SLEx toll hike: Supreme Court defends private profit over public interest

SC reasoning on toll hike sets a bad precedent for future cases questioning the fairness of user fees being charged by private firms operating vital infrastructure (Photo from Wiki Pilipinas)

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”.

Bad precedent

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.

Wrong claims

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.

State guarantees

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.

Deepened contradiction

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”.

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5 thoughts on “SLEx toll hike: Supreme Court defends private profit over public interest”

  1. Mr. Padilla, I’ve just stumbled on your blog and I must say that I have not seen one article of yours supporting any of the government and the private sector initiatives. Always, there is something wrong or evil in their plans or programs. I am not surprised knowing that you claim to be an activist. But I have often wondered and have always been meaning to ask people like yourself, just what it is that will make you happy? I mean in your perfect world, what and how should the government and the private sector conduct themselves. Please provide detailed solutions and not some motherhood statements. How should and how would the government uplift the life of 90 million Filipinos? If you where the President of the Philippines what would you do to eliminate poverty, provide jobs, healthcare, and education? Where will you get all the money needed to implement your program of government? You may also want to provide a roadmap where you will start first. I dying to hear your great idea Mr. Padilla.

      1. Thanks for the reply. I will read the links you provided and hopefully we can have a healthy discussion on this matter. I am not anti-activist or anti-poor, I’m just an optimist who always want to believe that every new government have the best intention of the Filipinos. So I always give them a chance to prove themselves and reserve judgement later. I went to the street in the 1st People Power, and also the second (to oust Estrada). I was hopeful about Arroyo but I was very, very disappointed and angry at her towards the latter part of her administration. Now, I look at P-Noy to deliver the Philippines from it’s morass. But I am also pro-business and believe in free market economy. I believe to elevate the life of the Filipinos we must be investor/capitalist friendly so they generate business ventures that will give employment to our people and eliminate poverty. I believe that every man/woman have the right to enjoy the fruits of their labor. I am not anti-landowner, specially if they acquired their land legitimately and believe they have the right to decide what to do with it and who should benefit from it. Just as you and I have every right to decide who lives in our homes and what we do with it. But I support farmers efforts to own the land they till, as long as they can do this legitimately. I believe tilling the land for generations does not automatically make them owners. The same way if you own a house and have a maid for years make them owners of your house. I also believe and support laborers should be paid more than what they are currently being paid now. When I was still living there, I had a small business and I paid my workers 3 times the average national wage. Similar to what a multi-national company pays. So I am really keen to hear and understand you and your associates suggestion on how to bring the Philippines to the level of our more progressive Asean neighbors, never mind European or US standards. Because everytime I read blogs/news from you and your associates I only hear of why the government’s plans are not good or downright insidious right from the get go. This is not a criticism for you are entitled to your opinion but just an observation. Thank you and God bless the Philippines.

  2. I just finished reading your proposal in the Forum on Global Crisis. I admire its intent and purpose as well as agree on some of them. Indeed I see a much better Philippines if some of you proposals become a reality today. There is just one overriding element needed for this reform to succeed, one that the Philippines is sorely lacking – money or the sources of money.

    Let me go through most of your proposals and my two cents worth on them.

    1. Jobs and Benefits

    a. Easy access to social security benefits and expand
    unemployment benefits. — What do you mean by easy
    access(innocent question)? I am aware of the all the
    red tapes Filipinos have to go through but my experi-
    ence before with SSS was ok. In terms of expanded
    benefits how much are we talking here and is there
    sufficient funds? If no, where would the money come
    from?

    b. Immediate and easy availment of cash assistance for
    displaced OFW. — Sure, but again how much and where
    will the money come from?

    c. Stop retrenchment of government workers. — I am all
    for efficiency. If there are too many unnecessary
    employees then I support retrenchment. It will help
    save the government some money. Both my parents worked
    in the government. I’ve seen government people doing
    menial things like inserting carbon paper, or
    stamping government seal, or bringing papers for
    signature of department heads. I mean, all these
    can be done by a single person, no need for three
    different people. Besides this only add to red tapes
    and bureaucry which you also decry.

    d. Stop erosion of wages and protect jobs from flexible
    labor policies. — This is something I believe you
    cannot control. Market forces and supply and demand
    dictates the movement of wages. You can only control
    this artificially or to some degree but this would be
    unsustainable and the repercussion is lost
    competitiveness and eventual bankruptcy. Flexible
    labor policies are necessary tool to sustain the
    viability of the business. Business as you know
    survives on profit that comes from revenue being
    higher that operating cost. If the two are reversed
    elementary mathematics tells you its not good.

    2. Taxes

    a. Tax breaks for minimum wage earners. — I totally
    agree and if I may add, vigorous tax collection from
    the rich with serious punishment for tax evasion.
    P-Noy is doing this now.

    b. Removal of VAT on basic goods and services. — Ok if
    you can find other sources of revenue for the
    government. A bankrupt government would not be able
    to give social services to the people. So again what
    or where do you suggest to get the money instead?

    c. Moratorium on Debt payment. — Agree but note Mr.
    Diokno’s advice on how to do this best without
    further harming the country as a result of backlash
    from donor countries and agencies if the Philippines
    will do this unilaterally. This should be easy to
    understand, say I owe you Php 1 million, would you
    be happy if one day I tell you that I won’t be paying
    you back anymore? You probably take me to court or
    worse have me assassinated.

    d. Tax breaks and financial assistance for small and
    medium size businesses. — Agree, but then again does
    the government have enough money. Also how much
    assistance are we talking about? Be specific so we
    know if there are enough for everyone.

    e. Crackdown on corruption, bureaucratic wastage,
    smuglling, — No argument here. We need to do all
    these diligently and consistently. However, tariff
    on imported goods must be further studied. Not all
    raw materials we need are available locally. If we
    put high tariff on them, we will eventually suffer
    from higher finished goods cost. Also, other
    countries we export can reciprocate this action and
    hurt our exporters, the workers from this companies,
    and ultimately the government through lost taxes.

    3. On Prices

    a. Imposition of price control on basic commodities and
    repeal of deregulation policies on oil and power. —
    No, I don’t agree. Rather what the government should
    do is improve the country’s supply chain logistics,
    provide better farm to market roads, sea ports, and
    air ports. Then encourage competition among business
    and you’ll see prices going down. Again only the law
    of market forces and supply and demand will ensure
    prices of basic commodities to be affordable. I
    also do not agree to repeal the deregulation on oil
    and power. What the government should do is review
    and improve the law to make sure the intent of the
    law is not circumvented. Realize that oil prices are
    dictated by the OPEC and world market and the Phil
    can do very little about it. On Power generation
    we cannot also do much at this time if we continue
    using fossil fuel based power generation. The
    government should vigorously work for sustainable
    and environment friendly fuels like bio-ethanol,
    solar, wind, hydro generating plants.

    b. No new increases in utilities. — This is the ripple
    effect of high gas prices, ergo, high generation
    cost and then high distribution cost. Meralco
    cannot help but adjust accordingly. Just make sure
    they adjust within reasonable limits.

    c. Freeze in tuition. — Again, this is ideal but how
    do you do this without affecting the quality of
    education. Schools have expenses to meet like
    teacher’s and staff salary, electric and utility
    bills, maintainance of school facilities and infra – structure. All these components are rising.

    d. Ensure availability of affordable foods. Increase
    domestic rice purchase. — Like I said in letter a,
    we need to improve our supply chain logistics.

    4. On Liberalization

    a. Put brakes on free-trade agreement. — No, but we can
    be prudent. We must use our brains more than
    our hearts or patriotic passions because it may cause
    more pain for our people than actual benefits.

    b. Oppose more investment liberalization. Oppose HR.
    707. — I totally, 100% disagree. We need these
    investments to generate jobs. Our local economy is
    does not have enough capitalization to generate
    enough jobs for our growing population. No investor
    no jobs simple. I hope you’re not suggesting that
    we all become farmers. On HR 707, I don’t believe
    it is that important to a foreign investor. What
    are more important to them is our policy do not flip
    flop so often, that our logistics and infrastructure
    are efficient and at par with the world, that corrup-
    tion and bureaucray will not hinder their operation,
    and the security of their personnel are assured.

    c. Reverse neoliberal policy, support local production
    by restoring profit. — I guess by now you know my
    stand here. But I do support local production.

    5. Domestic Economy

    a. Orient economy towards self sufficiency. — Good, but
    a pipe dream. No country in the world even the most
    advance can be self sufficient. God did not put all
    his blessings under one country’s rule. Everyone
    has something the other needs and that’s why you
    cannot say no to free trade.

    b. Government should provide incentives and support
    domestic industries. — Sure, if we have the money.
    No to national industrialization. History has shown
    that governments are lousy businessmen. Better let
    industrialization to the real business people.

    c. Implement geniune land reform and undertake rural
    industrialization. — What is geniune land reform?
    If you mean giving lands to farmers just because they
    till them, I’m sorry I don’t get that. The day you
    or your associates give your house to your maids just
    because she cleans them everyday then I will support
    this.

    So you see, a lot of your proposal sounds good but the reality is more complicated. You need money, you need the cooperation of other countries and you need a government and people who follow the rule of law in order to effect meaningful change. Even China have opened their country to large multi-national corporations and other investors to generate jobs and look where China is now. Did they have to give up land, no, but foreign investments are still pouring in. In contrast North Korea has remained close and backward to this day.

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