Consumer issues, Governance, infrastructure

LRT-2’s decline amid funds misuse and dubious deals

LRTA misused LRT-2 rehab funds

Presidential mouthpiece Salvador Panelo called the challenge to commute. The dare arose from his callous remark about the state of the metro’s transport system. There’s no crisis he said, since people are still able to go wherever they need to. Enduring the daily torment of long queues and endless waits, overcrowding and hellish traffic, the commuting public are of course outraged.

But Panelo’s four-hour, four-jeepney commute circus should not distract us from the fundamental issues. The ordinary working class and students who bear the torture of commuting do not need him to validate what they suffer every day.

Recurrent mishaps

The crisis in the mass transport system is not only real. It is chronic and structural. It did not start when the LRT-2 suspended its operations as the usual glitches hampered the LRT-1 and MRT-3. For as long as we can remember, one or two of Metro Manila’s rail lines break down on an almost weekly basis.

To be sure, the Duterte administration is not solely to blame for the recurrent glitches, passenger offloading and shutdowns of Metro Manila’s rail system. Such decrepit state of the rail system was spawned by decades of accumulated wrong government policies, neglect and corruption. Technical glitches number to thousands per year, according to transport officials.

These train malfunctions started to occur with increasing frequency under the previous administrations of Arroyo and Aquino, and the crisis continues its cumulative deterioration under Duterte. Prior to these recent incidents, LRT-2 is not as notorious as LRT-1 and more especially MRT-3 in terms of service interruptions.

LRT-2 had several mishaps prior to the October 4 fire that brought its entire line to a halt for several days. Last May 18, two of its trains collided and injured 34 people. It was perhaps the second worst accident involving metro rails, just behind the wayward MRT-3 train that rammed through a station and hurt 38 people back in 2014.

The LRT-2 collision happened two days after a lightning hit the train line’s overhead power connection. Unable to operate, the incident stranded thousands of LRT-2 commuters in the middle of a thunderstorm. On June 7, LRT-2 also suspended its operations due to a technical malfunction.

Declining performance

It seemed that the recent major breakdown of the LRT-2, which will take a possible six to nine months to be fully restored, was bound to happen. This noticeable increased frequency in its system’s malfunctions is affirmed by the rail line’s declining performance indicators. From an average of 11 trainsets running during peak hours in 2014 and 2015, the number fell to 10 in 2016 and 2017, and further to just 8 in 2018 and 7 trainsets in 2019.

Passenger traffic has also substantially decreased – from 72.85 million in 2014, the number fell to 62.21 million in 2015. After recovering to 67 million in 2016, passenger traffic in LRT-2 progressively declined to 65.96 million in 2017 and 64.70 million in 2018. Its passenger traffic in the first five months of 2019 is also the lowest in the last six years.

LRT-2’s farebox ratio – or the proportion of fare revenues to total operation and maintenance (O&M) costs – is falling as well. A farebox ratio of 1.00 means that fare revenues cover 100% of O&M cost.  From an upward trend of 1.00, 1.44 and 1.53 in 2014, 2015 and 2016, respectively, the farebox ratio of LRT-2 has gone down continuously to 1.06, 0.93 and 0.81 in 2017, 2018 and 2019 (first five months), respectively.

Actual gross revenues collected from LRT-2, after increasing from Php973.36 million in 2014 to Php1.25 billion in 2015 (the year when fares were substantially hiked) and further to Php1.31 billion in 2016, declined to Php1.27 billion in 2017 and Php1.24 billion in 2018. Comparing similar periods, collected gross revenues in the first five months of 2019 (Php485.59 million) are also the lowest since 2014.

Falling farebox ratio is the result of declining passenger traffic which results to lower fare revenues, and higher O&M costs due to, among others, poor service maintenance of the system. Poor maintenance leads to less trainsets running and less revenues earned. It is a cycle that could be ended through efficiency in management and maintenance of the system.

Misusing rehab funds

Alas, the train line operated by the Light Rail Transport Authority (LRTA) has been obviously poorly managed and maintained.

One reason is that already limited public resources allocated for the system’s improvement are not properly being used. In its 2018 audit report on the LRTA, the Commission on Audit (COA) said that a portion of state subsidy for the rehabilitation of LRT-2 as well as for general administration and support “was not utilized in accordance with its intended purpose”.

Through a Special Allotment Release Order (SARO) on June 17, 2016, the LRTA received Php743.56 million from the national government. However, state auditors found out almost half of that amount – Php360 million – was transferred to LRTA accounts not related to the purpose of the SARO (i.e., LRT-2 rehabilitation and administration and support).

“Questionable and doubtful”, according to COA, was the transfer of Php210 million in rehabilitation and restoration funds of LRT-2 to fill the liabilities of the LRTA in a bank account held in trust for bid documents, bonds and retention.

Likewise, state auditors noted the transfer of Php150 million in LRT-2 rehabilitation and restoration funds to a savings account that holds LRTA’s revenues from magnetic ticket sales. It was used as partial payment, interest charges and taxes for an outstanding loan arising from the services rendered by a private contractor with LRT-1.

In its report, released just last June 2019, COA asked the LRTA management to “discontinue using the subsidy funds earmarked for specific purposes and strictly comply with EO (Executive Order) 292 on the use of subsidy fund”. EO 292 refers to the Administrative Code of 1987.

COA also told the government rail agency to “replace the amount taken from the subsidy fund of Rehabilitation of LRT Line 2 System and General Administration and Support”. Further, state auditors asked the LRTA management to submit an explanation on the questionable transfer of Php210 million to bank accounts not meant for LRT-2 rehabilitation.

Dubious deals

Not only is the LRTA mismanaging the funds intended to improve the condition of and services provided by the LRT-2 system. It also continues to make deals with long-time LRTA private contractors that have a questionable track record.

The current maintenance provider for LRT-2 is the AMSCO joint venture composed of APT Global Inc., MultiScan Corporation, and Opus Land, Inc., with the LRTA awarding a Php1.81-billion contract last December 2018.

APT Global has figured in several cases of problematic contracts involving Metro Manila’s rail systems. As the MRT-3 maintenance provider, APT Global was ordered by the COA in 2015 to pay Php211 million for failing to deliver its contractual obligations. Among others, they included failure to deliver trains, defective escalators and elevators and half line operations.

APT Global was also part of the TSPA joint venture (along with Telefonika, STIV and Pacific) that maintained LRT-2 from June 2007 to June 2012. In its 2016 Special Audit Report on the LRTA, COA said that TSPA committed a minimum of 16 trainsets running on LRT-2 but only delivered 13 trainsets. Despite this, LRTA still paid its contract with TSPA in full, worth almost Php1.06 billion, instead of making the necessary cost reduction.

With such an undesirable track record, it is perplexing how APT Global was still able to be part of a joint venture that currently maintains the LRT-2. Apparently, it is one of the favored contractors by those in the LRTA.

The bidding conducted by the LRTA for the procurement for maintenance of the LRT-2 system won by APT Global’s joint venture AMSCO was allegedly fraught with irregularities. Commuter groups RILES Network and United Filipino Consumers and Commuters filed a case before the Ombdusman against LRTA officials last April 2019.

They alleged, among others, that the LRTA designed the bidding process in a way that ensures only AMSCO will bag the contract. It included requiring the use of spare parts that AMSCO’s MultiScan is the exclusive distributor of in the Philippines. Like APT Global, MultiScan is a longtime contractor of LRTA as a supplier of spare parts and consumables of the LRT-2 system in the past two decades.

The real challenge

In other words, the hundreds of thousands of LRT-2 commuters affected by the shutdown are at the mercy of, to the say the least, an inefficient government agency and its inept private contractors that profit millions of pesos in taxpayers’ and commuters’ money.

With the kind of track record that those handling the LRT-2 have, no wonder that the rail system broke down the way it did. It is also not surprising that the damages caused by the fire could supposedly take months to repair, aggravating the already unbearable state of public commute in Metro Manila.

The public sector should continue to operate the LRT-2 as a provider of a vital public service. The transportation department’s plan to privatize its operation and maintenance will only worsen the woes of commuters and further drain public resources as evidenced by our experience in LRT-1 and MRT-3.

But obviously, the current LRTA has been mismanaging the LRT-2 system. Reforms must be put in place to address this, including structural changes that would allow greater public scrutiny of and participation in the rail agency’s operations. Private contractors that have repeatedly failed to deliver should be banned and held to account. Using the crisis to justify the failed and flawed privatization must be opposed.

These are actually small reforms compared to the massive extent of Metro Manila’s transport crisis, but necessary reforms nonetheless to ensure that the LRT-2 becomes a truly publicly run rail system meant to serve the commuters’ interests and welfare.

Is the Duterte administration capable of instituting these reforms to start addressing the crisis? That’s the real challenge to Panelo and his boss. ###

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Consumer issues, Oil deregulation

Amid Saudi attacks, no need for oil price hikes

Amid a looming oil crisis precipitated by the attacks on Saudi Arabian plants that effectively shut down 6% of global oil supply, oil companies in the Philippines can still afford not to raise prices. This is because they have overpriced domestic petroleum products to the tune of Php4.38 per liter for gasoline and Php1.80 for diesel from January 2018 up to the first week of September 2019.

This “overpricing” is the result of the oil firms implementing price adjustments that do not properly reflect movements in global price benchmarks, in particular the Mean of Platts Singapore (MOPS) for diesel and gasoline, as well as fluctuations in the US and peso foreign exchange (forex) rates. To illustrate, the net price adjustment for diesel in 2018 based on MOPS and forex was a rollback of Php2.08 per liter. But the actual price adjustment was a rollback of only Php0.60, or a difference (overpricing) of Php1.48 per liter. For 2019, up to the first week of September, the actual price hike for diesel was Php3.15 per liter when the adjustments should have only been Php2.83, or a difference of Php0.32 per liter.

Similarly, there should have been a net rollback of Php5.83 per liter for gasoline in 2018, but the actual reduction was only Php2.35 or a difference of Php3.48 per liter. For 2019, as of the first week of September, the total adjustment in gasoline prices should have only been Php3.25 per liter, but actual price hikes have reached Php4.15 per liter at that point, or a difference of Php0.90 per liter.

So-called global price benchmarks like MOPS, of course, do not show the actual price of oil, which tends to be artificially high because of global oil monopolies that dictate supply and prices. With or without an oil price hike, prices are bloated because of global monopoly control by the oil giants like Shell and Chevron. But on top of this monopoly price, oil firms even profit more by taking advantage of lack of government control on domestic prices and supply. Under oil deregulation, oil firms hike or roll back local pump prices by much higher (in case of price hikes) or lower (in case of rollbacks) than the movements in global benchmark prices and forex.

Can Duterte curb this abusive practice of the oil companies? Not under Oil Deregulation Law, which took away government’s capacity to regulate and ensure fair domestic prices and price adjustments. Will Duterte stop local oil overpricing? Not if his government is raking in about Php7.72 million every day in additional VAT (value added tax) revenues on overpriced diesel and gasoline.

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Consumer issues, Oil deregulation

Oil firms overpriced gasoline by Php3.48 per liter in 2018; diesel by Php1.48

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(Photo: Novinite.com)

After a series of oil price cuts that started from mid-October 2018 up to the first week of the new year, domestic pump prices have begun to climb up again. The recent increases are due to the combined impact of rising global oil prices and of the second tranche of additional excise tax on oil products under the Tax Reform for Acceleration and Inclusion (TRAIN) Law.

For consumers, it is bad enough that they are made to shoulder a heavier tax burden from a commodity as vital as oil. It is even greater injustice that they are forced to pay for overpriced oil and for even bigger fuel taxes due to such overpricing.

As oil firms are wont to do in a deregulated regime, they implemented price adjustments in 2018 that were higher than what were justified (at least based on Department of Energy or DOE standards) by the weekly changes in global benchmark prices as well as foreign exchange rates.

For 2018, oil companies overpriced gasoline by an estimated Php3.48 per liter and diesel by about Php1.48 per liter. (See Table 1)

tab 1 summary of overpricing 2018

The figures were based on the estimated impact on local pump prices of the weekly adjustments in the Mean of Platts Singapore (MOPS) prices of gasoline and diesel, as well as of the peso-US dollar exchange rates. The results were then compared to the actual price adjustments implemented by the oil companies. According to the DOE, the Philippines uses the MOPS prices as benchmark for pricing finished petroleum products that are retailed in the country.

Put another way, oil firms were implementing higher price hikes when global prices were rising and lower price rollbacks when global prices were falling. This means that consumers were still being abused by the oil companies even as they were rolling back prices in the last three months of 2018. In fact, looking at Table 1, the oil firms overpriced more during the successive weeks of price rollbacks in October to December.

The Oil Deregulation Law (Republic Act 8479 or the “Downstream Oil Industry Deregulation Act of 1998”) and its regime of price adjustments without public consultations created the environment for such abuse to be committed with impunity.

These allowed the oil firms to rake in around Php33.93 billion in extra profits last year on top of their regular income, and the Duterte administration to collect some Php4.63 billion in additional revenues from the 12% value added tax (VAT). Apparently, it is not in the interest of the government to regulate oil price adjustments because of the tax windfall that high and overpriced oil generates. (See Table 2)

tab 2 summary extra profits & vat 2018

It is important to stress that the “overpricing” based on the MOPS and forex movements does not in any way represent the true extent of how much prices are artificially bloated due to the monopoly control of big oil companies in the global and local markets. It just illustrates how deregulation can be easily abused by the oil firms operating in the country through implementing adjustments that are beyond the supposedly “justified” amounts by so-called international benchmarks such as the MOPS.

Oil price unbundling

During the height of unabated oil price hikes at the start of 2018, the DOE initiated its proposal to unbundle the prices of petroleum products. The latest is that the DOE is already finalizing a circular to implement the proposed unbundling meant to put more teeth in monitoring oil prices and protect the consumers. Industry players and energy officials have already agreed on seven out of the eight major components of the unbundled price.

Understandably, the remaining contentious item in the planned unbundling is the “industry take”, which indicates the profit margin and operation cost of the oil companies. Nonetheless, the DOE expects to finally issue the circular by the first quarter.

While unbundling could make the cost breakdown per liter of fuel products seem more transparent, it will still not guarantee fair price setting. Adjustments in prices will remain deregulated and oil firms, especially the largest ones, can continue to abuse the weekly price adjustments and overprice their products. This is similar to the unbundling of electricity rates in the privatized and deregulated power industry, which did not stop the abusive pricing practices of the big power monopolies.

Besides, real transparency in prices requires that all oil companies disclose their term contracts with their suppliers, detailing key information such as the specific source/supplier of imported oil, the actual negotiated import price, volume of oil imports, etc.

Impact of the TRAIN Law on oil prices

Compounding the overpricing by the oil companies is the additional fuel tax imposed by the Duterte administration. The TRAIN Law (or Republic Act 10963) will add another Php2 per liter in excise tax to the pump prices of gasoline and diesel; Php1 per liter for kerosene; and Php1 per kilogram (kg) for liquefied petroleum gas (LPG). Including the 12% value added tax (VAT), the second round of tax hike under the TRAIN Law will increase the price of gasoline and diesel by Php2.24 per liter; kerosene by Php1.12 per liter; and LPG by Php1.12 per kg.

In 2018, the controversial tax scheme of the Duterte administration already added Php2.80 to the price of diesel; Php2.97 for gasoline; Php3.36 for kerosene; and Php1.12 per kg for LPG, representing the additional excise tax and the corresponding VAT. Adding to this year’s adjustments, the TRAIN Law’s total price impact as of 2019 would be an increase in the pump price per liter of diesel by Php4.80; gasoline by Php5.21; and kerosene by Php4.42. For LPG, the total price hike is Php2.24 per kg or a total of Php24.64 for the usual 11-kg cylinder tank that households use.

The bad news is that there remains still another tranche of excise tax increases next year under the TRAIN Law. The scheduled increases for 2020, including the VAT, are: diesel, Php1.68 per liter; gasoline and kerosene, Php1.12 per liter; and LPG, Php1.12 per kg. Table 3 summarizes the impact of the TRAIN Law on oil prices.

tab 3 train impact on oil prices

As of the latest price adjustments (i.e., Jan 15, 2019) and including the second tranche of fuel excise tax under the TRAIN Law, the pump price of diesel is more than Php12 per liter higher than its level before the Duterte administration took over; gasoline is almost Php9 higher. Of the said price increases, the additional tax burden (i.e., excise and VAT) imposed by the TRAIN Law accounted for Php5.04 per liter for diesel (41% of the total price increase in diesel under Duterte) and Php5.21 per liter for gasoline (59% of the total increase in the price of gasoline). (See Table 4)

tab 4 oil price before & under duterte jan 2019

If policy makers were to truly address the problem of high oil prices, they should look at both the TRAIN Law and the Oil Deregulation Law. Removing the unnecessary fuel tax burden and making oil taxation more progressive will immediately bring down the price of oil for sure. But oil prices will remain exorbitant and price adjustments will remain unjustified as long as the oil industry is deregulated. ###

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Consumer issues, Economy, Free trade

PH rice import dependence rising amid weakening global production

Annual growth in rice production global

In the past two decades, imported rice has been accounting for an increasing portion of our domestic consumption. Prior to the 1995 birth of the World Trade Organization (WTO), the country’s rice import dependency ratio (i.e., the extent of dependency on importation in relation to domestic consumption) only averaged 2.45% (1990 to 1994 average). In the latest available 10-year average (2006 to 2016), the ratio has risen by 4.5 times to 11.06 percent. In the immediate 10 years since the WTO (1995 to 2005), the average ratio was 11.24 percent.

Despite increasing dependence on cheaper imported rice, the retail price of rice has continued to rise. The average annual inflation rate for rice accelerated from 4% in 1996-2006 to 5.7% in 2006-2016. Apparently, more rice imports do not necessarily translate to lower retail prices. Yet, to tame rising rice prices and ease faster overall inflation, the Duterte administration’s answer is further liberalization of rice imports through the Rice Tariffication Bill(RTB). Already passed by the Houselast month, a Senate RTB counterpart is expected before the year ends.

The RTB will liberalize rice trade by removing the quantitative restriction (QR) on imported rice. This entails scrapping the current minimum access volume (MAV) which caps rice imports at 805,200 metric tons (MT) with a 35% in-quota (e.g. within MAV) tariff. Rice imports outside the MAV are slapped with a 40% tariff. In lieu of a QR, a general tariff will be imposed.

Rice tariffication and liberalization is a Philippine commitment to the WTO but repeatedly postponed in the past due to the socially sensitive nature of rice as an agricultural commodity. The Duterte administration used the soaring price of riceto justify finally replacing the rice QR with tariff, selling the idea that the entry of more imports will bring down local prices. As of the third week of August, well-milled rice retails at Php46.35 per kilo (10% higher than a year ago) and regular milled rice at Php42.85 (13% higher).

According to government’s economic managers, tariffication could reduce the priceof rice by as much as Php4.31 per kilo and lessen inflation by at least one percentage point. Rice production in Thailand and Vietnam, the country’s main sources of rice imports, is pegged at Php6 per kilo. In the Philippines, production cost is said to be double that amount.

While not a guarantee to lower prices in the long run, opening up the rice sector to unbridled imports leaves the country’s rice security at the mercy of an unpredictable and increasingly unreliable world market. This as 95% of Philippine rice imports come from just two countries whose own domestic production is either slowing down or declining. Globally, rice production has been steadily decelerating in the past four decades.

At the same time, the already precarious livelihoodof up to 20 million Filipinos who rely on the rice sector, including some 2.5 million rice farmers, gets more insecure than ever.

Rice production in Vietnam, which accounts for almost 69% of Philippine rice imports (2010 to 2016 average), and in Thailand, which comprises 26%, has been weakening in the past four decades. In Vietnam, rice (paddy) production decelerated from an annual growth of more than 5% in the 1980s and 1990s to 2.2% in the 2000s, and 1.6% this decade. Thailand’s rice production slowed down from a yearly growth of 3% in the 1980s to 2.1% in the 1990s, before recovering to 3.1% in the 2000s. But this decade, Thai rice production is actually contracting by 3.1% every year.

Other Southeast Asian countries that are also among the world’s major rice exporters (and potential Philippine suppliers) are experiencing production declines as well. Myanmar’s rice (paddy) production went down from an annual growth of 4.9% in the 2000s to a yearly contraction of 3.1% this decade. Cambodia is still posting a 3.8 growth since 2010, but it’s twice slower than its annual expansion of 7.4% last decade.

Our own rice (paddy) production has decelerated to 1.2% this decade from a more than 3%-annual expansion in the 1990s and 2000s and about 4-5% in the 1960s and 1970s. Worldwide, rice production has been continuously slowing since the 1980s when annual growth was pegged at 3.2 percent. This declined to 1.8% in the 1990s; 1.2% in the 2000s; and 1.1% in the 2010s.

It is estimated that lifting the QR on rice will double the volume of the country’s rice imports in five years. For the already impoverished Filipino rice farmers, this means a sharp drop in income (some projections say by around 29%) as rice that are 100% cheaper to produce in Thailand and Vietnam due to heavy subsidies flood the domestic market.

Government allays fears of more bankruptcy among rice farmers through the proposed six-year Rice Competitiveness Enhancement Fund (Rice Fund) where all the duties collected from rice imports would be supposedly used to support small rice farmers. The central bank estimates an additional Php28 billion in annual revenues from rice tariffs that could be used to help prepare rice farmers for competition from imports through the Rice Fund.

But this was the same promise made to vegetable farmers and fisher folk most affected by WTO tariffication in 1995 with the Agricultural Competitiveness Enhance Fund (ACEF). Marred by corruption and mismanagement issues, the fund only ended up favoring agribusiness corporations as small farmers and fisher folk were further impoverished by massive agricultural imports.

In fact, since its introduction more than two decades ago, ACEF’s initial six-year life has been extended and reformed several times – the most recent in 2016, with implementation starting this year– because it has failed to achieve its stated objectives of protecting and preparing the farmers and fisher folk.

As mentioned, the influx of cheaper imported rice has not resulted to cheaper retail prices for consumers. The monopoly control that big private traders have over imported rice and those procured from local farmers allows them to keep retail prices high even as farmgate prices are depressed. Privatization and deregulation of its functions on palay procurement, rice importation, marketing and price control have made the National Food Authority (NFA) inutile in affecting prices. Inefficiency and corruption made the situation even worse.

Even as the price of rice continued to increase, the farmer’s share to retail prices is actually lower today. Prior to the WTO, farmer’s share to consumer peso (i.e. how much of the price paid by the consumers goes back to the rice farmers) decreased from 30.5% (1990 to 1994 average) to 28.3% in 1995 to 2005 and just slightly climbing up to 28.6% in 2006 to 2016. Note that the actual amount that goes to the rice farmers is much lower due to usury and landlessness that eat into their share in prices.

Liberalization harms both the consumers and rice farmers, and only the foreign and domestic private traders reap the benefits. Tariffication and the promotion of more imports give these private traders even greater control over the rice industry. ###

Sources of data: Philippine Statistics Authority (PSA); Food and Agriculture Organization (FAO)

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Consumer issues, Economy, SONA 2018

SONA 2018: How much have prices increased in Duterte’s first two years?

(Photo from Xinhua/Rouelle Umali)

The first two years of the Duterte presidency have been without a shortage of controversies. Endless allegations of human rights abuses related to its bloody drug war and recently its oppressive anti-tambay campaign (both targeting the poor) continue to face the administration. Tyranny has reared its ugly head as President Rodrigo Duterte placed Mindanao under Martial Law and intensified the militarization of the rural areas. Extrajudicial killings that target activists, journalists, and even local politicians are on the rise amid a reign of worsening impunity.

Its push for federalism through Charter change(Cha-cha) is widely seen as an attempt not just to perpetuate the current regime but to concentrate further political power in the hands of Duterte and his clique. With deepened control over Congress, Judiciary and the military through patronage, harassment and a combination of both, and with the backing of both the US and China, Duterte has been laying the groundwork for an authoritarian rule not unlike the Marcos years.

But while creating the illusion of consolidation of political power, all these are actually creating instability and greater conflict. Underneath this social unrest is the deteriorating living condition of millions of Filipino families. Indeed, as the Duterte presidency resorts to more repression and curtailment of human rights to assert its narrow political agenda, the overall economic direction it pursues only serves to accelerate the impoverishment and exclusion of the people.

This has been most felt by the public and most pronounced in the form of increased prices of key commodities and higher charges for basic services that have defined the state of the economy in the first two years of the Duterte administration. Looking at data culled from various government agencies and media reports, sharp increases were recorded in the pump prices of oil products; in the rates of public utilities like electricity, water and transportation; as well as in the retail prices of several basic food items.

More expensive food items and public utilities

The price of diesel under Duterte has already increased by almost 60%; gasoline by more than 33%; and LPG, by 23 to 45 percent. Residential rates charged to ordinary households by the Manila Electric Co. (Meralco) have jumped by 14 to 23% in the past two years. Water rates, on the other hand, are higher by 5% (Maynilad) to 8% (Manila Water). The minimum fare in jeepney has also been hiked by an equivalent of 29%, and by 9% (aircon) to 11% (regular) for buses. In addition, the flag down rate for taxis is 33% more expensive today. (See Table 1)

Table 1 utilities under Duterte SONA 2018

Among the food items, the largest relative increases in prices were observed in vegetables with some doubling their retail prices and others posting more than 60% price hikes. Significant increases were also noted in the retail prices of fish (14-20%); meat (14-27%); sugar (8-14%); and commercial rice, in particular the cheaper varieties consumed by most households (regular milled rice, 8%-hike; well-milled rice, 11%). (See Table 2)

Table 2 basic goods under Duterte SONA 2018

These significant increases in the prices of basic goods and services are captured by inflation rate data, which measure how fast prices are rising. For six straight months this year, the inflation rate has been steadily acceleratingand has already reached 5.2% in June, the highest in at least the last half decade. The rate of price increases today (January to June 2018 average inflation rate of 4.3%) is five times faster than it was during period immediately preceding Duterte’s term (January to June 2016 average inflation rate of 0.8%). (See Chart)

Chart inflation under Duterte

For most Filipino families, especially the poor and those in the lower income brackets, the rising costs of these basic needs mean tremendous pressure on household budgets. Also, the poorer the family, the larger they spend for food and to a certain degree for utilities (including housing) relative to their income as the latest Family Income and Expenditure Survey (FIES) of the Philippine Statistics Authority (PSA) shows. To illustrate, 59 to 60% of total expenditures of those with an annual income of less than Php100,000 go to food compared to 35% for those with Php250,000 or more. (See Table 3)

Table 3 family expenditures by type

TRAIN, neoliberal policies and Duterte’s accountability

What explains the rapid rise in prices especially in recent months? To deflect accountability, Duterte’s economic team points to global factors that are beyond the control of government such as the increasing world prices of oil and weakening peso against the US dollar (thus making imports more expensive). These economic managers are some of the country’s most rabid advocates of neoliberalism, a model of economic development that transfers control of economic factors from the government or public sector to the profit-driven market forces and private sector, taking the form of liberalization, privatization, and deregulation as well as fiscal reforms to lessen state subsidies and increase tax collections.

However, it is obvious that prices are climbing up because of the past neoliberal economic policies that the Duterte administration chose to continue and the new neoliberal programs that it has started to implement, chief among them the Tax Reform for Acceleration and Inclusion (TRAIN) Law. Implemented since January 2018, the TRAIN Law while lowering the personal income tax for also introduced additional taxes for socially sensitive goods such as oil products, triggering a spike in inflation as shown in the chart above.

Additional taxes on petroleum products under TRAIN aggravated the impact of the two-decade old Oil Deregulation Law which allows oil firms to automatically adjust pump prices every week. This year (up to July 17), oil prices have increased already by a total of Php6.45 per liter for diesel; Php6.00 for gasoline; and Php6.70 for kerosene. TRAIN accounts for 30% of the total price hikes for diesel and 33% each for gasoline and kerosene.

Without government regulation on price adjustments, the oil industry has also been further opened up to abuses and price manipulation. For instance, oil firms have implemented oil price adjustments that are about Php0.80 per liter (diesel) to Php1.26 per liter (gasoline) more than what the supposed movements in global oil prices and foreign exchange rates warrant (for the period January 1 to July 10, 2018); meaning oil players could be charging the public more than what they should. Of course, this only considers the import costs and does not factor in yet the far larger (and more important) impact on domestic pump prices of monopoly pricing at the global level. (How these estimates are made is discussed herebased on available data at the time.)

All these combine to make the price of oil exorbitant, which is crucial because of the strategic role that oil plays in making the economy run (manufacturing factories, power plants, transport, etc.) and has a domino effect on consumer prices, services and the overall costs of living. Fare increases for public transport are the direct and most visible impact of increasing oil prices.

The privatization of public utilities, meanwhile, has exposed the people to unabated increases in user fees such as what the captured markets of Meralco, Manila Water, Maynilad and other private electricity and water service providers are being subjected to. Liberalization of agriculture made the country highly dependent on food imports (including rice, vegetables and meat), thus exposing the people to the vagaries of the global market where speculators and monopolies dominate (aside from the local cartels such as in rice), even as our own small food producers and farmers are neglected amid lack of genuine agrarian development.

No ease in the rise of cost of living

The bad news is that the prices of basic goods and services are not seen to ease anytime soon as the administration persists in its neoliberal direction. Duterte’s Cha-cha, for instance, is about neoliberalismin the economy as much as it is about federalism. When implemented, Cha-cha will pave the way for foreigners to take over and run, among others, the country’s public utilities that could result to even higher user fees for electricity, water, telecommunications and transport as these strategic sectors become further detached from national interest and public welfare. Cha-cha will also allow foreigners to own agricultural lands that could further undermine domestic food production and consequently the costs of food while poor farmers are further displaced from their means of production.

Already, huge increases in water ratesare looming again under Maynilad (seeking more than Php11 per cubic meter hike in its basic charge) and Manila Water’s (Php8.31 per cubic meter) privatization deal with the government that allows them to increase their basic charge every five years (on top of various periodic, automatic adjustments) and to pass on questionable charges to consumers, most notably their corporate income tax. LRT-1 fares could also jumpby Php5-7 as part of government’s privatization contract with the consortium of the Ayala family and Manny Pangilinan’s group that allows them to hike their basic fare every two years.

And lest the public – still reeling from the impact of the first wave of increases under the TRAIN Law – forgets, more tax hikes (and consequently, spikes in consumer prices) are coming under Duterte’s tax reform program. The TRAIN law mandates that the excise tax for diesel, pegged this year at Php2.50 per liter, will climb to Php4.50 in 2019 and further to Php6 in 2020. For gasoline excise tax, the schedule is Php7 this year, and then Php9 and Php10 in 2019 and 2020, respectively.

Duterte’s tough guy personality and foulmouthed rants unseen before from a President may have in the beginning amused a public too weary of sweet-talking traditional politicians. But amid the ever-rising costs of the people’s basic daily necessities, Duterte is steadily being exposed as the same despised trapo who covet power while abandoning the interests and welfare of the people.

It certainly does not help that the public’s legitimate concern on skyrocketing prices is being met with apathy by the chief architects of Duterte’s flawed neoliberal economic program such as Budget Secretary Benjamin Diokno’s crybaby remark. Unconditional cash transfer and Pantawid Pasadadiesel subsidy for jeepney drivers to mitigate the impact of TRAIN, aside from already delayed, are band aid solutions that will not reverse the long-term impact of high prices.

The wanton killings under Duterte and his repulsive tirades have sparked public outrage and the people’s protests are spreading. The unabated increases in prices and the cost of living will only add fuel to the fire. ###

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Consumer issues, Economy, Poverty

The curious case of NEDA’s Php10,000

NEDA (National Economic and Development Authority) did not say that a family of five could live decently with Php10,000 a month, according to Rappler’s “Fact-Check”. End of debate?

Actually no. While NEDA may not have directly referred to the Php10,000 as enough for decent living, the whole issue is what the amount of Php10,000 represents.

That “hypothetical” amount – the budget of an average Filipino family, said NEDA – was in fact based on the official poverty threshold fora family of five (i.e., Php9,140 as of first semester 2015, latest official data).

The PSA (Philippine Statistics Authority) defines poverty threshold this way:

“Food threshold is the minimum income required to meet basic food needs and satisfy the nutritional requirements set by the Food and Nutrition Research Institute (FNRI) to ensure that one remains economically and socially productive. Poverty threshold is a similar concept, expanded to include basic non-food needs such as clothing, housing, transportation, health, and education expenses).”

For the government, that is around Php10,000.

And there lies the problem. Using the ridiculously low poverty threshold as reference to show that the impact of high inflation and the TRAIN law on ordinary households is tolerable highlights the basic flaw of government’s appreciation of the true extent of poverty in general and of the impact soaring prices and regressive taxes in particular. #

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Consumer issues, Economy

Inflation surges for 5th straight month since TRAIN law

Inflation as of May 2018There is no end in sight for high prices under President Duterte.

Inflation rate has reached a new 5-year high this May at 4.6 percent. It has been continuously accelerating every month since the TRAIN Law took effect in January 2018.

Even Duterte’s economic managers could not say whether inflation has already peaked. This means that the public should brace for more surges in prices of basic goods and services in the months ahead.

By the second half of the year, for instance, we are looking at big-time increases in water rates in Metro Manila (earlier reports indicated a basic charge hike of Php8+ to Php12+ per cubic meter) as well as in LRT-1 fares (Php5-7) thanks to privatization. Public transport fares will likely increase too amid deregulated oil price hikes.

The poorer families obviously are the hardest hit but even middle-income households are also not spared.

Transport service Grab has been hiking their rates with impunity, taking advantage of the lack of a reliable mass transport system. Meanwhile, some 170 private schools in NCR have jacked up tuition by 5-15% this school year, which will hit monthly household budgets as most pay on installment basis.

Duterte’s economic managers assure the public that inflation will eventually taper off later in the year. What this means is that prices will continue to increase although at a slower pace than they are doing today. This assumes that global oil prices and foreign exchange rates will move favorably, which is difficult to bank on amid worsening geopolitical uncertainties.

Further, because the downstream oil industry is deregulated, government does not have the needed policy tool to ensure that the public and the economy are protected from sudden and drastic and often speculative increases in global oil prices. Not to mention that the industry remains monopolized and the prices dictated.

Oil continues to be one of the biggest drivers of high inflation in the country. According to the joint DBM-NEDA-DOF statement, oil price increases contributed 0.70 percentage points to the 4.6% May inflation. But increasing petroleum prices also pushed up food prices, with fish and seafood and bread and cereals, for instance, significantly contributing as well to the May inflation with 0.65 and 0.56 percentage points, respectively per NEDA data.

What is certain is that the impact of the additional taxes on consumer prices under the TRAIN law is permanent unless they are removed. Including the latest (June 3) oil price adjustments, the TRAIN law accounts for 29.3% of the total increase in diesel prices this year; gasoline, 32.6%; and kerosene, 34.4 percent.

Blog 08 Table OPH TRAIN

Amid all these, people do not simply complain but make concrete policy proposals that could at least provide immediate relief, such as removing the additional taxes under the TRAIN law.

But typical of the Duterte administration, we get responses ranging from the arrogant (e.g., Budget Sec. Benjamin Diokno’s crybaby remark) to the ludicrous (e.g., Finance Sec. Carlos Dominguez’s claim that the public’s supposed wasteful spending of their additional income under TRAIN is further driving prices up). #

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