Report No. 7098-PH

PhilippinesTrarisport Sector Review

March 31,1988

Intrastructure DivisionCountry Department IIAsia Region

FOR OFFICiAL USE ONLY

Document of the World Bank

This document has a restricted distribution and may be used by recipientsonly in the performance of their official duties. Its contents rnay not otherwisebe disclosed with out World Bank authorization.

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CURRENCY EQUIVALENTS

Year Pesos (P) per US DolLar

1983 11.1

1984 16.7

1985 18.6

1986 20.4

ApriL 1987 20.5

ABBREVIAT IONS

BAT - Bureau of Air rransportation

CAB - Civil Aeronautics Bureau

CCT - Common Carrier Tax

COA - Commission on Audit

CTP - Commitcee on Transport Planning

DLG - Department of Local Government

DOTC - Department of Transport and Communications

DPWH - Department of Public Works and Highways

GVW - Gross Vehicle Weight

LRT(A) - Light Rail Transit (Authority)

LTC - Land Transportation Commission

MARINA - Maritime Industry Authority

MIA(A) - Manila International Airport (Authority)

MMC - Metro Manila Commission

MMTC - Metro Manila Transit Corporacion

MTPIP - Medium-Term Public Investment Program

NEDA - National Economic DeveLopment Authority

NTPP - National Transportation PLanning Project

O&M - Operation and Maintenance

PIP - Public Investment Program

PNR - Philippine National Railways

PPA - Philippine Ports Auchority

ICC - Traffic ControL Center

TRB - ToLl ReguLatory Board

'JRPO - Urban Roads PrK,ect Otfice

JR OMCILu USE ONLY

PHILIPPINES

TRANSPORT SECTOR REVIEW

Table of Contents

Page No.

EXECUTIVE SUMMARYIntroduction .... .... ... ........ ..*. i

Sector Issues and PoLicy Choices ...........................i

Institutional Aspects and Issues . . iv

Public Expenditure Programs in the Transport Sector ......... v

Recomnendations ............................. . vii

I. INTRODUCTION . . . 1

A. Role of the Transport Sector . ............. 1.............. I

B. Previous Bank Sector Work .............................. 2

C. Objectives of the Present Sector Review . . 2

II. SECTOR ISSUES AND POLICY CHOICES . ................... 3

A. Introduction ....... .............................. ....... 3

B. Road Transport .. 3

Optimum Road Transport Technology . . 3

Regulatory Policies ................................... 4

Road User Charges . ................................ 7

Cost Recovery from Road Users ......................... 11

C. Transport in Metro Manila . . .o ........................ 14

Traffic Congestion ... 14

Public Transport ... . ........... 15

D. Interisland Shipping ..... ............. .................. 16

Market Structure . . . 16

Cost and Price of Shipping Services . . . 1 ' 7

Fleet Modernization and Quality of Service ... 19

Maritime Safety . . . 19

Public Policy Recommendations ..... ................... 20

E. Other Modes . ............................................ 21

This report is based on the findings of a transport sector mission thac

visited the Philippines in May/June 1987 consisting of Lars Nordin (Mission

Leader), Clell Harral (Economist), Cerhard Menckhoff (Urban Transport

Specialist), Asif Faiz (Economist) and Mohua Mukherjee (YP Economist).

Contribution has also been made by Lily Uy (Researcher). The report has been

edited by Patricia Brereton-MilLer.

This document has a restricted distribution and may be used by recipients only in the performance

of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

- ii -

Page No.

III. INSTITUTIONAL A SPECTS AND ISSUES ......... .......... 21

A. Organizational Setup ................. ....... .... ............. . 21

B. Major Sectorwide Issues ... .. ........ .......... . 23

C. Institutional Issues in the Subsectors .................... 25

Roads ......................... ................... * .......... 25

Urban . ......... , 25

Ports . ... 0.. ... 28

Railways ............... .... . .............................. 28

Aviation . ............ 29

IV. PUBLIC EXPENDITURE PROGRAMS IN fHE TRANSPORT SECTCR ........ .29

A. General ...... .... ..... ... ...... ............... 29

Investments . ................................... . 29

Operation and Maintenance..... ....................... 32

B. Roads ..... 33

Investments .............................. so. 33

Operation and Maintenance ................................ ................ 34

C. Ports ..... ....... o...... o ........ .............................. 34

Investments ........ -.............. ............ % ............ 34

Operation and Mainteadnc e ..................... ..... . 34

D. Railways .. .............. .. 35

E. Aviation ... 35

F. Urban .. ..................................... .......... 35

V. FUTURE ROLE OF THE BANK IN THE SECTOR . ... 35

ANNEXES

1. Sumnaries of Selected Transport Policy Studies

2. Public Investment Program

EXECUTIVE SUMMARY

Introduction

1. The purpose of this review is broadly to assess the impact of recent

economic and public policy developments on the role of the transport sector

in

the Philippine economy. The report particularly focuses on policy,

institu-

tional, and public expenditure developments in the sector that have occurred

since the previous Bank transport sector review in 1983.

2. In its consideration of sectoral policy issues, the report also

reviews key planning and policy studies which have been recently undertaken

by

the Government but which have not always been acted upon. The report

then

identifies those recommendations which are stilL worthwhile in the

current

climate of decentralization and privatization. It is hoped that these

recommendations will form the basis for a short- to medium-term action

plan

still to be developed. On the institutional side, the report identifies

institutional constraints and inadequacies which have arisen over the past

few

years and which prevent the system from functioning as it should.

Finally,

the report reviews the 1987-92 Public Investment Program. Such a review

is

particularly well-timed, given the change in government and the consequent

shift in priorities for public expenditures. The Philippine economy, despite

its scarce resources, appears ;o be poised for a recovery after the

difficult

phase since 1983. Certain public expenditure questions, such as the

balance

between investment and maintenance in the various subsectors, merit

atten-

tion. These issues are tackled in the third section of the report.

Sector Issues and Policy Choices

3. The objectives of public policy in the transport sector should be to

promote a diversity of transport services, responsive to market demands

and

technoLogical innovations in the industry, at as low a cost and price

as

possible. An additional objective is the reduction in economic disparities

across regions and income classes by proper pricing of transport services.

In

accordance with the Government's stated intentions, these objectives

should be

achieved through maximum reliance on the free market, with governmental

intervention limited to the establishment of a policy environment which

encourages the market to work mos; efficiently and to the provision

of

essential infrastructure which the private sector is not well placed

to

provide.

4. The existing policy environment comprises a mixture of diverse and

sometimes ill-conceived laws, regulations and practices accumulated from the

past, which, if rigorously enforced, would undermine the objectives stated

above. From an economic perspective it is fortunate that the existing

policies are often evaded. However, significant distortions exist and

there

is a danger that vested interests will seek enforcement of present

policies to

limit competition.

5. Despite a surprising dearth of quantitative information, a number

of

good sectoral policy studies have recently been completed. Their

recommenda-

tions, if implemented, should substantially improve the functioning of

transportation markets and lead to more efficient and less costly transporta-

tion services.

6. Road Transportation. The National Transportation Planning Project's

(NTPP's) "Study of Road Transportation Regulation" (December 1986) recommends

economic deregulation (i.e., elimination of present restrictions on r-arket

entry and regulation of prices) and emphasizes safety aspects. The present

regulatory restrictions not only pose an enforcement problem, but are also

economically inefficient. Furthermore, there is a clear risk that existing

vested interests in the industry will seek to enforce the regulations in order

to restrict entry and control as much of the market as possible. The Govern-

ment would best protect the public interest by moving gradually but decisively

to dismantle the existing franchise system.

7. Economies of scale in truck size and pavement construction warrant

the development of strong pavements and bridges instead of building weaker

infrastructure and legally restricting the size and axle loads of vehicles.

In addition, enforcement of such restrictions is difficult in almost all

countries. Fortunately in the Philippines, the majority of the primary roads

have been constructed with rigid concrete pavements of high bearing

strength. The proposal in the Department of Public Works and Highways'

(DPWH's) "Pavement and Axle Load Study" (July 1986) to raise legal, limits from

8 to 13 tons therefore appears reasonable.

8. With respect to road user taxation and financing, the conclusions

and recommendations of the NTPP "Road User Charges - National Policy Study"

(January 1984) and an updating report in February 1987 are well founded. The

methodology employed is consistent with the current state-of-the-art and

commonly accepted economic principles of cost recovery in the roads sector.

In the Philippines, it appears that two types of road users are paying less

than the marginal costs they occasion by their use of the roads: (a) 2- and

3-axle trucks, and (b) all vehicles under congested conditions. The proposals

of the study to increase the taxes (on ownership and usage) for 2- and 3-axle

trucks are sound. In addition to cost recovery objectives, these measures

would also contribute to improving efficiency of transport services by

encouraging selection and usage of appropriate vehicles.

9. Congestion pricing is widely endorsed in principle by transport

planners, but rarely applied due partly to practical administrative difficul-

ties and partly to political opposition. The principal exception is road

tolling, which is often implemented for financial reasons but also may serve

the economic purpose of charging for scarce road space. Private automobiles,

due to their numbers and low occupancy ratios, are major causes of conges-

tion. If more specific congestion pricing schemes are not feasible, and

because private automobiles may be viewed as "luxury goods," the current high

taxes on private automobiles should be maintained.

10. Maritime Transportation. The principal concerns in the maritime

sector, so important to economic integration of the country, are the high cost

of interisland shipping and the poor safety record. There appear to be two

principal causes for high shipping costs: (a) existing arrangements for

- iii -

freight handling at ports, and (b) the presence of a cartel in the liner

services indirectLy supported by governmental regulatory policies. The

present policy of the Philippine Ports Authority's (PPA's) acting as Landlord

and procuring stevedoring and Longshore ("arrastre") services by contract is

sound. However, the manner in which this policy has been implemented, in

effect granting quasi-monopolies, could be improved. PPA shouLd create a more

competitive market with alternative suppliers of such services in each port.

PPA port charges to non-PPA ports should also be related more closely to the

services rendered by PPA. As PPA's cost accounting system is improved,

consideration should also be given to gradually abandoning the uniform PPA

charges in all ports in favor of more cost-related port tariffs.

11. The other major factor tending to inflate the costs of inter-island

transport is the pricing practices of the Liner cartel. These are indirectly

supported by the Government's regulatory policies, which limit competition by

restricting market entry and price flexibility. In contrast to the

recommendations of NTPP's "Interisland Shipping Regulation Study" (December

1986), which recommends a form of "seLf-regulation" by the shipping cartel in

collaboration with the Maritime Industry Authority (MARINA) to restrict entry,

it appears that gradual deregulation of the industry, with essentially free

entry (subject only to safety requirements for vessels) and free market

pricing would best serve the interests of the Philippine economy. Reduction

in the various taxes imposed on the import of vessels would also serve to

stimulate innovation and reduce costs of interisland shipping.

12. Safety concerns may be less related to the age and type of vessel

thar to the size and the capabilities of the crews. Maritime safety is one of

the few areas which may need further study to identify the fundamental

determinants and appropriate governmental response.

13. RaiLways. The fundamental question of the financial viability of

the PhiLippine National Railways (PNR) continues to be of concern,

particularly in light of the extremely low volumes of traffic. At minimum, a

radical restructuring of PNR to address those few sectors where it might

possibly render a socially useful service at reasonably competitive costs

appears indicated. The opportunity costs of assets not needed for such

services should also be considered.

14. Urban Transport. The Government's general decentralization poLicy

will transfer many func~.ions from national agencies to the local level. While

the details of the new policy have yet to be worked out, local decision-making

on urban roads and transport regulations deserves support as it is likeLy to

be more responsive to the needs of the peopLe. In Metro Manila, the sheer

size of the population (equivalent to the next 30 largest cities in the

nation) has raised a different set of complex issues.

15. Manila's traffic congestion seems to have improved in recent

years. This is probabLy due to three major factors: (a) traffic engineering

schemes implemented by DPWH's Traffic Control Center, (b) economic recession

and a slight decline in private car ownership, and (c) the introduction of the

Light Rail Transit (LRT), a 16-km long elevated rail line which began opera-

tions in 1984-85. -With an economic recovery, the tra.fic situation could

- iv -

worsen if the pent up demand for cars results in a rapid increase of new car

registration. Moreover, while Metro Manila continues to grow, no major

capacity expansion of the transport system can be expected for at least the

next five years because of the lead time required for such works.

16. Another cause for concern is the weak financial situation of the

Government-owned transport services. It would appear that public transport

services could deteriorate substantially in the coming years if (a) the Metro

Manila Transit Corporation (MMTC) is unable to modernize its aging fleet due

to scarcity of funds; (b) private bus consortia continue to go out of

business, and (c) the moratorium on issuing jeepney licenses is maintained.

17. To avert possible public transport shortages in Manila, a three-

pronged approach should be considered. First, the current policy of bus and

jeepney franchising should be revised to permit new services where the passen-

ger market calls for them. The Department of Transport and Communications

(DOTC) has requested NTPP to prepare a report on this subject by December

1987. Second, the restructuring of bus services to make them commercially

more viable should be considered. Third, planning to substantially upgrade

public transport in at least one high-volume corridor requires urgent

attention. Since a study is currently envisaged for a second LRT line, this

might provide an opportunity to also look at lower-cost alternatives, such as

reserved bus/jeepney roads and, especially, separate busways which might

include short elevated sections to avoid bottlenecks in the street system.

SupporLt shuu'Ld aLso Ue given to the traffic engineering program and the

construction of new road links as envisaged under a proposed Manila Urban

Transport Project to be financed by the Japanese Government.

18. Effective coordination is required to implement a coherent transport

improvement program. At present, most policy and investment decisions are

taken independently by the individual urban agencies. Institutional coordina-

tion will therefore be one of the key issues that must be resolved with regard

to traffic and transport in Metro Manila.

Institutional Aspects and Issues

19. A multitude of institutions collectively provide transportation

services in the Philippines. It has become clear in recent years that a less-

than-efficiently functioning transport system can often be traced to institu-

tional constraints. These have been examined and are observed to fall broadly

into three categories: coordination problems, delays in the processing of

work, and inadequate staffing.

20. Coordination. Responsibility for construction and maintenance of

transport infrastructure is vested in agencies which are not directly

concerned with transport policy, regulation and administration. While there

are merits to such a division of responsibilities, it is important noc to lose

sight of the overall need for coherent planning. Although the National

Economic Development Authority (NEDA) is the key agency carrying out inter-

modal coordination between ports, railways, airports, highways and rural

roads, projects are initiated and evaluated at the agency level, without

regard to their impact on the development of other transport modes. At the

agency level, there is neither an incentive to coordinate activities nor a

built-in mechanism to ensure coordination during the project preparation

period. NEDA's function is, in effect, one of allocating resources for

already prepared projects in all sectors.

21. Delays. Project implementation is often impeded by delays in the

processing of contracts. This problem has be,:ome acute in recent years, when

contract prices have had to be adjusted and price escalations recalculated due

to currency devaluation and inflation. Approvals may take as long as two

years to pass through the government bureaucracy. Part of this problem is due

to a duplication of work by various agencies. The Commission on Audit (COA),

for example, has mandated a review of all feasibility studies for contracts

signed after March 1984, although the review is now done on a selective

basis. Delays are also caused by the sometimes weak quality and competence of

staff involved in the whole decision process. Some of the delays occur simpLy

due to lack of technical expertise at certain management levels to make an

appropriate decision within a reasonable length of time. Thus, the tendency

is to retain documents for longer than required while clarifications are being

sought.

22. Staffing. Staffing and management of the sector agencies is

uneven. While low government salaries make it difficult to recruit and retain

competent staff, this problem has been somewhat alleviated by the general

economic slowdown, which has reduced the "brain drain" toward the private

sector. As a result, working level staff have in large measure remained in

many agencies. On the other hand, and potentially more serious, the number of

managerial positions that have changed incumbents after the change in govern-

ment in February 1986 appears to threaten the proper functioning and conti-

nuity of some of the sector institutions. There is consequently a need for

the Government to strike a proper barance between political and professionaL

career appointments to remedy this situation.

23. Centralization of government authority has added to the inefficien-

cies in project implementation caused by slow contracting processing. While

this problem has been widely recognized, and Government has recently been

moving toward decentralization, success so far has been limiced, owing to a

number of factors. One important issue is the readiness of regional offices

to take over some of the delegated responsibilities and authority.

Decentralization will be successful only if local offices are adequately

staffed with qualified officials. A technical training program for local

staff should therefore be established at the regional/provincial Level. The

quality of local officials also varies greatLy, and many regionaL offices of

both the agencies and COA are reluctant co take on extra responsibiLities.

Public Expenditure Programs in the Transport Sector

24. The October 1986 Medium-Term Public Investment Program (MTPIP) for

1987-92 represents a massive build-up to support economic recovery and agro-

industrial development (82% in real terms) compared to the 1985-90 program,

which was evaluated by the Bank two years ago. The highway subsector would

receive the largest share of MTPIP funding, about 70%, followed by the ports

subsector with about 15%.

- vi -

25. While it is unlikely that MTPIP .will be carried out in its entirety

since there are doubts about both the level of financing available and the

implementation capacity of the respective agencies, the Plan is valuable in

setting implementation objectives. Many of the projects included have

feasibility studies completed, showing economic rates of return sometimes

substantially above the 15% level customarily used in the Philippines for

transport projects. The projects that have not yet uee-i evaluared have been

included in MTPIP based on prima facie viability which will be confirmed in

due course.

26. Operation and Maintenance. Actual operation and maintenance (O&M)

expenditures recorded by the Department of Budget for the period 1.982-86 and

estimated for 1987 show relatively stagnant O&M expenditures up to 1985

(declining in real terms) followed by a substantial 53% increase in 1986. The

Government's O&M expenditures in the transport sector account for about 35% of

total expenditures in 1986 and 1987 co.?ared to about 28% in previous years.

While this percentage increase in itself does not constitute a sufficient

indication that O&M expeneitures are adequate, it does show the increased

relative importance the Government attaches to maintenance. Since O&M expen-

ditures are also increasing in absolute amounts and assuming that the

increased levels can be maintained during the 1987-92 period, this would help

reduce the backlog of deferred maintenance in the sector.

27. Subsectoral Issues. The majority of investments proposed for the

road subsector seem justified. The only component to be watched is the

program for "various locally funded feeder/secondary and national roads,"

which would require 38% of the P 44,590.2 million requested for the road

program and is the principal reason for the large increase of MTPIP over the

1985-90 program. While the objectives are worthwhile, the concern is that

substantial funds may be spent without corresponding physical assets being

created due to capacity constraints in selecting, evaluating, designing and

implementing the huge number of small projects involved. The Covernment

intends to use reliable non-governmental organizations such as religious

groups and the Red Cross to augment its own implementation and monitoring

capabilities for this important program. If these efforts fail to produce the

intended results, the program should be reduced to more manageable levels, say

10-20% of the total road program.

28. The MTPIP port program includes three new projects with a total cost

representing 56% of the P 9,657.8 million port program. All three projects

should be reduced in scope. the projects at issue are (a) the Port Cargo

Handling Expansion Project, (b) the Manila South Harbor RehabiLitation

Project, and (c) the Tertiary Ports Project.

29. The PPA share of the MTPIP ports program also exceeds PPA*s present

investment projections and should be reduced accordingly. The port of San

Vicente (Port Irene) remains questionable and should be postponed until ics

justification has been established.

- vii -

30. PNR has embarked on a revitalization program to regain its opera-

tional levels of the middle 1970s. While the financial viability of the

railway is doubtful, the type of railway investments proposed under MTPIP,

i.e., rehabilitation of motive power, rolling stock and the permanent way,

seem appropriate if PNR's assets are to remain in operational condition.

Expenditures on the northern line should be limited to that part of the line

which is used for passengers commuting in and out of Manila. The rest of the

northern line should be closed. The investment amounts needed depend on how

much equipment can be saved as a result of general operational improvements

being carried out by PNR's new management. Care should be taken against

overinvesting in what has been and will likely continue to be a Loss-making

enterprise, but the risk of underinvesting is not negligible and should be

considered if the railways are indeed to remain in business. The alternative

use of the railways' real estate assets for busways and industrial development

should be an integral part of any discussion regarding the railways' future.

31. In the aviation subsector, the increase in investment is accounted

for by the new Cebu International Airport Development Project which wculd

provide better services for Cebu-bound traffic and would relieve Manila

International Airport of unnecessary transit traffic. While there is no

reason to question the project at this stage, its economic justification

should be established before implementation.

32. The proposed gubstantial. increase in urban investment is caused by

the inclusion in MTrIP of new investr.Lnts in the light rail transport (LRT)

system in Manila. Improvements to line I and design/construction of line 2

are understood to be included, subject to confirmation of their economic

viability. Any study of this matter should also consider the option of

providing lower-cost alternatives to upgrade public transport, such as

dedicated busways.

Recommendations

33. The main recommendations made in the report can be summarized as

follows:

Sectorwide

- Develop a short- to medium-term action plan for the sector

(para. 1.7)- Use explicit subsidies for essential, socially-justified services

racher than implicit subsidies provided by hidden taxes on other

services (para. 2.44)- Review the new sector organizational structure, which is currently

being changed, in early 1988 (para. 3.1)

- Institutionalize a capacity for transport planning and research

(para. 3.2)- Improve coordination among sector agencies (para. 3.4)

- Streamline procedures for approving contracts in order to eliminate

duplicate reviews (para. 3.7)- Improve staff capabilities by carrying out a technical training

program aimed particularly at the regional/provincial levels

(para. 3.9)

- viii -

- Balance political and professional career appointments (para. 3.Q)

The Roads Subsector

- Relate vehicLe taxation to the amount of road damage caused by a

vehicle (paras. 1.5, 2.6)- Increase legal axle load limits (paras. 2.5, 2.13(g))- Make adjustments in the road user tax structure (paras. 2.15, 2.18)

- Clarify responsibility for rural roads development and involve local

staff in maintenance activities (para. 3.11)- Reduce various road investment programs to manageable levels

(para. 4.6)

Road Transport Industry

- Discourage controlled supply of road transport passenger services

(para. 2.11)- Free entry into the road transport industry (para. 2.12)

- Abolish the distinction between own-account (T Licenses) and for-

hire (TH licenses) trucks (para. 2.12)- Decontrol prices of road transport services (para. 2.12)

- Formulate and pursue a program to deregulate the industry

(para. 2.13)- Encourage interisland road/ferry transport (paras. 1.4, 2.12)

- Abolish the Common Carrier Tax which also affects maritime

transport (paras. 2.15(e) and 2.43)

Ports and Maritime Transport

- Carry out a study of maritime safety (para. 2.3)

- Continue efforts to privatize PPA activities (para. 2.32)

- Consider abandoning uniform PPA charges in favor of cost-related

port tariffs (paras. 2.32, 2.42)} - Move gradually but decisively toward free entry into the shipping

industry and deregulation of prices (para. 2.42)- Introduce stricter inspection ot vessel sea worthiness (para. 2.39)

- Remove the Bureau of Customs from involvement in domestic shipping

(para. 2.42)- Review maritime freight rates and port charges (para. 3.22)

- Reduce three proposed port projects (para. 4.9)

The Railway

- Restructure PNR (para. 2.45)- Maintain separace accounts for railway and non-railway operations

(para. 3.24)- Restrict investments on PNR's north line (para. 4.12)

- ix -

Aviation

- Limit the responsibilities of the Manila International Airport

Authority to operation of the Manila Airport (para. 3.27)

- Establish the economic justification for the Cebu International

Airport Development Project (para. 4.13)

Urban Transport

- Carry out studies of congestion pricing for road traffic in urban

areas and of public transport in Manila (para. 2.3)- Expand the traffic engineering program for Metro Manila (para. 2.21)

- Introduce a pricing mechanism for vehicle use in congested areas of

Metro Manila (para. 2.21)- Maintain high cost of car ownership (para. 2.21)

- Coordinate the activities of the agencies responsible for traffic

management in Manila (para. 2.23)- Ease regulatory controls on bus and jeepney franchising and entry

into Manila's passenger transport market (para. 2.24)

- Restructure bus services to improve their financial viability

(para. 2.24)- Plan to upgrade public passenger services in at least one high-

volume traffic corridor in Manila (para. 2.24)- Clarify responsibilities for urban road construction and maintenance

among DPWH, the cities and barangays (para. 3.12)

- Strengthen traffic law enforcement in urban areas (para. 3.15)

- Revive TRANSEC, a recently dissolved transport coordination agency

for Metro Manila (para. 3.18)- Review the policy of giving public support to various bus companies

operating in Metro Manila (para. 3.19)- Review the organizational set up for Manila's Light Rail Transit

Authority and the Metro Manila Transit Corporation (para. 3.19)

- Study the use of dedicated busways to improve mass transit

(para. 4.14)

14. The task at hand is to establish priorities among the many possible

actions that could be taken. While setting of priorities is clearLy the

primary responsibility of the Government, the Bank would view the foLLowing as

major concerns. On economic grounds, the priority policy actions would be

expected to include the gradual deregulation of the trucking and interisland

shipping industries and the restructuring of road user charges. Deregulation

of trucking and shipping would lead to more efficient transport services which

would yield economic benefits to the overall economy. During the impLementa-

tion and adjustment phase, however, it would be necessary to protect both the

industries and their customers from violent swings in the pricing of transport

services.

35. As to priority institutional issues, measures are needed to:

(a) institutionalize a capacity for transport planning and research;

(b) clarify responsibilities for rural roads development;

(c) protect professional career appointments; and

(d) streamline administrative procedures.

Other policy and institutitional recommendations made in the report can be

dealt with simultaneously with or subsequently to the above, depending on the

relative difficulty of achieving the necessary national consensus and legis-

lative agenda.

36. During the next five years, efforts should be made to gradually

shift Bank assistance in the sector away from direct project loans and towards

annual transport sector loans to the Government, with an emphasis on policy

and institutional reform. Such annual sector loans would aLlow maximum

flexibility to include project components for financing as they are developed,

without having to wait for preparation of the next project loan cycle. The

Government and the Bank, in embarking on the proposed new approach to sector

cooperation, will use this report as a source document to catalyze and channel

the sector dialogue and sector development. The extent and timing of the

implementation of the report's recommendations would however, be subject to

the economic, social and political realities in the Philippines.

I. INTRODUCTION

A. Role of the Transport Sector

1.1 The Philippines transport system is composed of about 740 km of

railways, over 161,000 km of roads, 131 national ports, 256 private ports, and

some 400 toading points and 219 airports, of which 82 are national and 137

private. The system is basicaLLy bimodal. Road transport handles about 65X

of freight movement and 90% of passenger movement, while maritime transport

handles about 35% of freight and 7% of passengers. Air transport is very

limited and almost entirely passenger traffic, while railways traffic, both

passenger and freight, is negligible. Road and sea transport generally

complement rather than compete with each other.

1.2 During the 1970s, the transport sector grew at about 9% p.a., faster

than the GDP growth of about 6% p.a. As a result of the country's economic

recession, the GDP growth rate for the 1980s has been negative (-0.3% r..a.),

while the transport sector has been growing at only 1.0% p.a. Government

transport outlays have been about P 4.0 billion p.a.

1.3 The transportation sector plays a significant role in the

Government's macroeconomic goal of national economic integration. This is

refLected in the statement of objectives included in the Medium-Term

Philippine Development Plan (1986):

The transport sector shall support nationwide efforts to stimulate

agricultural production and increase rural incomes by orienting

transport infrastructure towards rural areas. It aims to reduce

interregional socioeconomic gaps and to strengthen interregional

linkages by providing for the more efficient movement of products

from excess production areas to deficit/market areas. A cransport

system that achieves a desired hierarchicaL pattern of growth

centers across the country shall be developed. Greater efficiency

in the use and safety of existing transport facilities shaH. -a.so oe

promoted. This includes a firmer commitment to maintenance activi-

ties and the adoption of low-cost schemes that will enabie the most

effective use of these facilities.

This is a sensible statement of public objectives in the transport sector.

How best to achieve these goals is the issue to be addressed.

1.4 As the Government Plan points out, a better functioning interisland

transportation system is needed for an economy dispersed over 7,000 isLands,

and a smoother movement of goods between farm and market is crucial for

regional development. Due to the development patterns of towns along road

corridors and the Government's poLicy of extending feeder roads to C>.e hinter-

lands, road transport is likely to continue as the dominant mode in the

foreseeable future. However, facilitating inter-island road and ferry trans-

port could make a major contribution to closer economic integration, and would

generate competitive pressures to weaken cartelization tendencies in the

maritime sector.

-2

B. Previous Bank Sector Work

1.5 The Bank's last review of the Philippine transport sector was issued

in September 1983, and the Government has, on its own initiative, implemented

several measures similar to those suggested in that review. In particular, in

the roads subsector, the Department of Public Works and Highways (DPWH) has

increased its maintenance budget from 25Z to 30% of its total expenditures.

In the railway subsector, the Philippine National Railway (PNR) has recently

appointed a strong management team, improved morale, and is making an orga-

nized marketing effort to attract passenger and freight traffic. Regarding

ports, recommendations in the earlier sector review on the rehabilitation and

development of secondary and tertiary ports will be implemented under the

Bank-financed Provincial Ports Project (Loan 2823-PH, 1987). Problems at the

Port of Manila will be addressed under an ADB-financed Second Manila Port

Project. Other areas highlighted under the previous report but still to be

corrected include Government's vehicle taxation system which fails to relate

taxation levels to the amount of damage vehicles inflict on the roads, govern-

ment regulation of the trucking industry which reduces the productivity of the

fleet, and the questionable financial viability of the railway's northern

line.

C. Objectives of the Present Sector Review

1.6 The purpose of the present review is broadly to assess the impact of

recent economic and public policy developments on the role of the transport

sector in the Philippine economy. The report focuses on transport sector

developments on three fronts--policy, institutional, and public expenditures--

that have occurred since the 1983 review.

1.7 In its three-part analysis, the report reviews the major transport

planning and policy studies which have been undertaken recently by the

Government but which have not always been acted upon. It then identifies the

recommendations of those reports which are relevant to the Government's

overall goals of decentralization and privatization. It is hoped that these

recommendations will form the basis for a short- to medium-term action plan

still to be deveLoped. On the institutional side, the report identifies the

key insticutional constraints and inadequacies which prevent the transport

system from functioning as foreseen. Finally, the report reviews the

Government's Public Investment Program in the light of recently emerging

priorities for public expenditures.

-3-

II. SECTOR ISSUES AND POLICY CHOICES

A. Introduction

2.1 As stated in the Medium-Term Philippine Development Plan, Govern-

ment's objectives in the transport sector are to promote a diversity of

transport services, responsive to market demands and technological innovations

in the industry, ac as low a cost and price as possible. An additional

objective is the reduction in income disparities across regions and income

classes. In accordance with the Government's stated intentions, these objec-

tives should be achieved through maximum reLiance on the free market, with

governmental intervention limited to the establishment of a policy environment

which encourages the market to work most efficiently and to the provision

of

essential infrastructure which the private sector is not weLl pLaced to

provide.

2.2 Government's current policies for the sector reflect a mixture of

diverse and sometimes ill-conceived laws, regulations and practices accumu-

lated from the past, which, if rigorously enforced, would undermine the

objectives stated above. From an economic perspective, it is fortunate that

the existing policies are often evaded. However, significant distortions

exist and there is a danger that vested interests will seek enforcement of

present policies to suppress competition wherever possible.

2.3 Despite a surprising dearth of quantitative information, a number of

good sectoral policy studies have recently been completed. Their recommenda-

tions, if implemented, should substantially improve the functioning of trans-

portation markets and lead to more efficient and less costly transportation

services. An annotated bibliography of the major policy studies carried

ouc

since 1982 is provided in Annex 1. Most of the nationwide studies have been

produced by the National Transportation Planning Project (NTPP), the

Government's chief organization for sectoral planning, and DPWH, which over-

sees the technical aspects of all sectoral projects. The studies focused on

Manila were generally prepared by Australian and Japanese consultants and by

the Department of Transportation and Communications (DOTC). In addition,

the

Philippine Chamber of Commerce and Industry has issued important commentaries

on the functioning of the transport system-which provide a valuable perspec-

tive independent of, and often at variance with, official government views.

While the studies provide a solid basis for prompt, decisive action in most

areas, further studies are still needed on: (a) maritime safety; (b) road use

pricing to reduce congestion; and (c) public transport pLanning in

Manila.

B. Road Transport

Optimum Road Transport Technology

2.4 Like studies in other countries (e.g., Sweden, the United States,

Australia and Indonesia), the DPWH "Pavement and Axle Load Study" (July 1986)

has found that, from the perspective of total costs to the society, it is

optimal to employ a range of vehicles, including very large, heavy trucks

operating over strong infrastructure. This is essentially due to economies

of

scale both in truck size and in the design and construction of pavements

and

-4-

bridges. Unlike many other countries, however, much of the existing infra-structure in the Philippines has already been dimensioned to a level which cansustain such heavy loadings. The DPWH estimates that, while the legal axle-load Limit is 8 tons, over 80% of inter-city freight in ton-km moves overinfrastructure which could accommodate axle loads of 13 tons.

2.5 The practice in the Philippines of building many roads with rigidconcrete pavements, to make use of the plentiful suppLy of local cement ratherthan importing asphalt, places the country in a good position to exploit theeconomies of large trucks without the necessity of large capital outlaysrequired for pavement strengthening. NevertheLess, some existing asphalticroads which carry high traffic volumes will need to be strengthened. Moderateoutlays for bridge deck replacement will also be needed, although the extracost necessary to accommodate very heavy vehicles is quite small. Conse-quently, support should be given to DPWH's proposal to increase legal axleload Limits from 8 to 13 tons for single axles, from 14.5 to 23 tons for dualtandem axles and to 30 tons for tridems, at least for high traffic densitycorridors (para. 2.13 (g)).

2.6 To some degree, this proposal merely legitimizes the existingsituation, since economic forces long ago overwhelmed nominal legal restric-tions on axle loads. To go beyond this and capture further benefits of truckfleet modernization, road vehicle taxes should be structured so as to providethe transport industry with the correct relative prices for road use bydifferent vehicLes (see paras. 2.14-2.17). With a change in taxation, themarket can be trusted to determine the optimum vehicle types, sizes and fleetconfiguration.

Regulatory Policies

2.7 Road Transportation. The NTPP's "Study of Road TransportationRegulation" (December 1986) recommends economic deregulation (i.e., elimina-tion of present restrictions on market entry and prices) and emphasizes safetyaspects. The present regulatory restrictions not only pose an enforcementproblem, but are also economically unsound. The market segments most affectedare pubLic passenger transport, petroleum distribution and interisland truck-ing using ferries. Since existing vested interests in the industry are orga-nizing to enforce the regulations in order to restrict entry and control asmuch of the market as possible, Government would best protect the publicinterest by moving gradually but decisively to dismantle the existing fran-chise system. At the same time, however, it should strengthen its safety andpollution regulations.

2.8 Road Freight Services. About 95,000 trucks were registered in thePhilippines in 1986, but less than lOZ held public utility (TH) licensesLegally entitling them to operate for hire. While most trucks haveT-licenses, which are officially valid only for own-account haulage, manyoperate illegal ('colorum') for-hire services. The NTPP "Road Industry Study"estimates that possibly 75Z of trucking services (including own-account) arecarried out by T license holders and 25% by TH licenses; the illegal 'colorum'operators are thought to provide perhaps half the public carrier services.This situation largely results from the distortionary effect of the CommonCarrier Tax, as discussed further in para. 2.15(e) below.

-5-

2.9 The official trucking tariff is currently fixed at P 2.20 per ton-

km, but rates are normally (though illegally) discounted substantially, with

actual rates on the main Luzon routes currently in the range of P 0.60-1.10,

i.e., half or Less of the official rates. Rates on the other islands are said

to be mostly higher, but usually well below the official rate. The official

rate is, however, applied for distribution of petroleum products, thus inflat-

ing fuel costs to all users. Overall average kilometers traveled per truck

are Low, about 40,000-50,000 km per year, reflecting in part the excessive

size of the own-account fleet.

2.10 Road Passenger Services. Passenger transport is provided by

(a) large buses (long-distance or urban services in Manila), (b) minibuses

(medium and Long distance), (c) jeepneys (omnipresent and used not only for

short hauls but also to connect with buses for Longer trips); and (d) motor-

tricycles. The total number of public utility buses and minibuses is esti-

mated at 11,000-12,000, predominantly large vehicles, of which about 7,000-

9,000 are in interurban service. The interurban bus services are operated by

some 1,500 provincial bus operators, of which more than 75% field three or

fewer units, although the 3% of bus operators who manage more than 20 units

account for about 45% of the fleet. Legally licensed for-hire jeepneys (PUJ)

outnumber buses by about 6:1, with PUJ licenses standing at about 66,000.

Moreover, an unknown but highly significant proportion of the privately regis-

tered jeepneys operate either 'colorum' or 'kabit' (by sharing a franchise)

for-hire services. About 130,000 tricycles are also registered to provide

for-hire services. They generally operate along fixed routes in small towns,

rural areas and selected zones in Large cities; they serve short-distance

trips and are commonly overloaded, with up to 10 passengers per vehicle.

2.11 The official tariff, which is tapered by distance, is the same for

buses, minibuses and jeepneys, although each clearly offers a different stan-

dard of service. rn reality, interurban fares charged are normally discounted

(the minibuses more than Large buses, and jeepneys the most discounted). On

some routes where large bus operators are able to agree with each other on

tariffs, there is less discounting. Few routes are cartelized, although fran-

chising practices (such as Route Measured Capacity) of the Government's Land

Transportation Commission (recently spLit into the Land Transportation Office

and the Land Transportation Franchising and Regualatory Board) have activeLv

encouraged such developments, e.g., the route 'rationalization' in East

Mindanao. This type of controlled supply should be discouraged in the future,

as it is contrary to the public interest and leads to sustained high fares.

2.12 Recommendation. The NTPP reports provide a convincing case tor

complete economic deregulation of the road transport industries (with the

possible exception of urban passenger transport which is now also being

studied by NTPP). By freeing market entry, abolishing the nominal distinction

between T and TH licenses, and completely decontrolling prices, substanciaL

gains to the Philippine economy should be realized from improvements in util-

ization of the road transport fleet and reductions in the cost and price of

-6-

transport. By also permitting nationwide operation and eliminating unwarran-

ted stevedoring and warehouse-related "arrastre" charges at ferry crossings,

it is likely that new interisland road services would emerge which could

promote economic and political integration, as well as provide needed competi-

tion in the area of interisland transport.

2.13 The Government would best promote the public interest by moving

gradually but decisively to dismantle the existing regulatory regime.

Although the Committee on Transport Planning (CTP) proposed that deregulation

should initially be Limited to a pilot area, this may give vested interests

the opportunity to marshall forces against deregulation. The Bank therefore

supports the recommendation of the Road Transportation Regulation Study to

implement deregulation nationwide. The key elements of any deregulation

program should be as follows:

(a) quantity licensing and route allocations on interurban bus routes

should be phased out;

(b) government-promulgated fares, rates, and tariffs should be decon-

trolLed and transporters allowed to set their own rates;

(c) entry into the road transport industry should be free and only

subject to a few qualitative requirements;

(d) the differentation in licensing requirements of for-hire (TH) and

own-account (T) trucks should be abolished, and all trucks should

pay the same registration and license fees and other road use taxes;

(e) the importation of vehicles, spare parts, and tires should be

liberalized;

(f) the new Land Transportation Franchising and Regulatory Board should

minimize its role in economic regulation of the road transport

industry. It may be entrusted with anti-trust functions to ensure

that cartels and monopolistic practices do not arise in the trans-

port industry. The key role of the new Land Transportation Office

should be to enhance safety regulations through inspection, testing,

and training programs; and

(g) the Government should review the existing vehicle weights and

dimensions and axle-Load regulations and raise the axle load Limits

progressively in order to more closely reflect actual traffic

Loading conditions. An 11-ton single axle load limit is recommended

for general application with provision of a 13 ton single axle load

Limit on designated high-density corridors with strong pavements and

adequate bridges.

Road User Charges

2.14 The term "road user charges" is used here to mean any indirect tax

or charge levied on the purchase, ownership, and operation of motor

vehi-

cles. It includes "taxes" aimed at generating general revenue for the

govern-

ment, and "road use fees" to recover the cost of road wear or congestion.

Road user charges in the Philippines may be divided into two broad classes

as

follows:

(a) taxes and fees on vehicle ownership--various registration and

license fees, import duties, and sales taxes; and

(b) taxes on use--primarily fuel and sales taxes and import/excise

duties on tires and spare parts.

In addition, a 3% Common Carrier's Tax (CCT) is levied on the revenue

of all

for-hire carriers, and tolls are collected on about 130 km of expressways near

Manila, constituting an additional tax on use.

2.15 The structure of the main road user taxes is summarized in

Table 2.1. The various tax instruments serve a variety of objectives, includ-

ing general resource mobilization, energy conservation, income distribution,

and cost recovery from road users. Road user taxation in the Philippines

has

been guided by two primary objectives: raising general revenues for the

Covernment and energy conservation. Efficiency considerations such as

con-

trolling pavement damage and easing congestion are not explicitly considered

in the road user tax structure. Income distribution (ability to pay) and

equity considerations are reflected in automobile and gasoLine taxes,

which

also serve to discourage private car ownership. Some of the anomalous

features in the current road user tax structure are discussed beLow:

(a) The Government's policy of taxing gasoline substantiaLly more than

diesel has resulted in major shifts in the demand for these fuels

and in supply and demand imbalances. However, the current excess

production of gasoline and shortage of diesel can be corrected only

marginally by changes in production. Since the current fuel price

structure (Table 2.2) no longer reflects the relative scarcity of

each product, there is a need to reaLign the prices of automotive

fuels and to reduce the import of refined diesel fuel. In adjusting

its policies, Government should also consider that dieseL engines

have a higher initial cost and Life-cycle maintenance expenses which

to some degree offset their greater fuel economy.

(b) The structure of vehicle registration fees shows a generaL bias

against for-hire commercial vehicles which pay abouc 20-50% more in

annual registration fees than own-account commercial vehicles. This

difference may derive from a perception that for-hire vehicles are

used more intensively and therefore cause more road damage and

congestion than own-account vehicles. However, most own-account

trucks are used for-hire in any case, and there is no evidence that

they are used less intensively. On the other hand, utility vehicles

for private transport (pickups, vans) are taxed at a rate two to

-8-

Table 2.1: STRUCTURE OF ROAD USER CHARGES IN THE PHILIPPINES (1987)

A. Import Duties, Sales and Other Taxes

Import DutiesTrucks and ouses 30% Import duties in 1986 about the same levelUnassemble6 trucks 20% or as much as 50% lower than in 1980.Unassembled cars, jeeps and vans 30% Higher duties on assembled cars and motor-(6 cylinders or less) cycles to support Progressive Car Manufac-

Assembled cars, jeeps and vans and 50% turing Program and domestic assembly ofunassembled with 8 cylinders or motorcycles. Protection margins, however,more declined from 40-70% in 1980 to 20-30Z in

Motorcycles (Unassjmbled) 20% 1986. Imports of used trucks are restric-(Assembled) 50% ted to 40,000 gross vehicle weight (GVW)

CKD components, parts, accessories 30% or above to protect domestic truckTractors for semitrailers 10% assembly. New trucks of 20,000-40,000 GVW

may be imported but are subject to higherimport duties than the corresponding,completely knocked down (CKD) units.

Spare parts 20-30% Quantity restrictions (licenses) on im-Tires (new) 50% or ports have led to scarcity and exorbitant

P 22/kg prices of spare parts and tires. LocallyTires (retread), tubes 30% manufactured tires sold at world market

prices are of pocr quality.

Crude oil 20% Lower duties on refined diesel to encour-Gasoline 30% age energy conservation and to minimizeDiesel 20% externalities.Lubricating oil 20%

Sales TaxesAutomobiles 30% The main purpose of these taxes is to gen-Trucks, jeeps and utility vehi- 20% erate revenue for the treasury. Highercles, buses, motorcycles rate on automobiles, which are considered

Spare parts and accessories 10% nonessential goods.Tires 20%Other 20%

Ad Valorem TaxesAu omobiles1201 to 1600 cc (gasoline) } 5% Special tax on medium to large automobiles1851 to 2050 cc (diesel) (over 1,200 cc engine displacement), which1601 to 1800 cc (gasoline) } 10% are considered luxury items.2051 to 2250 cc (diesel)1801 or over (gasoline) 20%2251 or over (diesel)

Gasoline (premium) P 0.967/1 Most important tax on use; lower rate onGasoline (regular) P 0.873/1 diesel mainly to encourage energy conser-Diesel f 0.787/1 vation. An important source of revenueKerosene P 0.539/1 for the Treasury.

Specific TaxGasoline (premlum) P 2.489/1 Lower tax on diesel to minimize externali-Casoline (regular) P 2,604/1 ties related to nontransport use of dieselDiesel P 0.523/1 and to prevent substitution between kero-Kerosene P 0.628/1 sene and diesel. Important source of gov-

ernment revenue, particularly taxes ongasoline.

Table 2.1: (cont'd)

B. Vehicle Registration Fees

Automobiles: There is a single annual registration fee which

is based on the

age of the vehicle as shown in the following table (in Pesos):

Age of vehicleOver

Type of vehicle Current I yr 2 yrs 3 yrs 4 yrs 5 yrs 5 yrs

Light (1,600 cc and below) 1,000 1,000 1,000 1,000 1,000

1,000 800

Medium (1,601-2,800 cc) 2,000 2,000 2,000 2,000 1,600

1,600 1,200

Heavy (2,801 cc and above) 4,000 4,000 4,000 4,000 4,000

4,000 2,800

Utility Vehicles: Private utility vehicles which include private

jeeps,

pickups, etc., with GVW of 2,700 kg and below, are levied

P 1,000 for the

private motor vehicle tax, regardless of the age of the

vehicle. Vehicles

with GWV from 2,701 kg to 4,500 kg are charged a flat rate of

P 1,000 for the

first 2,700 kg, and an additional amount based on the following

formula (1980

and earlier regulations):

PrivateGas Diesel

GVW x 0.05 GVW x 0.075

On the other hand, public utility vehicles, i.e., public utility

jeepneys

(2,701-4,500 kg) are required to pay a registration fee (in

pesos) calculated

on the following basis (1981 and later regulations):

For hireGas Diesel

GVW x 0.30 GVW x 0.15

Trucks and Buses: Motor vehicles with GVW of 4,501 kg and above

(including

trucks and buses) pay a fee based on the following rates:

Private For hire

Gas Diesel Gas Diesel

GVW x 0.20 GVW x 0.12 GVW x 0.30 GVW x 0.15

The registration fees paid for trailers are computed as

follows:

Private/government For hire

per 100 kg of GVW x 0.10 per 100 kg of GVW x 0.12

Source: (1) NTPP. Update of 1984 Road User Charges -

A National Policy

Study. February 1987.

(2) Executive Order No. 36, Malacaffang Manila, August 1986.

(3) Tariff and Customs Code of the Philippines, 1986.

- 10 -

Table 2.2: PRICE BUILDUP FOR PETROLEUM PRODUCTS (FOR METRO MANILA)EFFECTIVE MARCH 1, 1987

(Pesos per liter)

Direct Ad Oil price Wholesalecompany Specific valorem stabiliza- posted Hauling Dealer's Pumprecovery tax tax tion fund price charge markup prices

Premium gas 3.8688 2.489 0.967 (0.709) 6.6158 0.0463 0.2343 6.90

Regular gas 3.4928 2.604 0.873 (0.714) 6.2558 0.0463 0.2249 6.53

AVTURBO 3.8968 2.567 0.974 (0.844) 6.5938

Kerosene 3.8498 0.628 0.539 (0.465) 4.5518 0.0463 0.2102 4.81

Diesel 3.5778 0.523 0.787 (0.404) 4.4838 0.0463 0.2299 4.76

Fuel oil 2.8895 0.511 0.202 (1.098) 2.5045

LP gas 2.5214 0.697 0.353 (0.005) 3.5664

Asphalts 3.3488 0.581 r.469 (0.752) 3.6468

Solvents 3.8118 2.472 0.953 (0.777) 6.4;94

Feedstock 2.8895 0.511 0.202 (1.098) 2.5045

Source: Board if Energy.

- 11 -

three times higher than jeepneys, although the latter contribute as

much or more to traffic congestion than private utility vehicles.

There is also a discrimination in favor of diesel-powered units--

registration fees are 15-20Z lower for light vehicles and 40-50%

lower for trucks and buses than for comparable gasoline-powered

vehicles. The only exception is in the case of diesel-powered

private utility vehicles which have higher registration fees than do

gasoline vehicLes. The structure of registration fees is also

unduly complex and needs simplification for ease of administration.

(c) Taxes on automobiles are also discriminatory since, for the same

engine size, diesel-powered cars are taxed at a Lower rate than

gasoline-powered cars. If automobiles are considered a Luxury item

then they should be subject to a progressive tax based on the vaLue

of the vehicle rather than its engine displacement or the type of

fuel powering it.

(d) Import duties and sales taxes on tires and spare parts are dispro-

portionately high and, combined with import restrictions, have Led

to either the very high cost or scarcity of these items essential to

maintaining the nation's vehicle fleet. This may be one of the

factors contributing to the country's low vehicle utilization rates

of 40,000-50,000 km per year for trucks, perhaps onLy half the

achievable level.

(e) From a legal standpoint, the CCT has the structure and administra-

tion of a business tax rather than a road user charge. It is

collected quarterly on all for-hire vehicles, on the basis of a pre-

determined estimate of gross receipts, differentiated by type of

vehicle and by area of operation--urban vs. suburban and ruraL. The

CCT is discriminatory and, for example, favors jeepney )wners who

can evade the tax more easiLy than bus operators. Licensed for-r.ire

trucks subject to CCT account for less than 25% of commercial

trucking services; the rest comprises own-account vehicles. The CCT

distorts the transport market by encouraging the uneconomic use ot

own-account trucks as for-hire vehicles. It shouLd therefore be

abolished or repLaced with a tax instrument that applies equalyv to

all for-hire passenger transport and alL types of trucking.

Cost Recovery from Road Users

2.16 As shown in Table 2.3, taxes paid by the road sector have exceeded

Government's total capital and recurrent expenditures on roads.

- 12 -

Table 2.3: ROAD USER REVENUES AND ROAD EXPENDITURES(P million)

1980 1981 1986

Revenues /aFu-el 3,888 3,897 5,997Vehicles, parts, tires 822 927 430Fees and charges 351 736 1,181

Total 5,061 5,560 7,608

Ex endituresAdministration 318 249 237Maintenance 1,107 1,139 1,809Construction /b 2,228 2,948 3,941

Total 3,653 4,336 5,987

/a CCT and tolls excluded.7b Provincial expenditures for road construction, estimated to be less than

P 200 million per year, are not included.

Source: NTPP and DPWH.

In order to achieve a rational balance between road costs and road user

charges, each vehicle should pay a sum at least equal to the additional cost

that it imposes on the rest of the society, in terms of either road damage or

traffic congestion. This issue has been very well studied in NTPP's "Road

User Charges-National Policy Study" (January 1984) and its updating inFebruary 1987, which found that two types of road users are paying less than

the marginal costs they occasion by their use of the roads: (a) 2- and 3-axletrucks, and (b) all vehicles under congested conditions. All other vehicles,

including tractor-trailers and buses, produce a surplus of variable revenue

over variable maintenance cost. The road damage caused by vehicles dep'ends

primarily on their axle loads and not on total weight, as shown in Table 2.4

for typical truck axle configurations and loads in the Philippines.

- 12 -

Table 2.3: ROAD USER REVENUES AND ROAD EXPENDITURES(P million)

1980 1981 1986

Revenues /aFu-elr- 3,888 3,897 5,997Vehicles, parts, tires 822 927 430Fees and charges 351 736 1,181

Total 5.061 5,560 7,608

ExtendituresAdministration 318 249 237Maintenance 1,107 1,139 1,809Construction lb 2,228 2,948 3,941

Total 3,653 4,336 5,987

/a CCT and tolls excluded.7T Provincial expenditures for road construction, estimated to be less than

e 200 million per year, are not included.

Source: NTPP and DPWH.

In order to achieve a rational balance between road costs and road usercharges, each vehicle should pay a sum at least equal to tbe additional costthat it imposes on the rest of the society, in terms of either road damage ortraffic congestion. This issue has been very well studied in NTPP's "RoadUser Charges-National Policy Study" (January 1984) and its updating inFebruary 1987, which found that two types of road users are paying less thanthe marginal costs they occasion by their use of the roads: (a) 2- and 3-axletrucks, and (b) all vehiclas under congested conditions. All other vehicles,including tractor-trailers and buses, produce a surplus of variable revenueover variable maintenance cost. The road damage caused by vehicles dependsprimarily on their axle loads and not on total weight, as shown in Table 2.4for typical truck axle configurations and loads in the Philippines.

- 14 -

(b) the current structure of license fees based on GVW should be recali-

brated to an equivalent axle load (EAL) per ton scale, in line with

NTPP recommendations. The schedule of import duties and taxes

should also be modified to promote the use of multi-axle, articu-

lated trucks. Vehicle registration and license fees (road tax)

should be adjusted periodicaLly for inflation and price changes as

well as changes in the structure of the vehicle fleet. The tax rate

should be the same for both for-hire and private trucks;

(c) the structure of road tolls should be reviewed to ensure that toll

administration costs are reasonable and that tolls are contributing

to efficient use of road space;

(d) imports of spare parts and tires should be Liberalized (by removal

of quantity restrictions and Lowering of duties) to avoid distortion

of vehicle replacement choices and increases in vehicLe operation

and maintenance costs; and

(e) the rates of import duties and sales taxes on diesel-powered automo-

biles, pickups, and jeeps should be set higher than those for

comparable gasoline-powered units to minimize the switch from

gasoline to diesel-powered vehicles.

C. Transport in Metro Manila

2.19 The Government's general decentralization policy will transfer many

functions from national agencies to the local Level. While the details of the

new policy have yet to be worked out, local decision-making for urban roads

and transport regulations deserves support as it is LikeLy to be more respon-

sive to the needs of the people. In Metro Manila, the sheer size of the

population (7.3 million or 13Z of the national population and equivalent co

the next 30 largest cities) has raised some particularly complex issues.

Traffic Congestion

2.20 While regulations and institutional responsibilities Eor transport

in Metro Manila are similar to the national pattern, the sheer concentration

of people and activities poses unique problems such as severe traffic conges-

tion, and requires special solutions such as computerized craffic signals or

exclusive-use transitways like the recently compLeted Light Rail Transit

(LRT), a 16-km Long elevated rail line. Traffic congestion in Manila does

seem to have improved in recent years, due to (a) traffic engineering schemes

implemented by DPWH's Traffic Control Center, as well as the rehabilitation

and widening of some urban highways, W4) economic recession and a sLight

decline in private car registrations,- and (c) the introduction of LRT in

1984/85. However, with an economic recovery, traffic couLd easiLv worsen in

the coming years if the pent-up demand for cars results in a rapid increase of

new car registrations. Moreover, while Metro Manila continues to grow by

1/ From 36 cars per 1,000 inhabitants in 1983 to 32 in 1986.

- 15 ̂

about 200,000 persons per year, no major capacity expansion of the transport

system can be expected for at least the next five years because of the lead

* time required for such works.

2.21 To address the probable worsening of traffic conditions, support

should be given to expanding the successful traffic engineering program and

the construction of new road links as envisaged under a proposed Manila Urban

Transport Project to be financed by the Japanese Government. It would also be

timely to consider a pricing mechanism such as tolls or licensing schemes for

driving in congested times and areas, which would charge vehicle users for the

congestion they cause. Unfortunately, experience elsewhere has shown that it

is extremely difficult to gain public acceptance for congestion pricing on

urban streets and, although well-conceived s Pemes have been designed for

several major cities, only two such schemes - have actually been introduced

while the others have been shelved for the time being. Thus, while the con-

cept of pricing vehicle use should be actively pursued at the technical and

political levels (because of its enormous economic benefits), it is suggested

that, because private automobiles are the major causes of congestion due to

their numbers and low occupancy ratios and may be viewed as luxury goods,

traffic growth should be restrained through high pricing of car ownership, at

least until a major congestion pricing scheme is introduced in ManiLa.

Public Transport

2.22 Prospects for public transport in Manila are, under prevailing

conditions, not good. In 1986, LRT had a deficit of P 240 million, of which

about 75Z was interest charges, and the Metro Manila Transit Corporation

(MMTC), which operates the city's largest bus fleet, had an estimated operat-

ing loss of P 39 million (if bus depreciation is revalued to account for

exchange rate shifts since 1980 when the present fleet was acquired). In

addition, three of the ten private bus consortia operating at the beginning of

1987 have since gone out of business and others are expected to follow. It

thus appears that public transport services could deteriorate substantially in

the coming years if (a) MMTC is unable to modernize its aging fleet due to

scarcity of funds, (b) private bus consortia continue to withdraw services,

and (c) a current moratorium on issuing jeepney licenses is maintained and

enforced.

2.23 Transport in Manila is also constrained by the policy of jeepney

franchising which aims to balance supply with estimated passenger demand along

any given route. While the economic rationale for this regulation is unclear,

a restrictive franchising policy can be justified on the grounds that an

oversupply of relatively space-consuming jeepneys (compared to buses) should

be avoided to reduce traffic congestion. This would imply that franchising

should depend on the spare traffic capacity along any given thoroughfare--a

criterion that, surprisingly, is not currently considered in jeepney franchis-

. 2/ Operating since 1)75, the Singapore Area Licensing Scheme is widely

regarded as a major success. More recently, the city of Bergen, Norway,

has implemented a congestion pricing scheme.

- 16 -

ing regulations in Manila. At present, the emphasis is on the commercial

aspects of jeepney operation rather than jeepney-caused congestion. This is

due to a division in institutional responsibilities. DOTC regulates jeepneys,

as other vehicles, to achieve global objectives and is thus not well equipped

to investigate traffic congestion at the local level. DPWH is responsible for

providing an adequate road infrastructure and has therefore created its

Traffic Control Center which has been successful in checking Manila's traffic

congestion. An effective public transport policy requires close integration

of route franchising and traffic engineering, and thus a close coordination

(if not merging) of the agencies responsible for those functions.

2.24 To avert possible public transport shortages in Manila, a three-

pronged approach might be considered. First, revise the current policy of bus

and jeepney franchising, probably by easing the regulatory controls to perm;t

new services where the passenger market calls for them; DOTC has already

requested NTPP to prepare a report on this subject by December 1987. Second,

restructure the organizational and financial framework of bus services to make

them commercially more viable and reverse their current decline. Third, begin

pLanning for a substantial upgrading of public transport in at least one high-

volume corridor or preferably in a metropolitan system of such corridors. A

study currently envisaged for a second LRT line should be expanded to also

consider lower-cost alternatives, such as reserved bus/jeepney roads and, even

better, separate busways which might include short elevated sections to avoid

bottlenecks in the street system. Support should also be given to the traffic

engineering program and the construction of new road links as envisaged under

the proposed Manila Urban Transport Project.

D. Interisland Shipping

Market Structure

2.25 While data on interisland shipping are somewhat inadequate with

respect to the induscry's structure, scope and functioning, the key features

seem to be as follows. Scheduled liner services seem to account for about

half of total domestic freight movements by water. The remainder are carried

by the largely unreguLated, unscheduled contract carriers (trampers) and

private (own-account) bottoms. Large shippers can use the competitive

services, but smaller shippers must normally rely on the liners. The regu-

lated liner services also provide substantial passenger services, which in

1984 accounted for 36Z of their reported gross revenues, and for which there

appear to be no other competing sea services, although some competition is

provided by bus-cum-ferry services and air services.

2.26 The liner services are dominated by five Large companies although

data on the degree of concentration are not available. These and several

other companies are organized into a shipping conference, CISO (Conference of

- 17 -

Interisland Shipowners) 3" which functions as a cartel with varying degrees of

control. The industry is connonly said to be subject to chronic excess

capacity, which was one factor responsible for the introduction of govern-

mental route licensing in 1972. There has undoubtedly been some excess

capacity in recent years due both to the introduction in 1976 of container

technology which left much of the fleet redundant and to the economic downturn

of 1983-86. The liner industry would probably have been more seriously

weakened during this period had it not been for the simultaneous decline in

the barge industry. As it was, three liner companies left the industry, and

others coped by deferring vessel replacement, mothballing a substantial

portion of the fleet and stretching out route schedules. More recently, with

the apparent economic upturn in 1987, an expansion of shipping services and an

initiation of fleet renewal have begun.

2.27 Two NTPP reports have been prepared on the maritime subsector and

its critical importance to the economic integration of the country: the

"Interisland Shipping Regulation Study" and "A Ship Replacement Program" (both

dated December 1986). The principal issues highlighted in the reports are the

high cost of interisland shipping and the poor safety record.

Cost and Price of Shipping Services

2.28 At present, both the costs of interisland shipping to the shipping

industry and the prices charged to the industry's clients are higher than tney

should be. The major factors driving up costs are as follows:

(a) The cost of port stevedoring and longshore "arrastre" services

(which rarely comprise less than 20% of total shipping costs and

sometimes as much as 60% on short hauls) tend to be inflated. These

charges are incurred even where the shipping company provides the

port handling equipment and labor. This appears to be due LargeLy

to the manner in which the Philippine Ports Authority (PPA) adminis-

ters stevedoring and arrastre services, in effect granting quasi-

monopolies. These practices, which apparently stem from poLitical

favoritism under the previous regime, are well recognized and are

likely to be modified in the near future.

(b) PPA has been able to enforce charges on private ports equal to about

one half the charges for use of PPA facilities. Aside from inflat-

ing the costs of private shipping, these practices also tend to dis-

courage investments in and use of private facilities which wouLd

compete with PPA.

(c) The Bureau of Customs is unnecessarily involved in pureLy domestic

movements, which not only causes unnecessary costs and deLays, but

also may encourage corrupt practices.

3/ There also exists a broader association, PISA (Philippine Interisland

Shipping Association), which includes barge and tramp operators as well.

- 20 -

2.38 One of the few facts which can be ascertained, however, is thatPhilippine maritime accidents have not been positively correlated with vesselage. Indeed, 621 of the accidents in 1984 (among vessels over 50 CRT)invoLved vessels 15 years old or less while only 30X involved vessels of 21

years or more.

2.39 In July 1986, MARINA implemented mandatory classification of allnewly acquired imported liner and ferry vessels. The full effect of thisaction, however, will not be felt for five years, since it was introduced as arequirement for the Certificate of Public Convenience License renewal, andoutstanding licenses have a validity of up to five years. At Least threerecognized classification societies are now operative in the Philippines sothat it should be possible to expedite this process. The rigorous scrutinyexercised by the classification societies is a much less costly and probabLysurer process to maintain vessel safety than is forcing the pace of fleetrenewal.

2.40 As in road accidents, however, human error is more to blame thanfailures in equipment, and there is apparently a need to strengthen the educa-tion of merchant marine staff as well as the surveillance thereof, a functionexercised by the Philippine Coast Guard.

Public Policy Recommendations

2.41 The objective of public policy in the sector should be to promote adiversity of shipping services, responsive to market demands and technologicalinnovation in the industry, at as low a cost (and price) as possible. Otherthan for ordinary cyclical factors, there is a tendency to excess capacityonly because prices for ship services are held above suppliers' costs.

2.42 The appropriate policy prescription is gradual economic deregulationand a refocusing of the Government's limited regulatory powers on to safetyconsiderations. Prices should be set free and new entrants should be welcomedin order to break the price-fixing powers of the cartel (at present pricelevels, no artificial encouragement should be required). Attention also needsto be given to revision of the PPA port handling and charging practices aswell as to removal of Bureau of Customs involvement in domestic shipping.

2.43 With respect to fleet modernization, government intervention, otherthan to promote safety, is not needed. While the NTPP "Ship ReplacementProgram" suggested that government intervention would also promote fuelsavings, chis factor would ordinarily be incorporated in the shipowners' ownfinancial calculations to determine replacement timing. The Government, how-ever, may wish to consider whether taxes, particularly those on the import ofvessels, spare parts and supplies, as well as the CCT, might be reduced oreliminated; this obviously would need to be considered in the context ofoverall public finance and taxation policies.

2.44 The pricing practices currently followed result in cross-subsidization of both the nine essential foodstuffs and low valued commodi-ties, as well as low-volume routes serving the less developed islands. TheGovernment may wish to subsidize such services as a matter of social policy,

- 21 -

and, in the case of the outlying islands, also for purposes of economic

integration, which could be defended partly on "infant industry" grounds.

Free competition in the shipping industry would undermine current practices,

since new entrants would be attracted to those services where tariffs were

held high, and, by thus "skimming the cream," would eliminate the revenue base

for subsidizing other traffic. However, free competition would create greater

efficiency in the whole industry and reduce the costs of all services, which

could result in a lower cost even for those goods and routes which are

presently being cross-subsidized. This would possibly include greater techno-

logical adaptation to cope with the nature and scope of the secondary

routes. Finally, to the extent that subsidy of these services was still

desired, an explicit subsidy from the general treasury, in lieu of an implicit

subsidy based on hidden taxes on the users of other transport services, may be

preferred, so that social decisions could be explicitly determined.

E. Other Modes

2.45 Domestic aviation is an essential transport mode in an archipeLago

country like the Philippines, especially for passenger traffic and perishable

and high-value cargo traffic. Nevertheless, this report does not cover the

aviation sector in detail since there are no outstanding issues and few policy

reports. Concerning the railway, the issue is the financial viability of the

Philippine National Railways (PNR), particularly in light of the extremely low

volumes of traffic, which, excluding some 3 million commuters, dropped from

416 million pass-km and 43.5 million ton-km in 1980 to 173 million pass-km and

19.4 million ton-km in 1986. At minimum, a radical restructuring of PNR to

address those few sectors where it might possibly render a socially useful

service at reasonably co.npetitive costs appears indicated. The opportunicy

costs of assets not needed for such services should also be considered.

III. INSTITUTIONAL ASPECTS AND ISSUES

A. Organizational Setup

3.1 A multitude of agencies are engaged in the direct or indirect provi-

sion of transport services in the Philippines. The organization of the sector

may be divided into two broad categories, one dealing with infrastructure

construction and maintenance, and the other with policies governing transport

operation. Table 3.1 gives an overview of the transport agencies, their area

of responsibility, size and annual budget.

-22-

Table 3.1: INSTITUTIONS IN THE SECTOR

Staff 1986 Budget Reports

Agency Responsibility (Number) (P million) to

BAT Air traffic control, airportinfrastructure, safety and operation 3,507 157.8 DOTC

CAB Economic regulation of aviation 84 4.8 DOTC

CTP Overall transport planning (Cabinet level) 8 - Cabinet

DLG Rural roads 5,562 269.9

DOTC All transport matters except roads 289 38.7

DPWH National and barangay roads 18,788 2,386.4

LRTA Light rail transport system in Manila 33 1,541.2 DOTC

LTC Road transport regulation 2,732 53.2 DOTC

MARINA Maritime regulation 285 11.2 DOTC

MIAA Manila airport 1,408 141.0 DOTC

MMC Manila transportation coordination n/a n/a

HHTC Manila bus service 1,954 38.0 DOTC

NEDA Overall transport planning and coordination 1,618 117.6

NTPP Transport planning and research 40 2.2 CTP,DOTC,NEDA

PNR Railways 5,667 173.9 DOTC

PPA Ports 1,963 1,211.0 DOTC

TCC Manila traffic control n/a n/a DPWH

TRB Toll roads regulation 15 1.0 DOTC

The Government has initiated a major reorganization effort for all departments

and agencies, which is expected to be completed by end-1987. The purpose of

the reorganization is to clarify objectives, streamline operations, facilitate

decision making and detail responsibilities. While there will be no major

changes to the basic functions of the various governmental entities, the

internal workings of many of them will be materially changed. The new organi-

zational structures and staffing should therefore be reviewed in earLy 1988.

3.2 Infrastructure projects for the various transport modes are handled

by the subsectoral agencies concerned. Investment planning for national and

barangay roads is done by DPWH while the Department of Local Government (DLG)

through local government units handles provincial, city and municipal roads.

Port, railway, and airport infrastructure are handled, respectively, by PPA,

PNR, and the Bureau of Air Transportation (BAT).

3.3 The DOTC is responsible for transport policy, regulation and

administration. The National Economic Development Authority (NEDA) plays a

coordinating role in the planning process. NEDA is making good use of the

NTPP group which has full-time representatives from NEDA and DOTC, and liaison

representacives from DPWH, PNR, PPA and KARINA. NTPP prepares five-year

transport programs, listing priority projects by mode and their Investment

requirements. It submits the programs to the Committee on Transport Planning

- 23 -

and NEDA for consideration and inclusion in the Public Investment Program

(PIP). Optimally, the transport program should be updated annually to accom-

modate interim changes. The benefits to be derived from NTPP participation

in

planning have sometimes been limited due to NTPP's late invoLvement in

projects and the occasional commitment of project financing before NTPP's

review of the project. NTPP's links with the modal agencies should aLso

be

strengthened to facilitate intermodal and interagency coordination. NTPP will

terminate as a project in December 1987 and, unless urgent measures are taken,

its staff may be scattered and its capacity for medium- and Long-range

planning and research lost. It is therefore recommended that the functions of

NTPP be institutionalized within DOTC, or possibly NEDA, and that as Large

a

group as possible of NTPP's trained staff be kept together. This will, lessen

the risk that the valuable expertise built up over the last ten years may

be

lost or diluted to the point of becoming ineffective.

B. Major Sectorwide Issues

Planning Coordination

3.4 Intermodal coordination in the transport planning process is weak.

At present, project planning starts with the individual subsectoral agencies

which are not required to consult or coordinate with agencies in other

modes. Project development is based solely on past trends and the current

economic situation, without regard to the impact of other transport deveLop-

ments. As a result, highways have been built parallel to railway upgrading

projects, and ports investments have been undertaken without considering

that

traffic would be diverted to highways. The lack of coordination arises,

first, because the individual agencies function in isolation from one another,

each with a mandate to provide transport services to the economy, though not

necessarily the most economic and efficient services. Second, there is no

coordination mechanism at the subsectoral agency Level; all coordination is

done by NEDA and NTPP. NEDA is more involved in allocating resources to

projects than in prioritizing them, while NTPP evaluates individual project

proposals but has no authority over decisions affecting intermodal coordina-

tion. As long as resources are available, alL projects are funded. This

poses the risk of overinvestment in some projects which, when evaLuated

individually, show good economic return, but, when considered in the context

of other modes, may not be justified. Coordination shouLd instead be done

at

the planning stage when projects have been identified but are stilL tLexi-

ble. In this case, if duplicate projects are discovered, uneconomic invest-

ments may be avoided more easily than when the project is presented to NEDA.

Better coordination among agencies couLd aLso heLp in the formuiation of a

more realistic overall investment pLan.

Contract Approval Procedures

3.5 The cumbersome procedures for reLease of payments reLated to

contracts have aroused compLaints from various contractors and agencies.

The

bottleneck occurs both within and outside the agencies. Within an agency, the

approval of contracts has to pass through the management hierarchy. Since no

fixed time is prescribed for each LeveL of approvaL, the process is often

unduly time consuming. Outside the agency, other management procedures

- 24 -

exacerbate the process. For PPA and PNR, for example, additional approvalfrom DOTC is needed for contracts above P 50 million (P 5 million for nego-tiated contracts) and Presidential approval is needed for all contracts aboveP 100 million (P 10 million for negotiated contracts). Further review ofcontracts by the Commission on Audit (COA) and NEDA creates additional delaysoutside the agencies. Starting in April 1986, COA mandated a review of allfeasibility studies for which contracts were signed after March 1984. Some ofthese projects had already started, but had to stop until COA approved thefeasibility study. The seriousness of the problem prompted a meeting withCOA, at which COA agreed to review feasibility studies on a selective basis.COA will, however, continue to pre-audit and post-audit contractors'billings. Thus, approvals that could be undertaken in two weeks may requiremonths and sometimes years to obtain.

3.6 Delays in contract processing became particuLarLy long during thepast few years when contract prices have had to be adjusted and price escala-tions recalculated due to currency devaluation and inflation. To demonstratethe seriousness of the problem, both DPWH and DLG have prepared estimates ofthe extra costs incurred due to unnecessary procedures and Lengthy processingtime. To cite a few examples:

(a) In DPWH, 21 months were wasted over a period of four years due towork stoppage by contractors not able to secure funding. The delaywas caused by a lengthy process for approving contract price adjust-ment and price escalations. Extra costs amounted to P 276 millionfor price escalations.

(b) A project at Lahug was delayed for 13 months because the contractwas not approved in time. Extra costs were estimated P 7 millionEor price escalation.

(c) A project at Dumangas was delayed for 10 months, leading to addi-tional costs of P 6.2 million in price escalations.

3.7 Another cause of delays is the sometimes weak quality and competenceof staff invoLved in the whole decision process. Some of the delays occursimply due to Lack of technical expertise at certain management Levels to makean appropriate decision within a reasonable length of time. The tendency isto retain documents for longer than required while clarifications are beingsought. It is therefore recommended that the procedures for contractapprovals should be streamlined in order to eliminate duplicate reviews.

Staffing and Management

3.8 Staffing and management of the sector agencies is uneven. WhiLe Lowgovernment salaries make it difficuLt to recruit and retain competent staff,this problem has been somewhat alLeviated by the general economic sLowdown,which has reduced the "brain drain" toward the private sector. As a result,working Level staff have in large measure remained in many agencies. On theother hand, and potentially a more serious problem, the number of managerialpositions that have changed incumbents after the change in government inFebruary 1986 appears to threaten the proper functioning and continuity of

- 25 -

some of the sectoral institutions. For example, DLG appears to have suffered

so many changes that its ability to carry out well-conceived provincial roads

projects in the short run is uncertain. There is a need for the Government to

strike a proper balance between political and professional career appointments

to remedy this situation.

3.9 Centralization of government authority has added to the ineffici-

encies in project implementation caused by slow contract processing. While

this problem has been widely recognized, and Government has recently been

moving toward decentralization, success so far has been limited. One impor-

tant issue is the readiness of regional offices to take over some of the

delegated responsibilicies and authority. A technical training nrogram for

local staff should therefore be established at the regional/provincial

level. The quality of local officials also varies greatLy, and many regionai

offices of both the agencies and COA are reluctant to take on extra responsi-

bilities. COA's i.egional offices, for exampLe, would not approve anything

that has not first been reviewed by COA headquarters, thus making their review

redundant.

C. Institutional Issues in the Subsectors

Roads

3.10 DPWH is responsible for national and rural (barangay) roads, while

provincial, city and municipal roads are under DLC. The secretaries of DPWH

and DLG submit their highway and rural road projects directly to NEDA for

inclusion in the Public Investment Program. A separate process is initiated

simultaneously for budget approval by the implementing agencies.

3.11 The principal institutional issue affecting the subsector invoLves

the responsibility for construction and maintenance of rural roads, which has

been shifted between the former Ministry of Public Works and the Ministry of

Local Government a number of times and is presently with DPWH. Despite the

official emphasis placed on rural roads, the frequent shift in responsibiLity

for the roads has resulted in unclear direction and the lack of a coherent

rural roads program. This issue deserves priority attention since ruraL r'oads

are the most important factor in lowering costs for farm-to-market transporta-

tion. As a first step in improving rural road maintenance, it is recommended

that local staff be involved in this work not only to simplify work fo-ce

arrangements, but also to boost local awareness of the importance of .oad

maintenance.

Urban

3.12 FunctionaL Responsibilities. At present, there is a substantial

amounc of jurisdicational overlap and corresponding uncertainty of -esponsi-

bility in almost all critical urban transport functions. At tne nationaL

level, national policy development, assiscance to local units of Government

for transport planning and traffic management, and traffic enforcement need

particular attention. At the Local Level, road construction and maintenance

responsibilities among DPWH, the cities, and the barangays need to be clari-

fied. The main agencies involved in urban transport services are discussed

below.

- 26 -

3.13 DOTC oversees virtually all aspects of urban passenger transport,including the licensing of private cars and other motorized vehicles, theissuing of route franchises for buses and jeepneys, and overall public trans-port planning. In addition, it is responsible for three government agenciesproviding passenger services in Metro Manila: the Light Rail TransitAuthority (LRTA), MMTC, and PNR which in 1986 carried about 171 millionsuburban cormnuter trips.

3.14 DPWH is responsible for the planning, design, construction andmaincenance of practically all urban thoroughfares, since they usually formpart of the national road system. In Manila, two special DPWH agencies playan importanc role in managing and improving the road system.

(a) The Traffic Control Center (TCC) was created in the Late 1970s toimplement the Traffic Engineering and Management (TEAM) project inMetro Manila. Under the ongoing reorganization of DPWH, it isproposed to establish this office on a permanent basis. Renamed theTraffic Engineering Center, it would continue to be responsible fortraffic planning, design and engineering, including installation,operation and maintenance of traffic signals and other trafficcontrol devices. While the focus of its activities would remain inMetro Manila where it now plays a key role, it would also providespecialized services to secondary cities such as Davao, Bacolod andIloilo.

(b) Created in 1972, the Urban Roads Project Office (URPO) has beenresponsible for the planning, design and construction supervision ofnew roads, bridges, flyovers and road widening projects. It is alsoinvolved in supervising civil works executed under the TEAM project,and generally works in close coordination with TCC. While most ofURPO's activities are concentrated in Metro Manila, it is alsoresponsible for extending the North and South Luzon expressways andfor civil engineering aspects of the Metro Cebu improvement project.

3.15 Several other agencies are also involved in important aspects ofurban transport. Traffic law enforcement for aLl cities is carried out by theIntegrated National Police, supported by the Constabulary Highway Patrol Groupfor major thoroughfares, and by craffic aides employed by cities and munici-palities. Traffic Law enforcement is widely regarded as one of the weakesclinks in the urban transport chain due to: (a) the unclear definition ofinstitutional responsibilities, (b) severe undermanning, and (c) widespreadcorruption.

3.16 Cities and municipalities are responsible for the planning, con-struction and maintenance of secondary streets under their jurisdiction(primary traffic arteries are under DPWH). The cities may also be consultedby DOTC on regulatory aspects of uE7an transport, and by the police on trafficenforcement aspects. Some cities _ in Metro Manila have established Traffic

4/ Metro Manila consists of 4 cities and 13 municipalities.

- 27

Coordination Councils which meet about three times a year and include repre-

sentatives of the City Engineer's offices, DOTC, DPWH, TCC, the police and

civic organizations. In addition, the municipal and city engineers of Metro

Manila confer about once a month, primarily to review issues concerning the

roads and drainage system.

3.17 The Metro ManiLa Commission (MMC) was created in the early 1980s to

coordinate, on a metropolitan-wide basis, the planning for such urban develop-

ment aspects as hou.ing, environmental management and transport. Besides its

overall, planning role, MMC has also been involved in some operational func-

tions (including solid waste management and, in the transport field, the

collection of curb parking charges and the deployment of traffic aides). rt

is generally expecced that MMC's importance may decline somewhat under the on-

going reorganization of government agencies.

3.18 As the plethora of agencies and their intermingling responsibilities

would indicate, the magnitude and complexity of Manila's transport issues

require special Government attention--and in general this attention is being

given. However, regulations and such aspects as jeepney licensing (done by

DOTC) are usually treated separately from the management (police) of street

space, even though all are functionally interrelated. While it is, for

example, recognized'that jeepneys contribute substantially to traffic conges-

tion in certain corridors, the current licensing rules (applied by DOTC) do

noc take into account the traffic capacities (determined by DPWH) of those

corridors. Bus lanes delineated in the 1970s by DPWH were poorly enforcea (by

the police) and were not coordinated with (DOTC's) public transport licensing

policy. In the past, these and other problems of interagency coordination

would have been dealt with by TRANSEC, a transport coordination mechanism

established for Metro Manila. Recently, however, TRANSEC became inactive, and

iC is strongly recommended that TRANSEC be revived (or some other, similar

organization created) and be given high-level support to improve mobility and

transport efficiency in Metro Manila.

3.19 Agency-Specific Issues. DOTC's two urban operating agencies, i.e.,

LRTA and MMTC, are heavily subsidized, and their organizational set-tit shoiK

be reviewed. With regard co LRTA, the Authority owns and establishes potLcies

for the rail line but actual train operations are run under contract by

METRORAIL, a subsidiary of the private electrical utility company, MERALCO.

This type of operating arrangement is unusual, and the high electricity costs

of the LRT make it appear likely that the current arrangement primarily bene-

fits the contractor at the expense of the Government-owned LRTA. LRT services

are complemented by the bus system run by MMTC, which in 1986 carried 75

million passengers compared to the LRT's 93 million. MMTC also manages a

lease-purchase arrangement for about 700 buses that are currently operated by

seven qrivate bus consortia. In view of MMTC's worsening financial posi-

tion,5 Government should review its policy of providing bus services both

5/ The estimated net Loss per bus-km has increased steadily from P 0.39 in

1983 to P 1.65 in 1986, or from a total of P 11.8 million (1983) to

P 38.7 million (1986).

- 28 -

through a government company and through the artificially stimulated consortia

of private bus operators.

Ports

3.20 PPA is responsible for planning and implementing ports projects.

After establishing a list of suitable projects on the basis of economic

criteria, PPA goes through an internal approval process, rhen submits the

approved projects to DOTC for review and coordination. Thereafter, the plans

are forwarded to NEDA to be included in the Public In-estment Program.

3.21 Institutional problems in the subsector have led to coordination

problems between the users and providers of port- and port-related services.

According to some users, refrigerated storage facilities at ports are misallo-

cated or nonexistent. Disincentives to building storage facilities at loading

and unloading points arise from (a) the requirement of a license to construct

and operate a private port facility; and (b) the requirement to pay the

Government a certain percentage of throughput value. Partially as a result,

refrigerated trucks are in effect "converted" to storage facilities, thereby

lengthening their turnaround time and adding to costs.

3.22 Another problem between users and providers comes from an archaic

law which specifies that interisland maritime cargo with a value over

P i,000/ton may be classified under ad valorem races. This contributes to the

chronic problems of high cost for farm-to-market transportation. Nowadays,

most cargo is worth over P 1,000/ton, and the law results in identical

shipping costs between Manila and Cebu and Manila and Davao, for exampLe. The

Cebu Chamber of Commerce has prepared a position paper containing suggested

legislation to remove the P 1,000 cutoff point. The level of port charges are

also being questioned by the users. MARINA, which has the power to set and

approve freight tariffs, and PPA, which determines port charges, clearly have

a roLe to play in this regard.

Railways

3.23 PNR has recently been experiencing many changes. A strong manage-

ment team was put in place in early 1987, and the new General Manager has been

given the difficult task of turning the company around. His presence at PNR

has made discussion of previous institutional issues obsolete, since, with the

help of PNR staff, he is attempting to correct the major problems which

formerly threacened PNR's viability.

3.24 A fundamental cleanup of PNR's books is also taking place. Since

PNR is unfairly burdened by heavy debt service obligations on loans which

brought no real assets for the company, attempts will be made to exclude these

obligations from PNR's financial statements. Separate accounts should also be

kept for railway and non-railway operations. Tariffs will be computed to

cover only those costs which can be fully accounted for by PNR.

- 29 -

Aviation

3.25 The Bureau of Air Transportation (BAT) is the national regulatory

body responsible for safety and operations in the aviaLion sector. Routes and

fares are regulated by the Civil Aeronautics Board (CAB). However, under

current institutional arrangements, BAT can take no direct action on safety

problems at the Manila International Airport (MIA) but must work through the

Manila International Airport Authority (MIAA) which concroLs all expenditures

for the airport. MIAA, however, has been very slow in reacting to BAT

complaints, citing Lack of funds.

3.26 Airline operators and charter and piLots associations have presented

position papers favoring the return of MIA to the controL of BAT. At present,

responsibiLities for the airport are split between the two agencies. Naviga-

tional aids at MIA are manned and maintained by BAT personnel, but the pro-

curement of instruments is done by MIAA. BAT pays for the training and

salaries of air traffic controllers, but is not reimbursed for these services

by MIAA. MIAA also receives alL iicome from MIA Landing fees and concess-

ioners, and about 35% of airport income; the remaining 65% is passed on to the

National Treasury. MIAM claims that 35% of income is sufficient to cover only

personnel expenditures, and therefore continues to receive a subsidy from the

Treasury.

3.27 BAT's own source of revenue is the Landing fee charged in outlying

airports around the country. If BAT were to absorb MIAA, the current subsidy

received by BAT from the Treasury could be cut by an estimated 50%. MIAA

requested a widening of its authority to cover the four international airports

at Cebu, Davao, Zamboanga and Laoag, but this request was not granted and

should not be entertained in the future.

IV. PUBLIC EXPENDITURE PROCRAMS IN THE TRANSPORT SECTOR

A. General

Investments

4.1 The transport sector investment plan prepared by the Government in

1984 for the period 1985-90 represented a considerable effort at reducing

and/or delaying transport investments commensurate with the Likely funding

available under the then-prevaiLing economic situation in the PhiLippines.

Every transport project estimated to cost more than P 300 milLion (about

USS15 million) was individually reviewed and possibiLities for further cut-

backs and rescheduling were openly explored. The pLan represented high

priority investments with high estimated rates of return and often consider-

able social benefits. The 1983 Level of investments was not expected to be

attained during the plan period.

4.2 The October 1986 Medium-Term Public Investment Program (MTPIP) for

1987-92 (Annex 2) represents a massive build-up to support economic recovery

and agro-industrial deveLopment compared to the 1985-90 program, which was

- 30 -

evaluated by the Bank two years ago. A comparison of the two programs is

shown in Table 4.1, based on adjusted inflation assumptions for MTPIP and the

recalculation of both programs in January 1987 prices (Table 4.2). The

highway subsector would receive the largest share of MTPIP funding, about 70%,

followed by the ports subsector with about 15Z.

Table 4.1: COMPARISON OF MTPIP (1987-92) ANDINVESTMENT PROGRAM FOR 1985-90

1985-90 program MTPIP 1987-92 Increase… (Million Pesos) - --- …()

Roads 21,041 36,853 75

Ports 3,607 8,063 123

Railways 1,418 2,604 84

Airports 1,177 2,049 74

Urbe.n 1,653 3,045 84

Total 28,896 52,614 82

- 31 -

Table 4.2: MTPIP, 1987-92(Million Pesos)

1987 1988 1989 1990 1991 1992 Total

Current PricesRoads 5,369 5,958 6,485 8,339 9,029 9,410 44,590

Ports 1,194 1,j59 1,674 1,588 1,639 2,005 9,658

Rail 282 56. 556 555 574 600 3,128

Air 158 356 859 625 277 117 2.392

Urban 251 233 245 602 1,177 1,412 3,920

Total 7,255 8,667 9,818 11,709 12,695 13,544 63,688

Inflationrate (X) 5.2 8.7 7.0 8.3 8.9

Deflationfactors 1.0520 1.1435 1.2236 1.3251 1.4431

1987 PricesRoads 5,369 5,664 5,671 6,815 6,814 6,521 36,853

Ports 1,194 1,482 1,464 1,298 1,237 1,389 8,063

Rail 282 533 486 454 439 416 2,604

Air 158 338 751 511 209 81 2,049

Urban 251 221 214 492 888 979 3,045

Total 7,255 8,238 8,586 9,569 9,581 9,385 52,614

Source: MTPIP and Bank mission.

4.3 The increase in investments under MTPIP is caused by:

(a) the addition of costly new projects and programs in MTPIP and

increases in the scope of existing projects;

(b) revised cost estimates for already existing projects; and

(c) slippages into MTPIP of projects that should have been carried out

in 1985 and 1986 without a corresponding delay in projects proposed

under MTPIP.

The more significant project developments in MTPIP compared to the 1985-90

program are elaborated below for each subsector (paras. 4.6-4.14).

4.4 It is unlikely that MTPIP will be carried out as planned in its

entirety since there are doubts about both the level of financing available

- 32 -

and the implementation capacity of the respective agencies. Nevertheless, it

is a useful document to set objectives. Many of the projects included have

feasibility studies completed, showing economic rates of return sometimes

substantially above the 15% level customarily used in the Philippines for

transport projects. The projects that have not yet been evaluated have been

included in MTPIP based on prima facie viability which will be confirmed in

due course.

Operation and Maintenance

4.5 Actual operation and maintenance (O&M) expenditures recorded by the

Department af Budget and Management for the period 1982-86 and estimated for

1987 (Table 4.3) show relatively stagnant O&M expenditures up to 1985 (declin-

ing in real terms) followed by a substantial 53% increase in 1986. The

Government's O&M expenditures in the transport sector account for about 35% of

total seccor expenditures in 1986 and 1987 compared to about 28% in previous

years. While this percentage increase in itself does not constitute a suffi-

cient indication that O&M expenditures are adequate, it does show the

increased relative importance the Government attaches to maintenance. Since

O&M expenditdures are also increasing in absoLute amounts and assuming that the

increased Levels can be maintained during the 1987-92 period, this would help

reduce the backlog of deferred maintenance in the sector.

- 33 -

Table 4.3: O&M EXPENDITURES 1982-87

(Million Pesos)

1982 1983 1984 1985 1986 1987

Roads 1,211 1,176 1,4/0 1,229 2,207 2,321

DPWH 695 668 942 797 1,358 1,547

DOTC 56 56 75 66 60 107

DLG 460 452 454 365 789 668

Ports 240 244 305 307 400 585

PPA 225 228 284 288 371 553

DPWH 10 10 14 12 20 22

MARINA 5 6 7 7 9 10

Urban n/a 147 223 422 463 n/a

LRTA n/a n7a 8 ]74 278 n/a

MMTC n/a 147 215 248 185 n/a

Aviation 71 79 90 77 105 151

CAB 2 3 2 2 3 4

BAT 69 76 88 75 102 147

Rail 145 129 169 165 188 n/a

PNR 145 129 169 165 188 n/a

Total 1,667 1,775 2,257 2,200 3,363

Source: Department of Budget and Management, sector agencies.

B. Roads

Investments

4.6 The majority of investments proposed for the subsector seem justi-

fied. The only component to be watched is the program for "various LocaLLv

funded feeder/secondary and national roads," which, at P 17,036.5 miLLion in

current prices, would require 38% of the P 44,590.2 million requesced for the

program and is the principal reason for the Large increase of MTPIP over the

1985-90 program. The "various roads" program aims at benefiting the Less

developed areas of the country and contributes toward the Commuiiity Employment

Development Program. Iet also includes projects of the RegionaL Development

Councils which are stiLl subject to further review by NEDA. WhiLe the objec-

tives are worthwhile, the concern is that substantial funds may be spent

without corresponding physical assets being created due to capacity

constraints in selecting, evaluating, designing and implementing the huge

number of smail projects involved. The Government intends to use reliable

- 34 -

non-governmental organizations such as religious groups and the Red Cross to

augment its own implementation and monitoring capabilities for this important

program. If these efforts fail to produce the intended results, the program

should be reduced to more manageable levels, say 10-20% af the total road

program.

4.7 The only other comment is to reiterate the findings of the Bank's

1985 investment review that the Dugo-San Vicente road providing access to the

Port of San Vicente (Port Irene) should not be improved unless the port itself

is found to be julstified (see para. 4.10).

Operation and Maintenance

4.8 The relative emphasis given to road maintenance as opposed to

construction has changed significantly over the years. In 1980-81, about 671

of total expenditures was used for construction, with the remainder allocated

between maintenance (25Z) and administration (8%). By 1986, maintenance

expenditures had increased to about 30% of total expenditures.

C. Ports

Investments

4.9 The MTPIP port program includes three new projects with a total cost

of P 5,428.3 million in current prices, representing 56% of the P 9,657.8 mil-

lion port program. All three projects should be reduced as follows: (a) the

Port Cargo Handling Expansion Project costing P2,055.2 million appears to be

based on an outdated estimate in Japanese yen which should be recalculated

using current exchange rates. The project itself should be drastically

reduced to take into account equipment provided by the shipping lines them-

selves; (b) the Manila South Harbor Rehabilitation Project for P 1,059.5 mil-

lion should be delayed by a year in accordance with PPA's most recent projec-

tions, and the cost under MTPIP should be reduced to P 401.8 million; and

(c) the Tertiary Ports Project for P 2,313.7 million under DPWH represents a

huge increase over the 1985-90 program of P 118.3 million. If the efforts to

improve selection, implementation and monitoring capabilities fail, this

project is subject to the same reservations as given for the "various roads"

program above, and should be reduced to more manageable levels, say 10-20% of

the total port program.

4.10 The PPA share of the MTPIP ports program exceeds PPA's present

investment projections and should be reduced accordingly. The port of San

Vicence (Port Irene) remains questionable and should be postponed until its

justification has been established.

Operation and Maintenance

4.11 Since the early 1980s, PPA has received inadequate government

budgetary allocations for both investment and O&M purposes, with a consequent

effect on the condition of existing infrastructure. The allocations have been

less than PPA's generated revenue. However, on April 13, 1987, an Executive

Order was signed which allows PPA to operate as an independent corporation

- 35 -

with control over its financial resources. This permits PPA to use its

adequate revenues to make the expenditures necessary to properly maintain its

infrastructure and equipment and to make those capital investments deemed

essential by its Board of Directors.

D. Railways

4.12 PNR has embarked on a revitalization program to regain its

operations levels of the middle 1970s. While the financial viability of the

railway is doubtful, the type of railway investments proposed under MTPIP,

i.e., rehabilitation rather than new acquisition of motive power, rolling

stock and the permanent way, seem appropriate if PNR's assets are to remain in

operational condition. Expenditures on the northern line should be limited to

that part of the line which is used for passengers commuting in and out of

Manila. The rest of the northern line should be closed. The investment

amounts needed depend on how much equipment can be saved as a resuLt of

general operational improvements being carried out by PNR's new management.

Care should be taken against overinvesting in what has been and will Likely

continue to be a loss-making enterprise, the risk of underinvesting is not

negligible and should be considered if the railways are indeed to remain in

business. The alternative use of the railways' real estate assets for busways

and industrial deveLopment should be an integral part of any discussion

regarding the railways' future.

E. Aviation

4.13 The increase in investment in this subsector is accounted for by the

new Cebu International Airport Development Project at P 789.9 miLlion in

current prices. This project would provide better services for Cebu-bound

traffic and would relieve Manila International Airport of unnecessary transit

traffic. While there is no reason to question the project at this stage, its

economic justification should be established before implementation.

F. Urban

4.14 The substantial increase in urban investment is caused by the inclu-

sion-in MTPIP of new investments in the LRT system in Manila. Improvements to

line l and design/construction of Line 2 account for P 1,903.9 milLion .n

current prices. It is understood that these investments are incLuded subject

to confirmation of their economic viability. Any study of this question

should also consider the option of providing lower-cost alternatives to

upgrade public transport such as dedicated busways.

V. FUTURE ROLE OF THE BANK IN THE SECTOR

5.1 The Bank has been involved in the Philippine transport sector since

1961 when che first port loan was made. Since then, an additional 11 projects

for highways, rural roads, ports and shipping have been financed for a total

of USS549 million. The Bank has thus had a long association with the sector

and has built up a very productive collaborative association with the

Government. The continuation of this joint effort seems particularly impor-

tant at this juncture as the emphasis of the sector's development gradually

changes from provision of new infrastructure to maintenance of already exist-

ing assets.

- 36 -

5.2 In addition to continuing its support for the improvement of thecountry's transport infrastructure, the Bank should also continue to supportthe strengthening of sector institutions and the establishment of an appro-priate framework for planning and policy development. Assistance in attainingthese objectives is needed, given the country's constrained economic condi-tions. This report has highlighted several recommendations for policy reformand institutional improvements which, if implemented, would further strengthenthe performance of the sector. These recommendations are summarized below.The need now is to develop a suitable framework for their implementation andfor continued Bank support to the sector.

Needed Policy and Institution_ Changes

5.3 Sectorwide. Following the organizational restructuring of thesector (expected to be completed in early 1988), the key follow-up actionsshould include development of a short- to medium-term action plan for thesector, improving staff capabilities through training programs at theregional/provincial levels, preserving the institutional capacity fortransport planning and research developed over the last decade with Bankassistance, and streamlining institutional procedures, particularly forcontract awards and the professional career growth of civil servants.

5.4 Roads and Road Transport. The Government would best serve thepublic interest by adjusting its policies on vehicle and road user taxation,based on efficiency considerations and equity. Legal axle-load limits shouldalso be raised to reflect the network's generally high design standard. Themain institutional need is clarification of responsibility for rural roadsdevelopment and the involvement of local staff in maintenance activities.Planned investments in the sector are generally sound, although some programsshould be reduced due to strained implementation capabilities. With respectto road transport, both the freight and passenger carrier industries should bederegulated by allowing free entry into the industries, decontrolling prices,abolishing licensing distinctions between own-account and for-hire vehicles,reducing controlled supply of passenger services, and abolishing the CommonCarrier Tax. Interisland road-ferry transport should be encouraged.

5.5 Ports and Maritime Transport. rn order to promote a variety ofshipping services that are responsive to market demands, technologically up-to-date, and cost-effective, the Government should gradually deregulate themaritime transport industry and concentrate its efforts on safetyconsiderations. Specifically, this would entail gradual reforms to allow freeentry into the industry, deregulation of prices and the adoption of cost-related freight rates and port charges, privatization of certain activities ofPPA, and termination of the Bureau of Customs' involvement in domesticshipping. Regarding maritime safety, Government should undertake a study ofthe current situation and needs and, based on study recommendations, introducestricter criteria for inspetion of vessel seaworthiness. Investments proposedin MTPIP appear justified except for the port of San Vicente. However,proposed projects to expand cargo handling capacity, rehabilitate Manila'sharbor, and improve tertiary ports should be reduced to correspond toimplementation capabilities and actual needs.

5.6 The Railways. In view of extremely low traffic levels on therailway, PNR should be restructured to address the few sectors where rail

- 37 -

service is socially useful and cost-competitive. Railway accounts could be

adjusted to distinguish between railway and non-railway expenditures, and

investment on the north line should be limited to that part of the line

serving commuters in the Manila area. The rest of the line should be closed.

5.7 Aviation. Policies in the sector are largely satisfactory, although

the attempt of the Manila International Airport Authority to expand its

jurisdiction should continue to be checked. The proposed investment in a new

Cebu International Airport seems sound, but its economic justification should

be established prior to implementation.

5.8 Urban Transport. Severe traffic congestion in Manila should be

addressed by studying the adequacy of public transport planning for the city,

the feasibility of using dedicated busways for mass transit, and the

possibility of introducing road-use pricing to reduce congestion. Measures

should also be introduced to expand the traffic engineering program throughout

the city, restrain car imports, ease controLs on bus and jeepney entry into

the passenger transport market, upgrade public passenger services in high-

volume traffic corridors, restructure the organizational and financial

framework of bus services to make them commercially viable, and strengthen

traffic law enforcement. On the institutional side, TRANSEC, Manila's

recently-dissolved trans, et coordinating agency, should be revived to

coordinate the activities of the various agencies responsible for traffic

management in the city, and responsibilities of the Light Rail Transport

Authority and the Metro Transit Corporation, a bus company, should be reviewed

and, if necessary, rationalized, including MMTC's provision of public support

to seven private bus companies in Manila. For all cities, responsibilities

for urban road construction and maintenance should be clarified among DPWH,

the cities and barangays.

Proposed Bank Strategy

5.9 Included in the Government's Medium Term (1987-92) Investment

Program (Annex 2) are a number of projects that are suitable for Bank support

and would constitute a direct continuation of the Bank's past successful

involvement in highway programs with DPWH, rural roads with DLG and ports with

PPA. These possibilities should be pursued with the implementing agencies

concerned. In addition, the following factors suggest that the Government and

the Bank could now move towards a more general sectoral approach to transport

lending, in that:

(a) sector agencies have developed adequate experience in dealing with

planning, evaluation and implementation of complex projects within

their areas of responsibility;

(b) there is now a greater need to focus on the implementation of poLicy

reforms and adequate maintenance procedures than on specific invest-

ment proposals; and

(c) the resource transfer with sector lending could be faster and

respond more flexibly to changing country needs than with project

lending alone.

8~~~~~~~~~~~~~~3 - 38 -

5.10 It is therefore proposed that, in addition to pursuing follow-up

lending operations with DPWH, DLO, and PPA, the Bank and the Government should

develop a vehicle whereby funds could be released annually for use within the

sector against progress on a jointly-agreed policy agenda for the sector.Such annual sector loans would allow maximum flexibility to include project

components for financing as they are developed, without having to wait for

preparation of the next project loan cycle.

5.11 The policy agenda to be established would take into considerationnot only the technical, financial and economic benefits to the country but

also the socioeconomic and political aspects of any policy changes. This

report provides ample material to develop such a policy agenda. The task at

hand is to establish priorities among the many possible actions that could be

taken. While setting of pricrities is clearly the primary responsibility of

the Government, the Bank would view the following as major concerns.

5.12 On economic grounds, the priority policy actions would be expected

to include the gradual deregulation of the trucking and interisland shipping

industries and the restructuring of road user charges. Deregulation of

trucking and shipping would lead to more efficient transport services which

would yield economic benefits to the overall economy. During the implementa-

tion and adjustment phase, however, it would be necessary to protect both the

industries and their customers from violent swings in the pricing of transport

services.

5.13 The fiscal impact of restructuring road user charges would be

positive. The international parity price on automotive fuels should be

maintained to ensure that road users are not subsidized. Any upward adjust-

ment of diesel and gasoline taxes, which now comprise 79% of all road user

revenues, would result in additional revenues since demand for automotive fuel

is relatively inelastic. The restructuring of vehicle registration and

licensing fees and vehicle import duties is also needed to achieve a more

efficient distribution of the tax burden among road users while maintainingthe same overall level of revenue generation.

5.14 As to priority institutional issues, measures are needed to:

(a) institutionalize a capacity for transport planning and research;

(b) clarify responsibilities for rural roads development;

(c) protect professional career appointments; and

(d) streamline administrative procedures.

Other policy and institutional recommendations made in the report can be dealtwith simultaneously with or subsequently to the above, depending on the

relative difficulty of achieving the necessary national consensus and legis-

lative agenda.

5.15 During the next five years, efforts should be made to gradually

shift Bank assistance in the sector away from direct project loans and towards

annual transport sector loans to the Government, with an emphasis on policy

and institutional reform. The Government and the Bank, in embarking on the

- 39 -

proposed new approach to sector cooperation, will use this report as a source

document to catalyze and channel the sector dialogue and sector development

over this period. The extent and timing of the implementation of the report's

recommendations would, however, be subject to the economic, social and

political realities in the Philippines.

ANNE 1-40 - Page 1

PHILIPPINES

TRANSPORT SECTOR REVTEW

Summaries of Selected Transport Policy Studies

Title of Study: National Transportation Planning Project, Final Report

Date of Study: December 1982 Subsector: All ModesPrepared by: NTPP I

Study Objectives

(a) Comprehensive review of the transport sector;

(b) Prioritized list of transport investment projects for the period1983 to 1987, and indications of investments requirements for thefollowing ten years, covering all modes;

(c) Development of recommendations for the regulatory framework withinwhich the transport sector should operate; and

(d) Consolidation of a trained group capable of continuing this type ofwork.

Principal Findings and Recommendations

The Final Report of NTPP Phase I comprises an integrated descriptionof the transport situation, systematically built up through an area-by-areaanalysis (Central/North Luzon, South Luzon, Mindanao and Visayas), ideneifyingthe needs versus supply for transportation infrastructure. A prioritizedinvestment matrix of the four modes of transport (road, sea, air and rail) forche period 1983-87 was formulated. An indicative program was also drawn upfor 1988-92. Aside from the investment matrix, important recommendations ontransportation policies, regulations and pricing were made. Further, thelong-term viability of the Philippine National Railways (PNR) was questionedbecause of its continuing financial losses and operational inefficiencies.

Action Taken

The ten-volume report, particularly the transportation infrastruc-ture investment program for the period 1983-87, was noted and endorsed by theCabinet and the Office of the President. Since projects were included in theinvestment program based on pre-feasibility studies and NTPP's poLicy is notto be involved in detailed feasibility studies of specific projects, theimplementing agencies were encouraged to undertake such detailed feasibilitystudies, the results of which would be the basis for project impLementation.The 1983-87 investment program has largely been followed in determining whattransportation infrastructure projects are to be funded and implemented duringthe period. The five-year period is nearing its end but it is expected thatnot all recommended projects will be implemented or completed. A spillover of

-41 - ANNEX 1Page 2

projects to the next planning period 1987-92 is inevitable. This has been

taken into account in the formuiation of the Philippine Development Plan for

1987-92 and in the Medium-Term Public Investment Program covering the same

period. The fate of PNR was twice elevated to the Cabinet (in 1983 and 1984)

but no clear decision was made.

Follow-Up

On the basis of the NTPP Final Report, various modal studies,

feasibility studies and policy studies were identified. These were undertaken

in the second and third phases of NTPP. Because the studies evolved from a

comprehensive macro study to specific modal studies, a new title was attached,

i.e., Programs and Projects Formulation Study for Transportation (PPFST).

-42- A6NNEX 1

Page 3

Title of Study: Pavement and Axle Load Study

Date of Study: 1985 Subsector: RoadsPrepared by: PMO-FS

Study Objectives

To determine the economic feasibility of allowing goods vehicleswith higher gross weights and dimensions than the present Legal limits onmajor interurban routes t.tl national/provincial and other major road systemsthroughout the country and a recommended program for road and bridgereconstruction/ strengthening.

Principal Findings and Recommendations

Like similar studies in other countries, this study found that,taking into account benefits to road users as well as costs of infrastrucLure,ic is optimal to employ a wide range of vehicles, including very large, heavytrucks. Moreover, unlike many other countries, much of the infrastructure in1the Philippines (particularly concrete roads) has already been dimensioned toa level which can sustain such heavy loadings. Although many bridge decks are

badly in need of repair, the incremental costs of stronger repLacements tosupport higher gross vehicle weights are quite modest.

The study therefore recommends that legal load limits be increasedto 13 tons for single (4 tire) axles, 26 tons for dual tandem axles and 30tons for tri-tandem axles with corresponding gross vehicle weights of 18, 31,

and 50 tons.

Action Taken

The study is still under review by DPWH, other ministries andagencies concerned.

- 43 -ANNEX IPage 4

Title of Study: Road Traffic Safety

Date of Study: 1985 Subsector: RoadsPrepared by: PMO-FS

Study Objectives

The study aims to review the interlinkages of highway design and

safety, and assess the adequacy of the standards of the roads in the country

as well as the effectiveness of laws and regulations governing traffic safety,.

accident reporting and enforcement procedures.

Principal Findings and Recommendations

Road accidents and associated costs and human suffering are far

higher than they need be. A multifaceted program is recommended focussed on

four areas: (a) increasing public awareness and enhancing safety

consciousness, (b) driver training and law enforcement, (c) vehicle safety

standards, and (d) infrastructure improvements, particularly the

identification and removal of "black spots."

Actions Taken

The Government has set aside an annual budget of P 200 million for

road traffic safety purposes.

- 44 -ANNEX 1Page 5

Title of Study: Road User Charges - A National Policy Study

Date of Study: January 1984 Subsector: RoadsPrepared by: NTPP/PPFST I

Study Objectives

To analyze the structure of road taxation and the balance of road taxrevenues with road construction and maintenance expenditure. both for the

country as a whole (the macro balance) and for individual vehicle types (themicro balance).

Principal Findings and Recommendations

On the whole, revenues from road taxation exceed expenditures on

road construction and maintenance, although the taxes paid by heavy trucksfail to cover the damage they cause to the road system while light vehicles,particularly cars, pay relatively higher taxes for the little or no damagethey inflict on the road system. However, the study did not pay sufficientattention to the congestion caused largely by light vehicles (primarily in

Metro Manila).

The study recommended the abolition of the Common Carrier Tax (whichis also a source of graft and corruption), an increase in the specific tax ondiesel fuel by P 0.25 per liter, and the differential upward adjustment of

license (registration) fees for trucks. The purpose of the latter tworecommendations is to proportionately increase the contribution of caxation on

heavy vehicles (i.e., trucks) to road construction and maintenanceexpenditures.

Action Taken

The study's final report was transmitted to concerned agencies,mainly the DOTC, Office of the Prime Minister, NEDA, Nacienal Tax ResearchCenter and Department of Finance. A memorandum explaining tile findings andrecommendations of this milestone study was also sent to former NEDA Director-General Vicente B. Valdepenas, Jr. However, the Presidential Decree on motorvehicle registration that was issued after issuance of the study's finalreport seemed to be contrary to the study's recommendations since registrationfees for cars and light vehicles were increased. ADB considered adding a loancovenant to the recently negotiated Fourth Road Improvement Loan, requiringthe Government to adopt a pLan of action to rationalize road user charges.For this purpose, DOTC Secretary Hernando B. Perez instructed NTPP toundertake a quick update of the study (described beLow).

- 45 - ANNEX 1Page 6

Title of Study: Update of the 1984 Road User Charges - A National Policy

Study

Date of Study: February 1987 Subsector: Roads

Prepared by: NTPP/PPFST I

Study Objectives:

The report is an update of the 1984 report. The same approach and

methodology were used but fuel prices were adjusted to 1986 levels and an

inflation factor of 1.9 was appLied to other cost inputs. Once again

insufficient attention was paid to congestion costs reLated primarily

to light

vehicles.

Principal Findings and Recommendations

Basically, the recommendations remained the same, only the figures

changed:

- Remove the common carrier tax from both buses and trucks;

- Increase differentially the license fees for both for-hire and

private trucks to: P 1.20/kg for 2-axle and 3-axle trucks and

P 0.40/kg for all tractor-trailer unics;

- Increase the diesel fuel tax by P 1.00;

- Consider reducing sales taxes/import duties on vehicles and spare

parte, with the biggest reductions applied to buses.

The fourth recommendation was based on other NTPP studies, i.e.,

Study of Road Transportation Regulation and Road Transportation Industry

Study.

Action Taken

The report has been transmitted to all concerned government

agencies. It was presented at a meeting of the Committee on Transport

Planning for deliberation and was referred to DOF and the National Tax

Research Center for comments, which are still to be received.

- 48 -ANNEX 1Page 9

(c) The main area where Government intervention is considered necessary

and may yield substantial benefits is in the organization andfunding of appropriate training and education programs for drivers

and transport managers. It is therefore recommended that the

Government initiate a phased project to tackle this issue.

(d) The Government should Liberalize import restrictions on second-hand

trucks and spare parts.

(e) The industry has problems in acquiring reasonable financing, mostly

due co lack of real estate collateral. It is recommended that the

Government establish a financial facility that can ease thisproblem.

(f) The Government should support improvements in vehicle technicalstandards and safety and drivers' skills and knowledge in line with

the recommendation of the Study of Road Transport Regulation.

(g) Cost-based shipping, ferry and port handling rate structures should

be developed.

Action Taken

The study will be presented in the next CTP meeting and the draft

final report will be given to concerned agencies for comments.

- 49 -ANNEX 1Page 10

Title of Study: Study of the Provision of Statistics on Road Freight Flows

and Trucking Industry

Date of Study: March 1987 Subsector: TruckingPrepared by: NTPP/PPFST I

Study Objectives

The study's objectives were to develop within DOTC a strong

management information system to process road freight and trucking industry

statistics. The country's road system carries about 65% of total nationwide

freight movements.

Principal Findings and Recommendations

Since there is as yet no regular collection and reporting of

reliable statistics on the freight and trucking industry, the study approach

adopted was to design a hypothetical "application" on the assumption that data

on freight and trucking will ultimately be available to be integrated and

manipulated as part of a future coordinated data base that encompasses the

whole area of national statistics on transportation. Hence, the study by

defining the first "application" to the prospective (integrated) data base

attempted to make an early, modest contribution towards promoting what is

needed.

This study was, in retrospect, premature. Two essential steps

should have been completed first: (a) definition of the objectives and

specific contents of the data base required for national transport pLanning

and management; and (b) delineation of a scheme for implementation of data

collection by the various agencies concerned.

Future works will preferably be under an inter-agency approach,

particularly under the aegis of the Inter-Agency Committee on Transportation

and Communications Statistics (IACTCS). The DOTC presence, however, should be

reinforced by more inputs from the Department's Planning Service which has

been active in measuring performance in the transport system and has thereby

more experience and expertise to offer the Committee than has DOTC/MIS.

- 50 -ANNEX 1Page 11

Title of Study: Interisland Shipping Regulation Study

Date of Study: June 1986 Subsector: ShippingPrepared by: NTPP/PPFST I

Study Objectives

The objectives of this study were to assess pricing and entry

regulations in the domestic shipping industry with the objective of

encouraging investment in new equipment and promoting better service and

competition.

Principal Findings and Recommendations

The study issued two reports, namely, A Study of Incer-Island

Shipping Regulations and a Ship Replacement Program Study. The former's main

recommendation is that government regulation be replaced with so-called "self-

regulation" by the shipping lines, but that Marina should retain powers to

encourage high load factors and to monitor the "fairness" of tariffs. In

respect to shipping safety, the study suggested that ideally vessel

inspections and responsibility for ship stability tests be transferred (from

the Philippine Coast Guard) to recognized classification societies. If the

inspection of all ships by recognized classification societies seems too

onerous, it is recommended that a limited program of inspection be set up for

the most dangerous age brackets--say, all ships over 25 years old.

The Ship Replacement Program Study recommended that such a program

be pursued, and that the best way to ensure ship replacement would be a

combination of "stick and carrot." The main stick would be compulsory

classification and stability checks for all ships aged 25 years or more, i.e.,

about 94 ships, 48 of which were liner ships in 1986. Without such a concrete

measure, it seems unlikely that shipping Lines will initiate replacement of

old ships which tend to be on low-revenue routes, even with the availability

of low-cost finance, which would be the main carrot.

Action Taken

The report has been finalized and presented to the Committee on

Transport Planning. However, no decisions have yet been made to adopt and

implement the recommendations of the study.

-51-

ANNX 1Page 12

Title of Study: Review of Manila Port DeveLopment Strategies and

Feasibility Study for Rail-Served Inland Container Depots

Date of Study: December 1986 Subsector: Ports/RailPrepared by: NTPP/PPFST III

Study Objectives

The study reviewed the previous master plan ard identified the

necessary investment program for the port and investigated the potential for

rail-served inland container depots.

Principal Findings and Recommendations

Three investment proposals were found viable, namely:

(approximate cost inP million)

Grain terminal 19

Domestic container terminal 39

Levelling of Marcos road 3

Total 61

However, rail-served inland container depots were not found

viable. Even with the most favorable assumptions, the economic internal rate

of return (IRR) was only 8.32. Nevertheless, despite the conclusion that the

rail projects examined should not be implemented, it was recommended that no

irreversible action should be taken to cut off the option for a rail link to

the port in the future.

Action Taken

The draft final report has been distributed to concerned agencies.

After their comments are received, the report will be finalized for

deliberation and possible adoption.

- 52 - 52~~~~~~~~~~~ ANNEX 2Page 1

PRILIPPINIS: Public lnvesteent Reviev - Transport Sector tnvestuents by Sub-sector (Pesos and USI '000!

19187 1988 1989 1990 1991 1992 TotalF o r e c a s t I I p e a d i t I r e 198111992

load Investments

Local Pesos 4,288,5?? 4,902,751 5,016,566 5,558,591 6,437,728 6,781,310 33,045,529foreign USI 61,945 73,651 81,632 109,096 89,113 80,650 496,08O

Total Pesos 5,626,589 6,574,629 6,847,521 8,064,585 8,518,030 8,958,860 44,590,215

Port Investments

Local Pesos 610,0" 652,990 705,101 735,685 672,084 756,163 4,132,113Foreign US$ 27,240 39,928 40,870 34,220 37,170 46,090 225,518

Total Pesos 1,198,414 1,559,356 1,673,720 1,587,763 1,638,504 2,000,593 9,658,410

Rail Investments

Local Pesos 100,166 75,562 101,169 91,889 90,952 71,846 531,584Foreign USS 8,438 21,364 19,194 18,595 18,564 19,564 105,719

Total Pesos 28t,Z4? 560,525 556,06? 554,905 573,616 600,074 3,127,613

Aviation Investments

Local Pesos 109,431 79,039 138,444 313,909 175,692 99,451 915,966Foreign US$ 2,265 12,198 30,398 12,502 3,894 644 61,901Total Pesos 158,355 355,934 858,81? 625,209 Z76,936 116,839 2,392,149

Urban tranap. Invests.

Local Pesos 102,309 149,299 159,332 426,551 982,965 1,128,248 2,948,694Foreign U99 1,892 2,180 3,110 7,495 8,890 14,410 37,977Total Pesos 143,176 198,185 233,039 613,177 1,214,095 1,511,318 3,919,590

Other Transp. Invests.

Local Pesos 24,500 40,380 61,251 86,178 107.300 48,124 367.733Forelin U11 6,003 0 0 0 0 0 6,003Total Pesos 154,165 40,380 61,251 86,178 107,300 48,124 497.398

Total Transo. Invests.

Local Pesos 5,235,073 5,900,021 6,241,863 7,!12,809 8,466.711 8,885,142 41,941,619Foreign US9 107,783 149,321 175,204 181,908 157,631 161,358 933,205Total Pesos 7,563,186 9,289,608 10,230,475 11.531,816 12,328,481 13,241,808 64,185,374

Exchange Rate US91: Pes 21.6 22.7 23.7 24.9 26.0 27.0

- 53 -ANNEX 2Page 2

PHILIPPINES: Public Investment Reviei - Transport Sector Investaents by Agency (Pesos and US$ '0001

1987 1988 1989 1990 1991 1992 Total

F o t e c a s t 8 x p e n d i t u r e 1987-1992

Road Investsents (HPVH)

Local Pesos 3,856,290 3,952,085 4,334,994 4,552,709 5,445,704 6,163,893 28,305,675

Foreign USS 49,377 53,760 60,920 74,145 73,750 71.960 383,912

Total Pesos 4,922,833 5,172,437 5,615,076 6,188,418 7,126,568 8,106,813 37,132,144

Road Investaents HNLG)

Local Pesos 432,287 950,666 741,572 1.005,888 992,024 617.417 4,739,354

Foreign US3 12,568 19,891 20.712 34,951 15,363 8,690 112,175

Totai Pesos 703,756 1,402,192 1,232,446 1,876,168 1,391,462 852,047 71,458,071

Port investjents (PPA)

Local Pesos 3e0,299 W67,470 340,895 314,361 331,304 327,0J68 2,061,337

Foreign USS 16.710 33.970 34,980 27,120 22,470 30,310 165.'60

Total Pesos 741.235 1.138,589 !,169,921 989,649 915,524 1.145,438 6,100,^56

Port tnvestaents (NPVR)

Local Pesos 229,1791 285,520 364,206 421,324 340,780 429,095 8,070.1?6

Foreign USS 10,530 5,958 5,890 7,100 14,700 15,780 59,958

Total Pesos 457,239 420,767 503.799 598,114 722,980 855,155 3,558,054

Rail Investments (PNR)

Local Pesos 100,166 75,562 101,169 91,889 90,952 71,846 531,584

Foreign US$ 8,438 21,364 19,194 18,595 18,564 19,564 105,719

^otal Pesos 282,M27 S60,525 556,067 554,905 573616 500,0174 3.-.5 ;3

Urban Rail Inv. (LRTAI

Local ?esos 19.o00 88,000 56,100 270,400 773,300 756,300 1,303,300

Foreign US3 0 0 0 0 0 0 0

Total Pesos 13,500 28,000 56,100 270,400 713,800 756,000 1,303,300

- 54L -

54 ANNEX 2Page 3

Aviation Invests. ({BATI

Local Pesos 109,431 79,039 138,444 313,909 175.692 99,451 915,966Foreign US$ 2,265 12,198 30,398 12,502 3,894 644 61,901Total Pesos 158,355 355,934 858,877 625,209 2176,936 116,839 2,392,149

Urban Road Investments

Local Pesos 82,709 121.299 103,232 156,151 209,155 372,248 1.044,794Foreign US3 1,892 2,180 3,110 7,495 8,890 14,410 37,977Total Pesos I23,576 1TO,785 176,939 342,777 440,295 761,318 Z,0151690

Other Trp. Investments

Local Pesos 24,500 40,380 61,251 86,178 107,300 48,124 367,733Foreign US3 6,003 0 0 0 0 0 6,003Total Pesos 154,165 40,380 61,251 86,178 107,300 48,124 497,398

Total Trp. lnvestments..........

Local Pesos 5,235,073 5,900.021 6,241,863 7,212,809 8,466,711 8,885,142 41,941.619Foreign US3 107,783 149,321 175,204 181,908 157,631 161,358 933,205Total Pesos 7,563,186 9,289,608 10,230,475 11,531,816 12,328.481 13,241,808 64,185,374

3Schange Rate US31:Pesos 21.6 22.7 23.7 24.9 26.0 27.0

- S5ANNX 2

PIILIPPINIS: hPblic laweateeat Review - Individual Truasport Projects (Pesos ad U91 '000)

I917 1981 1989 1990 1991 1992 Total

P o r e c a s t Ii p e n d i t u r e 1981-199t

load ltaestiests 10P8)

1. tInD 4th 3glhua Project Local Pesos 32,235 0 0 0 0 0 32,235

Foreign US1$ 1,710 0 0 0 0 0 1,710

Total Pesos 69,171 0 0 0 0 0 69,171

2. Ifu Sth 8igLhva Project Local Pesos 379,386 421,921 467,988 158,615 0 0 1,435,913

Foreign U3$ 15,680 18,120 17,760 6,1690 0 0 58,250

Total Pesos 718,074 841,248 888,900 325,19S 0 0 2,773.418

3. IBID 6th 8ighway Project Local Pesos 0 0 0 41,637 148,471 215,955 406,063

Regions [I,YE,VEI and I Foreign US$ 0 0 0 2,630 9,010 12,660 Z4,300

total Pesos 0 0 0 107,124 382,731 557,775 1,047,630

4. Rehabilitation Major Bridges Local Pesos Z,OOO 4,087 19,14' 41,637 63,666 131.799 262,430

Along PJHL and N8 Foteign US 0 2170 1,390 2,630 3,860 7,720 15,370

total Pesos 2,000 10,t16 52,184 101,124 164,0Z6 340,Z39 615,789

5. San Jose - Ramburao road Local Pesos 6,456 53,794 0 0 0 0 60.250

Foreign Ut 4!4 0 0 0 0 0 414

Total Pesos 15,398 53,794 0 0 0 0 69,192

6. Radial Road-10 (R-10 Local Pesos 71,O3 105,297 26,059 0 0 0 202,1379

Phase I and 11 foreignr U9t 3,000 4,000 1,710 C 0 0 8,710

Total Pesos 135,823 196,097 66,586 0 0 0 398,506

T. Circumferential load (C-51 Local Pesos 0 5,000 t3,297 41,637 74,112 0 144,046

Upgrading Project Foreign US9 0 0 1,525 2,630 4,510 0 8,665

Total Pesos 0 5,000 59,440 107,124 191,372 0 362.936

8. Dugo-San iicente Road in Local Pesos 0 0 5.100 16,702 21,140 Z3,d22 66,764

Cagayan Foreign U9S 0 0 0 1,050 1,290 1,390 3,730

Total Pesos 0 0 5,100 42,847 5i.680 61,352 163.979

9. Samar Integrated Rural Local Pesos 109,500 180,000 160,526 0 0 0 450.026

Dev. Proj., Roads Cosponent Foreign US, 1,000 0 0 I 0 0 1,000

Eastern & Northern Samar Total Pesos 131,100 180,000 160.526 0 0 0 471,626

10. Laosg-Allacapan, Stage I Local Pesos 53,218 48,788 0 0 0 O 102,006

Foreign US, 3,714 1,480 0 0 0 0 5,194

Total Pesos 133.440 82,384 0 n 0 0 215,824

- 56 -ARNMX 2

1917 1918 1989 1990 1991 1992 TotalF o r e ca s t 3 h p e n d i t a r e 1981-1992

Roakd Investments (NFVE)

11. ADD :Ad Highnay Project Local Pesos 44,781 0 0 0 0 0 44,782Regions tV-B, V I VI Foreign US$ 4,842 0 0 0 0 0 4,842 -

Total Pesos 149,369 0 0 0 0 0 149,369

12. ADD 3rd Highway Project Local Pesos 45,320 46,925 18,866 0 0 0 111,111legions 11, [V-B AND III Foreigt U5 3,220 3,550 835 0 0 0 7,605

total Pesos 114,182 127,510 38,656 0 0 0 281,038

13. ADD 4th Bighway Project Local Pesos 51,487 59,976 81,616 113,472 0 0 306,551Region VII, 11 b III Foreign U9t 1,582 10,960 14,285 19,140 0 0 45,96?

Total Pesos 85,658 308,768 420,171 590,058 0 0 1,404,655

14. AD8 5th Higlway Project Local Pesos 0 20,819 105,945 172,713 299,477legions V I VI Foreign 185 0 1,315 6,440 10,130 17,885

Total Pesos 0 53,563 273,385 446,223 773,171

15. Isprovesent Pan-Philippine Local Pesos 0 0 12,207 41,637 63,666 86,484 203,994Highway, Sta. Rita-Aritao Foreign US5 0 O 805 2,630 3,860 5,060 !,155and Calasba-Calauag total Pesos 0 0 31,286 107,124 164,026 223,104 525,540

16. Ferry tersinals Local Pesos 0 0 - 0 20,819 42,279 64,735 127,833Foreign US5 0 0 0 1,315 2,580 3,800 7,695total Pesos 0 0 0 53,563 109,359 167.335 330,257

17. Palawan Integrated Area Local Pesos 7,999 1,656 0 0 0 0 9,655Developaent Project (PIADP) Foreign U$ 1,1454 2170 0 0 0 0 1,71214Phase ,, Region IV-A total Pesos 39,405 7,785 0 0 0 0 47,190

13. Palawan Integrated Area Local Pesos 0 0 0 0 10,693 21,493 32,186Deveiopseat Project Foreign US5 0 0 0 0 640 1,1270 1,910Phase 1., Region [V-A total Pesos 0 0 0 0 27,333 55,783 83,116

19. Nindanao Secondary And Local Pesos 21,978 0 0 0 0 0 21,979Feeder Roads Foreign U1S 1.248 0 0 0 0 0) 1,248Regions 1, 1[ and 111 total Pesos 48,935 0 0 0 0 0 48,935

20. Molave-Oroquieta and Local Pesos 42,928 41.090 23,156 0 0 0 107,174Pagadian-Tukuran Foreign USt 2,994 2.300 945 0 0 0 6,239Regions 1X-A i I Total Pesos 107,598 93,300 45,553 0 0 0 246,451

_ 57 _ ANNEX 2

19? 1983 1989 1990 1991 1992 Total

I o r e c a s t x p e n d i t u r e 1981-1992

Road Ilvestments lNPURI

21. PJRL and Related lmprov. Local Pesos 100,000 200,000 255,000 312,000 318,000 331,668 1,516,668

Project, legion 11, III, Foreign US9 0 0 0 0 0 0 0

1V-A, V, Vill, I t 11 Total Pesos 100,000 200,000 255,000 312,000 318,000 331,668 1,516,668

22. 1anila lortk load Local Pesos 4,900 8,136 18,972 44,516 63,666 71,0.73 211,263

Isprovesenit along Rosario- Foreign USI 0 560. l,250 2,820 3,1860 4,160 12,650

Laoag-Allcapan Section Total Pesos 4,900 20,848 48,591 114,734 164,026 183,393 536,498

23. Cordilleras and Bondoc Local Pesos 33,609 55,105 84,113 114,338 98,625 0 385,790

Peninsula Roads Foreign US$ 1,274 2,050 3,01 31,950 1,260 0 13,549

Total Pesos 61,121 101,640 155,569 212,693 183,385 0 714,414

l4. Lsoal-Allacapan Stage 11 Local Pesos 4,491 3,430 17,870 54,631 53,354 a 133,776

Regions I and 11 Foreign US$ 310 300 1,450 4,275 4,020 0 10,355

Total Pesos 11,18? 10,240 52,235 161,079 157,874 0 392,615

25. Vest & Morthvest Leyte Local PeBoB 72,360 81,035 126,019 41,637 103,856 0 424,307

Road [sprovesent Project Foreign US1 3,180 4,150 6,355 2,630 6,310 0 :3.,25

Region VIII Phase I and II Total PesoS 154,008 175,240 276,633 107,124 267,916 0 18O.3^

26. Metro-Manila Local Pesos 48,060 41,995 45,237 31,502 0 0 1721,74

Circunferential Zoads Foreign US$ 168 950 1,1320 1,050 0 0 3,488

(C 3) * (C-l) Total Pesos 51,689 63,560 76,521 63,64? 0 :.55,411

217. Land Settlement II Project Local Pesos 27,590 52,036 64,064 81,769 91,816 0 317,275

Foreign US$ 1,740 3,560 4,205 5,110 5,570 0,.145

Total Pesos 65,174 132,848 3s,o1^

28. Philippine Road Rehab. and Local Pesos 5,500 12.042 22,668 76,937 103,573 148,896 409,M16

Disaster Prevention Foreign U9S 0 820 1.490 4,865 6.300 !1,080 4.,555

Regions 1, [1, VIII Total Pesos 5,500 30,656 57,981 198,076 267,373 488,056 i,047,642

29. [FV Assisted Roads in Local Pesos 9,000 6,.02 17,214 43,815 14,112 "7,682 :2e.3

Small Islands, Phase I & 1I Foreign Ugt Q 4Z0 1,135 2,775 4,510 4,560 l> h00

Total Pesos 9,000 15,636 44,14 112,913 191,321 200.802 511'?39

30. 3ridge ReconStruction Local Pesos H0O0O,0 540,000 547,383 0 1 1

Japanese Jumbo Loan Foreign U09 0 0 0 1 0 0 I

and grant !otai Pesos 300 000 54,1)(0 547,383 0 1) : i1 0

- 5saANNEX 2

1987 1988 1989 1990 1991 1992 TotalF o r e ca as t 8 x p e n d i t ure 197-1992

Road Investments (INPRI

31. Varioug Locally Funded Local Pesos 1,981,968 1,684,667 1,971,398 2,860,589 3,608,730 4,256,573 16,363,925Peeder/Secondary and Foreign US$ 0 0 1,445 6,580 7,1730 10,130 25,885National load& Total Pesos 1,981,968 1,684,667 2,005,645 3,024,431 3,809,710 4,530,083 1?,036,5O4

32. Other NPWR Road Projects Local Pesos 400,500 S91,1000 327.000 386,000 400.000 521,000 2,327,50ororeign US$ 1,247 0 0 0 0 0 1,2147Total Pebo3 427.435 ;91,000 327,000 388,000 400,000 521,000 Z,35,435

33. Total MPvH aoad Projects Local Pesos 3,856,290 3,952,085 4,334,994 4,552,709 5,445,704 6,163,893 28,305,675Foreign US$ 49,377 53,760 60.9ZO 74,145 731,50 71,960 383,912Total Pesos 4,922,833 5,172,437 5,615,076 6,188,418 7,126,568 8,106,813 37,132,144

Exchange late US1I:Pesos 21.6 2Z.? 23.7 24.9 26.0 27.0

- 59 - ANNEX 2P age 8

19i1 1IM8 19189 1990 1191 1992 Total

F o r e c a s t3 p e d i t a r e 1987-1992

load lnvestsents (NLG)

1: Rural Qoads Isprow. Proj. Local Pesos 31,214 0 0 0 0 0 31,2174

tBlD-Assisted foreign UUS 4,771 0 0 0 0 0 4,771

legions 1, IV, V, VI, & VII TotaL Pesos 140,328 0 0 0 0 0 140,328

2. Rural Rds. laprov. Proj. tl Local Pesos t6,170 143,661 IZ10,951 2140,055 116,456 0 641,893

IBID-Assisted, legions Foreign U91 1,837 12,648 6,53? 17,061 6,813 0 44,896

t, IV, V, VIE, Vill, I & 2! Total Pesos 66,449 430,711 275,818 664,874 293,594 0 1,731,566

3. Rural Rds. laprov. Proj. III Local Pesos 0 0 0 0 0 0 0

Regions 1, III, IV,11 & III Foreitg UhS 0 0 0 0 0 0 0

Tot'l Pesos 0 0 0 0 0 0 0

4. Third Rd. Improvement Proj. Local Pesos 50,403 38,535 0 0 0 0 88,938

ADS-Assisted Foreign VII 5,960 4,519 0 0 0 0 10,479

Regions I, III, IV, VIJ, VII Total Pesos 179,139 141,116 0 0 0 0 320,255

S. Fourth Road Isprov. Proj. Local Pesos 44,280 19,976 0 0 0 0 64.256

Foreign U9 0 0 0 0 0 0

Total Pesos 44,280 19,976 0 0 0 0 64,Z

6. Fifth Rd. Isprov. Project Local Pesos 0 0 83,80? 86,976 90,784 93,88? 355,454

legions II, III, VI, It & I Foreign US, 0 0 7,490 7,490 7,490 7,490 29,960

Total Pesos 0 0 261,320 273,4?7 285.524 296,117 1.116,438

7. Upland. Access Proj. (lain- Local Pesos 521 478,994 67,982 112,317 200,989 0 860,803

Fed Resources Oev. Proj.1 Foreign US, 0 1.724 5,665 9,360 0 0 16.749

Regions 1, V, VI, VII, I Total Pesos 5ZI 518,129 202,243 345,381 200,989 0 I,267.26

8. Rural Roads Progras Local Pesos 264,600 ZSZ.500 '09,ZIS 456,300 512,775 522,450 Z.41J.30')

Foreign US$ 0 0 0 0 0 0

Total Pesos 264,600 Z52,500 409,215 456,300 512,775 5Z2,450 Z,4171.900

9. Other NLG Road Projects Local Pesos 8,439 17,000 59,557 110,240 71,020 1,080 ^67.336

Foreign USI 0 1,000 1.020 1,04C 1,060 1,2OO -.321

Total Pesos 8,439 19,700 83,731 136,136 98,580 33,480 400.066

10. Total MLG Road Projects Local Pesos 43z,287 950,666 741,572 1,005.888 992.024 617.417 4,739,154

Foreign US9 12,568 19,891 Z0,712 34,951 15,363 8,690 112.17!

Total Pesos 703,756 1,402,192 1,2l 2,'46 1,876,168 1.391,462 852.047 1.459,071

Exchange Rate US1:Pesos 21.6 22.7 23.7 24.9 26.0 M7.0

-60-ANNEX 2Page I

198? 1988 1989 1990 1991 1992 totalP o r e c a s t 8 I p e n d i t u r e 1987-1992

Port InveSttents (PPA)

1. Manila South Harbor Local Pesos 5,145 31,370 63,974 65,229 17,109 68,375 301,202Rehabilitation Foreign US$ 2,000 3,1170 6,330 6,330 6,330 6,330 30,490

Total Pesos 48,345 103,329 213,995 222,846 231,689 239,285 1,059,489

2. Nanila International Local Pesos 220,128 50,840 0 0 0 0 270,968Container Terminal Foreign US$ 7,620 3,940 0 0 0 0 11,560Phase [I 'otal Pesos 384,720 140,281 . 0 0 0 '0 524,928

3. lORD 4th Ports Project Local Pesos 81,301 99,490 11,016 0 0 0 191,801Foreign USt 6,540 9,160 10,470 0 0 0 26,170Total Pesos 222,565 307,422 259,155 0 0 0 789,142

4. Port Cargo Handling Local Pesos 6,1723 0 0 0 0 0 6,723Bquipsent Foreign USS 0 0 0 0 0 0 0

Total Pesos 6,723 0 0 0 0 0 6.723

5. Port Cargo Handling Local Pesos i4,435 24,630 46,747 111,114 135,712 128,110 460,748Broansion Project Foreign USM 140 5,950 5,950 15,290 13,640 21,480 62,450

Total Pesos 17,459 159,695 187,762 491,835 490,352 708,070 2,055,173

6. Port of San Vicente Local Pesos i,029 19,400 32,977 13.44? 0 0 66,853Foreign US$ 200 4,500 7,500 3,000 0 0 15,200Total Pesos S,349 121,550 210,727 88,147 0 0 425,773

7. Batangas Port 0ev. Proj. Local Pesos 3,1175 48,460 64,005 0 0 0 115,640Foreign US$ 210 4,750 2,230 0 0 0 7,190Total Pesos 7,711 156,285 116,856 0 0 0 280,852

8. Manila North Harbor Local Pesoo 0 56,180 57,304 58,421 60,113 61,247 293,271Foreign US9 0 2,500 2,500 2,500 2,500 2,500 12,500Total Pesos 0 112,930 116.554 120,677 125,113 128.147 604,021

9. Other PPA Port Projects Local Pesos 48,363 37,100 64,872 66,144 68,370 69,336 354,185Foreignli S 0 0 0 0 0 ° 0Total Pesos 48,363 37,100 64,872 66,144 68,370 69,336 354,185

10. Total PPA Port Projects Local Pesos 380,299 367,470 340,895 314,361 331,304 327,068 2,061,397Foreign US9 16,710 33,970 34,980 27,120 22,470 30,310 165,560Total Pesos 741,235 1.138,589 1,169,921 989,649 915.521 1,145,438 6,100,356

Rrchange Rate U911:Pesos 21.6 22.7 23.7 24.9 26.0 27.0

-61- ANNEX 2

1981 1988 1989 1990 1991 1992 Total

F o r e c a s t I 2 p e di t r e 1987-1992

.Port lovestsents lNPU1)

1. Fishing Port Package I Local Pesos 137,844 26,668 0 0 0 0 164,512

k giona t, IV-A, 9, VI & II Foreiln US$ 7,934 2,618 0 0 0 0 10,552

Total Pesos 309,218 86,091 0 0 0 0 395,315

2. Fishing Port Package EI Local Pesos 79t 17,564 28,898 69,011 99,491 153,135 368,891

Regions VI, VII, VIII, 2, 1 Foreign US1 240 0 450 770 990 1,470 3,920

Total Pesos 5,976 17,564 39,563 88,184 125,231 M19,825 469,343

3. Palavan Integrated Area Local Pesos 1,155 0 0 0 0 0 1,155

Development Project Ports Foreign US$ 2,356 0 0 0 0 0 2,356

Total Pesos 52,045 0 0 0 0 0 52,045

4. [Fl-Assisted Ports in Local Pesos 0 3,719 3,907 11,133 9,820 10,070 38,649

Seall Island Provinces Foreign US$ 0 0 240 900 1,000 1,040 3,180

Total Pesos 0 3,719 9,595 33,543 35,820 38,150 120,827

5. Tertiary Ports Project Local Pesos 0 131,702 3I6,301 335,980 226,169 264,490 1,290,642

Foreign US, 0 3,340 5,200 5,430 12,710 13,140 39,350

Total Pesos 0 213,520 449,541 471,187 556,629 622,780 2,313,65?

6. Other NPVH Port Projects Local Pesos 90,000 99,867 5,100 5,200 5,300 1,400 206,867

Foreign USS 0 0 0 0 0 0 0

Total Pesos 90,000 99,867 5,100 5,Z00 5,300 1,1400 206,867

7. Total NPVH Port Projects Local Pesos 29,1791 285,520 364,206 421,324 340,780 429,095 2,370,716

Foreign USI 10,530 5,958 S,890 7,100 14,700 15,180 59,958

Total Pesos 451,239 420,767 503,799 .598,114 722,980 855,155 3,558,054

Erchange ate U331:Pesos 21.6 22.7 23.7 24.9 26.0 27.0

- 62 -

ANNEX 2

1987 1988 1989 1990 1991 1992 Total

F o r e c a s t a I p e a d i t a r e 1981-1992

fail Investments (Pill

1. Netro Inuila liil Commuter Local Pesos 30,310 15,438 0 0 0 0 45,868

Naintenasce Depot Foreign U91 8.438 15,450 0 0 0 0 23,811

Construction Project Totol Pesos 212,641 366,203 0 0 0 0 578,844

2. lain Line 9outh Pehabili- Local Pesos 9,800 11,1tO 41,542 40,011 44,28? 24,516 1lf,396

tation Project Phase II Foreign U9t 0 4,500 15,500 15,000 15,000 16,000 66,000

Total Peso 91,800 113,330 414,892 413,511 434,281 C56,516 1,842,3196

3. tolling Stock Repair Local Pesos 59,986 38,894 47,9176 45,432 40,782 41,552 274,622

Prograu Foreign U9t 0 1,414 1,394 1,295 1,164 1,164 6,431

Total Pesos 59,986 70,992 81,014 77,678 71,046 72,980 433,695

4. Main Line North lehabi- Local Pesos 0 10,000 5,651 6,386 5,883 5,718 33,698

litation Project Foreign U99 0 0 2,300 2,300 2,400 2,400 9,400

total Pesos 0 10,000 60,161 63,656 68,283 70,578 272,678

5. Other PoI Rall Projects Local Pesos 0 0 0 0 0 0 0

ForeignUS9 0 0 0 0 0 0 0

Total Pesos 0 0 0 0 0 0 0

6. Total PHI Rail Projects Local Pesos 100,166 75,562 101,169 91,889 90,952 71,846 531,584

Foreign U51 8,438 21,364 19,194 18,595 18,564 19,564 105.719

Total Pesos 282,427 560,525 556,067 554,905 57d,616 600,074 3,1Z7,613

lichange aate U9SI:Pesos 21.6 22.7 23.7 24.9 26.0 27.0

- 63 -ANNEX 2Page 1

1l9t 1933 1959 1990 1991 1992 Total

I o r e c a I t 1 x p e a d i t u r e 1987-1992

isil livsctlents (WlS&

1 Ligkt hil Trnesit System Local Pesos 8,520 3,000 5,100 20l,000 12,O000 216,000 652,920

Lise 1, tsprovesests Poreigs US$ 0 0 0 0 0 0 0

Total Pesos I,820 3,000 5,100 208,000 212,000 216,000 652,92P

2. Light Rail Transit System Local Pesos 10,780 25,000 51,000 62,400 561,100 540,000 1,250,980

Line 2, Design/Construction Foreign US$ 0 0 0 0 0 0 0

total Pesos 10,780 t5,000 51,000 62,400 561,100 540,000 1,250,980

3. Total LRTA Rail Projects Local Pesos 19,600 28,000 56,100 270,400 713,800 756,000 1,903,900

Foreiga US$ 0 0 0 0 0 0 0

Total Pesos 19,600 28,000 56,100 270,400 773,800 756,000 1,903,900

hichange Rate UJ1I:Pe4os 21.6 22.7 23.? 24.9 26.0 27.0

1987 1968 1989 1990 1991 1992 Total

7 o r e c a s t I x p e n d i t u r e 1981-1992

Aviation lnvestments (BAT)

1. Cebu International Airport Local Pesos 3,542 4,022 65,048 246,488 101,513 35,126 461,739

Foreign USS 765 766 1,155 5,955 3,894 644 13,119

Total Pesos 20,066 21,410 92,422 394,768 208,757 52.514 799.936

2. Constr. National Airports Local Pesos 99,029 60,102 56,028 63,700 68,179 64,325 41i.363

and Navigational Facilities Foreign US$ 0 0 0 0 0 0 0

Total Pesos 99,029 60,102 56,028 63,700 60,$o 64,325 4;1,3S3

3. Air Navigation Facilities Local Pesos 6,860 14,915 17,368 3,721 0 0 4t.364

Moderntnation Program Foreign U31 1500 11,432 29,243 6,547 0 0 48,722

Total Pesos 39,260 274,421 710,427 166,741 0 0 1.190.850

4. Other BAt Aviation Invests. Local Pesos 0 0 0 0 0 0 O

Foreign US$ 0 0 0 0 0 0 0

Total Pesos 0 0 0 0 0 0 0

S. Total BAT Aviation Projects Local Pesos 109,431 79,039 138,444 313,909 175,692 99.451 915,966

Foreign U9S 2,265 12,198 30,398 1t,SO2 3,894 644 61.901

Total Pesos 158,355 355,934 858,877 625,Z09 276,936 116,839 2,392,149

Exchange Rate IJSSI:Pesoo 21.6 22.7 23.7 24.9 26.0 27.0

- 64 -ANNEX 2

198? 19188 1919 1990 1991 1992 TotalF o r e c a s t I s p e ad i t r e 1981-199t

U:baa TraDSPort Investments

1. traffic lngineering and Local Pesos 62,203 94,343 25,524 17,988 106,046 241,958 608,062

hanagegeet Project Foreiga USI 11892 ? 1,U0 I,11S 3,290 4,290 9,140 21,327

Pasue I I 1I Total Pesos 103,070 123,626 6l,950 159,909 217,516 491,108 1,153,249

2. Netro Nanila Urban Trausp. Local Pesos 20,506 26,956 t7,708 18,163 103,109 130,290 436,131

Local Roads Component Foreign USI 0 890 1,995 4,205 4,600 4,960 16,650

total Pesos 20,506 47,159 124,990 1812,868 222,709 264,210 862,441

3. Total Local Pesos 82,709 121,299 103,232 156,151 209,155 372,248 1,044,794

Foreign US$ 1,892 2,180 3,110 7,495 8,890 14,410 37,977

Total Pesos 123,576 170,785 176,939 342,7?? 440,295 761,318 2,015,690

Exchange Rate US1I:Pesos 21.6 22.1 23.? 24.9 26.0 2t.0

1987 1988 1989 1990 1991 1992 TotalFo r e c a s t E s p e n d i t a r e 1987-1992

Other Transport Investments

1. LTC Buildings Local Pesos 24,500 40,380 61,251 86,178 107,300 48,124 367,733

Foreign USS 1,35t 0 0 0 0 0 1,352

total Pesos 53,703 40,380 61,251 86,178 107,300 48,124 396,93600

2. qetrn Urban Transp. Improv. Local Pesos 0 0 0 0 0 0 0

Bus Acquisition Foreign US$ 4,651 0 0 0 0 0 4,651

total Pesos 100,462 0 0 0 0 0 100,46200

2. Other 'Other trp.' Projects Local Pesos 0 0 0 0 0 0 0

Foreign US$ 0 0 0 0 0 0 0

Total Pesos 0 0 0 0 0 0 000

4. Totali Local Pesos 24,500 40.380 61,251 86,178 107,300 48,124 367,733

Foreign UJSS 6,003 0 0 0 0 0 6,003Total Pesos 154,165 40,380 61,251 86,178 107,300 48,124 497,398

Orciante Rate ')Sll:Pesos 21.6 t2.7 23.7 24.9 26.0 27.0