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AN (ECONOMIC ANALYSIS OF

PHILIPPINE DOMESTIC TRANS7'ORTATION:~. .

VOLUME I · INTRODUCTION -J• CONCLUSIONS AND RECOMMENDATIONS

• AN ACTION AND INVESTMENT PROGFtAM

Preparedfor:

THE NATIONAL ECONOMIC COUNCIL OF THE REPUBLIC OF THE PHILIPPINES

AN ECONOMIC ANALYSIS OFPHILIPPINE DOMESTIC TRANSPORTATION

VOLUME I

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THE REPUBLIC OF THE PHILIPPINESSHOWING PROVINCES AND

PRINCIPAL CITIES

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January I957

AN ECONOMIC ANALYSIS OF~'

PHILIPPINE DOMESTIC TRANSPORTATION

VOLUME I · INTRODUCTION

• CONCLUSIONS AND RECOMMENDATIONS

• AN ACTION AND INVEST'''Et~T PROGRAM

By:ROBERT 0 .. SHREVE H. E. ROBISON ROBERT K.. ARNOLD

REAR ADMIRAL J. W. LANDREGAN (USNR.RET) JOHN A. McCUNNIFF

AND EDWARD L. ULLMAN

SRI Project No. IU-I554

PreparedJor:THE NATIONAL ECONOMIC COUNCIL OF THE REPUBLIC OF THE PHILIPPINES

_. ._.._._.._.._..~~(.~_.Z_.~1.~!. ....WELDON B. GIBSON, ASSOCIATE DIRECTOR OF STANFORD RESEARCH INSTITUTE

FOREWORD

The National Economic Council of the Republic of the Philippinesis engaged in the preparation of comprehensive plans for the economicdevelopment of the nation. As a part of these planning activities, the

Council has undertaken studies of transportation, since an efficienttransportation system is recognized as essential to the realization of

full national potentials.

To provide the Council with information and recommendations helpful

in formulating legislative, administrative, and financial policies and

measures designed to increase the contribution of the domestic trans­portation system to the economic development of the nation, Stanford

Research Institute was invited to participate with the Council in a

nationwide study and survey of all forms of domestic transportation.

Detailed objectives of the project are outlined in the contract

between the National Economic Council and Stanford Research Institute,dated December 22, 1955. (See Article I in the appendix.)

All types and aspects of domestic transportation--Iand, water, andair--were studied, except local transportation within individual munici­

palities, cities, and metropolitan areas. Transportation between thePhilippines and foreign countries, by sea and air, was not included in

the project. An investigation of commodity and passenger movements which

create demands for transportation services was included as an essential

part of the analysis.

After initial planning at the Institute's home office, project work

was begun in the Philippines on February 29, 1956, and continued for six.

months. After submission of a draft report, the project team returned

to the United StateD, where the final report was prepared.

In the Philippines, project personnel consulted extensively withindividuals in government agencies concerned with all phases of trans­portation problems; with private transportation companies; industrial,

commercial, and agricultural agencies and associations; and with others

interested in the field of study. Institute staff members also made ex­

tensive field trips, during which all forms of domestic transport facili­ties were utilized, to obtain information and to observe operations under

all conditions. Areas visited included all of central Luzon, the Zambales

coast, Mountain Province, Cagayan Valley, Ilocos coastal provinces, and

southern Luzon, including the Bicol region; the Visayan Islands of Samar,

Leyte, Bohol, Cebu, Negros, wld PanaYi Mindoro, Palawan, and Joloj andthe major area= of Mindanao, including provinces of Davao, Cotabato,Lanao, Zamboanga, Bukidnon, Surigao, Agusan, and Oriental Misamis.

All available and pertinent statistical data were utilized. Sinceadequate, reliable, and consistent data were often lacking, it was neces­sary.for the project team to develop statistical material from primarysources in order to have facts upon which to base conclusions and recom­mendations. While it was not possible, within project resources, toinvestigate and reconcile completely all conflicting figures, such dis­crepancies are not sufficiently serious to interfere with the validityof the conclusions.

The project was sponsored jointly by the National Economic Counciland the United states Operations Mission to the Philippines of theInternational Cooperation Administration. Both organizations, under therespective leadership of Senator Gil J. Puyat, then Acting PresidingOfficer, and Colonel Harry A. Brenn, Director, gave the transportationsurvey team all possible assistance.

It is not possible to mention by name the many hundreds of persons,both within and outside these organizations, who cooperated fully and towhom grateful aclUlowledgment is made for their substantial contributionto the final report. Particular mention is made of the Project Director,Captain Andres O. Hizon, Acting Executive Director of the National Eco­nomic Council, for his guidance and leadership; Pedro G. Afable, of theNEe, who served as Assistant Project Director; and Walter Krause, ActingChief of the Economic Development Division of USOM/ICA, who provided ef­fective liaison between the survey team mld the International CooperationAdministration.

The project was carried out by the Division of Economics Researchof Stanford Research Institute under the direction of Robert o. Shreve(Project Leader), Manager of Transportation Economics Research. Thesenior staff of the project team consisted of H. E. Robison (Deputy Proj­ect Leader) and Robert K. Arnold of the Institute, and Rear AdmiralJ. W. Landregan (USNR-Ret), John A. McCunniff, and Dr. Edward L. Ullman,consultants. Roberto Y. Garcia of the National Economic Council madesubstantial contributions to the study. Other staff members of StanfordResearch Institute participating in the study were Dr. Frederick L.Wernstedt (Consultant), Alice J. Buckley, and Maryann Lovell.

vi

Organization of the Study

It was not practicable to present a report of this scope in a singlevolume. A comprehensive summary of the entire project and a suggestedaction and investment program for transportation improvements are pre­sented in this volume. The major sUbjects with which the study is con­cerned are dealt with separately in Volumes II through VII.

Titles of the individual volumes are as follows:

I INTRODUCTION J CONCLUSIONS AND RECOMMENDATIONS for the entire

study, and AN ACTION AND INVESTMENT PROGRAM

II THE DEMAND FOR TRANSPORTATION: COMM:ODITY FLOWS AND

PASSENGER MOVEMENTS

III DOMESTIC WATER TRAN'SPORTATION AND PORTS

IV LAND TRANSPOftTATION: ROADS AND MOTOR VEHICLES

V LAND TRANSPORTATION ~ RAILROADS

VI AIR TRANSPOHTATION

VII THE ROLE OF GOVERNMENT IN TRANSPORTATION

FRONTISPIECE .

FOREWORD ••

TABLE OF CONTENTS

. . . . . . . . . . . . . .

Part I. Introduction

11

v

Transportation and the Economic Development of the Philippines • 3

Part II. Conclusions and Recommendations!

General Conclusions 9

Volume II. THE DEMMfO FOR TRANSPORTATION:AND PASSENGER MOVEMENTS . . . .

COMMODITY FLOWS13

Volume III .. DOMESTIC WATER TRANSPORTATION AND PORTS 21

Importance of Land-Water IntegrationDomestic Water Transportation •

Principal Recommendatiuns for Improvement of WaterTransportation . . .. .. ..

Ports • . . .. .. .. • .Principal Recommendations for Improvement of Ports

Volume IV • LAND TRANSPORrrATION: ROADS AND MOTOR VEHICLES

Roads and IIighways ... .. • • • • . • • . . .. .. .. .. • ..Principal Recommendations for Improvement of Roads

Motor Vehicle Transportation . .. . .. .. .. .. .. .. .. .. •Principal Recommendations for Improvement of MotorVehicle Transportation . .. ... ......

27

28

30

3133

35

374041

43

Volume v. LAND TRANSPORTATION: RAILROADS 45

Philippine Railway Company . .. . . • • • .. .. • • • • •Manila Railroad Company . .. • • • • .. • . • .. • • • • •Principal Recommendations for Improvement of Railroads

474850

Volume VI.

TABLE OF CONTENTS (Continued)

AIR TRANSPORTATION • 53

Principal Recommendatiolls for Improvement of AirTransportation' • . • •

Volume VII. THE ROLE OF GOVERNMENT IN TRANSPORTATION

Organization . • • • • • .National Transportation PolicyCoordination of TransportationRegulation . • . . •Competition • .Principal Recommendations in Transportation Policy

Part III. An Action and Investment Program

Section

57

59

616162626363

1

2

Summary.

Planning, Policy, and Procedural Aspects of aTransportation Improvement Program • • • . • • • •

Organization for Transportation PlanningNational Transportation PlanPriori ty ProCedtlres . . . . . .Action to Obtain FundsResponsibility for Improving Efficiency of Con­struction and Maintenance ActivitiesNeed for Definition of Role of Government inTransportation . . . . • . . . . . • • .Regulation and Enforcement of TransportationRulings . • . • • . • • • • • • . . . • .

67

7272737475

75

76

76

Section

3

TABLE OF CONTENTS (Continued)

An Investment Program for Improvement ofTransportatioD . • • • . • . • • • • • • • • • • • • •

Financing a Transportation Investment ProgramAllocation of Funds among Types of Transportation

Priority Projects for Improving Ports and HarborsDredging . . . . . .. ..•. . • • • •Construction . . . . . . . . .Financial Requirements for Improving Ports andHarbors . . . . • . . . . •Financing a Ship Replacement Program .

Priority Projects for Improving Highways and Roads •Financial Requirements for Improving Roads • • • •

Financing Railroad Capital Requirements •••.Priority Projects for Improving Air TransportationFacilities . • . • • .. . .......••

Financial Requirements for Improving Airports

Appendix

777778

797979

808182

8387

8890

Nwnber

Articles I and II o£ Contract Between the NationalEconomic Council of the Government of the Philippinesand Stanford Research Institute .•.•• • • • • •• 93

List o:f Figures

12

3

45

Philippine National Ports • • • • • • • • •Philippine Municipal Ports . .• • • • • • • •Philippine National Highways and Trails Existing,Under Construction, and Proposed ••.•.The Manila Railroad Company Lines, Luzon .Philippine Air Lines Routes • • • •

2325

364654

Part I-

INTRODUCTION

National integration is a natural goal of the Philippine Government.On a social and cultural level, integration brings together diverseregional groups to enrich the whole and permit stronger and more special­ized cultural and political institutions. In relation to economic de­velopment, national integration helps to create a larger domestic marketand enables the country to take advantage of the economies of size aswe1l as to attain a more efficient utilization of the resources of theislands--all of which are necessary for economic survival.

Unlike many island groups, the Philippines are one country. Whilethe several big and thousands of small islands extending some 2,500 kilo­meters from north to south and 1,000 kilometers from east to west areessentially an integrated culture and economy, the integration is notcomplete.

Transportation plays a key role in national integration and economicdevelopment. Long-distance sea, land, and air routes and local accessroads and air services are required for successful operation of an inte­grated economy and society. Servicing all producing areas and productiveunits and facilitating regional and interregional passenger movementsare the ultimate goals of a transportation system. Basic transportationpolicies should be directed toward attaining greater national integration.

Transportation and the Economic Development of the Philippines

The next decade is a critical period in the growth of the Philippines.Human and natural resources Blust be carefully marshalled and coordinatedto attain greater economic development through greater production, in­creased per capita income, and more economic opportunities for the people.Economic development depends on the degree to which the basic structureof the economy can be diversified. How the transportation network af­fects the structure of the economy is a major consideration of this study.

In the Philippines at this time, highest priorit1es should be as­signed to the solution of transportation problems \vhich most influenceeconomic development. Fundamental problems examined and analyzed in thisstudy include the following: (1) the extent to which existing transpor­tation influences the efficiency of the present economic structure,

(2) the extent to which transportation services and facilities affectthe possibilities for a more diversified economy, and (3) determinationof those improvements in transportation which will yield the greatestbenefit to the existing economy and to a more extensively developedeconomy.

Structure of the Economy

The creation of the Philippine national income for many years hasdepended in large part on the export of primary products, -.ncludingsemiprocessed agricultural products and logs, lumber, and minerals.Concentration on such exports has necessitated the importation of a

large percentage of th8 finished cOffilnodities required to meet the con­stunption and capital needs of the nation. In addition to production forexport, a large proportion of agricultural production has been devoted

to meeting food requirements of the Filipino people. The two basic

cereals, rice and corn, are the principal agricultural crops produced

for the domestic market.

To the extent manufacturing has developed, it has been oriented

principally to the preliminary processing of primary products mainly forexport, and of imported material s into finished cammodi ties for donlestic

use. In addition, commodities such as cement and fertilizer have beenmanufactured. A large service sector has also developed in the economy,

comprised of trade, government, transportation, communications, and other

services.

This structure remains the basis of the Philippine economy. However,in recent years programs have been initiated to diversify it, and somechanges are indicated by recent trends. The goal of economic develop­ment in the Philippines is to achieve greater reliance on manufacturing,particularly the processing of domestic raw materials, and on agriculturefor the domestic mdrket through increased and more diversified production.Exports will decline relative to total economic activity, although thegoal is to achieve greater absolute production by an increase in the num­

ber and amount of processing of products to be sold in world as well as

local markets.

The Effects of Lower Transportation Costs on Economic Development

Transportation affects economic development by encouraging or in­hibiting the production of existing commodities and new products. Theeconomic effects of transportation are transmitted through the cost,

4

nature, and quality of the service rendered. Lower transport costs canencourage increased production by making commodities more generallyavailable. Cheaper transport of raw materials to the users, and of com­modities from producers to consumers, are the principal means by whichtransportation encourages economic development. It is important thattransportation policies in the Philippines be directed toward achievinglower transportation costs.

The beneficial effects of lower transportation costs on economicdevelopment cant of course, be diverted or absorbed by other elementsin the economy. There is much evidence derived from the f~ndings andanalyses of this survey that lower costs are not always reflected inlower transportation .rates, in higher prices for the producer, or inlower prices for the consumer of commodities. Lower transport costsmay result only in redistribution of income to transport carriers, orto the marketing or distribution sector of the economy.

In addition, because of production and distribution efficiencies,improvements in transportation may rail to transmit their full potentialimpact on economic development. Small unit handling of commodities inmany cases significantly reduces the benefits from improving presenttransport facilities. Also, potential benefits of new transport facili­ties may be reduced or even reversed by inefficient methods of landsettlement and administration, by inequalities in lmld tenure, or byinequities in resource development.

Developmental and Efficiency Concepts of Transportation

Lower transportation costs can affect economic development by di­rectly initiating production or by affecting production indirectlythrough increased efficiency of transportation services.

In the context of economic development, the possibility of directlyinitiating production usually receives primary attention. The problemhere is to find and eliminate transportation bottlenecks which seriouslyrestrict, or even eliminate, the possibility of production. This isdramatically illustrated in the opening of new areas for agriculturaldevelopment or in making minerals and raw materials available for do­mestic manufacture or export.

The effects of lower transportation costs on production through in­creased efficiency of transport services are less well recognized indomestic economic development generally, but are of key importance inthe Philippines. Although production of any single commodity may not be

restricted or increased in the immediate time period, the over-all ef­ficiency of the transportation system acts as an important drain orstimulus to the economy as a whole. The inefficiencies arising from apoorly surfaced and maintained road network, an interisland fleet whichis in need of extensive renovation or replacement, a railroad systemwith poorly maintained tracks or inadequate rolling stock, or air fa­cilities which do not meet the needs of an important segment of thepopulation have far-reaching effects on economic development. If al­

lowed to continue without correction, such inefficiencies will consti­tute an increasing drain on the economy.

In this study, the present level of transport services is analyzedand means are suggested by which transportation can be improved to fa­cilitate desirable production and distribution changes and economies.

Part II

CONCLUSIONS AND RECOMMENDATIONS

Part II

CONCLUSIONS AND RECOMMENDATIONS

The following general conclusions of this stUdy are basic to theformulation of policies and measures for increasing the contribution ofthe domestic transportation system to the economic development of thePhilippines.

General Conclusions

1. The primary problem, and most serious inadequacy, of transpor~

tat ion in the Phil ippines is the inefficiency of the existing transpo"r­tation network.

To achieve economic development, the transportation needs of thepresent economy and of a changing structure of economy can best be metby raising the level of efficiency of the existing transportation net­

work. Extension of transport facilities and services constitutes arelatively small part of the transpcrtation needs of the Philippines.

In land transportation, primary needs are far i~provement and proper

maintenance of existing roads and road structures; secondary needs arefor new construction. In the bus and truck industry, the major require­ment is to reluove chaotic competitive conditions by reducing the numberof operators and, by rneans of proper regulation, to permit adequate in­centive for private investInent in required types of motor transport fa­

cilities and services. The railroad network is in need of improvedroadbed and structures, and better rolling stock. Extension of rail~aci11ties is not economically essential.

In water transportation, the domestic merchant fleet needs extensiverenovation and replacement. Routes and services should be regulated andrationalized to prevent uneconomic practices. A few well-developed portswill serve national interests better than many inefficient ones. Dredg­ing is an urgent requirement. The Port o£ Manila is in immediate needof basic facility improvements.

In air transportation, the need is for improvement of airports andinstallation of navigation aids. In many of the population centers,airfields are completely inadequate for even minimum present needs. Theneed for extension of air service is relatively greater than the need forthe extension of other transport facilities, particularly in smallercommunities.

9

Inadequate government regulation has contributed to the inefficienc

of transport facilities and services. More effective government regu­

lation is necessary to maintain adequate standards of service and to en­

force sound competitive conditions for domestic transportation.

2. Transportation policies and planning should be directed towardintegrating transportation facilities and services and developing a

balanced transport nerwork.

The integration of all types of transportation, particularly water

and land, is essential to achieve an ef~icient transport network. A

comprehensive network of good roads, connecting interior and coastalregions, linked to a few well-developed ports served by suitable types

of interisland vessels, will best serve national requirements.

Simultaneous progress in all fields--land, water, and air--rather

than concentration on one type of transport facility, is a prerequisite

for a balanced transportation system. The transport needs of all sector~

of the economy should be considered in transportation planning to raise

the level of efficiency of domestic transportation in the Philippines.

3. Transportation planning and policies should be part of a well­

developed, over-all national economic plan and should be coordinated witl

the policies of other government agencies.

National economic planning is necessary to achieve economic develop­

ment in the Philippines. Transportation policies and planning are im­

portant aspects of over-all planning, but are no substitute for it.

Transportation facilitates economic development but does not create it.

To realize maximum benefits from lower transport costs, the policies

of government agencies concerned with transport must be carefully coordi­nated with the plans and policies of the Department of Agriculture and

Natural Resources, the Department of Commerce and Industry, the Agricul­

tural Credit and Cooperative Financing Administration, and the Office ofEconomic Coordination.

Although the extension of transport facilities and services doesnot constitute the primary transportation problem in the Philippines,

many new routes and services will be economically justifiable from timeto time, particularly roads and motor transport facilities. Their con­

struction or institution should be carefully coordinated with specific

area development plans of other government agencies, and they should be

designed to serve requirements in an efficient manner.

4. Total financial requirements for providing adequate transp·o-rt-a-­t'ion faciliti-es exceed the nation's present capabilities.

The conclusion that the major problem of domestic transport is thepresent "transport inefficiency rather than the need for extension of trans­portation services does not lessen the amount of expenditures requiredfrom the national budget.

The allocation of a higher proportion of the national budget totransportation facilities over the next five-year period, as comparedwith previous allocations, is economically justified.

Since the amount of expenditures required to improve transportationexceeds the funds available, the need for the establishment of prioritiesis increased. Priorities should be determined on the basis of benefit­

cost analyses.

Careful determination of priorities should extend to alternativeeconomic and social needs as well as to selection among individualtransportation projects. While roads generally should receive thegreatest share of the available fund~, certain portworks and air facili­ties are at least as important as any individual road project.

To achieve the proper type and amount of private investment in motor,interisland vessel, and air transportation £acilities, government poli­cies and regulations should be directed toward instituting and enforcingfavorable competitive conditions and standards of service.

Detailed summaries of the conclusions and recommendations for eachvolume of tIlis report follow.

THE DEMAND FORCOMMODITY FLOWS ANDTRANSPORTATION:

PASSENGER MOVEMENTS

P~I!ViOU8 page Blank

Volume II. THE DEMAND FOR TRJJiSPORTATION:COMMOn lTV FLOWS AND PASSENGER MOVEMENTS

Commodity and passenger flows create the demand for transport. As­sessment of the adequacy of the transport network in relation to require­ments for national integration and economic development require an analysiof traffic distribution patterns and potentials.

The findings on the total quantity of the commodity transported,the geographical and marketing patterns of distribution, and the specificconclusions which have been indicated in relation to the need,fo~ improve­ment in transportation of major commodities are summarized in ·the sectionconcerned with each commodity. The conclusions focus on the over-allpattern of distribution and are discussed under the following categories:export commoditi~s, domestic commodities, imports and consumer manufac­tures, traffic areas, and passenger movements.

Export Commodities

Export commodities comprise as much as one-third to one-half o£ thetotal tonnage of major commodities (excluding local construction mate­rials and the like) which are shipped within the Philippine Archipelago.The total demand created by export commodities for transportation facili­ties varies significantly depending upon the distance the commodity ismoved before reaching an offshore vessel for shipment to world markets.

In 1955, export of logs, lumber, and minerals accounted for about3.5 million tons, with a definite planned increase to about 6 million.Since production is generally close to the coasts, these heavy bulk move­ments are usually made by the shortest route to a shipping point. Thetransport facilities are usually one-purpose and are supplied by privateusers.

The major agricultural exports reached a total of almost 2.5 millionmetric tons in 1955. These agricultural products were moved first £romproducing areas to primary concentration points--copra bodegas, sugarcentrals, or hnling locations. From these points, over half of them weresubsequently sllipped relati vely long distances e1 ther to ports for ex­port or to domestic processing plants.

A large part of the centrifugal sugar had a transport pattern simi­lar to logs and minerals--short-haul shipments to the nearest central orto a coastal landing by private transport facility.

Most of the sugar cane was moved by private railroads, but the rela­tively small amounts shipped on the Manila Railroad or the PhilippineRailway comprised the largest single commodity movements over each ofthose lines.

Copra shipped to bodegas and abaca transported to baling centersprior to export create a large demand for roads and trucks.

The further demand for transportation of agricultural export com­modities from primary concentration points to offshore vessels is gene­rated principally by shipments to major ports for transshipment. Othersignificant transportation demands incluC:e these for movement of coprato oil mills in Manila f abaca to Manila (in-transit), and tobacco tocigar and cigarette factories in Manila. These commodities comprise animportant part of the freight transported by carriers in tIle Philippines.

Transportation needs an~ improvements indicated in respect to exportcommodities are as follows:

I .

3.

The major problem cf transportation of agricultural export prod­ucts is in the collection and movement of commodities to primarycollection points. Inefficient trans~ort facilities and exces­sive handling are conunon. T1:f~ princi~-:al transportation neec! isfor better roals.

Most min.:;ra~:_.s arh', fOl·es~~ ~)rol.~ucts mcv~ on.i_y short l~istances toshippid~' pointf.:, !;ellera~_ly r·rovi(~.c~: an:_· maintained ::;y privatecompanies. ~~ol:;:e~uent}.~', there i:-~ Ii ttle IlCe(~ for government

assistance.

The extension of trans;ort facilities to ne~ producing areasdoes not generally constitute a major ~:·roblem of the exportsector of the economy. New export crops such as ramie do notalone warrant extension of roads until more concrete evidenceof production potential is demonstrated.

The l.fovement 0 f Dome s tic Commod i ties

The products produced, consumed, and utilized within the Philippinescreate more demand for domestic transport than do the traditional export

16

commodities. The J)ulk of this movement consists of servicing the do­mestic'economy with foodstuffs and other domestic materials, such.aslumber, cement, coal, and fertilizer.

The transport of a large part of the total production of agricul­tural commodities, local construction materials and the like, is com­prised of local, short-distance movement and thus does not contributesignificantly to domestic transport demand.

The most important domestic commodities which move between provincesor between rural and urban areas ~~:i,thin provinces are the two principalfood crops, rice and corn. Rice production exceeds local consumption inseveral surpl us areas: Nueva Ecij a in nortll central Luzon, the CagayanValley, parts of 1\lindanao, and clse\vhere. From these points J rice isshipped to the large urban markets, principally Manila, or to de£icitareas, in particular to specialized export areas such as Negros. Thisspecialization of export production on the one hand and domestic foodcrop production on the other, produces a complementariness promoting in­tegration of the country. Over the next decade, these basic commodityflow patterns will persist.

In addition to food products, a variety of otller commodities for

domestic consumption--notabl:r celnent, coal, fertilizer, and 1 umber--alsocreate demands for transport. \VIlile l\1anila is tIle largest marl{et andalone receives about half the domestic l~lberJ for example, anticipateddevelopment of processing of these materials will generate more movementin the future. Toledo ill Cebu, and II igan in Alindanao, are 1 ilcel y centersfor copper smelting and steel production, respectively, as well as forfertilizer manufacture.

The following transportation needs are indicated in respect to do­mestic commodity movements:

1. The primary problem is in the collection and movement of com­modities to primary concentration points. Better roads, in­cluding barrio roads, are needed.

2. The improvement of roads to collection centers is directly re­lated to the successful operation of Farmers CooperativeMarketing Associations. Detertllination of priorities in theallocatioIls of funds to roads J therefore, should be coordinatedwith the needs of the Agricultural Credit and Cooperative Fi­nancing Administration and the National Rice and Corn Corporation.

17

3. Access roads to new producing areas will be required over thenext decade, particularly in surplus producing areas. Theseroads should be constructed, llowever, onl y after careful landsurveys and the formulation of developmental plans by specificgovernment agencies, such as the Departments of Agriculture andNatural Resources, the Department of Commerce and Industry, theAgricultural Credit and Cooperative Financing Administration,and the Office o£ Economic Coordination.

4. More economical methods of shipping minerals and lumber by

domestic water transport are required, including specializedcarriers, bulk handling techniques, and more dependable service.

The Movement of Imports and Manufactures for Domestic Consumption

The movement of imports and manufactured goods to final consumersis significant, although, with the exception of petroleum, this movementis not as heavy as the flow of prinlury comnlodi ties, foodstuffs, or do­mestic materials such as cement, coal, and fertilizer.

Manila is the principal port for imports and the center of consumerproduct manufacture as well. Therefore, the demand for domestic trans­port of imported commodities and conswner manufactures stems primarilyfrom the distribution of these comnlodi ties froln I\Ia11ila to outlying markets

and is not as great as would be the case if manufactures had to be dis­tributed to Manila from outlying production centers.

Imported conunodi ties and mU11ufactured conSluner goods not only have

less buIlt and v/eight than primary conlffiodi ties or domestic materials butgenerally move in the opposite direction from Ioodstuffs and raw mate­rials. The seasonality of foodstuff production, moreover, contributesto high load factors for parts of the year on many routes. The resultsof this unbalanced traffic, which is characteristic of many economies,are not as pronounced in the Philippines as elsewhere because many of the

heavy primary commodities--minerals, timber, a large proportion of thesugar--arc exported directly abroad. In some instances the domestic move­ment of consumer manufactured products and general inlports into an a.reamay actually be 11eavier tl1an tlle domestic movement of raw materials out.Some routes are unbalanced in one direction; others, in a reverse direc­tion; and still others are relatively balanced.

The most important transport requirement in relation to the distri­bution of imported commodities and manufactured consumer products is notthe balance of traffic. Rather, it is the improvement of the facilities

18

of the port and industrial area at Manila, especially since manufacturingact!vi ty is increasing rapidly in keeping wi th national d,~vel()pment plans

for ~3rving the domestic market. The concentration at Manila is likely

to continue, since the domestic market of which Manila is the center islarge enough to support only limited development. Industrial land in

Manila is not only expensive and scattered but remote from the port

through which many of the domestic and imported raw materials must move

before reaching processing and manufacturing plants. Development of an

industrial port area should receive careful consideration in view of the

need to reduce not only manufacturing costs but also the traffic problem

of Manila.

Petroleum is the largest single import, amounting to approximately

two million tons per year. Since petroleum is a bulk commodity, it isan exception to most other imports or manufactured goods. Domestic

tanh:ers, barges, and tanlt trucks are used to redistribute it from a few

main centers of import or refining (~1an.ila, Cebu, Bata:ngas, San Fernando J

Davao, and Iloilo). A significant proportion of the petroleum volumemoves in containers. Distributors often take advantage of cheap back­haul rates, and thus this traffic is a part of the general movement ofimports and manufactures unlilte the buIlt petroleum movements by privatetankers through private facilities.

Traffic Areas

In addition to the analyses that were made of the volume and patternof cornmodi ty flows, trade centers were determined, arld trade areas weredelimited and mapped. These trade centers, which are the foci of passen­

ger movements and the generators of other traffic on the islands, arethe distribution centers for imports and manufactured products.

Sixty-six major and secondary centers serving as regional or districteconomic and social centers have been defined. Many of these centers are

also political capitals. Half of the total number of centers are definedas major centers with ratller well defined trade areas; half as secondarycenters, similar to the major centers, but, in most cases, with less well

defined trade areas. In addition, some 126 or more minor centers have

been identified, with only local or poorly defined trade areas. Belowthis level are thousands of smaller poblacions and barrios.

~1anila is the national center controlling the production of a wide

local area as well as specialized services for all the islands. Thecities of Cebu, Iloilo, Davao J and to a lesser extnnt, Zamboanga are

regional centers with Cebu City the most important.

19

In some less developed areas, no completely organized framework oftraae exists. Often the only means of surface access is by boat at iso­lated coastal landings--notably along the northeast coast of Luzon, theeast coast of Mindanao, and the Zamboanga peninsula of Mindanao. More­over, in some places direct distribution from the interregional centersis more important than local distribution from smaller regional centers.This is particularly true near Manila and in areas with poor land trans­port but with water connections to a major regional center~

The growth of regional centers--desirable for the more completepolitical~ professional, social; and economic services essential foreconomic and social development--would be encouraged by improvement oftransportation facilities to make possible lower-cost local commoditymovements,

Passenger Movements

Domestic passenger movements are heavy and generate more demand fordomestic transport facilities than freight~ Passenger traffic is bothpolitical and social, as well as economic, in nature and purposea Move­ment of persons assists and reflects national integration~ Althoughseasonality strongly affects volume of traffic and creates loading prob­lems, especially on some longer routes, direction of movement is gener­ally balanced.

Volume III

DOMESTIC WATER TRANSPORTATION 6~ PORTS

~~CULION

SAN JOSE de BUENAVISTA

..CAGAYAN d. SULU

JOLO

~

FIG. 1

PHILIPPINE NATIONAL PORTS

23

KILOMETERSo SO 100 2!50,

I

". (\

P~NAMALAVAN

POCTO?~MALBOG"V.

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JIlAHATAOIVANA!,

9tSABTANG

BALINTANG CHANNEL

~ASIGURAN

1RORA

t

'INAMALAYAN

~BA.!AY

FIG. 2

NIC IPAl PORTSPHILIPPINENOM~EMBER 1955AS OF

o

AGUTAYA•~CUYO

Ct

AEs

JCAGAYANCILLO

lJ

~RACELI

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PENAP :T'A lJSTA. CRUZ

H DAN A 0

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BALINGOANSILAO

KAUSWAGAN

TUBOD ~DANSALAN M

~LUMBATAN

GULF

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• T~~ATAINGAN AGSANJAN

QMARIPIPI ~

" ZUMARAGACAWAYAN~DfRA~~NTARCAN

V I 5 A Y A N ti'~AN ~ALORAESTANCIA CALUBI"~4l\ JC"BAJ~T~~TO'N

SEA TABAN~~Y\T \..-..GGARIG~ MACARTHUR

l\ fir .VILLABA BASE~-:...., lEV 1 E

STA. FE POLAMBATO QRMOC GUIUANHAGNAYA PALOMPONO ~ERIDA

BUELAN ISABEto...P'" -eAVBAY.

U C A /;'0 rES c?PILA~B1'1~TUDELA

E DANAO/PORO ( HINUNANGAN( SEA NAVAL' SOGOO n

pT0LEDO MANDAWE IBAGO~ HINUNOAYAN

MINGLANILLA. OPON SAN ~~IDRor..~ "'CA.GALI~'NGUIHULNGA~ AN FERNANDO MALITBOG\ DUMAN~UG JETAFE -~L180N ' ~LOAN

:.r1MALALUO; SIBONGA - UBAY - MAASIN 6RONDA ARGAO TU81GON PINTUYAN

~B 0 H 0 l

; RIBOJOC ~INDULMAN PLACERf'\ DAPADALAGU ~~JAGNA \Jo LOAY OIMIAO

BASTIAN

MORO

SEA

IBAJAY

NEW WASHINGTON

4

DUNG

Volume III. DOMESTIC WATER TRANSPORTATION AND PORTS

Importance of Land-Water Integration

The Philippines are highly dependent upon water transportation be­

cause the country is comprised of many small islands. Economic, politi­cal, social, and military requirements all point to the need for efficient

water transportation services. However, water transportation by itself

cannot meet the full needs of travelers, shippers, and consignees. In­

variably, most shipments involving water transportation require at least

one and usually two land transportation movements, since very few ship­

ments are made between shippers and re, 3ivers both located immediately

adjacent to the water. Similarly, passengers traveling by water almost

always must utilize land transportation at some point in their trips.

This indicates that the long-run transportation network of the Philippines

should be designed to utilize systems which effectively combine land and

water transportation.

The fact that both water and land transportation must be utilized

in many movements of commodities and people among the economic centers

of the country has great impact on transportation services and costs.

The island composition of the country leads inevitably to transportationcosts that nre relatively higher than in many other countries.

Integration of land and water transportation has two principal as­

pects. The first and most important aspect is the effective combination

of the basic facilities--roads and ports. Roads and ports should be lo­

cated to serve each other. The economic usefulness of a port, however

excellent its harbor and cargo facilities, is limited by the land trans­

portation networks linking the port with its hinterland. For this reason

ports and highway projects should be planned together so that maximum

usefulness of transportation facilities can be achieved.

The second aspect of integrated water-land transportation is the

development of land and water carriers that combine in an optimum manner

to provide the most efficient movement over both land and water from the

shipper to the consignee. One of the principal costs associated with

water transportation is cargo handling. On a typical movement in the

Philippines, cargo is handled and rehandled many times. These handlings

inflate total transportation costs substantially. The relatively small

cargo lots that characterize shipments in the Philippines magnify these

handling costs.

Because of the short-run characteristics of water voyages from portto port, a large percentage of total vessel time is incurred in ports.

Thus a major portion of costs associated with vessel time could be re­

duced if vessel turn-around time could be minimized.

One of the most pronlising potential transport systems for the

Philippines is the use of vessels \vhich can carry truck trailers andother wheeled vehicles. This type of sJ·stem effectively combines water

and land transportation and \vould substantially reduce cargo handling

time and port time. The successful operation of this system requires

highway networks which permit efficient surface transportation.

Transportation planning 1n the future should encourage the develop­

ment of this type of system. Roll-on, roll-off transportation is beingdeveloped in other parts of the \vorld. The principles invol ved have

great promise in an archipelago. The roll-on, roll-off type of vessel

provides a method \"hereby the Philippines can be 1 inked together by high­

ways, even though the country is separated into islands. It is possible

to build a "high\vay" system that will link northern Luzon wi th southern

Mindanao and the Visuyan Islands. Vessels capable of currying wheeled

vehicles cun be built to provide the link between islands. They can be

considered "moving high\vayslt and can be buil t to \vi tl1stand rough seas

when necessary_ \Vhile the development of link-up highways is in the

future, transportation planning should give careful consideration to this

concept~

Domestic Water Transportation

In domestic water transportation in the Philippines, there are hun­

dreds of shipping routes which make up a complex network of shipping con­

nections throughout the islands. The major shipping routes run into and

out of Manila and Cebu City, which are the principal centers of domestic

interisland trade. Passenger traffic forms a major part of the total

water transportation movement, accounting for up to 40 percent of total

revenues for some cOlnpanies.

Domestic water transportation is characterized by intense, chaotic

competition. Ship operators are free to institute or suspend service on

their own volition. They are not required to obtain certificates of

public convenience or necessity, or franchises of any l{ind. Standards

of service are not established by governnlental agency. \Videspread dis­

criminations exist in rates through rebates, discounts, and other prac­

tices.. Rate regulation has been ineffective, and the.:ce is little rela­

tionship between going rates and those prescribed by the Public Service

28

Commission. Large shippers and consignees use the competitive situationto force rate and service concessions not available to others.

Excess competition has resulted in wasteful and uneconomic practices.

On many routes excess ship capacity exists. Bunching of sailings createsperiodic pier congestion. Lack of regulation of entry into service im­

pedes the introduction of ne\v capital into the industry since investments

are not protected frollt uneconomic cOlnpeti tion.

Lack of standards of service is one of the basic problems associated

with water transportation. 'T'l-~ creation of adequate standards of serv­

ice and the establishment of a realistic and reasonable rate structure

free from discrimination, properly and economically enforced, would bene­fit the econom:'. Erratic transportation services at fluctuating ratesinhibit production and the establishment of industry.

Seasonal overloading of passengers is a co~mon practice.

sanitary regulations are frequently violated.Safety and

Government promotion and regulation in donlestic water transportation

has been inadequate llild deficient. Responsibilities for water transpor­

tation have been divided mnong several agencies, \vi th the resul t that

domestic water transportation has not received the attention \vhich itseconomic importance jllstifies. Lack of trained personnel and adequate

budgets alf:o 1135 been a major factor. Lack of procedures to develop ade­

quate data and statistics for administrative control are apparent. Govern­ment organization to promote, develop, and regulate water transportation

needs to be strengthened by providing better trained staffs and larger

budgets.

Although thousands 01 vessels operate on some kind of commercial

basis, about 140 vessels comprise the principal interisland fleet which

carries the great bulk of the domestic trade. The present fleet is suf­

ficiently nwnerOllS to cover general cargo requirclncnts, particularly if

operations are properly regulated as to routes and standards of service.

However, the vessel fleet has many shortconlings. Almost the entire basic

interisland fleet is composed of surplus military ships from th~ United

States. These vessels were not designed for use as cOffiluercial carriers.

A major deficiency is lacl{ of speed. Size is also a problem. These

factors inflate costs of interisland transport.

Unless prompt action is tal<:en to provide lle\V ships, wholesale re­

placement of the fleet will be a luajor problem wi thin the next few years.

In addition, the requirements of the lwnber and other industries for

special ized carriers which \viII permi t bulk shipment in an economic man­

ner are not being met, except for tankers operated privately by oil

companies.

29

The capital requirements involved in purchasing new interisland

vessels are large. As indicated earlier, lack 0f regulation impedes new

investment in the industry because these investments are not protectedfrom uneconomic competition. Furthermore, since Philippine shipbuildingfacilitles are limited, steamship operators must go outside the countryto purchase ships. Foreign-exchange allocations will be required.

High costs are a factor impeding transportation movements by water.

In addition to deficiencies in the vessel fleet outlined above, other

characteristics of Philippine domestic water transportation that tend

to inflate costs are: (I) the movement of cargo in small lots t (2) the

short-run nature of the voyages, (3) the high percentage of terminaltime in relation to total voyage time, (4) inadequate harbor facilities

in some areas, and (5) service rendered to many small ports rather than

to a small number of larger, more efficient ports.

Cost reductions in interisland water transport can be achieved by:(1) reducing the extent and cost of cargo handling between land and water

carriers, (2) combining small cargo units into larger and more economi­

cal lots for shipment, (3) reducing terminal time to a minimum to increase

vessel utilization, (4) introducing new vessels with faster speeds into

the fleet to increase vessel utilization and improve service, and

(5) concentrating cargo into fewer and better ports by improving the

efficiency of ground transportation.

Greater use of barges in interisland transportation would also re­duce costs of water shipment~ Techniques of ocean-going barge operations

can be adapted for use in the Philippines.

Since many shipments involve a combination of land and water move­ment, i,ntegration of \vater and land transportation should be directed

toward overcoming the characteristics outlined above which inflate costs.

To reduce costs, every encouragement should be given to the develop­

ment and use of vessels which carry vans, truck trailers, and other ve­

hicles in addition to passengers.

Principal Recommendations for Improvement of Water Transportation

1. Legislation should be adopted to require shipping companies to

obtain certificates of public convenience and necessity or franchises

prior to commencing common carrier operations over major routes in the

domestic trade. Standards of service should be regulated. This recom­

mendation is based on the assumption that the present deficiencies in

30

regulatory policies and practices will be corrected. No regulation is

preferable to inadequate and ineffective regulation.

2. The rate structure in the domestic water transportation industry

should be thoroughly revised and placed on a realistic and nondiscrimi­

natory basis, and then strictly enforced.

3. A program of ship replacement in domestic water transportation

should be established. Ship operators should receive the support of

governmental agencies in their efforts to obtain new vessels. Government

loans should be made available to qualified ship operators. High ex­

change allocation priority should be given to essential ship purchases.

Any program, however, should be coordinated with efforts to stabilize

the industry through proper regulation, and financial assistance should

not be provided unless the vessel is required and is an economical addi­

tion to the fleet. Attention should be given to obtaining carriers spe­cifically designed to service the forest products industry and other in­

dustries with bulk requirements.

4. The over-all governmental reorganization outlined in Plan 60

should be implemented by providing sufficient staff and funds to permit

adequate carrying out of the functions and responsibilities outlined.

5. Safety and sanitary regulations covering passenger transporta­

tion on interisland vessels should be reviewed by the appropriate agency

(Bureau of Water Transportation, to be established under government Re­organization Plan 60). The findings should be properly enforced.

6. Legislation should be adopted which will permit payment to inter­

island shiil operators for carrying mail.

Ports

An extensive port network gives widespread coverage throughout the

islands. There are 63 national ports and 192 municipal ports. with manyadditional private installatlons. Until alternative means of transpor­

tation become available, it will be necessary to maintain ports where

water transportation provides the only means of access. However, con­tinuing attempts should be nInde to decrease the nunluer of ports on each

of the islands by increasing the efficiency of land transportation.

Ports should be maintained and improved only at those places which best

serve the economy of the country as a whole.

Unless a port has an adequate road network leading back into the

hinterland, the area which it can serve is limited. A port should not

be established or improved unless roads exist to integrate properly the

economic area which it is designed to serve.

Manila and Cebu City completely dominate all other ports in economic

importance. Both are focal points for the interisland trade, and a major

part of the traffic moves into or out of them. In foreign trade, also,

these two ports dominate all others. The overwhelming importance of

"Ianila in the foreign import traffic is particularly striking. This

heavy import traffic generates large demands for pier and cargo space,since the import tr'uffic consists principally of general cargo.

There is a substantial need for port and harbor improvements.Dredging is a particularly critical and urgent requirement. Dredging back­

logs at national ports alone aggregate at least 30,000,000 cubic meters .. The capacity of dredging equipment available for port and harbor work is

not sufficient to meet annual mai.ntenance requirements.

The cost of essential port and harbor improvements far exceeds the

available financial resources. It is imperative that expenditures forport improvements be carefully made. Criteria should, therefore, bedeveloped for evaluating proposed expenditures and for establishing

priorities. Some of these criteria are:

1. Availability of alternative transportation if improvements are

not made.

2. Relationship to the national ~conomYl including consideration

of investments that would bring the greatest benefit to the country as

a whole.

3. Relationship between benefits and costs. Each individual proj­

ect should be evaluated from the standpoint of its cost compared to the

economic benefits to be derived from the proposed expenditure.

4. Relationship to area development. Construction of a port or

harbor will not by itself accelerate economic developIIlent. The con­

struction of ports and harbors must be integrated with over-all regional

development plans.

5. Plan for transportation networl(. Port and harbor projectsshould be included in over-all plans for regional and national trans­

portation improvements. The lack of comprehensive planning for a nation­wide transportation system and the absence of regulatory policies ade­

quate for a unified system have been major deficiencies in Philippine

transportation.32

Top priorities should be given to port projects in Manila and CebuCity. Basic improvements are urgently required in the Port of Manila

to keep pace with the present and future demand£ of foreign and domestic

water commerce. The port needs dredging. It requires additional berths

for large ocean-going vessels, and additional cargo loading and ware­

house space. The present facilities for handling passengers are alsoinadequate.

Dredging is the most urgent requirement in the Port of Cebu City.The water depths at the ocean vessel berths arE, so shallow that deep­draft vessels can berth and sail only on high tides.

Other ports which require essential maintenance and appear to

justify priority improvements are Davao, Cagayan de Oro, Iloilo, Legaspi,Tacloban, Zamboanga, Butuan, Surigao, Iligan area (not present location),

Parang (for Cotabato), and Dadiangas (General Santos).

Most funds for port and harbor improvement come from the PortworksSpecial Fund. In its present situation, the :fund cannot meet all the

proposed and desirable demands upon it.

If urgent port and harbor improvements are to be made, additional

funds will be required. Careful consideration should be given to in­

creasing the income of the Portworks Special Fund. This could be done

by (1) reviewing the present exemptions from the wharfage payments and

removing those that are unjustified; (2) providing that berthing charge~,

harbor fees, tonnage dues, storage charges, and the government's share

of the arrastre charges go into the fund; and (3) establishing a wharfagecharge to be paid by shippers and consignees on domestic water traffic.

Principal Recommendatlons for Improvement of Ports

1. Additional dredging equipment, preferably hopper-type dredges,should be obtained; and dredging operations should be expanded as rapidlyas possible.

2. Construction of pier facilities in Manila should be expedited

to meet the urgent requirements. Priority improvements in other portsshould be launched as soon as feasible.

3. A long-range program for the reductic)n of the number of portsthrough improvement of land transportation should be developed, consist­

ent with over-all transportation requirements.

4. Legislation should be passed to increase receipts into the

Portworks Special Fund.

33

Volume IV

LAND TRANSPORTATION:ROADS AND MOTOR VEHICLES

Previous Page Blank

Leoend-- FIRST, SECOND, AND THIRD CLASS

NATIONAL ROADS

------- NATIONAL ROADS. UNDER CON­STRUCTION. PROPOSED NATIONALROADS, AND EXISTING TRArLS

250,

•

KILOMETERS50 100o,

FIG. 3

PHILIPPINE NATIONAL HIGHWAYSAND TRAILS

Existing, Under Construction,and Proposed

,~

-J"

• I AIIII

....."

•

•,.-

oIt

36

Vol ume IV. LAND TRANSPORTATION:ROADS- .:AND .MOTOR VEHICLES

Roads and Highways

Both national and provincial connecting or through highways andlocal feeder or access roads are essential parts of an integrated trans­

portation network in the Philippines. The most economical movement of

short-haul passengers and general cargo is made possible by good roads.

Economic, social, and political development are directly dependent uponthe provision of all-weather ro..ads, even where al ternative means of

transportation, such as railroads and vessels, are available.

In the Philippines, highways and access roads receive a much larger

share of the national transportation budget than do other facilities.

In many regions, however, these arteries of trade and commerce are in­

sufficient, both as to number and quality, to enable full-scale economic

development to take place. During the course of the extensive fieldinvestigations undertaken by the survey terun, numerous examples of main

roads were encountered that are deficie~l in surface type, width, ade­quacy of maintenance, and pe111lUnenCe arLd strength of stream crossings.Such routes not only impose a direct financial burden on government be­

cause of the excessive costs of road maintenance, but also on the usersbecause of abnornlall y high vehicle Inai~-1tenance costs. They resul t in

higher prices of consumer goods and services and lower net returns to

the producers of goods.. They inhibi t the norrnal flow of commerce and

retard regional and national development.

In addition to the problem of improving existing substandard roads,

there is the related but less urgent problem, from an economic develop­

ment point of view, of extending highway and feeder roads to areas whoseproductivity levels have not reached their full potentials because of

the lack of economic transportation £acilities.

There are two basic requirements in the solution of both problems:

(1) to utilize the funds available in such manner as will obtain the

greatest value for expenditures made and (2) to determine how and whereimprovements and extensions will best serve the national interest!

The first requirement involves optimwn maintenance of existingroads, and the most pconomic improvement or construction practices.Present maintenance allocations are nlade on the basis of a complex form­

ula that has resulted in some provinces and chartered cities receiving

37

a larger share than they can economically use for this purpose, whileothers have not received sufficient funds p2'operly to maintain theirnational and provincial routes. In the aggregate, sums currently pro­vided for maintenance are reasonably adequate to keep all existing roads

in good condition. Inequitable distribution of available funds, however,aggravates problems of waste and inefficiency in the use of such main­tenance allocations. This situation reduces the purchasing power of ap­

plied revenues and denies to road users the full cost-reduction benefits

they could achieve if more effective maintenance were provided.

Specification and design standards should be est~blished for dif­

ferent conditions of present or potential traffic density, and over­building should be avoided. Four-meter width surfacing is adequate formany if not flloSt rural roads.. One-way bridges will meet traffic require­ments on all but the most heavily traveled routes. Surface types se­lected should be those which will stand up for a period of years under

local conditions with nominal maintenance, but should not be more ex­pensive than necessary. Concrete pavement, for exrunple, has been used

on many rural roads where lower cost asphalt would be adequate. Shoulderwidths and surfaces should be varied \vith local conditions .. especially

to accomlnodate animal-drawn vehicles.

The second requirement--determining which improvements or extensions

will best serve the national interest--is more difficult of solution.The government's financial resources are not sufficient to improve orreconstruct all existing roads and bridges. A system of improvementpriorities should therefore be developed to determine the most essential

improvements in the sense of the greatest. contribution to the national

economy, including safety, defense, and social as well as economic factors.Among the economic factors that should be considered are: (1) traffic

density, both present and potential; (2) commodity movements and the ex­

tent to which they are retarded by present facilities; (3) the annualroad maintenance costs of various existing surface types and the amount

by which they would be reduced as a result of possible or desirable im­

provements; and (4) the excess cost to vehicle operators and the general

public because of substandard surfaces, grades, and stream crossings.

Qualitative judgment bdsed on research and objective data should bethe final determinant in each case, and priorities should be establishedin accordance with over-all financial resources remaining after mainte­

nance allocations have been made~

Maintenance, improvement, and reconstruction expenditures--includingreplacemen t of tenlporury stream crossings--generally should not exceed

amounts made available from vehicle registration and fuel tax receipts.

38

They should be financed on a pay-as-you-go basis. At present many bond

issue funds are used for augmenting Highway Special Fund resources forprojects that are desirable but hardly essential from a national pointof view. This represents a relatively poor use of limited government

credit.

On the other hand, the economic benefits from developmental roads,

either in unsettled areas or to provide better access to populated areas

not now reached by vehicle routes, are less direct and longer range. It

is more appropriate for them to be financed from bond issues serviced by

general fund revenues than from present highway-use taxes. Evaluation

of the economic benefits derived from such road extensions should be

based less on direct benefits in the form of maintenance savings and re­

duced vehicle operating costs and more on the value to the nation of the

additional resource development made possible by the proposed roads.

Underdeveloped-area projects should be concentrated in regions of great­est economic potenti:'..! \.J~' those for which access roads are needed for

defense, safety, or social reasons.

At present, the B:lreau of Public Highways is doing a credi table job

in determining project priorities and has developed reasonably good

analytical methods. Too often, however, staff decisions are overruled

for reasons of political expediency.

Both road improvements and extensions should be approved as ob­

jectively as possible, and with the miniInwn of political considerations,

if the Republic of the Philippines is to receive maximum benefit from

highway expenditures.

Improvement budgets should be based on five-year requirements and

the necessary financial resources provided by adjustment of direct high­

way user taxes. They should be carefully coordinated on local and pro­

vincial as well as national levels to assure full support and integrated

construction planning, not only among highway districts, but also with

reference to port facilities, airports, and other public works programs.

A similar five-year progrwn for construction of new roads should be

prepared in close cooperation and coordination with other government de­

partments, bureaus, and agencies concerned with economic development,

public safety and defense, and resettlement. Roads should neither be

provided too far in advance of , nor more slowly than, the requirements or

supporting capabilities of the other agencies.

39

Access roads more directly benefiting individual enterprises rather

than the general public. such as those to mining and timber concessions,

should not, as a matter of policy, be constructed exclusively from public

funds. Public participation may be justified in certain circwnstances

where the road can be integrated into planned future routes, with ade­

quate provision for free public use at all times.

Principal Reconunendations for Improvement of Roads

1. Maintenance allocations should be based on reasonable require­

ments for existing surface types as determined by highway maintenance

engineers.

2. Better supervision and control over the use made of maintenance

funds are most desirable. Local practices should be revised to obtain

greater efficiency and permanency from effort and funds expended.

3. The progr~ of replacing high-maintenance cost temporary

bridges with permanent structures, and of upgrading road surface types

to reduce annual maintenance requirements, ~hould be accelerated.

Priority should be given to those main routes that are most deficient

and where improvement expenditures will give the greatest economic

benefi t.

4. Surface types and width standards should be proportionate to

present and potential ten-year traffic densities. Rural roads should

not be built more expensively than is necessary or economic.

5. Specifications should provide for maximum economic utilization

of local materials to reduce dollar expenditures for highway construction.

6. Better coordination is needed between highway projects and

other public works programs; related interprovincial road projects, and

area development programs of other government agencies.

7. Closer technical supervision and control of field activities is

desirable, with greater decentralization of authority to division engi­

neers held more strictly accountable for performance of their district

and city offices.

8. Gasoline and diesel fuel taxes and registration fees should be

equalized. and rates adjusted to provide funds for the accelerated five­

year improvement program recommended.

40

9. Ferries on main national routes should be replaced by tollfreebridges as rapidly as available funds permit.

10. Developmental main and local roads should be financed from bondissues serviced by the general fund. The self-help progrwn for localbarrio roads should be extended and encouraged.

11. Improvement and new construction projects should be based onobjective evaluation of national economic, social, and military needs,and should be freed from local political considerations.

12. Extra-width roads, bypasses, anJ overpasses should be restricted

to those few routes--principally north of r.Ianila"·-where traffic density

has become a serious problem, affecting transportation costs and public

convenience to a marked degree.

Motor Vehicle Transportation

While highways and local roads are the responsibility of governmentto provide and maintain, the vehicles which usc the roads--both motor­

driven and animnl-drawn--arc primarily in the hands of private owners

and operators. The tusk of government is to develop and secure suchconditions as will enable individual initiative to provide the motor

vehicle transport facilities upon which the economic life of the Phil­

ippines depends to an increasing- extent.

Private passenger motor vehicles and small producer-owned trucltsare relatively much less important in the Philippines than the carabao

and ox cart O'~ sled, or the horse-drawn carrctela or calesa. While

these animal-drawn vehicles may be expected to disappear gradually over

the next several decades, they should be recognized and accepted as an

integral part of the land transportation network for many years to come.

Types of land transportation with which this study is concerned in­

clude buses and truclcs, which move by far the greater nlunber of passen­

gers and volume of cargo on overland routes between provinces and cities.

Public utility buses operating on fi.xed routes and theoretically

fixed schedules under certificates of pUblic convenience and necessity

granted by the Public Service CommisFlon are more nwnerous than any other

single type or class of passenger vehicle using rural Philippine roads,except in the immediate vicinity of Manila, where private vehicles domi­

nate traffic but not total passenger movement.

41

- ---~~-~-7 ~~~~~--,,----,-~--,-------,------,-------:------;---------------....----------------------__

After the liberation, prewar operators found i.t difficult if notimpossible to resume their former services because of inability to ob­tain the necessary vehicles. In order to satisfy immediate requirements,a large n~lber of underfinanced individuals were granted temporary cer-t ificates to opera te army-surpl us converted trllcks. TIle resul t was the

creation of a chaotic competitive condition which the public regulatoryagency \vas conlpletely ul1uble to control, and w}lic}l lIas persisted Ulltil

the present.

Only in a few regiolls 11ave bet-ter-financed and more efficient oper­

ators been able to establish, often through individual competitive prac­

tices tllat \vould not be countenanced in most countries, a semblance of

order and adequate service and safety stalldards. In nearly all parts

of the Pllilippines tIle fiI1UIIcial conditiol1 of all operators ]lUS steadily

deteriorated to a POillt \vhere tile continued availabili ty of even reason­ably adequate passellgel" transport facilities is seriollsly jeopardized.

Prevail ing 1"0.tes are generally consideralJl y belo\v those aut.horized.

Vehicle mailltenance stulldards are unifornlly inadequate except for a fe\vof the more eff icien t, larger cOJllpanies. Subterfuges to avoid paylnent

of legal registrat ion fees are \videspread. Fail ure to pay gross receipts

taxes costs tIle natiol1ul treasury large Sluns each year. Lu\v enforcenlentageJlcies are totally llllpreparcd to cope \vith tIle existing situatiol1.

There is 110 clear and consistent policy ,,,it]1 respect to granting fran­

cllises J and act ual scrv icc rcqu i relnen t s are gi ven sc an t cOllsidera t ion ill

authorizil1g ne\v route services. SOUIC areas have a surplus of vehicles,

whereas others have serious shortages" The need for rationalizing andstabil izing tllC bus transporta t ion illclust ry is probabl y 1l10re acute than

in any otller brancll of transportation.

A sinlilol' and 0111y slightly less critical situation prevails in thecargo transport field. The illogi.cal registration fee differential be­tween proprietary and contract or common carrier trucks has encouragedproducers and distributors to operate their O\'J11 fleets \vhen such prnc-

t ices would oi}lCr\vise be uneconoJnic. l\Inny COIl true t and even COlntnon car­

riers register their vehicles as proprietary with irnpunity in order to

save registration fces. rrhc registration fcc differential bct\veen diesel­

engine and gasol inc-engine vellicles of siMil a1' capac i ty has not COlnpen­

sated for tIle loss in governnlent revel:'.le froln tile lo\ver diesel fueL ~-:axes.

Cargo tr~nsportation rates arc alnlost corllpletely unregulatcd~ The finaJl­cial condition of Illost trucl(ing flrills is alrJlost as !Jrecarious as tllut of

passenger-vehicle operators. l'hc unecononlic incentives for }Jroprietary

carriage of cargoes has reduced over-nIl load factors, increased tl"nns­

portation costs, and discouraged the developluent of fixed-service COlnmon

carriers, \vhicll are essential for tlle developnlent of improved and more

42

economic distribution and marketing practices. Small producers and re­tailers are all too often at the mercy o£ unscrupulous middlemen who con­trol prices and whose financial control of production and distributionretards the economic self-sufficiency of small Filipino entrepreneurs.

The need Lor the development of reliable and universal cammon­carrier trucking services will become steadily more acute unless positiveaction is taken to stabilize the industry and thereby encourage privatecapital to provide the transport services without which the national eco­nomic developlnent progl-'anl \vill be sel-'iously Ilandicapped al1d retarded by

uneconomic, inefficient, and high-cost lund transportation of commodities.

GovernJuen t opel"ut iOll of bllS alld trllClt 1 ines ill conlpeti tion W1 th

private industl-'y lIas also contributed to tIle pOOl- fillancial ccndition of

operators ill central ulld nOl.. thern LllZOI1_ \Vllile tIle t\IJO govCl-'nment

(Manil a Rai 1 1-'0 ad) l)llS C0J11pan ies, one of W}l icll 01 so opel-'u tes cargo vehi­

cles, do J10t condone 01" pa.rt icipate ill llllctllical practices, tlley are llot

subj ect to govcrlllnell t reglll a tiOll. Tllei r routes are 110t es tabl is}led on

the basis of IJublic cOllvellience 01~ llccessity, 1101" do they perform serv­

ices private il1dllStl"y is tillable 01'" Ull\villiJlg to pl-'ovide. Except f'or

local fecdel"-l-'outc auxiliul"ies lleceSSUl-'Y to seClll-e all il1tegl"ated rail

service, tIle gover11TJlellt' 5 0l)eratillg participatioll ill the illdlJstry seems

unwarranted Ulld unnecessul-'Y, Ulld Sllould be discontinued thl~ough sale of

these assets to private companies.

Prin~ipal Recommendations for Improvement o~ Motor VehicleTransportation

The following principal recommendations are among the positivemeasures necessary to strengtllen tile bus al1d truclt transportation indus­

try to meet prcsellt and future Ilatiollal reqllirements.

1. Drast ic reduct iOll of tIle llunlbel- of operators authorized to pro­

vide bus service over any given route.

2. More effect ive enforcement of route sclledules, rates authorized,and serv ice and safety stalldards.

3. Tllorollg11 alld cOJnplcte iJIVestigation of regional transportationrequiremcllts and cstalJlisllnlcnt of 1110re flexible rates necessary to en­

able prof i table 0llcra t iOllS to IllCCt tllese requirenlell ts.

4. Establ isllJJlC11t and cnfol"'cClnel1t of unifol"111 accounting standards

with regular and detailed audits of operations to determine fair rates

of return.43

5. Elimination of registration fee and fuel tax differentials be­tween different types of motive power (gasoline and diesel) to encouragethe most efficient type of service without jeopardizing ·the HighwaySpecial Fund income from public service vehicles.

6. Granting public carriers sufficient foreign exchange alloca­

tions, with a minimum of restrictions, to enable them to adopt uniformlyhigh vehicle maintenance and replacement standards.

7. Government withdrawal from competition with private operators

except as may be necessary to provide auxiliary services required toenable governnlent rail\vays to secure tlleir fair share of the business

where rail trullspol.. t is economically justified.

8. Elimination of registration fee differentials between private­

and public-carrier cargo trucks. There is considerable evidence thatcommon-carrier cargo vehicles, like their passenger bus counterparts,

could handle a substantially larger share of the total cargo movement

at lower rates than private fleets, because of the higher two-way load

factors they can acllieve.

9. Common and contract cargo vehicles should be regulated in the

same manner as public-carrier passenger buses except that greater route

and schedule flexibility is indicated. Larger scale operations by fi­

nancially responsible companies able to provide and rnaintain larger and

more modern equipment would result in more adequate distribution of

f acili ties to meet regiollal and seasonal req\lirenlents.

10. Integration of truclt and steamship facilit1es and encouragementof roll-on, roll-off equipment and services would provide more economi­

cal interisl and 1 and and sea movemell t of cargo among the isl ands.

Privately operated road transport vehicles--both passenger and

cargo--are best suited for the essentially small-lot and short-haul move­

ments characteristic of Philippine intraisland traffic. Freed from un­

necessarily restrictive operating conditions, yet with impartial andrigorously enforced regulation of competition, private initiative maybe expected to expand land transport facilities and services to meet therequirements of an expanding economy.

44

I

Volume V

LAND TRANSPORTATION: RAILROADS

Legend

KILOMETERS

~O 100t:======:::z::====ilo

~ LINES IN OPERATION-19S6

++ +to ++ .. PROPOSED CAGAYAN VALLEY LINESzu

I

of*It\

CABA""'UAN t ........... ",~""'''''''~''''''''''_._''-"'-~ '"-"~ -- -~._.~ ------- .......---.--.- ----..- ...-

/~~'~lNTIAGO }ilil'I!II~liJiJ!I~'

oCABANATUt\N

STA. CRUZ ,:~~~~~?~~~~£~~~}~,~~: :'~,~ =::.~'~:~ ~~~~~~~~~~~~,~~~ ~ ~.~ ~ ~ ~_~~:~~.~ ~ ~'~X~.~:::____-_~_-_r .._~.~ .._~_-_ ~ ~ _ : :-~: ~: ~::~:~::::::':: : : ::: :.: : -: : : : : -: : ~ ,': : ~: :~:::

-- --- ---~---~ - ~'- - --'- - - - - - ~ - -- -- -- - --_.........- -"'- ...... -- -_.- _......- -- - .. ~ _.... - - - - - .. - - _ ....... -...

L

--

~~~~:: :-: :~:::: :.:~: .. :''':'-~: :'--_._----,-~-::.;: ~::~:..::: '.::: ::: -: ": ::::::::'::::::::-:~..--____~~-_~~'"'_.'_ ..... __r_ ........ ~~,"'_".

~~::~~.: :: : ..:~:::.-:~:.-: .. : ..:~:.: ::-

:~~~~~.~:~~.~.~~~.~~~:~.~:~ :~ ~~~,~_:: ~~ ...:::..::::-:..:::.: :.~::::.: .. :.:::~: ..

~~i;~~~;.~~1~~_-~~~-~~~~~-~-~-------~,~~ _ _..........--.._----'-"-'""- --'. -- ----"-- --~~ --- - "-"'--"--~~_I_' _.' ... '_ - ,,-. _...

~~~~]~I~~~~~~~~%i~~i·~'~~~~~:::-

. . - ... - - .. - -

FIG. 4

THE MANILA RAILROAD COMPANY LINESLUZON

46

Vol ume V. LAND TRANSPORTATION: RAILROADS

Railroads are the most economical means of transporting large quan­tities of relatively low unit-value bulk products long distances. Be­cause the Philippine Republic is an archipelago of comparatively small

islands, water-borne commerce has necessarily performed the function

that railroads can best perform in larger land masses than are found

here. Rail development has in the past been restricted to three islands-­Luzon, Panay, and Cobu. The rail lines on Cebu were not rehabilitated

after liberation, their function now being adequately performed by more

flexible highway transport.

Philippine Railway Company

On Panay tIle Pllilippille Railway, a government enti ty, operates

116 kilometers of 42-inch gauge main line track between Iloilo City and

Roxas City. Since its construction in 1907, it has performed a useful

function in transporting passengers, sugar cane, centrifugal sugar, and

other commodities on a route not well served by highways. Nevertheless,

it has not beeIl fillunc iall y successful un til tIle past fe\v years wIlen,emerging froln l·eceivel"sllip, its capital structul·e \vas drastically re­

vised and its opel"uting costs sllbstantially redllced by dieselizatioll.

The Pllilippine Railway is dependent on passenger traffic and one

sugar central for its continued ecollomic operation. It has bee)l able

to compete succesSfllll)r f01' l)uSsengel' traffic because of tile pOOl· road

conditiollS existing ill tlle part of PUllay it serves; bllt \v]lell the roads

are brougll t up to standard, it may be expected to enCOulltel'" difficul tiesin retaining its IJ!·esel1t favorable propol;tioll of tIle lJusiJleSS available.

It could 11urdly exist on tIle sugar traffic alo11e, altllougll it is essen­tial to tIle COlltillued operatioll of tIle Astul"ia.s Centl"al, one of the

la~gest employers on the island.

The PIlil ippil1e Ilail \vay should con t inue to be operated under itspresent managenlcnt as a govel;11meIlt enti ty. Construction of a hard­

surfaced highway paralleling the rail route between Iloilo City andRoxas City would jeopardize the railway's financial stability, and shouldbe deferred. Thel·e are otller luore pressillg demands for the 1 imi ted high­

way funds available.

47

Manila Railroad Company

The Manila Railroad now operates 971 kilometers of 42-inch gaugetrack, incl udillg 740 Itilometers of main line extending from San Fernando,La Union, 266 lei lOIueters 110rtll of l\lanila, to Legaspi, Al bay, 474 I{ilo­

meters SOllth of nlalli.l a. Inlpol.. tal) t branch 1 ines extend fl'onl Tarlac J

Tarlac, to San Jose, Nlleva Eciju, to several sugar centrals, to the

Cepac Celnent PIUllt at I3acllotan, llor'tll of SaIl Fernando, and to points inLaguna and Ea tang-as pl~ovinces. TIle fanner 1 irie bet\Veell Bigan, Bulacan,and Cabanatuan, Nueva Ecija, was not rehabilitated after World War II.During the \VUI' tIle road 5115 tailled lleavy drunage to \vay and structures,and to I'olling stacIe Ul1d equipruellt,

Like tll~ Pilil i)JpiJle Rail \vay 011 Panny, the fi.1anila Rail road exists

primarily all SUgUl'" Ul1d passenger revenues, \Vllich together account forsome 58 percel1t of tIle total 0llerating il1COJne. Sugar cane and sugar

are particulal"ly inlpol~tallt to tile lines nortll of l\lanila, accounting for80 percent of all freight tonnu~e originations and 62 percent of freightrevenues f01· tllC nortllerll dl v is ion. The dOIllillnllce of stlgar al so gives

rise to a serious seasonal problem, as the l·ailrond mttst provide suffi­

cient motive po\ver alld otl1er rolling stocl{ to cal·C for peale service re­

quiremellts during a l"elativcly sllort period of tIle year. Freigllt traffic

on the SOlttllel"ll 1 illes is sOJne\v}lu t Jna rc diversif ied tllan ill tIle 11ortll,

but is still lleavily dependent on SLigar, pctrolelUll proclucts, alld tituber

products, as well as 011 expl·ess s}liplnellts \Vllicll account for 13 percent

of that division's revenues.

The Manila Railroad's operations have not been profitable since theliberation. Until the 1955-1955 fiscal year, railway operating expenses(before provision for debt service) have exceeded railway operating in­come by a large margin, so that the government has been forced to supportit wi th 1 arge amoun ts of ne\v fllnds pl'ovided f rom tIle national treasury.

Wi th conlplet iOll of tIle diesel izat iOl1 program and furtller equipment

modernization, it is anticipated that in 1956-1957 an operating income

of some ~1,600,000 will be earned if present passenger and freight levelsare :."tlintained. Tllis income \vilI still be short of debt service require­

ments by about ~250,OOO,~/even though ~17,OOO,OOO of debt was written offby the goverl~ent in fiscal 1955.

1/ Based on railway operating revenues without consideration of possibleprofits from mi.scellaneolls operations (bus lines) and the ManilaPort Service.

48

The Manila Railroad has been particularly hard hit by truck and buscompetition in central Luzon, where paved highways sUbstantially parallelits routes. Improved service and equipment now available will doubtless

continue to attract somewhat larger numbers of tJIrougll passengers away

from buses, but passenger revenues will probably not increase signifi­cantly in proportion to the total available business, because most ofthe traffic is sllort-lluul, in Wllicll the cOllvenience wId flexibility of

buses are most apparent.

In freight also, the railroad may be able to attract some additionalbusiness in comnlodi ties otller than sugar despi te the advantages of truck

transport for small-unit J short-distance hauls. Helle again, ho\vever,the railroad does not appear to be fulfilling an essential regional eco­nomic need except for SUgUI- cane and sugar movemel1ts, whicll are not ex­pected to inCI"ease ill tile fOl"eseeable future.

Possibilities of acllievillg pl"oi"itable operation on the lines northof Manila, tttel"efo11 e, depelld 11eul"ly elltirely on cost savings from theoperating ecollolnies of dieselizatioll. Tllese \vill not be sufficient to

cover proportionate debt service requirements.

Tile soutllel~n 1 illes 11ave }Jeell ill a nlOl"e favorable position, a:; they

link two J.IUpOl"tUllt developed l"cgiollS not connected by a higllWUY. If

they can retaill tlleil" presellt vollmle of botll passellger and freigll t traffic,

they s)lou!e) be able to COlltl-'ibute aIJpl·oximately· .P3,OOO,OLJO a )'ear to the

northern divis10n deficit and to debt service after covering railwayoperating expenses. TIle ~lbility of tIle l--aill·oad to l-'etaill its present

level of tl-'uf fie Ul1d incolne illdef illi tel)o' is. 110\Vevcl-', opell to serious

question becullse of Il}·escIlt l·oad COIlstl·llctioll alld impl--overncllt plans be­

tween Quezoll Ulld tIle Canlut'illCS pl~oviIlces. ~1otor' tl-'llCks Ulld buses ,villat least fOl"ce a dO\VI1\VUl'd adjllstlnent ill rail l--ate stl-uctlll·es for bothpassengel--s and comnlodi ties. Eff ic ien t diesel OpC11 Ut lOllS Sl10l1ld enablethe SOlltllCl·ll divisioll to COlltillue to ojJerate p110fi tably for sOlnetime,

however, despite il1creascd higll,va~l vellicle COIlllJetitioll.

A detailed analysi 5 lIas beell InucJe of tIle 11evenlle-cost l"elationship

that may be an t ici Iluted f l·onl corn})l et iOl1 of tIle pl"oposed 337-ltilometer

extension fl"'om SaIl Jose, Nlleva Ecija, to Tugllegul-ao, Cagayull. Additional

revenues will probably be adequate to meet out-or-pocket operating costsfor the fil~st sevel~al )'eUl"S, bllt not SlLfficiellt to Jneet all)' stlbstantial

portion of clcbt sel"vice all tIle 'p60,OOO,OOO, 011 Jll01·C, estiluuted COllstrllC­

tiOll cost, \Vllicll \VOllld lJe a ftIl"tIlel-- burdell OJl all all-'ead)r delJt-lleavy fi­

nancial stl·llctu11 e. Extensioll of tlle }'tuil11 oad to tIle eag-ayull Valley in

the next decade is qllestionable on all econonlic basis and Inust be con­

sidered a speculative investment. The estimated costs 0f construction

49

appear low and should be carefully reviewed. Improvement of the presentroads to and wi tllin the valley, Wllich can be accompl ishec for a fraction

of the cost of a rail line, would provide equal encouragement to thedevelopment of many of the resources of this important region. Nationalfinancial resources might better be utilized in providing facilities forprivate carriers,who will then invest in vehicles, pay taxes, and there­by improve ratllel-' tIlan detract from tIle tl'geasllry's position.

,.......The Manila Railroad, like the Philippine Railway, should be retained

un?er government operation as it performs an economically useful func­tion as presently constituted and should contribute something to itsfuture debt service requirements. It should not, however, be extendedin the absence of conclusive evidence that tIle cost of such extension

will strengthen rather than weaken the company's over-all financialposition.

The railroad is presently saddled witll an impossible final1cial 1)1.1111­

den. Its present illterest-bearing obligatiollS SllOtlld be replaced b~,

common stocl{ entirely owned by tIle government. Tlle least tllut ShOllld

be done in this regard is to write off the extraordinary costs of post­war reconstruction still in the capital structure, in order to achievea reasonable capital-debt ratio that can be supported by railwayoperations.

In I1ne with the basic concept that the government should not oper­ate transportation or other services that can be performed by regulatedprivate capital and management, the railroad should dispose of all itsnonrailway investments and activities except such local bus and truckservice as may be necessary to supplement, but not compete with, railtransport of passengers or commodities.

Principal Recolnnlendatiol1S for Improvement of Railroads

1. Existing railroads s,,'~uld be l'getained as presently organizedand operated.

2. Improvement of roadbed and structures, motive power, and rollingstock and other equipment should be continued to provide better serviceat lower cost for shippers, passengers, and the general public.

3. Railroad l~atcs should be regulated by tIle Public Utilities Com­

mission wit}l considel~ation give11 to tile place of tIle railroad in the

over-all transportation system. Likewise, competing carriers should beprevented from establishing uneconomic rate structures.

50

4. The capital structure o£ the MantIa Railroad should be revisedto reduce debt service and to place its operations on a sound financialbasis.

5. Highway and other nonrailroad services of the Manila Railroadshould be disposed of except for those that may be necessary to supple­ment directly rail service for both passengers and ireigh1:.

6. Extension plans should be deferred until the finElncial re­sources of the government are strong enough to support the over-allfinancial losses that appear inevitable undel'l present tra1:fic potentialsand operattng cost forecasts.

7 . Low priori ties should be given to highway improVf~ments or newconstruction in regions present1y adequately served by the railroads.

8. Better ship-rail facilities should be constructed with thefuture development of Manila North Harbor.

51

,.' ,.

Volume VI

AIR TRANSPORTATION

Previous Page Blank

".'

EL ECONClMICO (TOURIST CLASS)DC.J ROUTES

FIRST·CLA~OC·3 ROUTES

FIRST·CLASS CONVAIR ROUTE

RURAL SERVJCE (OtiC·3 OTTER)ROUTES

o AIRPORTS SUITA£ll E FOR CONVAIRPLANES

• AIRPORTS SUITABL E FOR DC·J PLANES

o AIRPORTS SUJTABLE FOR OTTERPLANES

SOURCE: Philippine AI, Lin•••TAWI- AWl

BALER

o,KILOMETERS

50 100

Legend

250I

FIG. 5,

PHiliPPINE AIR LINESDOMESrlC OPERATIONS

1955

54

Vol ume VI. AIR TRANSPORTATION

The Philippine Archipelago is well suited to the development of anextensive air transportation system needed to supplement the much slowertraffic movements by various means of surface transport, both by landand water. The potentials of interisland passenger transport and ofinterisland cargo movemellts for lligll-value and perisllable products are

much greater than have yet been realized.

Growth of air transport in the Philippines during the postwar decadehas not kept pace with that in other comparable countries. In fact, 1948volume levels have just been reGained after sharp declines in 1949 and1950 and a relatively slow recovery despite favorable over-all economicconditions.

A major reason for the limited development of air transportationhas been deficiencies in physical facilities. Airports and navigationaids are essential to the development of an adequate air transport sys­tem. The Philippine Islands have beell deficient in botll. rrhere is only

one airpo)- t: ill tIle countl"y J Manila Intel-'llational, that can be used fornight landings, tllereby l~estricting domestic sclledules and aircraft

utilization, \vitIl resultant lligllel~ operatillg costs.

\Vi t110ut except 1011, provinci al ail·ports 1 ac]t Olle or tnore of the es­

sentials for safe, all-weather, all-hour operatioll. Many of the largerpopul at ion cell ters--Cebll Ci t y, Bacolod, 110 il0 J Ulld Davao, for example-­

have ai rf ields completel y illndequa tc fOl~ evell rninimllffi present lleeds.

Smaller conlffillnities 11uve even less satisfactory airports, alld ruany have

none at all. Small aircraft local service to distant or relatively iso­lated communities would serve important economic, social, and politicalneeds at a minimuJn cost in an expanded ai~"1O facility p1.1ogrrun.

The airport and air-llavigation pl"ogrmn SI1.0l11d be expanded from thepresent 3 percent of capital funds made available by the government for

all transporta t ion facil it ies--l alld, \Vatel", and air--to provide from twoto three times present annual allocations if funds can be made availablefor economicall y just if i able proj ec t5. TIle accelerated air development

program should be financed in larger part by fuel ta~es, landing andother fees assessed all users o£ the facilities on an equitable basis,and in part by bond issue funds for new-location facilities.

55

A priority system should be worked out for the improvement and con­struction of airports, to include: (1) bringing all operational commer­cial airports up to desirable all-weather safety standards as a first

priority; (2) relocatioll aJld reCOllstrllctioll of tIle CelJu City ail'port;

(3) modernization aJld inlpl~OVel11ent of Dacolod Ulld Davao aiI·po19ts (no\v

under \vay); (4) inlprOVenleJl t alld enl ar'gelnell t of a tIlel· airports \Vllere

existillg allcf ]Jotclltial traf.{ic cleal"l)' \VUl"l"UlltS suel} action; Ulld (5) de­

velOpJnell t of ne\v ai r])or ts, cons ider illg avail ubi 1 i t Y and ndequac)' of al­

ternative f01"n15 of tl·u11sportatioll, populatio11, and cOl1unercial or indtlS­

trial importullce, distullce to Inal~l{et or otller celltcrs \vi til airport

facil i ties, ecoll01nic developluen t patell t i 0.1 of tile area, ulld other pert i­

nent social and political factors~

The possibility of providing low-cost strips at many smaller com­

munities for small nonscheduled aircraft in conjunction with the highwayimprovement progl"aJn also \Varl"a11ts careful il1vestigation.

A second basic reaSOll tllut air traJ1Sport has failed to expand is

the relatively 11igll air trallsportation r1ate stlllucture. There are many

factors which tend to inflate costs of air transportation, particularlythose associated \vitll low utilizatioll of ail"craft and lo\v traffic volwnes.The absence of ef fee t i ve cOlnpeti t iOll because of tIle mOllopol is tic pos i­

tion of PIlil ipIJine Ail" I.Jil1es (PAL) ill don1est ic nilll transpol·t is also a

factor. Ail~ passel1gel· tl~affic is Jliglll)' elastic and \vilI llot move in

volume \vhere tllere is too great n spread bet\Veell ail" l·ates and costs of

alternative means of tl"ullsport" If air' traffic volunles Ul·e to be sub­

stantially increased, l"utes must be revised dO\Vl1\Vard.

RegulatoJ·y policies have liInite(} tile opel~ntions of COl1tract and

nonscheduled carlll iel"s tllrollgh IJroll i bi t i vel y 1·e5 tric t i ve pl·OV is iOJ1S in

certificates of public conVClllellce alld l1eeessi t)". TJlese pl~actices 113.Ve

been adopted by tile Civil Ael"onallt ics Board despi te tIle clear pol icy

directive of Republic Act No. 776 to seCUl"e fOl" tIle Pllilippines the ad­vantages of a competitive air transport system.

It is not )'et certuin tllat P}lilippine a1r traffic potentials justify

competitive sclledllled services, altllougll tllis possibility 011 some routes,

such as Alanila-Cebu Cit~l, or others that PAL may not be willing to serve,should be investigated carefully.

56

Principal Recommendations for Improvement of Air Transportation

1. The airport Ulld navigation aids program should be accelerated

to provide adequate facilities for an expanded civil air transport

system.

2. The goverllnlent should dispose of its stock interest in PAL, asrecommended in Governnlent Survey and Reorganization Commission Plan

No. 73, although ret;lilling tllat company as tIle national tlflagtt carrier.

3. The govel"lllnent ShOllld take over and assume operational controlof PAL's airway comnlUllications systenl, making it available to all civil

aircraft on equal tenns.

4. All 0IJel'"utors should pay uniformly applied landing fees and

cllarges for public facilities, and full specific fllel and other taxes.

5. Aircraft lUl1ding fees and related receipts s}lould be used ex­

clusively for tIle development of civil aviatioll facilities and should be

supplemented by bond issues as necessary to provide priority facilities.

6. FOl·eign-cxc}lange allocatioJ1S fOl~ al.rcraft and spare parts should

be uniformly apI>lied to all operatol~S, both comnlercial and private, and

freely granted to enable them to render tIle services they are authorized

to perfonn.

7. Sllbstantial experimental fare .reductions s110uld be continued by

PAL, wi th the cooperat ion of the CAD (or its sllccessor), and act iOll

should be ta){en to el iminatc present rat e ineqlli ties and to reduce 01·

elimillute tIle present cireui ty-fare systenl. Careflll analysis and review

of present routes and schedules Sllould be ini tiated concurrently with

the rate study.

8. Feedel· service should be extended to selected Lllzon and othercommunities as soon as suitable landing fields become available.

9. Tourist class service should be expanded. Future aircraft pur­chases by PAL for domestic routes should be of types Inost sui table forlow-cost operation utilizing relatively inexpensive landing strips ratherthan high-speed de luxe-service types not necessul"'y for the short flights

typical of mas t Pll i1 iPPl ne opcratiOJls.

10. As witll all otller public utilities, commercial aircraft opera­

tors' records and boolts of account SllQuld be subject to government audi tto determine proper rate bases and returns.

57

11. Nonscheduled operators Sllould be encouraged. T)le~' should be

penni tted to opel·ate \vi tllOllt discr'iJui118tion, under nppropl~iate regula­tion. allywhelee in tIle PllilippillCS at specified rates lo\ver tItan or equalto scheduled-cal"l"iel~ l"ates, ill order to secure tIle bene!i ts of competi­tion in tIle air trul1sport field.

12. To be rnost effective in me,cting tIle 11ntion's requirements,policies \vi tll reSIJCct to conunercial aviatioll should be carefully wor](ed

out in coordinatioIl \vi til tl10se pertaillillg to both sea al1d land tranSpol"t.

13. In additioJl to tllc1r inlpol·tallce for' eCOIlOJnic J)l~ogrcss, airports

and airliJ1C dcvelolJInellt arc essential for l1atiollul defcllse. ~tili tal")'

and civil requiremeJlts SllOllld be coordinated iJ1Sofar as feasible, inorder to avoid costly duplication ar~ to provide maximwn economic andmilitary strength.

58

Volume VII

THE ROLE OF GOVERNMENT IN TRANSPORTATION

Vol ume VI I • THE ROLE OF GOVERNMENT IN TRANSPORTATION

One of the principal requirements for the future development of ef­ficient transportation is effective government relationships to trans­portation. Government influences transportation in several ways:(1) through its role of providing basic facilities such as roads, air­

ports, and harbors, (2) through regulatory functions, (3) through pro­

motional policies and activities, and (4) through ownership and operation

of transportation companies.

Organization

Governmental functions relating to transportation are spread amongmany agencies. This has led to lack of effective coordination. Proper

implementation of the approved recommendations of the Government Surveyand Reorganization Commission (Plan 60) will for the first time give thePhilippilles an effective and coordinated organizational frame\vor!{ for

the administration of goverllment pol icies affecting all forms of trans­

pOI'tation through tIle establislllnent of the Department of Public Works,.Transportat ion alld COJnrnunj.cat ions. lIowever, the ne\v structure will be

effect i ve OJ11 y if i tis acconlpanied by personllel cllanges designed to up­

grade botll centl"al office Ulld field staffs, institution of modern pro­

cedures and record-lceeping pl~actices, p.rovision of more accurate and

complete statist. ical data, and better enforcem.ent alld control of pol icy

decisiollS and l"egulations at all levels.

Wi tllill tile department tllere must also be close coordination of ef­

fort anlong tIle variolls bUl-'eaus, di visions, sections, conuniss ions, and

boards, and between tllem and the regiollal and district field organiza­

tions, as well as with other provincial and city officials.

The underlying importance of effective coordinated action, both inplanning and in execution of projects and routine responsibilities, can­

not be overemphasized if the nation is to obtain the transportation systemit neeps.

National Transportation Policy

The basic policy and regulatory laws under which the various govern­

mental entities have been functioning will remain the same despite anysweeping reorganization. The reorganization plan should have the benefit

61

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of policy guides and directives that only Congress and the President canprovide. New policies should be directed toward the abolition of legal

inequities, rationalization of the government's role in transportation,future planning and programming, and provision of adequate funds to acti­vate the programs established. Not all the present policies, laws, and

regulations need to be amended~ Most are basically sound, but have notbeen properly interpreted or implemented, either for lack of adequate

.personnel or finances, or both.

Coordination of Transportation

Coordination of transportation is the supervision and regulation

of transportation in such manner as to assure the development and opera­tion of an integrated transportation system. Through coordination, eachand all modes of transportation are fitted into their logical and most

economically and socially useful positions~ It is clear that desirablecoordination has not yet been achieved.

Regulation

The principal conclusions derived from the extensive analysis ofgovernment regulation of transportation made during the course of thestudy are as follows:

1. Existing statutes are adequate to enforcement, with the excep­

tion of carrier and shipper liability in connection with rebates volun­

tarily offered.

2. The power to enforce regulatory laws and orders has not been

exercised to an extent sufficient to attain substantial compliance.

3. A fundMlental cause for noncompliance with regulatory laws and

orders is the lack by the Public Service Commissi.on of finances suffi­cient to obtain and keep a well-trained and numerically adequate staff.

4. It is impossible to achieve for the public the full benefitsof regulation without enforcement.

5. Enforcement must be achieved before a well-regulated and co­ordinated transportation system can be obtained.

62

Competi"tion

An analysis was also made of existing competitive conditions. Theconclusions of this analysis are:

1. The maintenance of sound economic conditions in water and landtransportation has been jeopardized by allowing an excessive number of

new operators to enter the field in competition with existing carriers.

2. Uncontrolled competition in domestic water transportation has

caused an unllealtJlY, uneconomic, and ruinous cOJnpetitive situation re­suI ting in total disregard of autllorized rates, the absence of incentiveto develop potential traffic, and universal violation of the Public

Service Act and orders of tIle cOffilnission, . in the fonn of rebates, dis­

counts, and adjustment of freight rates.

3. Existing carrier competition in the highway transportationindustry is excessive, ruinous, and poorly regulated.

Principal Recommendations in Transportation Policy

1. lVhellevel-- possible, private initiative should be relied upon todevelop transportation facilities and services. The government's role

should be that of SltPPOl.. t \vhere eSSclltial, regulation where required in

the publ ic in terest, Ul1d O\Vller's}lil) Ulld opel~~ltiOll ill tllose cases \vhere

private initiative CU11110t be eX!lectceJ to Inal{e illvestlnent. Transporta­tion operations are· so diverse and conlplex tllut government cannot expect

to pI an and operate t rUllsportat ion systems ill det ail. Tile govel"nment' s

primary emphasis s}lould l)e all tIle pro,,·ision of basic transportation fa­

cilities sue}1 as roads, pOl--tS, and ail~fields, and 011 tIle regulation of

standards of sel~Vicc U11d t l~anspo rt at ion rates ill tIle publ ic in tel"es t.The government Sllould not operate transportation facili ties in order to

obtain l~evenlle for other governlnen tal purposes, but ratller to provide

services essential to the national economic and social welfare that can­not otherwise be secured.

2. Insofar as practicable and consistent with the provision of

adequate facilities. specifi.c user taxes should be relied on to finance

land, water, and air transportation aids. General fund or bond financ­

ing should be restricted to long-range improvements--such as develop­

mental projects--Jnore beneficial to the nation as a whole in the future

than to p.resent llsers.

63

3. Regulated competition of financially responsible operators withequal rights, privileges, and obligations should govern all forms oftransportation. Government entities should be made sUbject to similarregulating procedures, taxes, licenses, and fees as are the privateoperators with which they are competing.

4. User taxes should be equitably applied to all motor vehiclesor other licensees on the basis of use made of, or value received from,the faci! i ty in SllCll manner as \vill el1courage use of the most efficienttype of vellicle \vi thout ei.ther immediate 011 future jeopardy to revenues.

Once equitably determined, tax and fee principles should not be fre­quently or arbitrarily revised.

5 to Expend i ture of usel1 tax al1d registrat ion fee revenues should

be restricted to the provision of transportation facilities and to thecosts of transportation regulatory, enforcement, and administrativeagencies. They should not be used to supplement general fund revenues.

6. Transportation rate structures should be approved on the basisof factual investigation of services provided. condition of road~ orother facilities affecting cost, the pUblic interest, and a fair rateof return on a basis equitably applied to all cOJllpetitive operators.

7. The right to enter the transportation business should be re­stricted to financially responsiblE~ operators, alld only to the ntunberof operators necessary to perfol-m essential publi.c service under the

basic concept of regulated competitlon. To the extent that excessiveduplication of services exists on any route, equitable acquisitions andcansol idations should be e11couraged, subject to goverllment approval, andtemporary operating rights should not be renewed.

8" Governmellt transportatiol1 elltities S110uld be operated as inde­

pendent enterprises free of political interference. They should be pro­vided with sufficient capital to conduct operations without burdensomebonded debt which could restrict investments ill facili,ties and equip­ment needed for efficient operations.

64

Part III

AN ACTION AND INVESTMENT PROGRAM

Part III

AN ACTION AND INVESTMENT PROGRAM

Section 1; Summary

The provision of more adequate transportation facilities and serv­ices requires both the development of sound and comprehensive plans anda program for putting such plans into effect. A complete action and in­vestment program to carry out the recommendations contained in this re­port should include seven principal parts~

1. Establ isllrnent of an ent i ty at a lligh government lev'el with

responsibility for continuous cODlprehensive and coordinatedplanning of transportation facilities and services.

2. Developme~t of integrated over-all national plans for trans­portation facilities and services.

3. Establishment of procedures for mW{ing decisions on transpor­tation project priorities.

4. Development of means cf obtaining funds required for trans­portation facilities.

5. Establishrnent and revie\v of metJlods of achieving greaterefficiency in construction and maintenance activities.

6. Resolution of basic questions regarding tIle role of governmentin transportation.

7. Provis1on of more effective regulation and enforcement.

Because of the critical need for improving transportation and theimpracticabil i ty of accompl is!ling all object i ves at tIle same time , it

is suggested that the following course of action would be most effective.

Implementation of Rcol"ganization Plan No. 60 SllQuld be carried outas quickly as possible. An interdepartmental Transportation Planning

Caromi ttee Sl10uld be establisllCd concllrl"ently to ensure tllut prompt and

vigorous action is tal{en at all levels of government to minimize tIle eco­nomic losses resulting from a less than adequate transportation system.

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The development of a National Transportation Plan should be a majorimmediate objective of the committee. Such a plan would include deter­mination of the basic road and railroad network, specific ports essentialfor most economic domestic water tl'ansportation, specif ic airports re­qui. red , and othel· physical fncil i ty aspects of the over-all program.

Since it is apparent that implementation of adequate transportationplans will call for ultimate capital expenditures far in excess of pres­ent national capabilities, early establishment of priorities for specificprojects is essential.

Al tllQUgh final decision on improvement and construction priori tieswill depend upon the development of detailed economic, financial, andtecllnical data wIliell go far beyond tIle scope of this report, very highpriorities are indicated for such projects as:

1. Harbor dredging at Manila, Cebu City, and other importantports.

2. Construction of port facilities in Manila South Harbor.

3. Improvement of port facilities in the Mindanao area.

4. Widening of the Manila North RODd between Manila and Malolos.

5. Improvement of roads not yet hard surfaced which serve trafficroutes throughout tIle isl ands.

6. Replacement of tenlporary stream crossings with permanentstructures on major highways.

7. Completion of developmental roads to NARRA and other isolatedgovernment-sponsored settlements.

8. Improvement of trunk-line airports to bring them up to al1­weather operating standards.

9. Relocation and reconstruction of the Cebu City airport.

10. Improvement of air communication and navigational aid equipment.

An integrated program of transportation development requires prog­

ress in all fields of transportation simultaneously. Although a completeanalysis of all possible projects cannot be derived from this study,roads generally should receive the greatest share of the total funds

68

made available. However. specific projects in either portworks or airfacilities often justify higher priorities than any single land project.Allocations of funds should be made to achieve a balanced transportationsystem.

Estimates have been made of approximate order-af-magnitude amountsof total governmental expenditures for transportation improvement overthe next five years, based both upon the findings and conclusions of thereport and upon the practical limitations of the sources available. Theestimates are shown on the following table.

FIVE-YEAR TRANSPORTATION IMPROVEMENT INVESTMENT PRooRAM!.1

Land Portworks Air Total

Expenditures (average annual)

Maintonance!/ I' 60,000,000 ., 10,000,000 .. 3,000,000 , J' 13.000,000New construction 120,000,000 15,000,000 7,000,000 142,000,000

Total '180.000,000 p 25,000,000 .10,000,000 , 215,000,000

Receipts (average annual)

Presont feos and taxes '100,000,000 ~ 10 ,000 ,aDo!" , 3,000,000 If 113,000,000Additional taxes or

foes needed 40,000,000 5,000,000 2 000 COo!! 41,000,000, ,Annual bond issues 40,000,000 10.000,000 5,000,000 55,000,000

Total .180,000,000 It 25,000,000 1'10,000,000 215,000,000

Summary (five year total)

Total expenditures '900,000,000 .125,000,000 '50,000,000 JS1,075.000,OOOCapital expenditures 600,000,000 75,000,000 35,000,000 710,000,000Bond iB~UOB 200,000,000 50,000,000 25.000~OOO 275,000,000

Percent Distribution

Total expenditures 83.7' Il.6S 4.71 10«1XtCapital expenditures 84.5 10.6 4.9 100Bond issues 72.7 18.2 9.1 100

1/ All figures are in terms of present prices.2/ Includes administration, new equipment, and counterpart allocations.3/ Portworks Special Fund receipts are now running about ~10,OOO,OOO annually.!/ Includes rocoipts from operating communications system.

The amounts in the table are reasonably attainable and will assistgreatly in removing deficiencies in transportation. However, it mustbe stressed that the figures by no means represent total needs. Thebreakdown between tax an~ bond revenues takes into account basic fiscal

recommendations for:

1. Higher user taxes for transport facilities and more equitableassessment of taxes.

2. Retention of such taxes in special funds for transportationpurposes.

3. Bond financing of new construction to the extent required,but tax financing of maintenance, improvement, and reconstruc­tion of eXisting facilities to the maximum extent practicable.

Sources of revenue for improvement of land, water, and air trans­portation facilities are summarized below.

Land

Present Highway Special Fund receipts can be increased approximately50 percent by equalizing and increasing fuel taxes by an amount withinthe ability of users to paYG Improvement of highways from these addi­tional revenues, supplemented by some bond issues for the most urgentlyneeded projects, will reduce annual road maintenance and vehicle operat­ing costs by an amount approximately equal to the increased annual taxrevenue (although not for all users equally). Railroad capital require­ments should be met out of earnings except for major extensions. Suchprojected extensions are not included in the estimates, as they areconsidered to have a relatively low priority.

Portworks

It is possible to increase substantially the receipts into thePortworks Special Fund by providing that user fees now going into thegeneral fund be placed directly in the Portworks Special Fund. Theseinclude berthing fees, harbor clearance fees, storage charges, and thegovernment's share of arrastre fees. Current receipts into the fundare ranning about ~lO,OOO,OOO per year. Under this plan they would beincreased to about P15,OOO,OOO per year.

70

Present bond authorizations for portwc·ks amount to aboutP25,000,000. Increasing this amount to PSL,vJO,OOO, as suggested, wouldmake possible the construction of urgently needed facilities.

Air

Airport landing fees should be increased and assessed equally amongall civil aircraft operators in proportion to their use of the facili­ties. Bond issues will have to be relied on for most airport improve­ments and extensions for the next several years.

Section 2: Planning, Policy, and Procedural Aspects of aTransportation Improvement Program

Organization for Transportation Planning

Action on a high level is necessary to resolve basic questions ofpolicy on the role of government in transportation and to secure coordi­nated interagency planning and cooperation. Since no agency now existsfor the purpose, creation of an entity to coordinate the various govern­ment agencies concerned with transportation and its effects on the econ­omy is an essential part of a comprehensive action programo This entity,

'which might be designated the Transportation Planning Committee, wouldprovide a formal and continuing means of achieving coordination of plan­ning and execution that would otherwise be difficult to achieve.

It is entirely appropriate that the National Economic Council assumeleadership in the over-all transportation planning and coordinating ac­

tivities of the government. The Council is concerned with evaluatingthe place of transportation in the total economy and the economic aspectsof transportation project priorities, with removing impediments to eco­nomic development~ and with stimulating the national economic welfare.It might well take the initiative in the creation of a TransportationPlanning Con~ittee.

Under approved government reorganization plans; many of the agenciesconcerned with transportation are to be consolidated in a Department ofPublic 'VarIes, Transportation and Communications il The secretary of tllis

department \vill assume a posi tion of great importance in tile development

of domestic t~ansportation) and will be responsible for providing basictransportation facilities, as well os the promotional and regulatory as­pects of transportation.

To fulfill his responsibilities, it is important that the secretaryreceive guidance on basic governmental policies and planning assistancefrom other government agencies concerned with transportation and economicdevelopment, TIle 'rransportation Planning Caromi ttee COllld provide a means

of accompli slling thi s basic obj ecti ve . 'The Secretary of Public \Vorlts i

Transportation and Communications might logically serve as Committee

Chairman; other members might include the Director of the National Eco­nomic Council J tIle Budget Conunissioner, the Secretary of the Departmen t

of Commerce and IndustI"y, tIle Governor of the Central Bank, the Under­

secretary for Transportation and Communications, and the Chairmen of theCongressional Committees concerned with transportation. The Undersecretary

72

for Public Works; the Executive Commissioner of the Public Service Com­mission; and the Planning Officer of the Department of Public Works,Transportation and Communications might also serve as ex-officio membersof the CO~littee. Staff work would be carried out by members of thePlanning Division of the Department of Public Works, Transportation andCommunications and by other departmental personnel, as appropriate.The Committee would be empowered to calIon other government agenciesand officers, as well as private transportation companies, for desiredinformation Ulld assi stance.

A subcommittee composed of the Department's Planning Officer andchiefs of tile Bureaus of Public \Vor}{s, Ilighways and Airports • CivilAviation, Land Transportation, and Water Transportation would be estab­lished with the responsibility of formulating detailed recommendationswithin their specialized fields, for consideration by the TransportationCommittee. This subcommittee could be supplemented by such other inter­departmen tal "worlting" or technical commi t tees as may be consideredappropriate from time to time.

The Transportation Planning Committee would not override the adminis­trative responsibility of the heads of the applicable agencies for tteconduct of their various activities. However, it would be mandatory forthem to follow the general policy and program guides laid down by the

Committee, and to give construction priority to Committee-approved proj­ects, to the ex tell t of avai lable funds. TIle Commi t tee would no t assumeany of the operational functions of the various agencies.

National Transportation Plan

The development and implementation of a national transportationplan should be a major objective of the Transportation Planning Committee.The plan would include: (1) determination of basic road and railroadnetworks; (2) determination of the specific ports essential to the do­mestic transportatio11 net\vorl{ amollg tile islands; (3) determination of

specific airports to be a permanent part of the network; and (4) deter­mination of other physical facili ty aspects of tile program.

In developing this plan it would be essential for the Committee totake into consideration such factors as the basic requirements of thevarious geographic regions and the major industries of the country, theplans and programs of ether government agencies that will influencetransportation needs, and the financial and economic capability of thenation to provide the facilities within required time schedules~

73

Priority Procedures

It is apparent that implementation of any adequate transportation

plan will call for ultimate capital expenditures far in excess of nationalcapabilities within the next five to ten years. Accordingly. the estab­

lishment of priorities for specific projects is most important if thenation is to receive maximum immediate benefit from such funds as are

available.

Not only are priorities required for various types of public worksprojects, but also for in(ividual transportation projects within theapproved total transportation budget. The Committee should determinetransportation requirements over a period of years. and their apprOXi­mate cost. ProJects should be evaluated on a prior1ty system basedprimarily on benefit-cost analyses, keeping in mind the general objectiveof developing and maintaining a balanced national transportation systemwhile meeting urgvn L regional and local requirements.

Although the determination of specific priorities requires continu­ous analysis and adjustment to changing conditions, the findings, con­clusions, urtd recommendations of this report can serve as guidelines inthe final determination of transportation investment programs and of indi­vidual project priorities In determining priorities the follOWingfactors should be considered:

1. The benefit-cost ratio of direct savings anticipated from eachproposal,

2. The indirect benefits and costs to the economy as a whole.

3. The social and other secondary benefits and costs.

4. Adequacy of existing transportation facilities,

5. Evaluation of available transportation alternatives.

6. Possible methods of financing the project.

7. Ability of the economy to afford the expenditure at a giventime.

The National Economic Council staff should work closely with theplanning staff of the Department of Public Works, Transportation andCommunications in the preparation of detailed priority standards andprocedures fer guidance of the Committee and all others concerned.

74

Analysis and evaluation of the relative benefits from transportation

expenditures in comparison with those for other sectors of the economy

or the determination of the effects on the national economy of various

levels of expend1 tures are tasl(s of the Na tional Economic Council and

other government bodies.

While basic decisions as to priority evaluation would be made bythe Commi ttee, alld allocation of funds made between the various typesof transport; fInal detailed priority decisions within established

policies should be the responsibility of the Department of Public Works,

except for major bond issues and other major projects,

Action to Obtain Funds

Obtaining funds for approved programs is of crucial importance.

The total amount that can be made available for transport facilities

should be a joint decisIon of all government agencies concerned, working

through the Conlmi t tee. for final approval of the President and the COll­

gress. The Conln".ittee. ill accordallce \1.iith OVl.~r-al1 poli.cies formulated

by the Na t Ion al ECOllomi c COllnci 1 r SllOU lei :] 1 so rEcomrne11d tIle run0 un ts to

be raised by taxatioll 8tld tIle aIJ10Ullts and projects for \vhicll llond issues

wi 11 be 1leceC; s nr y ~ 1 t shoul d al so recomrnend t UJri measures necessary to

raise the:. 11ecE~Eary funds. 'fhe: legislatIVE- rrlEmbErs 0:[ tIle COmInittee

will have a parti.cul~lr respOl1S1011ity 1n this Y"egard:t not only in as­

sisting to formulate the Committee recommendations; but also in per­

forming 1 i. ai son \vi tIl mentber 5 of tIle Congress in expedi ting their adoption

by the Congress.

Responsibility for Improving Efflciency of Construction and Maintenance

Activities

The achievement of greater efficiency in maintenance and construc-tion activit1es is largely a technical and adm1n1strat1ve problem for

which the Department of Public Works, Transportation and Communications

mus t assume pr :1mnry re 5 ponst hi 1 j ty II TIle Tr ansport a t ion Planning Com-

mittee, ho~ever; should take appropriate measures to satisfy itself thatdepartmental practices and prc,cedures obta1.n maximwn return for the funds

spent. I t could also talte approprl ate actIon to draw on the technical

experience of other government agencies or private companies to assist

in obtaining optimum performance standards for ~oth new construction and

maintenance ...75

Need for Definition of Role of Government in Transportation

Determination of the role of government in all forms of transpor-tation is especially important because of present inconsistencies~

Once the Commi t tee has determined wha t tIle role of government should be,

action should be secured to express national policy in basic legislation.Government agencies'} pri va te transportation concerns ~ and the gener'al

public need a definitive national transportation policy to gUide their

present operations and future planning~ All branches of the transpor­

tation industry should be able to proceed with assurance that their

actions conform with national policYl with knowledge that their invest-ments are for necessary and integral facilities, and with confidence

that coordinated implementing regulations will follow the expressedpolicies.

Regulation and Enforcement of Tran~portat1on RUl~~gs

More effective r~g\Alation and vigorous enforcement of transporta­tion policies) rates; and rules are essentialo

Action to secure better regulatory practices and procedures and toprovide the necessary staff, fund5~ and authority to enforce rp.~ulations

and policies equally and iJnpa.rtially are of paramount importance in

strengthening the tr3nsportation systemp Transportation services will

continue to disintegrate uu~ess the present failure to enforce regula­tions is corrected o

On the whole, basic legislation is not required to provide moreeffective regulation and enforcement since the laws are generally ~de­

quate. However; implementation of laws and regulations is often madedifficul t by lacit of trained personnel and by inadequate financial budg-

ets required for the task. Apathy of the government and of the general

public also contributes to this s1tuationo In addition, the importanceof regulation and proper enforcement of laws and administrative rulingsmust be recognized by the transportation industry; government employees~

and the general public.

One defect in the basic law governing the powers and activities ofthe Public Utilities Commission should be corrected as soon as possible.The Commission should be empowered to grant certificates of public con­venience and necessity to interisland water carriers and to prescribestandards of service for all franchised water carriers.

76

Section 3: An Investment Program for Improvement of Transportation

It is evident that if efficiencies in domestic transportation areto be achieved, substantial increases must be made in the amounts ofmoney allocated to transportation.

Present indications (August 1956) are that 1957 fiscal year expendi­

tures for all public works will aggregate between P580 and ~625 million,

of which approximately P230 million will be derived from general and

special tax revenues, and between P350 and P395 million from bond issues.Transportation facility expenditures are estimated at approximately

P230 million, of which ~135 million will be derived from current special

and fiduciary tax funds, PI5 million from the general fund, and ~80

million from bond issues.

Approximately 40 percent of total current expenditures for public

works are for transportation facilities, and about 20 percent of public

works bond issue revenues are used for transportation projects.

Well-cllosen and economic~llly COIlS tructed transportation faci!i ties

benefit the economy, in both tangible cost reductions and over-all in­

direct effects) and constitute real contributions to economic develop­

ment. For these reasons they should be given higher construction pri­

ori ties tllun less economically or socially useful public worlcs projects,particularly when the total national financial resources are limited,

as in the Philippilles. The allocation of a higher proportion of thenational budget to transportation faciliticls over the next five-year

period, as compared with previous allocations p appears to be economically

sound and justifiable.

Financing a Transportation Investment Program

Transportation facility expenditures are of two principal kinds:

recurring main tenance, and improvemen t or ne\v construction "capt tal."Transportation facilities are never completed, in the sense that more

cannot be justified as tlle economy expands and older facili ties wearout or become obsolete.

Sound fiscal policy dictates that current taxation be the source

of as much of the transportatioll expend1 tures as practi cable, for both

maintenance and improvement projects. Bond issues should be utilized

77

only for urgently needed projects that cannot equitably be financed fromcurrent revenues.

Present tax revenues are not adequate for the transportation im­provement program needed in the Philippines. The extent of public bor­rowing for transportation projects has practical limits even though asomewhat higher proportion of bond issue funds were allotted to transportfacilities~ In such circumstances special fund revenues should be in­creased and utilized to the maximum practicable extent.

It is theoretically justifiable to consider revenues from all taxsources as accruing to the general fund and to make allocations there­from on the basic 0f need regardless of source~ In practice, the re-

, tention of taxes from special sources (such as vehicle registration,tolls, motor fuel, airport/seaport use, and special serv~ces rendered)in special funds has many ndvantnges~ Accounting is facilitated, budget

controls are more effective; program planning is easier, and tllere isless temptation to divert use-tax funds for low priority and generalgovernment current expenditureso

Under the prevai 1 il1g ci rcumstances, the llighway Special Fund, thePortworlts Special Fund, tIle Airport FUlld, and otller special funds de­rived from special sources are sound in principle and necessary to as­sure their best and most economic utilization for the purposes for whichthey are collected, particularly when such purposes are essential to thenational welfare, as are transportation facilities.

Use taxes are 110t equi cably applied at l)resent ~ For example,

registration fee differentials between proprietary and common-carriertruclts lluve 110 econonlic justification; diesel and gasoline fuel taxesshould be equalized as botll types of vehicles derive equal benefit fromthe roads; port charges are not uniformly or completely applied; and

airport landing fees discriminate in favor of one carrier.

These and other inequities should be removed and a soundly conceivedtax structure developed so that all transportation facility users willpay a larger share of tIle cost of improved faciIi ties of which they willbe the most direct beneficiar1eso

Allocation of Funds among Types of Transportation

For tIle dGtermil1ntioIl of the relative amOul1t of investment to be

allocated among types of projects (land, water J or air) and within trans­port categories r comparative priority analysis is required, including

78

detailed engineering and cost estimates beyond the scope of this study.Also, any specific lists of projects must be reviewed periodically andrevised.

In general, roads should receive the greatest share of the totalfunds made available. However, when specific projects in either port­works or air facilities may yield greater benefits, they should receivehigller priori ties than any single land project. At the sante time J al­locations should be lnade \vi th tIle need for a balanced transportationsystem kept firmly in mind. While roads, for example. may seem to bene­fit more people than airports, it does not follow that use of all bond­issue funds for roads and none for airports would be sound.

Optimum ecol10mic clevelopmen t I froJll \vhich all tIle people deri va the

greatest benefit, requires integrated optimum development of all formsof transporota tion :lppropria te to tIle coun try's needs.

Al though it \vas beyond the scope of tllis study to determine priori ty

lists of specific projects in detail, it is appropriate to point out themost critical facility requirements based on tIle detailed analyses con­tained in the various volumes of tllis report.

Priori ty Projects for Improving Ports alld llarbors

As outlined in Volume III, an extensive program of port and harborimprovement is required to bring Philippine ports to a reasonable levelof adequacy.

Dredging

An accelerated maintenance dredging program to improve ports andharbors is of critical importance to Philippine transportation. Addi­tional dredging equipment is needed immediately. Manila South Harborand Cebu City should have top priorities; other ports with high dredgingpriorities are Davao (Santa Ana), Iloilo, Tacloban, Zamboanga, ManilaNorth IIarbor J Surigao. Cagayan de Oro J Butuan, and Legaspi.

Construction

A construction program in Manila South Harbor to provide 12 berthsfor large vessels should be developed and carried out as soon as possible.

79

The program should include:

1. Construction of pier 52. Extension of pier 93. Widening aprons on pier 134. Improvement of pier 13 to serve as a passenger te~1nal, as a

short-run measure

Other port improvements with high priorities are the following:

1. Manila South Harbor

a. Repair of Engineer Island bridgeb. Construction of bodegas in the Customs Compoundc. Rehabilitation of the 1,500-ton marine railway on

Engineer Island

2. Manila North Harbor

a. Construction of transit sheds on piers 4, 6, 8, and 10and provision of sanitary facilities and office space

b. Paving additional unpaved areas

3. Cebu City

Construction of cargo sheds

4. Mindanao Area

Improve facilities at Dadiangas, Cotabato (new location atParang), Davao (Santa Ana pier), Surigao, Butuan, Iligan area(new location), and Cagayan de Oro

Financial Requirements for Improving Ports and Harbors

The construction, maintenance, dredging, and operation of nationalports is financed from the Portworlts Special Fund, from uond issues, andfrom direct appropriations_ Construction of municipal ports is financedin the same manner, and dredging of municipal ports is financed from thePortworks Special Fund. Maintenance (excluding dredging) of municipal

ports is financed by the municipalities. However, because of limitedfunds, very little maintenance work is performed on municipal facilities.

80

In recent years, most of the funds expended on port and harbor proj­ects have come from the Portworks Special Fund. Even funds provided bybond issues under Republic Acts 1200 and 1411 must eventually come fromthe Portworlts Special Fund, since it is planl1ed that the fund wi 11 beutilized to meet bond interest and redemption.

Present receipts into the Portworks Special Fund are running at an

annual rate of about PIO,OOO,OOO. It is possible to increase this amountsubstantially by provi.ding that user- fees such as berthing fees, harborclearance fees, storage charges, and the government's share of the

arrastre fees be placed directly in the fund~ In addition} Lhe assess­ment of a \vharfnge cllurge against domestic cargoes haJldled over govern­

ment piers and docks would provide substantial additional receipts for

the fund. It is reasonable to plan a level of receipts into the fund

of at least ~15,OOO.OOO per year. Ult1mately more will be required ifports and harbors are to be improved on an expanded basis.

Under Republic Acts 1200 alId 1411, P25,OOO,iOOO in bonds have beenauthorized for port\'vorlts. Revie\ll of l"eqtlirements in all phases of trans­portation, together with consideration of the over-all financial capa­

bilities of tile country, indicates tllat a pSO,OOO,OOO bond program over

the next five years to facilitate the construction of urgently needed

facilities appears to be a reasonable level of bond expenditure.

Financing a Ship Replacement Program

As pointed out in Volume III; gradual replacement of the presentfleet of vessels now serving the domestic trade is essential. The fi­nancial requirements of a r-ep1acemcnt progl~am are large~ For example,replacement of 100 Sllips \vill require a minimum of P150 ,000 ,000 to

'200,OOO~OOO. Private enterprise should provide funds for the replace­

ment program. HoweveY~ government po11cies should be geared to encourage

private cap1tal investment: including (1) sound regulatory policies which

will give some measure of protection from uneconOID1C competition to es­tablished operator s, (2) alloca tiOll 0 f foreign excllullge to purchase ves-

sels, (3) revision of unduly burdensome taxes and fees on operators,

(4) payment for mail carriage, and (5) provision of government loans ifrequired.

Direct investment of government funds through subsidies and outright

grants to ship owners does not appear to be warranted in the immediatefuture.

81

Priori ty Projects for Improving Highways and RoarJ,~

It would not be realistic to suggest definitive priorities or annualallocations for road and highway projects in the absence of additionalessential engineering and cost information~ However g within limitationsof the data available at this time, and taking into consideration re­

gional transportation facility requirements, the following specific

main-route highway and road projects should be given detailed priorityanalysis and consideration. The specific project suggestions are notexhaustive, since it was impractical to vjsit all possible regions of

potential economic development and others of equal importance may wellbe considered.

No priority allocation between new construction and capital im­provements has been attempted, since both types should be carried onconcurrently depending on availability of bond-issue and tax funds,respectively, as appropriate within principles previously set forth.

PROJECT SUGGESTIONS

Improvement and Reconstruction

Manila North Road to MalolosZambales Coast

Daet-Naga City

Ormoc City-Baybay

Talisay-ToledoDavao-Cotabato

General Santos-CotabatoMindoro East CoastManila South Road to CavitePanay North Coast

Aparri-LaoagTaclobnn SouthNegros West Coast Routes,Dansalan-IliganIligan-Cagayan de OroCagayan de Oro-Sur1gaoCebu East CoastDansalan-~talabang

Samar Coastal RoutesQuezon-Daet Rte. 1

Maramag-CotabatoBohel

New Construction

Ragay Peninsula (Luzon)

Samar InteriorEastern Nueva VizcayaSouthern Negros InteriorZamboanga-PagadianIpil-SandanganMaramag-\Vao

Davao-Butuan (completion)

Cagayan Valley North-SouthD1nalupihan-AngelesApayao East-\Vest

Ormoc City-JaroWao-Dansalan City

,Takurong-KidapawanLagonoy PeninsulaAlbay West CoastAklan Interior RoutesClaveria-GingoogSanta Fe-Son NicholasOriental Mi.ndor·o Extension to San

Jose

Palawan 'Vest Coast ExtensionMindanao East Coast Connections

82

Improvement and Reconstruction

Baguio-BontocSabangan-TagudinDagupan-Damortis

Lingayen-TarlacPanay East and West Coastal Routes

New Construction

General Santos-MalalagBangued-LubuaganKabugao-LanganganSantos~Kiamba-Lebak-Cotabato

Mariano-Palanan

Financial Requirements for Improving Roads

In Volume IV, it is recommended that the automotive fuel tax onboth gasoline and dieseline be raised to 10 centavos per liter for road­

use vehicles. Such a rate would increase Highway Special Fund annual~evenues from the present ~90,OOO,OOO (estimated at ~95,OOO,OOO forfiscal 1957) to approximately P135,OOO,OOO per year, even after elimi­nation of the 60 percent differential between diesel and gasoline vehi­cle registration fees. During the first year of the program, use-taxreceipts would doubtless be substantially less than in subsequent years,followillg the trend of actual collections (even after equating tax rateincreases) during the past five years. For conservatism, however, onlya nominal annual increase in such receipts is indicated:

Year

1st Year2nd Year

3rd Year

4th Year5th Year

Total

Revenue atPresent Fee and

Tax Rates

~ 90,000,000

95,000,000

100,000,000

105,000,000

110,000,000

fJ500,OOO,OOO

Additional Revenue

at IncreasedRates Recommended

:' 36,000,000

38,000,000

40,000,000

42,000,000

44,000,000

J'200,OOO,OOO

Estimated TotalRevenue

P126,OCO,OOO133,000,000

140,000,000

147,000,000

154,000,000

~700,OOO,OOO

Maintena~ce and administrative costs, plus amounts presently bud­

geted for now equipmen t (,vhich sjlould be considered the minimum desirable)approxirna4.:ing P6 J 000 ,000 per yea::, J will be relatively ~niform tllroughoutthe program period, although tending to decrease somewhat as the surfaceupgrading projects are completed and economies are effected through in­

creased use of new equipment acquired. Additional kilometrages brought

into the system will tend to offset such decreases. For preliminaryplanning purposes, the uniform figure of pSO,OOO,OOO per year i3 con­

sidered reasonably adequate and accurate for maintenance, administration,and new equipment.

83

Other offsets to the amounts indicated as available for improvementof the national and provincial highway systems are the counterpart al­locations to municipalities for local road and street maintenance, whichaggregate some ~8,OOO,OOO per year and will probably tend to increase.

Including maintenance, administration p equipment, and counterpartallocations, an average of pGO,OOO)OOO per year is suggested as a rea­sonable total for these items g the balance from tax funds being avail­able for improvements and new construction o

\.Bond issues for certain major inlprovement and reconstl-uction proj-

ects, and particularly for extensions of the system, are recommended in

the tabulation that follows in amounts that should be reasonably withinthe national financial capacity.

Revenue from Total CapitalTaxation Available Tentative Improvement

Year for Improvements Bond Issues Funds

1st Year J' 66,OOO~OOO ~ 40,000,000 JZfl06~OOOpOOO

2nd Year 73,000,000 40~OOO,OOO 113,000,000

3rd Year 80,000,000 40,000,000 120pOOO~OOO

4th Year 87,000,000 40,OOO~OOO 127)000,000

5th Year 94~OOO,OOO 40,OOOgOOO 134~OOO~OOO

Total P400,OOO,OOO J6200~OOO~OOO ~600pOOOiOOO

Under this financial program p approximately two-thirds of the reve­nue available for capital improvements will be derived from current

specific tax and fee receipts (no general fund tax receipt allocations

are included in the program as such receipts will properly be fully de­

voted to general government purposes) and one-third from bond issues.

It is believed that this proportion will prove to be approximately cor­

rect as the proportion (two-thirds) devoted to improvement of existing

kl1ometrage, and to new construction (one-third) on the national Rndprovincial highway system.

The total (~600JOOOJOOO) available for capital improvements shouldbe reduced by amounts necessary for replacement of temporary streamcrossings, as discussed in Volume IV s and for barrio or local roads.Bridge replacements should be determined principally on the basis of

urgency and repair savings. Local road priorities should be based

principally on their over-all contribution to the economic and social

84

well-being of the nation measured in terms of people benefited and the

increase anticipated in the national product. Encouragement should also

be given to those communities desiring aid under the self-help program

of the President IS office.

Allocation

BridgesTotal FundsYear

mentsT~:rf:~~~:~:g':;b~~:::O=o~;t:£t-!if!!\1Li~~itt~1.~rt1\ffrre-

for and Local nand Major ProjectProgram nalance

1st Year Pl06,000,000 P 20,000,000

2nd Year 113,000,000 25;000,000

3rd Year 120,000,000 30,oCD , OOO

4th Year 127,000,000 30,000,000

5th Year 134,000,000 30,,000,000

Total P600,000,000 P135,000,000

Annual

average P120,000,000 p 27,000,000

P 15,000,000

20,000,000

25,000,000

25,000,000

30,000,000

P115,000,000

P 23,000,000

P 71,000,000

68,000,000

65,000,000

72,000,000

74,000,000

P350,000,000

P 70,000,000

Most of the barrio and local road program expenditures are more prop­

erly chargeable to bond issue funds rather than to use-tax revenues,

since main highway users who are the principal source of such revenues

will derive relatively little direct benefit from the improvement of the

s~ort rural links. Accordingly; roughly half of the P200,000,OOo bond

issue revenues should be devoted to the local road program (PlOD ,000 ,000

of the P115,ooo,000 total for such projects), leaving some PIOO,OOD,OOO

for national and provincial main route extensions, including stream cross­

ings on such new routes. This total would provide approximately 2,000

kilometers of new 6-meter gravel roads at P5o,Ooo per kilometer. The

total length will be reduced 1n proportion to the stream crossings and

more expensive construction occasioned by terrain considerations, and

increased to the extent 4-meter widths are determined to be adequate.

The five-year program should result in substantial replacement of the

1,508 kilometers of national trails (which genera-lly should' be given

priority over E~?vincial trails) with gravel roads, but the 6,408 kilo­

meters of provincial trails will be little affected, and their replace­

ment must generally be deferred until a later period. As some routes

will extend where even trails do not now exist, ann some provincial trails

85

will be replaced with roads, not all the national trails will be replacedby the end of the initial program. That objective should, however, bethe general goal.

Based on average cost estimates discussed in Volume IV, the costof upgrading existing surfaces of all national and provincial roads, ex­cepting the 2,228 kilometers presently surfaced with concrete or high­type asphalt, by one surface type (i.e~, unsurfaced to gravel, gravel tosurface treatment asphalt, low-type asphalt to intermediate, and inter­mediate to high-type asphalt, but without any concrete construction atall) would require between P259,OOO;OOO and P333,OOO,OOO, as follows:

Type

Unsurfaced to gravelGravel to macadamMacadam to semipermanentSemipermanent to asphaltAsphalt to concreteConcrete

Total

Additional cost if4 meters surfacingabove increased to6 meters width:

Width Length Unit(meters) (kilometers) Cost Total Cost

4 4,655 JI 3,500 ~ 16,000,000

4 21,741 7,000 150,000,000

6 2,641 20,000 53,000,000

6 1,340 30,000 40,000,000

95 None793 None

31,265 ,259,000,000

Unsurfaced to gravelGravel to macadam

Subtotal

Grand Total

4,65521,741

26,396

31,265

P 1,5003,000

J' 7,000,00067,000,000

1/}l333,000,000-

!/ This total compares with the 1350,000,000 available for major proj­ects under the recommended financing program shown in the precedingtabulation.

While 4-meter width surfacing will not be satisfactory, because ofpresent and potential traffic, for all the present unsurfaced or gravel Itilo­metrage, the magnitude of the expenditure required is such that all rea­

sonably feasible width economies should be made on rural routes~ Other­

wise, there will be insufficient funds for the justifiable improvement

of heavily traveled routes, particularly in the vicinity of Manila, which

properly require greater widths, some concrete surfacing, provision of

expensive grade separations at certain locations, and property acquisi­

tion costs for bypass construction.

Amounts provided for il1di vidual years will be subject to revision

as it may not be economically possible to spend amounts initially allo­

cated, particularly in the first or second years of the program, because

of the time involved in financing, planning, equipment and personnel

availability, etc.

This program of surface upgrading is not intended as a final recom­

mendation concerning the use to be made of available funds. Additional

analysis may reveal, for example, that some of the unsurfaced or gravel

kilometrage cannot justifiably be improved within this period--or atleast its improvement should be given a lower priority because of the

urgency of other reconstruction or new construction projects~

Finally, it would be unrealistic to budget funds for many entire

major projects in anyone or two years, when actual construction willrequire a longer period of time. Thus, campI etio11 of tIle route between

Zamboanga Ci ty and I~agadian and from I pil to Sandallgan ill \vestern Mindanao,may well talte ever) longer tllan five years l:)Gcause of admillistrative and

construction problems. Fund allocations for such projects, while made

on an annual basis, should be given sufficiently high priorities to as­

sure their con tillua tion un ti 1 conlpletion in the absence of overwhelming

or unexpected reasons to the contr~ry.

Financing Railroad Capital Requirements

In view of the conclusion in Volume V that a railroad is not essen­tial fOl· economic developmen t of the Cagayan. Valley and other regions

that might be considered for rail extensions, and considering the un­

favorable financial prospects for such new lines, it is not appropriate

here to discuss a railroad investment progrrum necessary to construct the

proposed Manila Railroad line between San Jose and Tuguegaraoo

87

It has been pointed out that the Manila Railroad's capital structureis unduly complex. A key recommendation was that it be simplified to

reduce the fixed charges with which the railroad has been burdened, par­ticularly since the end of World War II. The suggested capital reorgani­zation would involve a net cash contribution by the government in theform of purclluse of the railroad 1 s common stock in the mnount of

PIO,OOO,OOO less accrued tax liab11ity of p2,230}OOOJ or a total ofP7,770,OOOa Thi.s sum should be provided during the first year of the

five-year transportation program and should be taken from general fundsof the government~

The substantial cash requirements for improvement of the railroad's

track and structures, and for provision of new rolling stock, should beobtained from the following sources:

1. Proceeds from the sale of nonrailroad assets, such as ManilaHotel stock and tIle compally 7 s auto bus lines.

,2.. Net operating prafi t ..

With the exception of the initial common stock investment) thegovernment should not anticipate giving further cash advances to theManila Railroad in carrying out the improvement and modernization pro­gram needed to place it in a sound operating position" Drastic reduc­

tion of annual interest obligations p the operating economies resultingfrom the re· ... en tly completed diesel ization progranl; and l1igher revenues

anticipated from passenger service; particularly, should enable the rail­

road to carry i ts progranl ~ This s110uld be the Obj ect 1 ve y and everything

possible should be dOll€ to secure its accomplishment, Since continued

injections of new capital should be avoided so f~r as possible~ no pro­vision for them is ,ude in this reportr

The Philippine Railway~s operations now appear to be on a soundbasis. It should be able to set aside sufficient funds from net operat­ing income to meet new capital requ1rement5 during the next few years.Such relatively small additional amounts as may be needed from time totime can be advanced by the Rehabilitation Finance Corporation, as inthe past.

Priority Projects for Improving Air Transport Facilities

In Volume VI it was concluded that an expanded program of construc­tion and improvement of airports and air navigation facilities designedto increase the extent and time of safe operations should be initiatedwithout further delay.

88

The priority grouping of capital expenditures for improvementsshould, as in the case of highways and ports, be considered as tentativeand subject to detailed cost-benefit analyses. These groupings, however,should be reasonable guides for preliminary planning and should give a

sufficiently accurate indication of what may be expected from futurestudies.

Priority suggestions for airport improvements are as follows:

First Priority Group

Bringing all operational commercial airports up to desirable all­weather safety standards.

Relocation and reconstruction of the Cebu City airport to make itadequate for all anticipated requirements by 1965.

Modernization and improvement of the airports at Bacolod and Davao

(now underway) .

Improvement and extension of the naVigational aid equipment for all

major airports and airlanes, including airport lighting and very high

frequency omnidirectional radio range.

Civil Aeronautics Administration purchase and operation of the

Philippine Air Lines air communication system to make it available to

all commercial operators equally.

Second Priority Group

Improvement of landing fields to provide all-weather safety and toaccommodate larger aircraft at Laoag, Tuguegarao, Daet, Legaspi, Naga,

Masbate, Basco, and Calapan in the Luzon area;

Roxas, Iloilo, Tacloban, Dumaguete, Tagbilaran, and Puerta Princesa

in the Visayas; and

Cotabato, Buenavista, Ozamiz, General Santos, Dipolog, and Jolo inthe Mindanao area.

89

Third Priority Group

New or improved fields at least capable of handling feeder-typeaircraft at such places as Ramblon and Coron, Marinduque, Olongapo, Iba,Tarlac, Polillo, and Lubang in the Luzon area;

Calbayog, Catarman, Catbalogan, Borongan, Toledo, Bantayan, Fabrica,Kabankalan, and Brooke's Point in the Visayas and Palawan; and

Tago, Lianga, Bislig, Bunawan, Cateel, Pagadian, Mati, Kldapawan.

Lebak, Kiamba, and Glan in the Mindanao area.

Financial Requirements for Improving Airports

This program should be financed in part by landing and other fees

assessed all users of the facilities on an equitable basis, and in partby bond-issue fundso In Volume VI of this study it was concluded thatgovernment appropriations for the promotion of air transportation should

be increased to approximately 5 percent of the total available for all

forms of domestic transport facilitiesp This would amount to some

~7,OOO,OOO per year for capital improvements 0

Present fees and taxes of some ~3;OOO;OOO per year would be increasedto P5JOOO)OOO~ including charges for use of the communication system,which \vould be tal{en over \)y the Civil Aeronautics Admin1str-ation from

Philippine _4.1r Lines~ Bond issues \vould nlalce a.n additional P5,OOO,OOO

available annually, for total receipts of PIO,OOO;OOO$ or P50~OOO,OOO

for the five-year p6riod~ Of thls total} some P35;QOO;OOO should beavailable for capi tal improvemen ts·· -·an amoun t \vi thin the national capa­

bili ty and \Vllich \vould permit a greatly accelerated U1r trullsport program 0

Nearly three-fourths of the funds foc such cap1tal 1mprovements would bederived from bond issues; a considerably hlgher proport10n than for landtransport facilities (roads and bridges), but assessment of the greatly

higher taxes on airline operators necessary to carry this program without

substantial dependence on bond financing \Vould serlousl y retard thl3 de­sired air transport devElopment during this initial five-year prograrn o

In subsequent programs it should be possible to increase the tax-bond

ratio substantially.

It is assumed that approximately equal annual expend1tures will be

made under the proposed construction program II \Vbile j t ""'QuId be dpsir-

able to complete the program as ~oon as poss1ble~ the practical problemsof planning, construction capabilities (particularly in view of the in­creased road and port construction program also envisaged), and coordination

90

of airfield completion with expansion of services by airline operators,which is an essential part of theprogrwm, indicate that equal annualincrements will be the best that can realistically be expected. Duringthe first year a substantial part of the funds will be required to pur­chase Philippine Air Line's air communication system and adapt it tonational requirements, thereby reducing the immediate funds likely tobe available for new construction.

APPENDIX

Articles I and II of Contract between the NationalEconomic Council of the Government of thePh iI ippines and Stanford Research· Institute

Previous Pa~ Elalilc:

11.)t" 'It {

"Pi l\'

''''-

Appendix

ARTICLES I AND II OF CONTRACT BETWEEN THE NATIONAL ECONOMIC COUNCIL

OF THE GOVERNMENT OF THE PHILIPPINES AND STANFORD RESEARCH INSTITUTE

Article I

Scope of Services to be Performed by Contractor

A. National Economic Council employs the Contractor and the Con­

tractor accepts such employment to conduct during the te~ of the Con­

tract an economic survey and provide a comprehensive survey report and

recommendations covering the following.

1. In general, Philippine domestic transportation, both

passenger and freight; but not including local transportation

(i.e., transportation moving solely or primarily within the con­

fines of individual municipalities, towns, or metropolitan areasof ci tles) except \vhere, as 111 tIle case of certain cargo f acili tiesin Manila unci otller large ci ties, a real national interest is in­vol ved. On tIle basi s of sue}1 survey report a progl·am of necessary

legislati ve, adminis trative, and financing meaSllres \vi 11 be formu­

lated by the NEe designed to Alluble dOllIes tic trallsportation to make

the greatest possible contribution to the program of economic de­velopment in the Philippines.

2. Specifically J the need for a~nd tIle means of improving the

availability and efficiency of interisland water transportation and

of reducing its costs; including the need for and means of improving

shipping ports (interisland OA combined interisland and interna­

tional) I illcluding tl~.e camparati ve economic advan tages of the use

of a large number of ports as against coneen tratit)n of interislandservices in a smaller number of ports with improvement of feederroad transportation.

3. Need for nnd means of improving the availability and ef­

ficiency of transportation (other than local) on all major islands

and of reducing its cost; including tIle proper Ulld most economical

relationship between road transportation and coastwise shipping

where these are alternatives and, with respect to competitive areas

on the islands of Luzon and Panay, between road transportation,

95

railways, and coastwise shipping; also the comparative economicadvantage of reorganization, refinancing, rehabilitation, andpossibly expansion of existing railway lines on Luzon and Panayor any part of them, as against abandonment of all or any part of

present operations.

4. Need for and means of improving the availability and ef­ficiency of domestic air transportation and of reducing its cost.

5. The comparative economic advantages of enlarging the num­ber of customs ports especially for loading of export cargoes, asagainst improvement of domestic transportation serving a restrictednumber of ports in international trade 0

6. Need for and means of modifying government organizationin the field of transportation.

7. The development of an integrated transportation improve­ment investment program phased by years over at least a five-yearperiod.

B. Within the framework of Paragraph A, Items 2 to 7 above, thesurvey report should coveL' common carrier, contract, and proprietarycommercial passenger and freight transportation as follows:

1. Traffic. Direction, volume, types and other characteris­tics of existing traffic; traffic trends during 1952 through 1954;estimates of traffic potentials for the years 1956 to 1966 p re­spectively, including anticipated effects of the Philippine eco­nomic development program~ Special attention should be given totransportation routes in relation to areas of increased economicaactivity such as Mindanao.

2. Facilities and Operations~ Transportation facilities nowavailable, including transportation services and industrial andcommercial proprietary transportation; vessels, vehicles, rollingstock; ports, airports} railway lines and terminals~ roads, aidsto navigation; construction, servicing, and repair facilities andpractices; labor force including managerial, professional, skilled,unskilled; terminal construction, servicing and repair labor force;corporate organization, management and operating practices; pres­ent scope and practices of financing of transportation services;carriers' associations, shippers i associations; forwarders, brokers,and other auxiliary services, etc o

96

3. Cost. Transportation costs; cost elements; transportationrates, including rate-making procedures and practices; also competi­tive practices and abuses; uneconomic overtonnaging of routes;monopolistic or collusive practices and abuses; competition betweenvarious modes of transportation, competitive trends during 1952through 1954; effects of competition; also transportation companies'£1nancial results.

4. Regulation and Public Support. Government regulation ofdomestic transportation; regulatory bodies and practices; otherexisting legislation affecting transportation; law enforcement;subsidies and other forms of promotion; taxation; government serv­ices to transportation; expenditures for transportation purposes;government ownership or part ownership in the domestic transporta­tion field, etc.

5. Analysis. Suitability and adequacy of existing domestictransportation facilities (including services and types of convey­ances) for (a) existing traffic and presently existing potentialsand (b) estimated traffic potentials for the years 1956-1960 and1965, respectively.

6. Recommendations. Recommendations for government actionand other appropriate recommendations.

c. In undertaking the survey the following documents, among others,should be taken into consideration:

1. "Report of Survey of the Manila Railroad Company and thePreliminary Survey of Railroads for Mindanao," prepared for thePhilippine Council for United States Aid, July 1952, by DeLauw,Cather and Company, Engineers, Chicago.

2. "Philippine Highways, a Study of the Highway TransportSystem Requirements and Recommendations," June 1950, by HighwayPlanning Survey, Philippine Bureau of Public Works. The facilitiesof the Bureau of Public Highways should be utilized to the extentsuitable in the preparation of the survey.

D. The Contractor will prepare its survey report and recommenda­tions in a form satisfactory to the NEe. The Contractor will submit notless than 20 and not more than 100 copies of such report of which 8copies are to be forwarded to the United States Operations Mission in

97

Manila (USOM) and the balance to NEe. The report and recommenda­tions shall become the exclusive property of NEe and shall be sub­mitted to NEe not later than the terminal date of this Contract.

The contents thereof and the information contained therein shallnot be divulged, sold j or delivered, either in whole or in part,by the Contractor to any person without the express written per­mission of NEe, except as provided in Article VI, Section B, hereof.

Article II

Staff and Working Plan

A. In performing such services, the Contractor shall:

1. Maintain in residence in the Philippines a staff of notmore than seven technical experts, one of whom shall be designatedthe project leader who shall be responsible for the supervision ofthe performance of all duties undertaken by the Contractor in thePhilippines.

2. Furnish supervision and direction of its personnel andactivities under the Contract.

3. Undertake to perform all services herein described withinthe Contract period.

B. Working Plan

1 0 Arrival of Project Leader. The project leader, once se­lected, shall proceed to the Philippines and report to appropriateauthorities in the NEe and in USOM. After full discussions on thescope and objectives of the project, he shall proceed toward thefollowing immediate object1ves:

a. Development of an itemized work program in full de­tail, which, if carried out, shall achieve the over­all objectives of the projects.

b. Development of a manpower schedule necessary to carryout the work program~ This schedule shall cover spe­cific work assignments for each member of the team andthe exact time of his required arrival in (and probabledeparture from) the Philippines.

98

c. Collection of available statistical and other dataon the Philippine transportation problem.

d. Completion of all necessary arrangements in thePhilippines for effective work of the full projectteam. These arrangements shall cover, among others,

such matters as office space, office services, tech­nical services, living accommodations, transportationneeds, availability of needed economic information,liaison with affected Government and other agenciesand working procedures.

Once all of the above arrangements are completed and reducedto writing, they shall be coordinated by the project leader with

appropriate authorities in the Philippine Government and in USOM.'The prime objectives shall be to develop these plans jointly so asto attain mutual agreement among all parties. It is expected thatthe above step would require one month or less.

2. Team Work in the Philippines. The second major step inthis project shall consist of work by the full project team in thePhilippines. This work shall be carried out in accordance withthe agreed-upon itemized work program. Periodic discussions shallbe held with appropriate officials of the NEe. USOM. and such othergroups as may be necessary in order to ensure continuing agreementon the work plan. Changes in the plan shall be made as may beagreed upon by NEe and the Contractor.

At the conclusion of the investigative phase of the projectwork, the team shall prepare a draft report containing all neces­sary factual material and findings. The draft report shall alsocontain the tentative conclusions and recommendations of the proj­ect team. During the latter part of the draft preparation stage,

the team shall be joined by a senior representative of the manage­ment of Stanford Research Institute. He shall assist the team indeveloping the tentative conclusions and recommendations (includinga suggested Program of Action), and in discussing these matterswith key representatives of the Philippine Government and USOM.

3. Discussion of Draft Report c The third important step incarrying out the over-all project shall consist of a series of dis­cussions in the Philippines between the project team and represen~a­

tives of the Philippine Government and USOM. The purpose ofthese discussions shall be to seek agreement, wherever possible,on the draft report and to ascertain in what respects further

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information or changes in the draft report may be required. Theobjectives shall be to obtain a draft to which support from all

concerned can be attracted. At the conclusion of these discussions,all members of the team shall return to the United States.

4. Publication of Final Report. The final report on this proj­ect shall be reproduced in appropriate form at the Contractor'soffices in the United States in accordance with Paragraph D ofArticle I.

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