Neoliberal PPP behind LRT/MRT fare, water rate hikes

January 9, 2015

by superadmin

Underlying the train fare and water rate hikes is economic neoliberalism, which preaches that governments shift control of economic factors and activities away from the public sector to the private sector

IBON Features– Metro Manila residents greeted the New Year faced with the double whammy of LRT/MRT fare hike and water rates increase. These are the direct result of the Aquino administration’s continued promotion of public-private partnership (PPP) including in sectors that provide essential services like mass transportation and water supply.

The increases underscore how government is turning over to profit-oriented private companies the fulfillment of state obligations and the oppressive burdens that the people are forced to deal with because of it. Notably, the private companies come from the same business groups that have close ties with the administration such as the MVP and Ayala groups along with their foreign partners, which through Aquino’s PPP program now control Metro Manila’s light rail system and water supply.

Underlying the train fare and water rate hikes is economic neoliberalism, which preaches that governments shift control of economic factors and activities away from the public sector to the private sector. Governments do this through, among others, the privatization or corporate takeover of state roles and functions such as the PPP deals in LRT/MRT and the water sector. Complementing privatization is the so-called user-pays principle or the idea that consumers should pay for the full economic cost of the goods or services that they consume. It also means that only those who directly benefit should pay, instead of the burden being shared mostly by those with the capacity to pay under a system of progressive taxation.

In reality, user-pays is just a euphemism for the State abandonment of its obligations to provide social and economic services to the people while creating greater opportunities and the most favorable conditions for private business to profit. The Light Rail Transit Authority (LRTA) and the Metropolitan Waterworks and Sewerage System (MWSS) as government-owned and controlled corporations (GOCCs) were established to provide services to the public not out of the need to profit but to help in ensuring decent living standard for the people and in promoting national economic development. The viability of their operation is measured not in terms of commercial profits but in terms of overall social and economic gains – i.e. workforce mobility, improved public health, etc. That is why government is expected to raise revenues to fund mass transportation, water services and other key infrastructure as a public investment.

Such orientation however is deeply being distorted by PPP like when “user fees” are increased dramatically, regularly and even automatically to reflect the supposed full cost of the service, including the profits of the private operators. Or when government argues that only direct users of a public infrastructure must shoulder the costs when the ultimate benefits of such infrastructure or service are meant for overall public welfare and development. There is an obvious reason, for instance, why mass transportation in the national capital where the country’s economic activity is heavily concentrated must be supported by the State.

Burden of exorbitant rates

This has been the case for water services in Metro Manila since the MWSS entered into PPP deals with private concessionaires Maynilad Water Services Inc. and Manila Water Co. Inc. in 1997. In the past 17 years, both have been charging the supposed full cost of water services, which was discovered to include their income tax, advertising expenses and even their corporate social responsibility efforts. The private water concessionaires also charge their losses from inflation and foreign exchange to the consumers. Not surprisingly, water rates in Metro Manila have enormously increased. The all-in tariff (basic charge plus other charges) of the MVP-led Maynilad has already ballooned by almost 559% and the Ayala-led Manila Water, by almost 859 percent. The steep upward adjustment continues as guaranteed under the Concession Agreements between MWSS and the two private firms. The figures just cited do not yet include the controversial rebasing of the basic rates that for Maynilad customers will mean an additional Php3.06 per cubic meter in the basic charge, of which 65% will be used to recover its income tax payments. The decision on Manila Water’s rate rebasing is still pending as of the moment.

For the LRT/MRT fare hike, the Department of Transportation and Communications (DOTC) said that the adjustments, which could reach as high as 87%, adopt the user-pays principle in pricing of transportation services in line with Aquino’s Philippine Development Plan (PDP). Government claims that the fare hike will reduce the huge State subsidies spent for LRT/MRT commuters, of which around 90% are ordinary income earners, students and jobless/job-seekers. But data show that current fares are more than enough to cover the operation and maintenance of LRT/MRT. In the case of MRT, the so-called subsidies are actually government financial obligations like profit guarantees and tax exemptions for MRT Corp., the private firm that built the system through a PPP contract, and which the MVP group has economic interests in.

About 81% of MRT expenses represent such burdensome PPP financial obligations. For LRT, meanwhile, particularly for LRT 1, the fare hike is just the start of periodic and automatic adjustments that the private operator, the MVP-Ayala consortium Light Rail Manila Consortium (LRMC) will implement under its Concession Agreement signed last year with the DOTC. Like in the case of water rates with the MWSS privatization, the privatization of LRT 1 will result in drastic increases in fares. LRT 2 will soon be bid out to private companies, presumably under terms similar to the LRT 1 Concession Agreement.

Contradiction between privatization and public interest

Neoliberalism also effectively dismantles in various ways State regulation to the absolute detriment of public interest. The MWSS Concession Agreement, for instance, allows Maynilad and Manila Water to challenge and reverse the decisions of the MWSS-Regulatory Office (MWSS-RO) as seen in the recent dispute on rate rebasing. A foreign-led, business-dominated appeals panel that is not accountable to the Filipino people acts as the supreme arbiter on matters of rate setting and other issues that affect the interests of water consumers. In the LRT 1 Concession Agreement, meanwhile, the Aquino administration gave the LRMC a form of regulatory risk guarantee in terms of fare setting through the so-called deficit payment scheme.

Under this scheme, in case a fare hike is stopped and reversed by the courts or regulators, government will pay the LRMC its expected revenues from the said fare hike. This effectively makes judicial or regulatory intervention practically meaningless. The public will soon see how this will operate if the Supreme Court (SC) decides in favor of several groups that sought judicial intervention in the LRT/MRT fare hike.

There is a fundamental contradiction between the neoliberal push towards privatization and adoption of user-pays, especially in vital public services, on the one hand, and public welfare and interest, on the other hand. Such contradiction is further being sharpened by each increase in user fees. But while the MVP-Ayala group and other big businesses rake ever-increasing profits from these onerous increases, the oppressive hikes in fees also create the condition for the people to fight back and push for policy reforms. IBON Features