A fare hike after the presidential State of the Nation Address (Sona) and massive retrenchment of LRT 1 employees by early next year are among the immediate impacts of the Php64.9-billion LRT 1 extension and privatization project.
As the lone bidder in the largest public-private partnership (PPP) deal of the Aquino administration, the group led by Metro Pacific Investments Corp. (MPIC) of Manny Pangilinan (MVP)/Salim Group (Indonesia) and Ayala Corp. of the Ayala family, a long-time crony of the Aquinos, is now all set to take over the operation of the country’s first-ever metropolitan rail system from the Light Rail Transit Authority (LRTA).
MPIC (55%) and Ayala (35%), together with Australia-based investment giant Macquaire (10%) have formed the Light Rail Manila Consortium to extend the LRT 1 from its current endpoint in Baclaran to Niyog in Bacoor, Cavite.
I was able to obtain a copy of the final Concession Agreement and its Annexes/Schedules. You may download the Concession Agreement here. As for the Schedules, contact me through the comment section below to get a copy. The files are too big and it takes time to upload everything.
(You may now access all the documents here.)
Based on the Concession Agreement and Schedules, the concessionaires will implement an initial Notional Fare composed of P12.13 in boarding fare plus P1.10 per kilometer (distance fare component) starting on August 1, 2014. Notional fare refers to the fare that the concessionaire is entitled to under the Concession Agreement.
This means that a commuter travelling from Roosevelt to Baclaran will pay a new fare of more than P32 – representing the P12.13 in boarding fare plus a distance fare of P19.88 (P1.10 x 18.07 kilometers or the distance between the Roosevelt and Baclaran stations). That’s P12 more or 60% higher than the current fare. (See Table)
|Old fares vs. new fares under LRT 1 privatization (Figures in pesos unless stated otherwise)|
|From Roosevelt to:||Distance (km)||Distance fare (@ Php1.10 per km)||Distance fare + Php12.13 boarding fare||Current fare||Difference||Increase (%)|
|Sources: LRT 1 privatization Concession Agreement and LRTA|
Also, it is higher than the original and long-delayed fare hike that the DOTC approved which was P11 in boarding fare plus P1 per additional kilometer. If transportation officials decide to implement this (the approved fare) instead of the initial notional fare, the concessionaire is still assured to collect what was committed to them under the Concession Agreement. In the Concession Agreement, if the Approved Fare (e.g. P11 + 1) is lower than the Notional Fare (e.g. P12.13 + 1.10), government will pay the concessionaire the difference through the so-called Deficit Payment scheme.
In other words, the concessionaire is protected from any regulatory intervention on fare setting, as government, using taxpayers’ money, is obligated under the Concession Agreement to fulfill the guaranteed profits of the concessionaire (generated through the notional fare) at any cost. This is a form of regulatory risk guarantee that Aquino said he would use to promote his PPP program.
But the fare hike through the initial Notional Fare is just the start of regular and automatic fare increases under LRT 1 privatization. Under the Concession Agreement, once the extension of the LRT 1 to Bacoor, Cavite has been completed, the Notional Fare will be automatically increased by 5% through the Step-up Fare Adjustment.
Further, on top of the Step-up Fare Adjustment, the concessionaire is also entitled to increase the Notional Fare starting on August 1, 2016 and every second anniversary thereafter (or the Notional Fare Setting Date) by an effective rate of 5% per annum or 10.25% per adjustment through the Periodic Adjustment of the Notional Fare scheme.
This means that by August 1, 2016, the Notional Fare would now be P13.37 in boarding fare plus P1.21 in distance fare. An LRT 1 ride from Roosevelt to Baclaran thus would already cost around P35 by that time. And this assumes that the 5% Step-up Fare Adjustment is not yet being implemented two years from now (the Cavite extension is estimated to take three years).
Note that the Periodic Adjustment of the Notional Fare will occur every two years throughout the 32-year lifespan of the Concession Agreement. It could even be longer as the Concession Agreement may be extended until 50 years.
But the commuters’ woes do not end there. Aside from the Periodic Adjustment of the Notional Fare every two years, there is also the Inflation Rebasing of the Notional Fare every four years to reflect movements in inflation. The first inflation rebasing will take place in August 2018 per the Concession Agreement.
Indeed, the Concession Agreement applies the neoliberal principle of full cost recovery in LRT 1 fare determination, thus assuring the MVP-Ayala group of substantial profits at the expense of consumers.
On top of the regular and automatic fare adjustments already mentioned, the concessionaire is also entitled to the Differential Generation Cost mechanism, which allows it to pass on to the commuters the cost of extreme fluctuations in the generation costs of electricity through a fare hike (although capped at 5% of the notional fare).
Considering that LRT 1’s power supplier Manila Electric Co. (Meralco) is also controlled by the MVP group while the Ayalas are also in the power generation business, the Differential Generation Cost thus represent multiple oppression and burden for commuters and multiple profits for the MVP-Ayala tandem.
Finally, the Concession Agreement made it clear as well that in case a value-added tax (VAT) or sales tax is imposed on LRT 1 fares, the cost of such tax shall be fully passed on to the commuters, further bloating their burden.
LRT 1, even without a fare hike, is already generating more than enough revenues for LRTA and government. In 2013, LRT 1 operations generated a farebox ratio of 1.26, reportedly one of the highest in the international rail community. It means that revenues from commuter fares exceed the operating expenses of the system. It does not even include non-rail income (from advertising, lease, etc.). With increasing ridership and fares, LRT 1’s farebox ratio is expected to further rise, translating to more profits for the MVP-Ayala group.
If you still could not imagine how LRT 1 fares would cost several years from now under the operation and management of MVP, the Ayalas and their foreign partners, just look at the Metropolitan Waterworks and Sewerage System (MWSS). The MWSS Concession Agreement is very similar to the LRT 1 Concession Agreement with its provisions on rate rebasing, inflation-based adjustments, and other pass-on schemes. Since the MWSS privatization deal took effect in 1997, the average basic water rates have jumped by 585% (Maynilad) to 1,119% (Manila Water).
Another similarity? The MVP group (Maynilad) and the Ayalas (Manila Water) are also MWSS’s private concessionaires!
By clinching the LRT 1 privatization deal, the MVP-Ayala tandem is now starting to assert its monopoly control over Metro Manila’s light rail system. The duo has already bagged the P1.72-billion Automatic Fare Collection System (AFCS), another PPP project of the Aquino administration, which involves the operation and management of a centralized fare collection system using contactless-based smart card technology for LRT Lines 1 and 2, and MRT Line 3 (which the MVP group partly controls as well).
Meanwhile, the P1.4-billion LRT-MRT common station, which will connect the LRT Line 1 and MRT 3 (and the soon to be built MRT 7), will also be constructed by the MVP-Ayala tandem as part of the LRT 1 contract, and will be connected to the Ayala-owned Trinoma Mall – assuring it of an increasing stream of mall patrons.
In my next post, I will share the position paper prepared by a group calling itself the Alliance against LRT Privatization (AALP). Their paper comprehensively discussed other controversial issues related to the impending takeover of the MVP-Ayala group, including the massive displacement of LRT 1 employees. To be concluded (Read Part 2 – How Aquino betrayed public interest in LRT 1 privatization)