opportunity is being weighed down by profit-driven infrastructure development. and fourth, sltc did not take any risk. the 11.8 billion supposed investment of sltc was not the result of any bidding. its 17% roi was guaranteed by government and if ever it is lower than industry rate, it still means high (instead of higher, based on prevailing industry rate) profits for sltc.
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More attention should be given to the toll operators. They are raking in profit at the expense of millions of motorists who are powerless to object and have built their lives around these thoroughfares. The reply of Alma Tuason is incredibly insensitive to the situation of everyday people.
Who are the toll operators? What are their salaries? Who approves how much profit they should make? Who approves the rate hikes and where does it really go?
Hello media. Where are you?