Train systems' subsidies drain government

By Karen Tiongson-Mayrina, GMA News Research Photos by Jes Aznar (First of two parts) Aling Letty used to travel from Kamuning in Quezon City to Taft Avenue in Pasay City for more than an hour in a bus that travels on turtle's pace even on days when traffic is not hectic. But all that is now distant memory. "It seems so long ago. Now, I'm in Pasay in 30 minutes for less cost," she said, waiting for her train to arrive. Aling Letty is a regular MRT commuter for more than five years now and, except for few instances when operations were stalled for technical problems, claims to be a satisfied customer. For Aling Letty and thousands of other Metro Manila residents, mass railway systems like the MRT and LRT Lines 1 and 2 have greatly improved their lives. Every day, almost one million people ride the three train systems, but the MRT gets the bulk of the passengers coming from its 13 stations daily, with the number sometimes reaching 500,000. The 16.9-kilometer modern rail system stretches along EDSA's 10.5-meter median strip from North Avenue, Quezon City to Taft Avenue, Pasay City. MRT commuters are an eclectic lot--the harried Makati executives mixing with low-income workers awed by the speed and comfort the coaches provide at low fares. Aircon buses plying the North Avenue-Taft route charge P25 compared to the MRT's P15. Little do these MRT regulars know that the high price come in a different form. Revenue from the big number of passengers still falls short of the huge operational expenses of the train systems. For every MRT or LRT passenger, the government actually subsidizes twice or thrice the amount of fare paid to keep the trains running. Last year, the government, base on average fares, paid subsidies worth P36.04 for every MRT 3 passenger, P27.09 for each LRT 1 passenger and P53.75 for an LRT 2 passenger. MRT3 and LRTA officials said the government spends double the amount it earns from these trains. In 2004 MRT earned P1.7 billion but spent P3.4 billion for its operations. LRTA figures show that Line 1 earned P1.4 billion but spent P1.8 billion while Line 2's expenses amounted to P899 million compared to its P275 million earnings. (Table 1) Train officials said fare increase would mean fewer subsidies, but admitted the additional income from it would still be insufficient to cover the rise in costs of fuel, power and overhead. LRTA and MRT officials have been asking Malacañang since March 2003 to approve fare increases, but President Arroyo, apparently fearful of a backlash in public opinion, rejected the petitions. "Hindi naman tayo makapagtaas ng presyo. We are campaigning before na makapagtaas kami ng fare pero hindi ito in-approve ni Presidente so this is purely a service matter, para sa gubyerno, para sa ating mamamayan," MRT spokesperson Mariano Gui told GMANews.TV. (We could not increase fares. We were campaigning before but the President did not approve, so this is pure service for the government and people.) Concerned groups, however, said the public should not buy this public service line, as passengers are really the source of the train systems' income. The Freedom from Debt Coalition (FDC) believes the dismal financial performance of the MRT and LRT is a product of government's unsound policies on foreign debt and private sector participation in public infrastructure. Initial assistance for building LRT 1 came from the Belgian government, which granted in the early '80s a P300-million "soft" and interest-free loan to be paid in 30 years. A Belgian consortium provided an additional loan of P700 million. The LRTA incurred loans from the Belgian, Japanese and French governments as well as bonds from the Bureau of Treasury in the 1990s to the early years of the new millenium. This included the P31-billion soft loan from the Japan Bank for International Cooperation for MRT Line 2 or the Megatren. The loan came with two percent interest for three packages, payable in 30 years with a 10-year grace period. As of December 31, 2004, the outstanding obligations of LRTA were P43.7 billion. LRTA is now one of the government-owned and -controlled corporations closely monitored for its huge debts. MRT 3 was built through a build-lease-transfer (BLT) contract entered into by the Department of Transportation and Communication and the Metro Rail Transit Corporation (MRTC) Consortium. The BLT is a variation of the build-operate-transfer (BOT) scheme provided for under Republic Act 6957 or the BOT Law. The transportation and communication department (DOTC) awarded the contract to build, lease and transfer the Metro Rail Transit System to the MRTC. The scheme required the department to hold the franchise and run the system, particularly the operation and collection of fares. The MRTC built the system, maintains it to ensure the availability of trains at specified headway on specified hours and procures the required spare parts. To reimburse the investment and spending on procured materials and parts of the MRTC, the transportation and communication department pays the private group monthly fees for a specified number of years, until government pays up a total of $2.4 billion over a 25-year period. MRTC financed the construction of MRT 3, infusing US$190 million (P4.49 billion) equity into the project. The corporation obtained financial closing, with help from international financial consultant JP Morgan, for loans worth US$ 465 million (P12.32 billion) from the Bank of Tokyo-Mitsubishi and Japan Export-Import Bank (JEXIM); the Postal Bank of the Czech Republic and Czech Export Credit Agency; and from a group of local banks on October 17, 1997. The loans are backed by government through the Department of Finance to cushion risks to investors and creditors. The government collects an average of P100 million a month from the estimated 380,000 people who ride the MRT every day. From the collections, the transportation department must make rental payments to the private sector group. In cases of shortfalls, the DOTC uses a stand-by letter of credit from the Philippine National Bank to settle the dues. With operational expenses exceeding revenues, both ventures are bleeding government coffers dry. In 2005 the government extended P2.6 billion in subsidy to LRT 1, P2.1 billion to LRT 2 and P4.6 billion to MRT 3. But train officials said the losses are expected. "This is not unique to LRTA or MRT, the financial situation of rail companies anywhere in the world is like this. It is really subsidized and supported by the government. There is no alternative (except to) increase the fare. Hindi naman sasakay ang mga tao dahil hindi naman kaya so you defeat the purpose," LRT Administrator Mel Robles said. Robles noted that a "profitable" LRT means that fare for Line 1 should be P41.29 instead of the average P14.20. For Line 2, fare should be P66.85 instead of the average P13.10. The government is subsidizing Line 2 fares at P53.75 per passenger. (Table 2) "The LRT is really meant to serve the riding public, it's more of the public service than the profit… Di mo naman pwede increase yung pamasahe (We can't increase the fares) because this is supposed to be a mass transport system.," he said. Not so, said FDC's Ma. Theresa Diokno-Pascual. FDC believes the government is merely fulfilling its obligations to its foreign lenders in the LRTA's case and to its private partner in the MRT 3 project. Pascual said she is not opposed to any government subsidy provided that the public, not private groups, benefits. "Kung private sector yon iilan lang ang makikinabang talaga tapos ang burden ng pagsubsidize e ipapasa sa karamihan ng mahihirap, parang di makatarungan, di ba?" (If benefits go to the private sector, only few gains, while the burden of subsidy is passed on to the poor. Is that just?) In the MRT case, Pascual said the government is relying on fare revenues to help shoulder its private sector debts. University of the Philippines economics professor Renato Reside, who wrote a paper on the dangers of private sector participation in government infrastructure projects, said the government could have avoided pouring in huge amounts in subsidies had it thought of ways to minimize the demand for guarantees. True, losses and subsidies are innate to railway systems all over the world, "but our country is (in) more (difficult situation) than the others," Reside said. Billions of pesos in government subsidies should have been allotted to sectors needing financial support. Reside said government expenditure for education and health, for instance, decreased to give way to the subsidy. Part II: Train systems' subsidies drain government