[sustran] Re: Determining MRT fares?

[Ronaldo R. Manahan]

Ramon, Jain:

The rail line being referred to by Ramon is the same as that presented by
Paul Daza.  EDSA-MRT Line 3, recently named the Metro Star Express, runs a
route along the center of one of Metro Manila's busiest corridors - EDSA.
It is actually a circumferential line in form, but radial in function since
Metro Manila's road network has failed to catch up with shifting land uses.

>there has been debate about what fare to charge. It's a BOT 
>project so the builder wanted to charge Php 44 (Php 40.8/US$1) from 
>Quezon City where it starts to Makati where it currently ends.

>He elaborated in detail the operating arrangement of these Metro lines
>(which I thought was quite odd and unique) that MRTC would build it
>and lease it back to Government who will then operate it.

As mentioned by Alok Jain, the contract between MRTC and the Government of
the Philippines (GOP) is actually a Build-Lease-Transfer (BLT) agreement,
where MRTC as the systems provider just leases out the system to the
operator, in this case DOTC acting for GOP.  It may sound as an unusual
arrangement, and it does.  In fact, recent policy has been set that no
other BLT agreements will be approved, and the MRT EDSA Line 3 will be the
first and last BLT contract.

>MRTC would be responsible for only maintaining the system.
>All the revenue would be collected by Government which in turn would
>pay a fixed lease amount to MTRC insuring their returns for any changes
>in ridership. Please correct me if my undertstanding is not right.

This is correct.  DOTC as operator sets the fares.  MRTC gets paid a
"lease", denominated in dollars to hedge against foreign currency risk, on
a train availability basis.  Thus, they have to maintain the system, so
that they insure service availability.  Otherwise, there are stiff
penalties if MRTC cannot provide the train capacities based on a pre-agreed
schedule.  MRTC does not share in ridership or market risk, since this is
borne by the government, although I think the contract has some clauses on
sharing upside benefits (i.e. MRTC gets a bonus if patronage targets are
exceeded).

And DOTC as operator needs to set the fares to make sure that they cover
those lease payments they would shell out to MRTC.  If DOTC allows fares to
be subsidized, then it would be every Filipino citizen paying for the
balance of the convenience experienced by the MRT users, instead of only
the users paying the full cost of the service they are getting.

>Anyway, the operator said that they needed to 
>charge this much in order to get economic returns although malls are 
>being built at the major stops from which the operator will earn 
>income (in fact, at its inception, the malls were included precisely 
>so that fares could be kept low and the operator could recoup its 
>investment from their operation rather than the fare).

Maybe there's some mix-up here.  The operator is DOTC, and they are the
ones charging the fares.  The retail outlets at the stations are also
covered by clauses in the BLT agreement, although I am not very familiar
with those.

>The current LRT in Manila charges a flat fare of Php 10 but the gov't
claims it 
>is subsidizing riders at the rate of Php 60 each!

There is indeed subsidy in the first LRT Line (Taft-Rizal Avenue corridor),
but I don't know if it would reach P60 per passenger.  Line 1, if I
remember correctly, ahs one of the highest farebox ratios of any light rail
system worlwide (I think no. 2 wordwide), so the subsidy is in the form of
capital cost recovery, although if the records are scrutinized, the labor
cost component of Line 1 has been increasing in recent years, which should
signal that there are things that need to be checked. 

>However, President Estrada has ordered the fare lowered to
>Php34 for the full distance "for an experimental period."

Whatever happens, MRTC gets covered, whether there are riders or not.  The
government will have to pay them the lease payments.  If the fare revenues
are not enough to cover these, then even non-users will be paying for the
benefits the users are getting.  The higehr fare structure simply applies
the principle of "users pay".

>For comparison's sake, an aircon bus charges about Php 20 for the 
>full distance although one has to sit in traffic. Taxi fare is about 
>Php 100. So, how do these things get decided anyway? What's a fair 
>fare? Isn't it true that metro rail fares everywhere are subsidized? 

The important factor here is time cost.  How much would an LRT passenger be
willing to pay for the benefit of a shorter travel time compared to riding
a bus on the congested streets?  But then again, there are other
considerations, particularly if the line is privately financed.  Investors
will be balancing return on investments, as well as fare elasticities.
Government has to take all of these considerations PRIOR to approving the
proposal, as so eloquently said by Obet Verzola.  Of course, there should
be allowances for price increases and inflation, since it would take years
between contract approval and actual operation.

Best regards to all.

Ronaldo "Dojie" Manahan
Transportas Consulting
Quezon City, Philippines