Last October 21, the Supreme Court (SC) upheld the constitutionality of toll hikes and of public-private toll deals, paving the way for the quadrupling of the rates at the South Luzon Expressway (SLEx). According to SLEx’s private operator, the South Luzon Tollway Corp. (SLTC), they will implement the higher rates either this week or in the first week of November. And as if the pending toll hikes were not burdensome enough, the Malaysian-owned SLTC has also advised the public of another wave of increases before the year ends.
Subsidy, gradual increase?
President Noynoy Aquino apparently recognizes the potential impact of the huge toll hike on his political capital. He disclosed that the Toll Regulatory Board (TRB) is meeting today (Oct. 26) to discuss possible ways to mitigate the effect of the toll increase, including the provision of subsidy or to implement the toll hike gradually. By providing subsidy, Aquino admits the long exposed fallacy that privatization will reduce fiscal pressure on government and affirms criticism that public-private partnership (PPP) is actually costlier. Gradual increases, on the other hand, will only delay and prolong the burden of commuters and motorists.
Subsidized or full cost, gradual or in installments, the public will still pay for the excessive increase in toll. The Aquino administration is not answering the more fundamental questions on people’s access and control of a strategic aspect of economic and social development, which the SC decision on toll hike actually brought to the fore.
Arguing for neoliberalism
In a 75-page unanimous decision penned by Justice Presbitero Velasco, the SC argued not only for the legality of the Supplemental Toll Operation Agreement (STOA) between the Toll Regulatory Board (TRB) and the SLTC as well as other private operators of the country’s major toll roads. The judiciary has also argued strongly for the right of private and foreign corporations to profit “reasonably” from the operation of expressways and in the process affirmed the flawed neoliberal argument underlying the privatization of infrastructure development.
As quoted by The Philippine Star, the SC decision read: “The viability of any infrastructure project depends on the returns – which should be reasonable – of the investment coming from the private sector… While the interests of the public are ideally to be accorded primacy in considering government contracts, the reality on the ground is that the tollway projects may not at all be possible or would be difficult to realize without the involvement of the investing private sector, which expects its usual share of profit… The use of a tollway is a privilege that comes at a cost. The toll is a price paid for the use of a privilege. There are to be sure alternative roads and routes, which motorists may fall back on if they are unwilling to pay the toll. The toll, as might be expected, is pegged at a level that makes the developmental projects and their maintenance viable; otherwise, no investment can be expected for the furtherance of the projects”.
The SC reasoning sets a bad precedent for future cases questioning the fairness of user fees being charged by private firms operating vital infrastructure in the country. First, the SC distorted the purpose of infrastructure development by declaring the use of a tollway as a privilege and those who could not afford it are not entitled to such privilege. Second, it downgraded the role of the State in providing public goods such as infrastructure. And third, it undermined public interest by making it less important than the right to profit of a private investor.
Infrastructure services, because they play a crucial role in economic and social development, must be considered as public goods and access to them is not a privilege but a human right. At all times, public interest must be accorded primacy and should never be demoted as less important than the expectation of the investing private sector to earn its usual share of profit.
If the recent SC ruling on toll roads will become part of Philippine jurisprudence, it will have serious implications on other privatized infrastructure such as water distribution in Metro Manila. And given the renewed push for public-private partnership (PPP) in infrastructure under the Aquino administration, the potential impact on the people’s economic and social rights is indeed far-reaching. Aside from roads, power and water utilities, PPP targets, as pushed by the World Bank and already being implemented in rich countries, also include schools and hospitals.
The SC wrongly claimed that the use of a toll road is a privilege since there are alternative routes that motorists can use. In the first place, the national highway going to south Luzon is not a viable alternative due to severe traffic congestion. More importantly, in the context of public goods and development, there is neither economic logic nor justice in penalizing through exorbitant toll a small business or an ordinary wage earner for preferring to use a more efficient route. The purpose of developing infrastructure is to ensure that people’s living conditions are as decent and comfortable as possible, and to help make economic production efficient, viable, and sustainable.
Moreover, the SC also wrongly claimed that the toll is pegged at a level that makes the maintenance of expressway projects and further investment viable. In the case of SLEx, its new toll rates are based on the guaranteed 17 percent return on investment (ROI) stipulated in its STOA between SLTC and TRB. But as I have pointed out in a previous post, public infrastructure does not necessarily entail a guaranteed ROI, which only tends to make user fees unduly onerous.
Costlier in the long run
Finally, for the SC, the public has no choice since tollway projects are supposedly impossible or difficult to implement without a private operator. In the Philippines, privatization of infrastructure is only about two-decades old. Before the 1990s, the public sector was responsible for building, maintaining, and operating roads, utilities, and other infrastructure. But because of globalization and neoliberal restructuring, profit-seeking corporations took over many important State responsibilities such as infrastructure development.
The supposed lack of State resources is often exaggerated to justify the privatization of infrastructure. However, our experience shows that PPPs are costlier in the long run. Take the case of the privatization of the National Power Corp. (Napocor) that only inflated public debt by P203 billion; or the privatization of the Metropolitan Waterworks and Sewerage System (MWSS) where government was forced to bail out Maynilad to the tune of P8.3 billion; or the MRT along Edsa which the previous administration had to temporarily take over through a lump sum payment of $800 million.
In reality, private investors do not bring much investment to the table as often touted but actually rely on foreign loans, frequently with state guarantees. The Aquino administration’s PPP program, for instance, will likely be funded through a multibillion foreign borrowing scheme. One possibility is the creation of a government corporate entity that would sell bonds to foreign creditors. The funds raised will be used to bankroll the infrastructure projects.
To further make the PPP program more attractive, the National Economic and Development Authority (Neda) is proposing to amend the implementing rules and regulations (IRR) of the BOT Law to require state guarantees on PPP projects, including unsolicited proposals. Direct government guarantees assure creditors that, in the case of a loan default, the national government or any of its agencies will assume responsibility for the repayment of debt which the project proponent directly incurred in implementing the project.
The SC decision on toll hikes further deepened the fundamental contradiction between public goods and private capital, and between private profits and public interests, that is inherent in privatization/PPP.
Aside from SLEx, motorists using another privately operated major toll road, the North Luzon Expressway (NLEx), could be paying more soon as well if the TRB will approve the 12 percent toll hike petition to be filed by MNTC. Next month, MRT fares are expected to go up by as much as 100 percent in preparation for its re-privatization. Meanwhile, power and water rates continue to go through the ceiling as privatized utilities amass, in the words of the SC, their “usual share of profit”.