Deceptive PPP claims in SONA

Contrary to President Aquino's SONA claims, government continues to provide incentives for investors to build our infrastructure needs. (Photo from here)

Contrary to President Aquino’s SONA claims, government continues to provide incentives for investors to build our infrastructure needs. (Photo from here)

Infrastructure development through public-private partnership (PPP) was among the highlights of President Aquino’s fifth State of the Nation Address (SONA). Thanks to good governance, we no longer need to offer perks for investors to build our infrastructure needs, said the President. Thanks to good governance, the days of state-guaranteed private profits to entice PPP bidders are gone.

If the private sector wants to build our airport or highways, they must be willing to pay a premium, Aquino pointed out. The winning bidder in the Mactan-Cebu International Airport Passenger Terminal Building paid government P14 billion. The private contractor in the NAIA Expressway Project Phase 2 shelled out P11 billion.

But contrary to the SONA claims of Aquino, government continues to provide incentives to PPP investors. Some of these perks are even more generous than those offered by previous administrations. In addition, Aquino’s supposed “good governance” has nothing to do with investors paying a premium to bag PPP contracts. Their bidding decisions are always determined by how profitable or strategic the projects are.

Let us take a look again, for instance, at the P64.9-billion LRT Line 1 Extension and Operation and Maintenance project. This PPP contract will be awarded soon to Metro Pacific Investments Corp. (MPIC) and Ayala Corp. It is a sweetheart deal. Aquino would not just guarantee the debts of MPIC-Ayala; government is directly borrowing P34.9 billion or 54% of the project cost for right of way acquisition, additional coaches, etc. Government also agreed to shoulder the payment of real property taxes estimated at P64 billion throughout the life of the contract. These are on top of the P5-billion startup subsidy that government will provide. All in all, the direct cost to the government is almost P104 billion and just P30 billion to MPIC-Ayala. It becomes even more outrageous when you factor in the guaranteed profits that MPIC and Ayala will reap through automatic and periodic fare increases throughout the 32-year contract (which can be extended to up to 50 years). When MPIC-Ayala could not collect the agreed fares, government will again shell out public funds to cover the difference. Aquino called this regulatory risk guarantee, a government guarantee never before seen in the more than three-decade history of PPP and privatization in the Philippines. All these make the P9.5-billion premium that MPIC-Ayala promised to pay to clinch the concession meaningless.

Similarly, the Henry Sy-affiliated Megawide and its Indian partner GMR are building and operating the P17.52-billion Mactan-Cebu airport expansion because of its huge profit potential. The P14 billion that the consortium paid is peanuts compared to the windfall that the airport would make, which the Aquino administration guaranteed. Among the sweeteners of this PPP project is a 25-year government ban on the construction of other airports and related businesses in the Mactan and Cebu islands. There will also be a 25-year moratorium on the construction of any competing car park facility or any competing hotel facilities within the project’s 500-meter radius. Megawide-GMR will operate the country’s second busiest airport for 25 years, enjoying absolute monopoly over air passenger terminal and related services guaranteed throughout the concession agreement.

Meanwhile, in the case of the P15.52-billion NAIA expressway project, San Miguel Corp. (SMC) is charging P35-45 in toll rates. With traffic expected at 150,000 to 160,000 cars a day, that’s P1.92 to 2.63 billion in annual revenues. Its concession agreement with government is 30 years. This means that SMC is guaranteed to recover the project cost and premium in as short as 10 years, and then enjoy 20 years of raking profits. The recovery period could even be shortened by toll hikes and increased traffic volume. Note also that for SMC, the NAIA expressway has a more strategic value. The project will provide access to the NAIA terminals, which will benefit SMC’s air transport interests. The giant conglomerate of presidential uncle Danding Cojuangco controls 49% of the Philippine Airlines (PAL). It will also build a seamless link between SLEX/Skyway and the Manila-Cavite Toll Expressway. SMC, with Indonesian partner Citra, already controls SLEX/Skyway and the NAIA project will further consolidate its position in road transport in the area.

Local oligarchs and representatives of foreign interests in the country like the Ayala family, Henry Sy, Danding Cojuangco and his right-hand man Ramon Ang, or Manny V. Pangilinan (MVP) of MPIC participate in PPP not merely because they want to solve our infrastructure needs. As Jaime Augusto Zobel de Ayala put it: finding a private sector solution to the social problems of the country… must be oriented around a profit-centered solution. He was talking about private sector participation in mass housing for informal settlers. So, you see, there is a reason why these people are among the wealthiest in the world. In the 2014 Forbes’ list of richest Filipinos, Henry Sy and family recorded a net worth of $12 billion while Jaime Zobel de Ayala and family posted $3.1 billion; Danding, $825 million; Ramon Ang, $260 million; and MVP, $105 million.

PPP will continue to be the centerpiece program of Aquino in the remaining two years of his term. In his penultimate SONA, Aquino enumerated the top infrastructure priorities of his administration, most of which are controversial because of their social costs and impact. The P150-billion Laguna Lakeshore Expressway Dike, the P18.72-billion Kaliwa Dam, and Clark Green City, for example, are all feared to cause the massive displacement of local communities and the destruction of environment.

The same elite families and groups that have been bagging Aquino’s PPP contracts are positioning themselves to corner these deals. Despite public opposition, Aquino is determined to implement them, which could only further aggravate social tension and delegitimize his presidency even more.

Sona 2014: A shaken regime


All the previous issues that faced the Aquino presidency are like relentless jabs pounding its body, and the pork barrel and DAP are like powerful blows straight to the head of the regime. (Photo from here)

Since his first State of the Nation Address (Sona) in 2010, President Aquino has seen the steady erosion of his legitimacy as the empty presidential slogans of “daang matuwid” and “kung walang corrupt, walang mahirap” fall apart. Today, in his fifth Sona, Aquino is facing the worst political crisis of his regime amid the raging pork barrel and Disbursement Acceleration Program (DAP) controversies.

From the onset, Aquino’s presidency has been questioned for the powerful interests it represents as symbolized by Hacienda Luisita. His trumpeting of public-private partnership (PPP) in his first Sona signaled the perpetuation of pro-business and long discredited neoliberal economic polices. Barely two months in office, his leadership, or lack of it, was widely criticized with the Luneta Hostage crisis. When prices spiraled, “Noynoying” captured the indifference of the regime to the plight of ordinary people. The rapid growth in gross domestic product (GDP) and massively increased cash transfers could not camouflage the deteriorating poverty and job scarcity, made even more pronounced by the scandalous rise in wealth of the oligarchs. (Read: Prices, profits and poverty; Poverty trends) His criminal neglect of Pablo and Yolanda victims brought extra momentum to the public discontent that has been gathering force.

Then, the pork barrel and DAP scam exploded, shaking the Aquino administration in a way it has never felt before. If this were boxing, all the previous issues that faced the Aquino presidency are like relentless jabs pounding its body; and the pork barrel and DAP are like powerful blows straight to the head of the regime. It is obviously shaken. Aquino’s appeal to “tie a yellow ribbon” to show support to his administration illustrates how insecure and uncertain the administration has become. If this appeal were Aquino’s “counterpunch”, it merely exposed him to more blows as the Palace was forced to downplay the yellow ribbon call after an overwhelming public rejection.

Aquino and his Liberal Party (LP) hoped that the pork barrel scam would weaken the opposition for 2016. But the controversy quickly developed in a manner that Malacañang’s political operators did not foresee. It is no longer just about Senators Juan Ponce Enrile, Jinggoy Estrada and Bong Revilla, and Janet Lim Napoles and her bogus non-government organizations (NGOs). It has become more about the rotten system of patronage politics and bureaucrat capitalism with Aquino and his clique currently at the helm. Palace’s efforts to cover up the accountability of the President, his Budget Secretary Butch Abad, and other LP stalwarts and their allies are generating public anger as intense as the indignation against Enrile and company. In the eyes of the public, they are all the same trapos (traditional politicians) who abused the powers entrusted to them for selfish and narrow private gains. They must be all held to account, the President included.

The satisfaction and approval ratings of the Aquino presidency are dipping to their all-time lows and there are no signs of recovery. In the coming months, the neoliberal offensive against the people is sure to intensify with ever-rising costs of basic goods and services and economic displacement. After the Sona, for instance, we are anticipating a huge increase in LRT 1 fares related to its impending takeover by the Manny V. Pangilinan (MVP)-Ayala group (Read: How MVP-Ayala will squeeze LRT 1 consumers dry) followed by a massive retrenchment of Light Rail Transit Authority (LRTA) employees. (Read: How Aquino betrayed public interest in LRT 1 privatization) The long-delayed upward adjustment in LRT 2 and MRT 3 fares may also be implemented along with the LRT 1 fare increase, if not in the weeks or months after. Also after Sona, the results of the ongoing arbitration between the Metropolitan Waterworks and Sewerage System (MWSS) and its private concessionaires Maynilad and Manila Water are expected to come out, with a big-time hike in water rates a possibility. (Read: Water arbitration: Issues and implications) Then there’s the threat of El Niño, which experts say would be felt starting in the second half of the year with devastating impacts on the agricultural sector (and consequently, further increases in food prices) and on the livelihood of millions of farmers in the countryside. (Read: Bracing for El Niño) All these would aggravate the precarious state of the regime.

Meanwhile, on top of these brewing economic issues, Aquino himself is creating favorable conditions for persistent, growing and broadening protests against his regime and the rotten system of governance in the country. His display of excessive self-confidence and arrogance in successive speeches to defend DAP against the Supreme Court decision and pervasive anti-DAP public sentiment has further fuelled the likelihood in the coming months of mass mobilizations similar, if not bigger than, last year’s Million People March.

As the primary contradiction between the Aquino regime and the people further sharpens, so is the contradiction among the various cliques of the political elite for control of state power and resources. The filing of cases in relation to the pork barrel scam against LP’s perceived strong rivals in 2016 is just the start of electoral bickering among the trapos.

Already, the LP has initiated efforts to remove Vice President Jejomar Binay from the Aquino Cabinet, hoping to weaken his public profile as well as access to state resources that can be used to support his expected presidential bid. Plunder cases have been recently filed at the Ombudsman against the Vice President and his son Makati Mayor Junjun Binay, while daughter Makati Rep. Nancy Binay is facing allegations of anomalous pork barrel transactions involving an NGO founded by the Vice President.

The bickering among the trapos will surely intensify and escalate into full-blown maneuverings as 2016 draws near, and even earlier especially now that the impeachment against Aquino has already been endorsed in the House of Representatives. Palace propaganda operators, for instance, are trying to discredit the impeachment by charging it as a pro-Binay campaign, simply because of presidential succession. However, the blatant and arrogant way that Aquino has been covering up his and his clique’s accountability in the pork barrel and DAP scam is too glaring for people to doubt the intentions of the impeachment.

Another political flashpoint is the dynamics between Malacañang and the Supreme Court, which could develop into a full-scale confrontation between supposedly co-equal branches of government. Aquino’s veiled threat of impeaching the Justices would put the raging controversy into a higher level of contradiction between and within government’s institutions. Already, LP leaders at the House led by its Speaker Sonny Belmonte and its justice committee chair Niel Tupaz Jr. have called for a probe on the alleged SC’s own pork barrel – the Judiciary Development Fund (JDF).

Furthermore, the handling by LP and its allies of the impeachment process in Congress against the President will determine how fast and how intense the political crisis will escalate. The Aquino administration firmly controls the lower house and, like the Arroyo regime, will surely use all its influence and resources – including massive presidential discretionary funds – to dictate the outcome of the impeachment. Aquino apologists in Congress like Rep. Walden Bello of Akbayan, one of the biggest beneficiaries of presidential patronage and largesse, are already dismissing the grounds for the presidential impeachment as “flimsy” even before the process of determining its substance could begin. But for the people, all these only highlight how rotten the prevailing political system is and how hopeless reforms are within a decaying system dominated by narrow and self-serving interests.

We must emphasize that the Supreme Court decided against the pork barrel and DAP not because they are made up of upright Justices who are willing to challenge the country’s most powerful man (the decision, in fact, gives Malacañang wiggle room to evade criminal liability), but because amid the snowballing public condemnation against the corrupt and capricious use of state resources, upholding the patently unconstitutional and illegal DAP would only further fuel social unrest. Thus, while LP and its allies may blatantly derail Aquino’s impeachment, they will do so at the risk of triggering more public outrage and aggravating political instability.

The regime is shaken. The situation may or may not eventually lead to a dramatic outcome like Aquino’s ouster or resignation but the way people are rising up, challenging the status quo and asserting their democratic rights certainly gives us optimism that ultimately, the people will triumph.

It is not only about the pork barrel and DAP. Look, for instance, at how Yolanda and Pablo victims are gradually recovering through community actions and initiatives to ensure their livelihood and social services that government could not provide; or how the farmers and farmworkers have persistently pushed for, and in some areas even actually implemented, genuine land reform despite landlord repression and state terrorism; or how many Filipinos continue to join or support the 45-year old civil war in the countryside in the belief that it is the only way to end oppression.

Indeed, there is hope as long as the people are ready to struggle for what is truly democratic and just. ###

How Aquino betrayed public interest in LRT 1 privatization

Photo from

Photo from

Read the first part – How MVP-Ayala will squeeze LRT 1 commuters dry

In forging the Concession Agreement with the MVP-Ayala group, President Aquino has betrayed the public interest and welfare and has put government in a patently disadvantageous position.

While DOTC officials claim that the MVP-Ayala group submitted a negative bid of P9.5 billion – meaning they will pay government such amount to do the project – it is the commuters who will ultimately bear the burden as the concessionaire will recover the money from the riding public through higher fares as I explained in the previous post.

Furthermore, the P9.5 billion will also be offset by the numerous perks that the MVP-Ayala group will enjoy under the Concession Agreement such as the P5-billion government subsidy as project startup and government assumption of payment of real property taxes (estimated at P64 billion!)

Why is the Concession Agreement designed so favorably for the MVP-Ayala group? The idea behind PPP/privatization is to create the most conducive environment for private business. And to ensure that, the private investors will utilise all their connections and resources. The Ayala family, of course, has long been a political ally and crony of the Aquino family while there are claims that DOTC Undersecretary Rene Limcaoco, who was among those who pushed for LRT 1 privatization, is related to top Ayala executive Jose Teodoro Limcaoco.

Anyway, with its permission, I am posting in full the position paper prepared by the Alliance against LRT Privatization which discussed the different issues related to the takeover by the MVP-Ayala group, including the onerous terms of the Concession Agreement and the displacement of hundreds of LRT 1 employees.

Position Paper on the Privatization of the LRT1 Operations and Maintenance and the Implementation of the LRT Line 1 Extension PPP project

The Alliance Against LRT Privatization (AALP) opposes the privatization of the LRT1 Operations and Maintenance and the Public Private Partnership program for the construction the LRT1 Cavite Extension. The project is grossly disadvantageous to the riding public, the government and the employees of LRTA.

Why PPP?

The government’s privatization program dubbed Public Private Partnership has been touted as the solution to the lack of services and infrastructure plaguing the government. Under this scheme, private investors will supposedly bring in investments that will benefit the people, thus easing the financial burden on government.

As stated in its PPP brochure, “the PPP seeks to encourage greater participation of the private sector in the provision of basic public infrastructure through investments, construction, and operation and management programs. The program intends to provide the public with adequate, safe, efficient, reliable, and reasonably-priced infrastructure and development facilities while affording the private sector a level playing field, reasonable returns and appropriate sharing of risks. Government sees this as a reliable and solid strategy to efficiently deliver its services, create more job opportunities through a dynamic and solid infrastructure program.”

But beyond the rhetoric is the grim reality that the government, in adopting the PPP scheme, is essentially abandoning its role in the development of the country, leaving it instead to the hands of private investors. Government refuses to learn from the bitter lessons of earlier privatization schemes that have raised the fees for services, increased government debt and resulted in mass retrenchment of state workers

Attracting investors via “sweeteners”

In the early phase of the PPP Program, the Aquino government has vowed not to employ “sweeteners,” purportedly to avoid pitfalls besieging PPP predecessors such as, among others, the Build-Operate-Transfer (BOT) Scheme employed in the privatization of the National Power Corporation (NPC), and the Build-Lease-Transfer (BLT) Scheme of the MRT3, that consequently increased government’s debt burden due to sovereign guarantees given to entice private sector participation (PSP).

However, the privatization of the Operations and Maintenance of the entire LRT1 has served as a sweetener to the LRT1 Cavite Extension Project. While the winning bidder is in the process of constructing the extension from Baclaran Station to Niyog, Bacoor, Cavite, the national government has offered the private concessionaire the operations and maintenance of the entire LRT1 system, from Roosevelt Station to the Baclaran Station.

Currently, the profitability of the entire LRT1 system has been maintained after the national government took over the operation and maintenance of the entire system from the private sector, specifically, Metro, Inc. a subsidiary of the Meralco Corp. in 1999.

Based on its 2013 financial statements, the LRTA has earned a gross revenue of PhP 2.5 Billion from its LRT1 operations. Prudent spending and high public patronage has enabled the LRTA to achieve a 1.26 farebox ratio, one of the highest in the international rail community. Farebox ratio is the fraction of operational expenses, which are met by the fare paid by the passengers. It is computed by dividing the gross revenue by the total operating expenses.  LRT1’s high farebox ratio signifies that rail revenues generated, excluding non-rail income (from advertising, lease, etc.), were more than enough to cover the operating expenses for the year with extra funds for other expenditures (e.g. subsidy for LRT2 operations). In the present set-up, where the LRTA operates and maintains LRT1, the working capital is not subsidized by the government.

The privatization of the operations of an entirely profitable system will ensure another source of profit to the winning bidder in the Line Extension. We should question whether the profits earned from the operations of LRT 1 would be the source of the investments for the Line 1 Extension.

Disadvantageous to the government and commuters

To attract investors, government assumed even more financial risks while passing on increased financial burdens on the consumers.

  1. Government assumes payment of Real Property Taxes. On November 21, 2013, the NEDA revised the terms of the Cavite Extension Project to conform to the demands of the bidders, including the payment of Real Property Taxes (RPT) to be shouldered by the national government. This means government will pay around PhP 64 Billion for the entire 32-year contract period. This will only result to more debt burdens for the government.
  2. Fares will increase as a result of privatization. The government agreed to a  5% fare increase upon project completion, The government is also keen on implementing the new distanced-based fare adjustment that has been stalled since 2011 due to public opposition. At the earliest, the DOTC hopes to increase fares by August 2014 prior to the target effectivity of the Concession Agreement on September 2014. This will ensure higher profitability for the Concessionaire, as well as higher base fare for any future fare adjustments it will require upon project completion.
  3. Government guarantees automatic fare adjustments as well as fare hikes based on inflation. Not only is the Concessionaire allowed a 5% fare increase upon project completion, the government, based on the Concession Agreement, also allows for succeeding adjustments of the Notional Fare:
    • “The Notional Fare shall be adjusted on August 1, 2016 and every second anniversary thereafter (Notional Fare Setting Date) by an effective rate of 5% per annum or 10.25% per adjustment (Schedule 9, Part 1B: Financial Matters, page 173, Schedules, CA).”
    • “The Concessionaire or the Grantor may request that the Notional Fare be examined every 4 years from the first Notional Fare Setting Date and may be adjusted to reflect movements in inflation (Inflation Rebasing), on a Notional Fare Setting Date, where the first Inflation Rebasing may be implemented on August 1, 2018…(Schedule 9, Part 1D: Financial Matters, page 175, Schedules, CA).”
  4. Private concessionaries will pass on VAT to commuters. If a Sales Tax or Value Added Tax (VAT) is levied on the fares, the government allows the Concessionaire to pass this cost as part of the fare collected from the passengers of LRT1 (Schedule 9, Part 1E: Financial Matters, page 177, Schedules, CA).
  5. Changes in power rates will be passed on to commuters. The government agreed to a Differential Generation Cost (DGC) adjustment under the Concession Agreement (Schedule 9, Part 3: Differential Generation Cost, pp. 183-187, Schedules, CA). The DGC mechanism “is intended to take into account extreme fluctuations in generation costs, which comprises the largest component of power cost for the system, and allows upward adjustments to the Notional Fare and Approved Fares.” Under this scheme, the Concessionaire “shall be compensated for the DGC through fare adjustments…in relation to purchase of electric power from Meralco

With all these assurances from government, privatization removes from the private Concessionaire any financial liability and business risk, transferring instead all risks and liabilities to the government and the commuters.

The hybrid PPP mode itself is very lopsided and biased against the government. It is essentially called a hybrid PPP variant because if a project is more than PhP 60 Billion, half the cost is supposedly shouldered by the government through Official Development Assitance (ODA).

But under the LRT1 Cavite Extension Project, it is the government that will be shouldering the lion’s share of the cost of the project. Of the PhP 64.9 Billion total project cost, the private sector will shoulder PhP 30B for the civil works, electro-mechanical systems and other components of the viaduct, trackworks, stations and facilities, and the operations and maintenance. On the other hand, government will shoulder PhP 34.9 Billion of the cost for Right of Way Acquisition, Purchase of Coaches, Civil Works for the upgrading of the existing Depot and construction of the Satellite Depot.  On top of these expenditures, government will also shoulder the roughly PhP 64 Billion payment for Real Property Taxes.

Displacement of Workers

In the privatization of the LRT1 Operations and Maintenance, around 964 Contractual Employees of the LRTA are to be hired by the Concessionaire subject to a probationary period of 6 months, in which the Labor Code provisions, no longer the Civil Service provisions, shall govern. Some of these Transferring Employees have been with the LRTA for almost 15 years when the LRTA took over from the Metro, Inc. and would have been eligible for old age pension under the GSIS Law by 2015 or after 15 years of government service.

Within 3 months, the Concessionaire shall conduct an assessment of the transferred employees and determine who shall continue to be employed by the Concessionaire after the lapse of the 6 months period. After the lapse of the 6 months period, “if the Concessionaire wishes to dismiss any employee due to Economic Causes (e.g. installation of labor-saving devices and/or redundancy), then the Concessionaire may do so in accordance with relevant rules and procedures (Section 6.3, page 58, CA).

The privatization of the Automated Fare Collection System this year has clearly provided the LRT1 Concessionaire with the “economic cause” to terminate employees after the lapse of the probationary period. Conservatively, only around 241 or a fourth of the transferred employees will remain with the Concessionaire, possibly to be sub-contracted.

Hence, contrary to the government spin that the PPP program will create more job opportunities, it will in effect displace workers, after the 6 months probationary period.

Horrors of Past Private Sector Partnerships

From the current provisions of the Concession Agreement and the TOR for the PPP Project, it seems that the government has once again refused to learn from its past failures in privatization.

The previous BLT and BOT schemes indeed delivered the required infrastructures for the public but with horrific consequences for the government and the people in general. The Privatization of the MWSS has resulted to periodic increases in the cost of water, now totaling nearly 400%. The privatization of the assets of the National Power Corporation has placed power generation in the hands of big business and has increased power rates by a 100% from the time EPIRA was enacted.

Closer to the LRT1 scenario is the MRT3 experience, which invariably had the most lopsided risk allocation profile against the government. At first the government promised no state subsidy, but with 8 revisions to the Concession Agreement, government assumed the financing for the Right of Way Acquisition, and up to now has been assuming the traffic risks, and extended loan guarantees. Government allocates some P7 billion a year to pay for the financial obligations of the MRT arising from the lopsided contract. The government is now trying to buy back MRT3 from the MRTC.

What the government seems to forget is the basic dynamics between the government and the public sector for past PPP or BOT project implementations. The PPP or BOT projects revolve around financial viability for the private sector and economic viability for the public sector. Both sectors have varying objectives: for the government, it is to implement the project, while for the private sector, the objective is to maximize the Return of Investment (ROI), which can only occur by increasing the cost of the project assumed by the public sector or increasing support from the government either in terms of tax breaks, credit enhancements, subsidies, and the like, or reducing risks.

To expose vital government infrastructures to the desire of the private sector to maximize profits is to expose the government to more risks, instead of benefits. The past has proven that the benefits have far outweighed the benefits derived.

What is also frightening is the power wielded by the winning bidder. The Ayala-Metro Pacific (MVP) consortium would eventually control Line 1 operations, the Automated Fare Collection System, and the construction of the Line 1 extension. Metro Pacific also controls part of the MRT 3. This is a virtual monopoly in the train line which will remove any possible checks and balances regarding its performance and give them tremendous control to dictate fares.

Call to action

We, the Alliance Against LRT Privatization, a network of concerned individuals, employees and commuters, call on the people to reject the privatization of the LRT Line 1 Operations and Maintenance and the hybrid PPP mode of implementation of the LRT1 Cavite Extension Project.

We call on Congress to conduct an inquiry on the present state of the LRT Line Systems, amend the Procurement Law to fast track the procurement of vital capital spare parts and arrest the downgrading of the LRT systems and facilities, and to increase the capitalization of the LRTA from the current PhP3 Billion to PhP300 Billion.

Finally, we call on the people to resist the on-going privatization of vital government services to the detriment of greater access of these services for the people.###

How MVP-Ayala will squeeze LRT 1 commuters dry

Fare hikes galore as the MVP-Ayala group takes over the LRT 1

Fare hikes galore as the MVP-Ayala group takes over the LRT 1 (Photo from

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 (%)
Balintawak 1.87 2.06 14.19 12.00 2.19 18.23
Monumento 4.12 4.53 16.66 12.00 4.66 38.85
5th Avenue 5.21 5.73 17.86 12.00 5.86 48.84
R. Papa 6.16 6.78 18.91 12.00 6.91 57.55
J.A. Santos 6.82 7.50 19.63 15.00 4.63 30.88
Blumentritt 7.75 8.53 20.66 15.00 5.66 37.70
Tayuman 8.42 9.26 21.39 15.00 6.39 42.61
Bambang 9.04 9.94 22.07 15.00 7.07 47.16
D. Jose 9.69 10.66 22.79 15.00 7.79 51.93
Carriedo 10.37 11.41 23.54 15.00 8.54 56.91
Central 11.10 12.21 24.34 15.00 9.34 62.27
U.N. 12.31 13.54 25.67 15.00 10.67 71.14
Pedro Gil 13.06 14.37 26.50 15.00 11.50 76.64
Quirino 13.86 15.25 27.38 15.00 12.38 82.51
Vito Cruz 14.68 16.15 28.28 15.00 13.28 88.52
Buendia 15.75 17.33 29.46 15.00 14.46 96.37
Libertad 16.48 18.13 30.26 15.00 15.26 101.72
Edsa 17.49 19.24 31.37 20.00 11.37 56.85
Baclaran 18.07 19.88 32.01 20.00 12.01 60.04
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)

Poverty trends

Original photo from

Original photo from

In its latest survey, the Social Weather Stations (SWS) said that the number of Filipino households that consider themselves poor has slightly declined to 53% in the first quarter of 2014 from 55% in the last quarter of 2013. The Aquino administration was quick to point out that the SWS findings mirror the official poverty data released by the Philippine Statistics Authority (PSA). Two days before Labor Day, the PSA released the Annual Poverty Indicator Survey (APIS) which reported that the number of Filipinos considered poor based on their average income fell to 24.9% in first semester of 2013 from 27.9% in the same period in 2012.

The presentation of these two surveys, released one week apart, depicts a picture of an improving poverty situation. The National Economic and Development Authority (NEDA) described the findings as a “remarkable improvement” in poverty and credited the “strong economic growth” and “government investments in social development programs”. But their manner of presentation is misleading. First, a two or three point decline in poverty is hardly a remarkable improvement especially when one considers government’s claim of rapid economic growth and massive expansion in conditional cash transfer (CCT) funds. Second, comparing poverty figures on a quarterly or semestral basis tends to hide long-term trends, which provides a more useful and accurate appreciation of poverty’s general direction.

Indeed, if one is to look at poverty figures since the Aquino administration took over, what can be seen is the indisputable trend of worsening poverty and living condition. I have been compiling the quarterly surveys of SWS on self-rated poverty, involuntary hunger and adult unemployment from 2010 to their latest available reports. The trends, based on the latest results, are summed up below:

  • From 2010 to 2014 (first quarter), the number of Filipino families that consider themselves poor is growing by 700,000 a year (or 3.5 million Filipinos annually at 5 members per family)
  • From 2010 to 2013, the number of Filipino families that experience hunger is increasing by 200,000 a year (or 1 million Filipinos annually)
  • From 2010 to 2013, the number of jobless Filipino workers is expanding by 500,000 a year

The annual averages are presented in the following charts:


SWS poverty, hunger, joblessness | 2010-2014


SWS hunger


SWS joblessness

Meanwhile, even government’s own APIS does not illustrate a substantial improvement in poverty, pegged at 19.7% of families in 2012 (full-year); 20.5% in 2009; and 21% in 2006. Even worse is how government measures poverty – a person with P52.75 a day is not counted as poor. Such amount approximates the World Bank’s $1.25 per person a day poverty standard, which is being criticised by experts as being too low and artificial. (For instance, read here

But who needs an expert when common sense tells us that P52 could not afford decent living? Using P100 to P125 per person a day as standard, IBON Foundation estimated that the number of poor Filipinos could reach 56 to 66 million, or about 60-70% of the population.

If government’s economic managers could not even correctly count the number of poor and properly interpret poverty trends, how can the people expect the Aquino administration to address the country’s worsening poverty, much less end its structural roots? ###