DOTC executive report on LRT/MRT fare hike: some initial points

DOTC study confirms that the LRT/MRT fare hike is meant to bolster Noynoy's public-private partnership (PPP) scheme

The Department of Transportation and Communications (DOTC) has provided a copy of the Executive Report on LRT/MRT fare restructuring. They also sent Chapter 8 of the Mega Manila Public Transport Study of 2007 which details the profile of LRT/MRT users.

This report is supposedly the same document presented to Pres. Aquino and his Cabinet economic cluster and became the basis for the Executive’s decision to increase the fare in LRT/MRT by as much as 100 percent. It validated the main points that we have already raised on the fare hike issue. For instance, it confirmed that the fare increase is meant to attract private investors. The report said that: “The proposed LRT fare adjustment is expected to… send clear signal to private sector investors that regulatory risks will be minimized in future public-private partnership projects”.

(You may download the Executive Report here and the Transport Study Chapter 8 here)

Social and economic benefits

Dated October 27, 2010, the report noted that although not profitable, the LRT and MRT play a vital social and economic role. In its opening paragraph it said: “Most urban railway systems in the world are not financially viable, but are implemented for their socio-economic benefits. Our Manila Light Rail Transit (LRT) systems promote the use of high-occupancy vehicles, thereby reducing traffic congestion on the corridors served, local air pollution and greenhouse gases emissions. Besides the substantial savings in travel time cost of LRT riders, the LRT systems reduce infrastructure investment in Metro Manila road expansion”. (emphasis added)

However, these socioeconomic benefits were not factored in by the DOTC study in determining the need for a fare hike. For instance, the savings of government from less air pollution and GHG emissions (i.e. public health budget) and less pressure for road expansion (i.e. public infrastructure budget) should have been computed to get the net losses or even gains from operating the LRT/MRT. The economic value accruing from reduced traffic congestion and considerable savings in travel time cost should have also been calculated to know additional potential benefits for government such as increased tax revenues.

Farebox ratio

Instead, the study merely looked at the cost of operating the LRT/MRT system which is mainly financed through passenger fares, government subsidies, and commercial development at stations and advertisements. It said that the farebox ratios or the proportion of the fare revenues to the total operating and maintenance (O&M) expenses are “projected to fall below 1.0”. This means “greater government subsidies to cover O&M costs”, said the study. It estimated that without a fare hike, government will be forced to increase its subsidies from P13.85 billion in 2010 to P17.06 billion this year.

A farebox ratio of 1.0 means that fare revenues cover 100 percent of O&M. The study did not say the basis of its projection that the farebox ratio will fall below 1.0. But in the past four years, the farebox ratio has averaged 1.39 for LRT 1 and 1.01 for LRT 2 which means that collections from passengers cover more than 100 percent of O&M. This provides more statistical evidence to our argument that fare revenues can cover O&M but the total costs are bloated by debt.

Non-rail revenues

The study also admitted that “Compared with urban railway lines in neighboring countries, our LRT lines are not generating substantial revenues from commercial development and advertisement”. But the DOTC did not further explore the option of raising collections from tenants and commercial establishments and advertisers that use the railway infrastructure. A study by the Japan Bank for International Cooperation (JBIC) disclosed that LRT’s non-rail revenues comprise a paltry 2.6 percent of total revenues. In neighboring countries, non-rail revenues account for 20 percent.

I asked a DOTC official why increasing the non-rail revenues to at least approximate the 20 percent benchmark is not being seriously considered. He said that substantially increasing the non-rail income of LRT/MRT will require some investment from government to develop commercial spaces. Put another way, government chose the easy route by placing more burden on commuters through a fare hike.

Alternative transportation

The study said that minimum wage earners are among the most affected groups by the proposed fare increase. But it assumed that Minimum wage earners will likely shift to cheaper alternative modes such as jeepneys and regular buses”. Under the new fare structure, regular and aircon bus fares will be lower than an LRT/MRT ride unlike today where it is cheaper to take the train. This was actually used as one of the justifications for the fare hike. For government, it is unreasonable that the fare in LRT/MRT which is a more efficient mode of mass transportation is cheaper than the fare in public buses and jeepneys.

But the DOTC failed to mention that the fare in road-based public transport modes has been increasing due to unabated oil price hikes and failure of government to stop the overpricing of the oil companies. Also, following government’s logic, does it mean that every time private jeepney and bus operators asked for a fare hike because of high pump prices, the Light Rail Transit Authority (LRTA) will also have to automatically increase LRT/MRT fares?

Impact on commuters

Aside from minimum wage earners, the study said that the fare hike will also heavily affect “students who are not granted fare discounts on LRT lines”. It claimed, however, that such impact “could be eased by the grant of 15-20% fare discounts”. As for MRT users, the DOTC said that while they face the steepest fare hike, “they are expected to afford the increase in fare with their average personal monthly income of P13,560 or 1.5 times the minimum wage in Metro Manila”. But still, fare discounts and the relative capacity of commuters to afford the higher fares do not legitimize the unwarranted fare increase.

The overall ridership of LRT/MRT is characterized by a high level of low-income and vulnerable groups that makes the fare hike anti-people. The Mega Manila Public Transport Study says that 68.1 percent of LRT/MRT users during weekdays earn below P10,000 monthly and a significant 15.3 percent earn nothing at all. Ordinary employees/workers comprise 48.8 percent of LRT/MRT ridership during weekdays while students account for 31.5 percent. Unemployed workers account for 9.5 percent. (See Charts)

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5 thoughts on “DOTC executive report on LRT/MRT fare hike: some initial points”

  1. hello. could you possibly enter a different link for the copy of the executive report and the chapter 8 summary? I can’t seem to download it due to the proxy server in my area. I really need it for an article that I’m writing and I can’t seem to get a copy anywhere. you could also email it to me, thanks!

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