Tara? Facing the Philippine Transport Woes
Updated: Jan 13, 2021
The Filipino Commuter
Manila is always at the forefront of commuting news- and usually for not so good reasons. In 2019, the transport application Waze conducted a survey and named Manila as the worst city to commute in the Southeast Asian region and in the world. With this, John Forbes of the American Chamber of Commerce at the Philippines claimed that "Metro Manila is at risk of becoming uninhabitable as annual new car growth increases to 500,000 by 2020." These corroborate the findings of Japan International Cooperation Agency (JICA) in 2014 that estimated the total commuting cost in the metropolis is P2.4B per day, which includes fares paid, fuel costs, and wear and tear. However, bulk of the said cost is accounted for by the value of time lost due to heavy vehicular traffic that could have been used more productively. This is expected to surge by around 250% in 2030 equivalent to P6.0B per day even if the demand for transport services will grow by just 13%. The ongoing Coronavirus Disease (COVID)-19 pandemic has done virtually nothing to reduce vehicular traffic with the relaxation of quarantine restrictions as shown by photos shared in the social media.
These staggering values led to the development of plans to alleviate the worsening situation. The mentioned JICA study is proposing a transport-oriented development where Metro Manila will be linked with expressways and rail lines to Regions 3 and Region 4A. These links are important as Region 3 hosts a major airport (Clark International Airport in Pampanga) and an “aeropolis” or airport-oriented habitation (Bulacan) and the Region 4A leads the country in terms of industrial output. The roads and railroads are expected to decongest the capital and to foster development in the regions. In the same year, the National Economic and Development Authority (NEDA) crafted the country’s National Transport Policy (NTP). The said document outlines the vision of “…safe, secure, reliable, efficient, integrated, intermodal, affordable, cost-effective, environmentally sustainable, and people-oriented national transport system that ensures improved quality of life of the people….” It also calls for the creation of Philippine Transport System Master Plan. The NTP covers not only the land-based modes of transport but also water-based and aviation modes.
The Financing Modalities and Possible Implications
The 2014 JICA study proposed transport projects collectively called as the “Dream Plan” for implementation up to 2030 in response to the traffic situation. These projects are calculated to cost P2.6T covering additional roads, rails, airports, and seaports. On one hand, the NTP has placed emphasis on the role of the private sector, and in the resource sharing of the national government and local government units in building transport facilities. As the Filipino population is expected to be more urban through the years, the demand for transport infrastructure will continue to increase and to evolve. Consequently, the funding requirement will escalate at an even faster rate. Put simply, plans are as good as the money available.
A key issue that needs to be considered carefully is its financing. Financing transport projects must be equitable enough and provide for necessary cost recovery mechanisms, while putting primacy to the welfare of the Filipino people. Most forms of transport infrastructure are deemed public goods where it is almost impossible to exclude anybody from benefitting even if the individual has not contributed to build the infrastructure. Hence, the default mode of financing transport infrastructure is through the public coffers. A challenge to this is the limited public funds. Increasing taxes to fund increased expenditures is not usually popular. Social upheavals due increased taxes will destabilize the country’s already volatile ecosystem.
An alternative is engaging foreign partners for Official Development Assistance (ODA). The ODAs are loans with low interest rates, many of which have conditions set by the foreign partner. An example of which may be the preferential treatment to the nationals of the funding country by the receiving state in its search for partners to implement the project. Another is that the funder may require its counterpart to post a collateral that can be seized in case of default- usually access to natural resources or strategic real estate. To note, the risk of having the Philippines default on its obligations is insignificant as the government allocates enough in its annual budget to cover its debt servicing requirements. The conditions on ODAs are not necessarily disadvantageous to the borrower. However, the borrowing country must exercise prudence as the lender may utilize its position to bargain for policies that undermine the borrower’s sovereignty.
A Way Forward? The Role of the Private Sector
The nuances of public and ODA-funded transport infrastructure call for careful balancing act- and this involves the private sector. This piece contends a three-step approach in choosing the best financing modality for transport projects to maximize benefits and minimize risks. Essential to this is the identification of key transport projects to interconnect the nation efficiently. The current methodology of feasibility studies must be complemented with contingent valuation approach to estimate how much the possible beneficiaries value the project. If the amount that the beneficiaries are willing to pay for the project will lead to comfortable profit margins, a public-private partnership agreement may be inked with interested private investors who will build, operate, and eventually transfer the project to the state after some years. Safeguards on user fees may be fine-tuned using the results of contingent valuation studies. If the project is not expected to yield enough profit to entice private funding, the government may step in with public financing. Only when these two methods are expended that an ODA will be considered. With these in place, a more responsive Philippine transport network may not be so far-fetched.
Richard Mel Caplis is a Senior Economic Development Specialist in NEDA and a graduate student at the University of the Philippines Baguio specializing in social and development studies. His recent publication (with D. S. Lopez), “Contingent Valuation of Automated Guideway Transit in Baguio, Philippines”, published in Case Studies in Transport Policy by Elsevier estimated the willingness to pay of commuters for a hypothetical transport system. Opinions contained herein are solely his and do not represent any of his affiliations.