Reject LRT-1 fare hike and junk PPP deal, IBON urges next admin

May 9, 2016

by IBON Foundation

#BeyondElections2016 | As millions of voters troop to polling precincts to choose the country’s next political leaders, research group IBON Foundation urged whomever the new President will be to reject the fare hike being sought by the private operator of the Light Rail Transit Line 1 (LRT 1).

The group added that the new administration should rescind the Public Private Partnership (PPP) concession agreement between the outgoing government of President Benigno Aquino III and the Light Rail Manila Corp. (LRMC) for the operation and maintenance of LRT 1. IBON explained that even if regulators disapprove the fare hike sought by the LRMC, the deficit payment scheme would still entail a fare hike as per the PPP concession agreement which obliges government to pay for the private operator’s “lost revenues”.

IBON reiterated that the fare hikes are baseless and unecessary. Regulators first allowed LRT 1 along with LRT 2 and Metro Rail Transit Line 3 (MRT 3) to increase fares in January 2015. The group noted that priorly, the fare box ratio of LRT 1 was pegged at 1.18 in 2014. From January to May 2015, the fare box ratio increased to 1.63 due to the initial fare hike. A fare box ratio of 1.0 means that current fares are enough to cover for the daily operation and maintenance of the train system.

IBON emphasized that the privatization of LRT 1 through PPP has made the mass transport system profit-oriented. The concession agreement between the Aquino government and the private operator guarantees the latter profits,thus allowing it to regularly impose higher fares in order to meet its expected commercial income.

The group also stressed that the deficit payment is actually just one of the many generous perks that the Aquino administration gave to LRMC. Of the Php64.9 billion total project cost of LRT 1, government shouldered Php34.9 billion or 54%, on top of some Php64 billion in foregone public revenues arising from LRMC’s exemption from paying real property taxes. Government also agreed to compensate LRMC if the former fails to comply with its contract obligations. Less than a year into the 32-year concession agreement, LRMC is already billing the government some Php1.8 billion in compensation for its failure to deliver, among others, the agreed 100 light rail vehicles (LRVs) upon LRMC’s takeover last year.

According to IBON, the LRT 1 PPP deal is onerous and grossly disadvantageous to government and the train system’s more than 419,000 daily commuters. LRMC, a consortium of Ayala Corp., Metro Pacific Investments Corp. (MPIC) and Australia’s Macquarie Infrastructure Holdings, is invoking its PPP contract with the Aquino administration for a fare hike of as much as 10% that it expects to implement in August. LRMC announced its planned fare hike last Friday.[End]