Document of The World Bank

FOR OFFICIAL USE ONLY Public Disclosure Authorized

Report No. 3916-PH

REPORT ON

THE TRANSPORT SECTOR IN THE PHILIPPINES Public Disclosure Authorized

September 14, 1983 Public Disclosure Authorized

Transportation Division 2 Projects Department

Public Disclosure Authorized East Asia and Pacific Regional Office

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. CURRENCY EQUIVALENTS

Currency Unit - Peso (P)

US$1.00 = P 8 (October 1981)

WEIGHTS AND MEASURES

1 meter (m) = 3.28 feet (ft) 1 kilometer (km) = 0.62 mile (mi) 1 kilogram (kg) = 2.2 pounds (lb) 1 metric ton = 0.98 long ton (ton)

ABBREVIATIONS

ADB - Asian Development Bank BAT - Bureau of Air Transportation BLT - Bureau of Land Transportation BOT - Board of Transportation BP - Batasang Pambansa CAB - Civil Aeronautics Board CHPG - Constabulary Highway Patrol Group DBP - Development Bank of the Philippines GNP - Gross National Product IATCTP - Inter-Agency Technical Committee on Transport Planning INPF - Integrated National Police Force LTC - Land Transportation Commission MARINA - Maritime Industry Authority METROCOM - Metropolitan Command MLGCD - Ministry of Local Government and Community Development MMTC - Metro Manila Transport Commission MND - Ministry of National Defense MOB - Ministry of Budget MOT - Ministry of Tourism MOTC - Ministry of Transport and Communications MPWH - Ministry of Public Works and Highways NEDA - National Economic and Development Authority NTPP - National Transportation Planning Project PADC - Philippine Aerospace Development Corporation PAL - Philippine Airlines PC - Philippine Constabulary PCG - Philippine Coast Guard PD - Presidential Decree PHILSUCOM - Philippine Sugar Commission PMU - Port Management Unit PNR - Philippine National Railways PPA - Philippine Ports Authority UNDP - United Nations Development Program USAID - United States Agency for International Development

GOVERNMENT OF THE PHILIPPINES FISCAL YEAR

January 1 - December 31 SR85761/TT-157/D1368/63

PHILIPPINES

TRANSPORT SECTOR MISSION

Main Report

Table of Contents

Page No.

PRINCIPAL FINDINGS AND RECOMMENDATIONS ...... (i)

1. THE ROLE OF TRANSPORT IN THE PRILIPPINE ECONOMY ...... 1

A. Transport and the Economy ...... B. Role of Government in Transport Development ...... 2 C. Major Transport Issues and Outline of Report ...... 2

2. RECENT DEVELOPMENTS IN THE TRANSPORT SECTOR ...... 3

3. ORGANIZATIONAL AND INSTITUTIONAL STRUCTURES ...... 6

A. Institutions and Agencies ...... 6 B. Ministry of Transportation and Communications ...... 7 C. Ministry of Public Works and Highways ...... 8 D. Regulation of the Sector ...... 9 E. Transport Tariffs ...... ll F. Planning for the Sector .2...... 12 G. Recommendations ...... 12

4. ORGANIZATION AND ADMINISTRATION OF HIGHWJAYS ...... 13

A. Road Network .13 B. National Roads .14 C. Provincial Roads .16 D. Barangay Roads. 8 E. Training ...... 20 F. Recommendations .20

5. ROAD TRANSPORT ...... 22

A. General ...... 22 B. Organization of the Industry ...... 23 C. Vehicle Fleet ...... 25 D. Operational Characteristics ...... 26 E. Tariffs and Costs ...... 28 F. Road User Charges ...... 30 G. Recommendations. 30 SR85761/TT-157/D1368/64

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Page No.

6. THE RAILWAYSUBSECTOR ...... 31

A. PNR Track and Other Infrastructure ...... 31 B. Locomotives and Rolling Stock ...... 33 C. Management and Staff .. 35 D. Traffic and Operations .. .37 E. Finances .. 40 F. Recommendations .. 41

7. PORTS AND INTER-ISLAND SHIPPING ...... 43

A. The Port Subsector ... 43 B. Inter-island Shipping...... 48 C. Airports and Air Transport ...... 52

8. THE URBAN SUBSECTOR ...... 55

A. Introduction ...... 55 B. Adequacy and Financing of Urban Road Systems . . . . . 56 C. Public Transport .61 D. Urban Transport Institutions ...... 65

9. TRANSPORT INVESTMENT PLAN FOR 1983-87: NTPP REPORT ...... 69

A. Introduction .69 B. Recommended Investment Program ...... 70 C. HLighways ...... 70 D. Railways ...... 72 E. Ports ...... 72 F. Airports ...... 73

MAP

Transport Network - IBRD 16188 SR85761/TT-157/D1368/58

PRINCIPAL FINDINGS AND RECOMMENDATIONS

1. This report deals with the findings of a transport sector mission which visited the Philippines during the fall of 1981./1 The purpose of the mission was to undertake a review of the transport sector in the Philippines focussing especially on (a) organizational and institutional developments in the sector since the last Bank sector mission of 1975; (b) organization of planning, construction and maintenance of roads, including rural roads; (c) bus, truck and intermodal operations with a view to improving utilization and reducing cost, including the impact of taxation and regulations on their operations; (d) the railway-s operations, with a view to defining an appro- priate role for it, if any; and (e) the development of secondary ports with a view to improving inter-island transport services.

2. The Government has implemented the principal recommendations of the Bank-s sector review mission of 1975 (Report No. lOl7a-PH). That mission recommended, among other things, a technical assistance program for advisory services to various transport agencies and for the preparation of a national transport study and an investment program for 1983-87. Both tasks were addressed by the consultant team under the National Transportation Planning Project (NTPP) with financing from Loan 1860-PR. The transport study has since been completed and will form the basis for the 1983-87 investment plan for the sector.

3. The 1981 mission's most important findings concern the importance of highway maintenance, measures needed to improve the efficiency of the domestic transport industry,>in particular, trucking; the future of rail- ways; and the staffing problem faced by technical agencies in the Philippines on account of the relatively unattractive government salary levels. These are discussed in the following paragraphs.

Highway Maintenance

4. That highway maintenance is inadequate is almost universally acknowledged in the Philippines. The problem is the combined result of several factors: inadequate budgetary allocations for maintenance, poor use of available funds, diversion of routine maintenance funds for emergency works, inadequate staffing, and unclear division of responsibility for maintenance among several agencies.

/1 The mission comprised Messrs. M.S. Parthasarathi (Leader and Economist), G. Trnka (Highway Engineer), C. de Castro (Road Operations Expert), J. Kesson (Railway Engineer/Consultant), R. Scheiner (Port Engineer/ Consultant) and J. Sackey (YP - Economist). Mr. R. Podolske (Planner, Urban and Water Supply Division) contributed the chapter on "The Urban Sub-Sector." Finalization of the report was delayed to incorporate a summary of the NTPP's recommendations on new investments for 1983-87. SR85761/TT-157/D1368/59

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5. The mission recommends that MPWH should review the budgetary allocation formula regularly to ensure its adequacy in the face of increasing costs. It should seek an adequate, separate allocation for emergency maintenance based on past experience, so that routine maintenance funds can be fully used on routine maintenance. With the completion of major construction projects, MPWH should assign more experienced staff, with adequate powers, to maintenance activities especially in the field. (MPWH has already taken steps to upgrade several technical positions, but more remains to be done.) The division of administrative responsibility between MPWH (for national and Barangay roads) and MLG (for provincial and municipal roads) can continue but with technical responsibility fully resting with MPWH.

Trucking Industry

6. There is excessive regulation, on paper, of the trucking industry with respect to entry, routes and rates, but none of these regulations are enforced in practice except on a random basis, giving rise to large-scale illegal operations. Nor are safety regulations on vehicle fitness, over- loading and driver training adequately enforced. An important consequence of lack of enforcement is that large numbers of T ("not for hire") trucks systematically operate for hire, depriving the Government of substantial revenues (about P 50 million annually) and competing unfairly with TH ("for hire") trucks.

7. The mission recommends the strict enforcement of all regulations that will promote safety and fair competition, but the abolition of all regulations that restrict or stifle competition, such as those on entry, routes and rates. (This recommendation applies equally to inter-island shipping.) The mission also favors either the abolition of the distinction between T and TH trucks or the strict licensing of T trucks to ensure that they are limited to cases where the need is clearly established. This move should substantially increase the number of TR trucks in operation, thereby improving the competitive climate on a fair basis, and simultaneously generate additional revenue to the Government from registration fees and turnover taxes.

Future of the Railway

8. In the mission's opinion, the Philippine National Railway (PNR) does not have a useful role in the country's transport system in the present circumstances, with the possible exception of commuter services in Metro Manila and, perhaps, long-distance passenger traffic. There is no prospect of PNR's becoming financially viable in the foreseeable future. SR85761/TT-119/D1368/60

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9. However, since the Government has decided to keep PNR open for social and administrative reasons, it should install a strong management which could operate PNR reasonably efficiently and with smaller demands for annual Government subsidies for operating expenses. The Government should also ensure that management has the minimum additional funds for capital outlays needed for an efficient operation - workshop improvements, spare parts for maintenance, and technical assistance. Consideration should also be given to curtailing the more uneconomic services and all proposals for new railway projects should be carefully reviewed for technical, economic and financial viability.

Staffing Problem

10. A problem that transcends but vitally affects the transport sector is that of attracting and retaining qualified staff in Government service because of low salary scales. The problem is particularly acute in the newer Ministries dealing with transport such as MOTC and MLG.

11. The mission recommends that, as the problem is particularly serious in the technical Ministries, their situation should be examined separately from the general salary problem of the Government. Pending a solution, the mission feels that continued expatriate technical assistance, combined with the use of local consultants and contractors, will be needed for all Ministries dealing with transport, more especially for the newer agencies trying to build up planning units such as MOTC. The Bank should continue to assist the institutions it deals with (MOTC, MPWH, MLG, PPA, MARINA, etc.) through financing technical assistance.

Future Investments

12. The mission is in broad agreement with the recommendations of the NTPP for new investments during the period up to 1987 totalling approximately PF 7.65 billion. However, the projects identified by NTPP need further technical and engineering studies and a review of the economic justification before a final decision on their implementation can be made. The mission emphasizes that the projects emerging from such studies should be combined with investments already under way or decided on in principle (which NTPP did not examine) to develop a phased program of implementation within the technical and fiscal constraints facing the Government.

13. In general, the mission endorses NTPP's recommendation that future outlays in highways in particular should emphasize maintenance. Areas that deserve greater attention in future investment planning are: rural roads (which NTPP did not cover); the provision of freight consolidation and transfer facilities for domestic trucking to improve its efficiency and reduce costs; and small ports serving isolated communities to bring them more fully into the national economic system. SR85761/J111992/D1368/61

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Sector Planning and Coordination

14. The mission concluded that, while the organization with respect to transport planning and coordination is still evolving, it is evolving in the right direction. Measures are needed to strengthen MOTC's staffing to enable it to play its coordinating role more effectively. SR85761/J112442/D2552/12

1. THE ROLE OF TRANSPORT IN THE PHILIPPINE ECONOMY

A. Transport and the Economy

1.01 The Philippines comprise some 7,100 islands and cover about 300,000 sq km in land area. The two largest islands, Luzon and Mindanao, represent about two thirds of the area and account for about three-quarters of the estimated population of 48 million in 1980, growing at about 3% a year. Since 1975, the economy has been hit by international oil price increases and depressed global economic conditions. Nevertheless, gross national product (GNP) increased by an average of 6% p.a. over the period. The country's transport system is centered on the capital, Manila, with the road and rail systems in Luzon and the whole country's maritime and air transport systems radiating out to other areas. The flow of traffic follows a similar pattern, with domestic and imported manufactured goods going out of Manila to other areas and agricultural and other products coming into Manila, with bulk foreign trade cargo handled mainly at private port facilities throughout the country. After Manila, Cebu is the most important focus of the transport network (see Map IBRD 16188).

1.02 The transport sector's contribution to economic development can be measured, in part, by comparing transport growth rates with those of the economy as a whole and its main sectors. In the Philippines, as in other less developed countries (LDCs), during the 1970s, transport sector s contribution to GNP has been growing faster than GNP as a whole, at the rate of 9% p.a. compared to about 6% p.a. for GNP, 7% for industry and 4.5% for agriculture. In cargo traffic, air transport grew at the annual rate of 18.7%, followed by water and road transport at 12.0% and 6.7%, respectively, while on the railway it declined 2.2% p.a. The rate of increase in passenger traffic has been 6.5% p.a. for roads, 8.2% p.a. for shipping and 2.9% p.a. for air transport, while it declined about 2.9% p.a on the railway.

1.03 In 1979, the Philippine transport system moved about 16 billion ton-km of intercity freight and 4 billion passenger-km of intercity passengers. Beside providing a medium for moving people and goods from one place to another, the sector also directly contributed to employment in the economy. In 1977, the transport and communications sector employed about 700,000 persons, about 4.7% of the total employed in the Philippines. During the preceding decade, employment in the sector grew at an annual rate of 6.5%, compared with 3.3% p.a. in employment in the economy as a whole.

1.04 During the period 1978-80, the transport sector absorbed about P 11.3 billion in national government expenditures, growing at an annual rate of 16.7%. Of the P 5.4 billion spent in 1980, roads and road transport absorbed 83.4%, the remaining going into air transport (11.6%), railways (2.8%), and water transport (2.2%). SR85761/TT-119/D2552/13

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B. Role of Government in Transport Development

1.05 The important feature of the Government-s role in transport development in the 1970s was the emphasis on investments in additions to the network as well as on rehabilitation. Transport was an important part of the overall government policy strategy after Martial law in 1972 when the Integrated Reorganization Plan (IRP) was launched. Large expenditures in the sector were made possible through external assistance, notably by the Bank and the Asian Development Bank. Investments made in response to changing demand produced significant changes in the facilities and operations of the transport sector. Road transport and aviation experienced rapid growth, and shipping expanded modestly, while the railways declined due to both neglect and poor management. The Government-s investment policy was addressed specifically towards roads, thus assisting road transport to take the dominant role in internal transport. Consequently, freight has tended to divert to roads from other modes (notably railways).

1.06 Furthermore, as a deliberate policy, the Government has attempted to extend transport services to remote areas through the extension and rehabilitation of rural roads. The Bank is assisting in this through the Rural Roads Improvement Project (Loan 1860-PH). Along with the rehabilita- tion and improvement of infrastructure, the Government is attempting to pro- vide more efficient services. The most significant effort in this area is the recent purchase of 1,400 new buses to improve transit services in Metro Manila. To serve the growing Metro Manila urban population, the Government has also established the State-owned Light Rail Transit Authority to provide urban passenger commuter services. (See Chapter 8 for a summary of the report of the Urban Sector Mission).

1.07 In addition to its investment policy, the Government has used a variety of devices to influence the supply of and the demand for transport services: fixing of passenger fares and freight tariffs, non-price regula- tory devices including entry and route licensing, and policies which restrict the import of vehicles and favor local assembly.

C. Major Transport Issues and Outline of Report

1.08 The Government of the Philippines faces a number of issues in the transport sector. The first one concerns the drawing up and periodic review of an investment plan (1983-87) for the sector. The task of preparing a plan was recently completed by a consultant team under the National Transportation Planning Project (NTPP), with financing from Loan 1860-PH (see Chapter 9). The second relates to the allocation of responsibilities among the various ministries in the central government and among them and the provincial and local governments, to promote coordinated planning, development, and operations and for the maintenance of facilities, in particular, for highway maintenance, which is seriously deficient. A third concerns the impact of government regulations and taxes on the utilization S-85761/TT-159/D2552/14

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of existing transport facilities, especially in road transport. Other issues are the future of the railway, the development of secondary and tertiary ports to bring communities they serve more effectively into the exchange economy, and measures to improve, and reduce the cost of, trucking and, incidentally, promote inter-modal transport, where relevant. The 1981 sector mission, besides providing a status report on the recommendations of the 1975 transport mission (Report No. 1017a-PR), focussed mainly on the operational issues.

1.09 Chapter 2 provides an overview of transport infrastructure development during the past decade. Chapter 3 outlines the institutional organization of the transport sector and highlights its main problems. Chapters 3 to 7 contain analyses of the other issues mentioned above, with Chapter 8 devoted to urban transport and Chapter 9 to the NTPP investment proposals.

2. RECENT DEVELOPMENTSIN THE TRANSPORTSECTOR

2.01 The transport system of the Philippines is characterized by the dominance of road transport for movements within the individual islands, especially the two major islands (Luzon and Mindanao), and of interisland and coastal shipping. Railroads play only a marginal role, while domestic aviation is only of late developing rapidly to serve mainly upper class passenger traffic. Road transportation accounts for almost 60% of total freight movements and for over 80% of passenger traffic, while inter-island and coastal shipping account for nearly 40% of freight traffic and 8% of passenger movements.

2.02 A major effort to expand transport capacity commenced with the the UNDP-financed Philippine Transport Survey (PTS) of 1969-70, with the Bank as executing agency. The survey report provided the basis for the country's transport development program for the 1970s. The Bank's involvement with the transport sector in the Philippines dates back to l161 when it made the First Port Loan. This was followed by the Second and Third Ports Projects in 1973 and 1980, the First Shipping Project in 1974, four highway loans (the fourth in 1979) and a rural roads improvement project in 1980. The Bank also sent a sector mission in 1975 which recommended a comprehensive study of the transport sector, which has been recently completed under the National Transportation Planning Project (NTPP). The study will form the basis for transport planning in the 1980s and beyond.

2.03 In recent years the Government has directed its transport investments to the road network, especially the main roads, upgrading of the main seaports and airports, and rehabilitation and selective modernization of the declining railway system. With the possible exception of the railway investments, which failed to take fully into account the impact of highway improvements on rail traffic, the investments have been correctly undertaken, S-85761/TT-159/D2552/15

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in many instances somewhat later than warranted on account of the financial and technical constraints facing the Government. Lately increased attention is being given to rural roads to bring the rural areas into the national economy more fully.

Roads

2.04 After the merger of the Ministries of Public Highways (MPH) and Public Works (MPW) into the Ministry of Public Works and Highways (MPWH) (see Chapter 4), the highway program is maintenance-oriented: it seeks to improve the efficiency of the road network by rehabilitation and paving of main and secondary roads and improvement of gravel and feeder roads. Among the major projects under the program are the Bank's Third and Fourth Highway Projects (Loans 1353-PH and 1661-PH) scheduled for completion in December 1983 and 1984, respectively, with the latter in particular emphasizing upgrading of road maintenance. The proposed Fifth Highway Project will add to this emphasis.

2.05 The program also includes the construction of new development and feeder roads closely related to agricultural and industrial development schemes and supportive of investments in the main highways, ports and other social overhead facilities. The Bank is assisting the Government through the Rural Roads Improvement Project (Loan 1860-PH) in (a) improving high priority rural roads through reconstruction, restoration and improved maintenance; and '(b) strengthening the planning, administrative, engineering and maintenance capabilities of provincial highway authorities under the overall direction of the Ministry of Local Government (MLG).

Railways

2.06 There are two railway systems in the Philippines: the Philippine National Railways (PNR) operating on the island of Luzon and the Panay Railways Incorporated (PRI) operating on the island of Panay. PNR also provides commuter train services in Metro Manila and Bicol. There are also some rail lines serving sugarcane plantations and private sugar companies in Central Luzon, Panay, Negros and Cebu. Some of the lines in Luzon are con- nected to the main lines of PNR, like those serving the Victoria sugar mills in Tarlac and Pampanga. A discussion of PNR is contained in Chapter 6.

2.07 PRI operates a total track length of 117 km from Iloilo City to Roxas City on the island of Panay. Its management has recently been reorganized under the Philippine Sugar Commission (PHILSUCOM). Some rehabilitation works are being undertaken to improve PRI services, which is mainly oriented to serving the sugar industry on the island.

Ports

2.08 The country's two principal ports of entry are Manila and Cebu; together, they handle over 50% of port throughput in the Philippines. In the past few years the Government has received assistance from ADB for SR85761/TT-119/D2552 /16

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improvement of port facilities at Manila, Davao and Cotabato, from the Federal Republic of Germany for port works at Davao and Iligan, and from the Bank for the expansion of the Ports of Cagayan de Oro and General Santos under the Second Port Project (Loan 939-PH) and the expansion of the ports of Cebu, Zamboanga, Iloilo and Cagayan de Oro (for further development), under the Third Ports Project (Loan 1855-PH), now under implementation. As part of the Second Port Project, the Bank supported the establishment of the Philippine Port Authority (PPA). Since it became operational in 1976, PPA has taken over the management and operation of'all national ports, expanded its technical staff and improved accounting procedures

2.09 The Bank's objective in the port sector is to assist the PPA in developing a national port policy, increasing port capacity to serve industrial developments in secondary urban growth centers, and improving administration, operations, and planning for all major national ports. PPA's current investment plan aims not only at increasing capacity at major ports, but also at consolidating port operations in outlying areas where improved overland mobility makes economies of scale and efficiency possible. The selection of ports for future improvement will be determined in the context of emerging road traffic patterns, the development potential of the hinterlands, and the natural conditions of the harbors, with a gradual shift in emphasis to secondary and tertiary ports.

Shipping

2.10 The Bank has also attempted, with limited success, to assist the Government in developing and improving interisland shipping services through the Shipping Project (Loan 1048-PH) in 1974, primarily through replacement of very old ships. MARINA has since drawn up a ten-year plan for inter-island shipping, but the main problems continue to be the excessive regulation of interisland shipping on routes, entry, capacity and related matters and the inadequate enforcement of safety regulations, which combine to discourage new investments and encourage the continuation of old ships in service. The lack of adequate facilities at secondary ports is also an impediment to modernization of the shipping fleet.

Air Transport

2.11 International and domestic air transport services are centered on 'Manila, the country-s capital. Altogether there are 86 national airports under the jurisdiction of the Burea of Air Transport of MOTC (BAT) and 120 privately operated airports throughout the country. The national airports include 2 international airports, 4 alternate international airports, 42 secondary airports and 31 feeder airports. About half of the national airports are operational in all weather conditions while the rest have limited service capability. There are 25 air traffic control facilities and 24 aeronautical communication facilities. To complement the Government-owned air navigational facilities (ANF), there are 39 ANF owned and operated by the Philippine Airlines (6), the Philippine Air Force (10), the US Air Force S-85761/TT-159/D2552/17

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(14) and the US Navy (9). A modern new passenger terminal for Manila International Airport was completed in 1982 with ADB financing, and facilities at selected airports are being upgraded.

2.12 There are some 900 registered commercial and private aircraft operating in the Philippines, 39 of which represent the fleet of the Philippine Airlines (PAL). Apart from PAL that links Manila with 16 cities in 14 countries, 18 international airlines operate services to the country. PAL's domestic route system covers 43 cities and towns. Complementing the scheduled air services of the country, the 7 non-scheduled operators, who operate mainly DC-3s, serve the various airports, along with the 17 air taxi operators who serve the country's feeder airports with light aircraft.

Coal Transportation

2.13 To deal with the high petroleum prices since 1973, the Government has adopted a policy of encouraging the substitution of coal for petroleum products wherever feasible. Currently, it is engaged in intensive coal exploration and, as an interim measure, has decided to import coal to meet the energy needs of industries such as cement. It is proposed to handle coal, estimated at around 850,000 tons annually from 1985, at a bulk terminal to be built at Batangas, 120 km south of Manila, and to transport coal by road/rail or slurry pipeline for eventual delivery to the cement units in central Luzon. This may require either some improvements to the Manila-Batangas road or improvement of some 60 km of rail track to Calamba and reconstruction of 60 km of rail track from there to Batangas on an abandoned track-bed. Eventually, the power stations in the area may also switch to coal if technically and economically feasible, at which time the coal movement could amount to 3-4 million tons per year, but this may not be until the 1990s.

3. ORGANIZATIONAL AND INSTITUTIONAL STRUCTURES

A. Institutions and Agencies

3.01 Until 1979, transport planning, regulation, enforcement, and project execution and construction were integrated in the Ministry of Public Works, Transportation and Communications (MPWTC), with NEDA playing an overall coordinating role. Governmental transport enforcement functions were under several agencies, while transport regulatory functions were integrated in the Board of Transportation (BOT) attached to the Ministry. Responsibility for the construction and maintenance of roads and bridges was under its Bureau of Public Highways (BPH). A Presidential decree in 1974 elevated the BPH into a Ministry of Public Highways (MPH) to facilitate the planning, construction and maintenance of the road network. S-85761/TT-159/D2552/18

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3.02 In order to ensure coordination among the various modes, an ad hoc Inter-Agency Technical Committee on Transport Planning (IATCTP) was set up in December 1974 to oversee planning in the various transport agencies and resolve major transport problems and issues. IATCTP was intended to be a transitional organization to be replaced by the Ministry of Transport and Communications (MOTC), which was established in 1979. (The IATCTP is still in existence as a technical support unit.) At the same time the Ministry of Public Works (MPW) was established to handle the remaining functions of the former MPWTC. However, in July 1981, a Presidential order was issued merging MPW and MPH into the Ministry of Public Works and Highways (MPWH).

3.03 The organization, regulation and planning of transportation in the Philippines are, therefore, under MOTC, MPWH and the National Economic and Development Authority (NEDA). NEDA serves as a program review and coor- dinating agency across all sectors. It is also responsible for macro-level planning to assist in defining areas which should be given funding priority. MOTC and MPWH operate through various bureaus, boards, and agencies. There are also a large number of ministries and agencies, such as the Ministry of Budget, which currently have a significant role in funding for the transport sector. In addition, a ministerial level committee, the NEDA Committee on Transport Planning (CTP), with representatives from MOTC, MPWR, NEDA and the Ministry of Tourism (MOT), has been established to serve as a coordinat'ing body.

B. Ministry of Transport and Communications (MOTC)

3.04 MOTC is designated as the primary policy planning, programming, coordinating, implementing, regulating and administrative entity of the executive branch of the government in the promotion, development, and regulation of a dependable and coordinated network of transportation and communications systems. Besides the Office of the Minister, the Ministry is composed of an Administrative Service, a Financial and Management Service, a Planning Service, a Management Information Service, and four bureaus, viz. the Bureau of Land Transportation (BLT), the Bureau of Air Transportation (BAT), the Bureau of Telecommunications (BUTEL) and the Bureau of Posts (BUPOSTS). The Board of Transportation (BOT) created under the Integrated Reorganization Plan (IRP) of 1972, and the redesignated National Telecom- munications Commission (NTC), are also under the administrative supervision of the Ministry. In addition, the following are attached to the Ministry: the Philippine National Railways (PNR), the Maritime Industry Authority (MARINA), the Philippine Aerospace Development Corporation (PADC), the Metro Manila Transit Corporation (MMTC), the Light Rail Transit Authority (LRTA), the Philippine Ports Authority (PPA), the Philippine National Lines, the Toll Regulatory Board, the Transport Training Center and the Committee on Transport Cooperatives.

3.05 The four bureaus are the operational wings of MOTC. BLT handles all administrative functions related to driver and vehicle licensing and the enforcement of the decisions of BOT with regard to public utility vehicles. SR85761/TT-151/D2552/19

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BAT is responsible for the promotion and development of policies, plans, programs and standards for the construction and maintenance of airports and their facilities, The actual construction of runways and terminal buildings and related structures is the responsibility of MPWH, but the repair and maintenance of those facilities is BAT's responsibility. Finally, BUPOSTS is responsible for postal services, while NTC is responsible for regulating the country's privately-owned telecommunications facilities, including telephones, and BUTEL for providing telecommunications facilities in areas with inadequate or no private services.

3.06 The main regulatory agency for all public surface (road and water) transportation is BOT. BOT is entrusted with the granting of certificate of public convenience (CPC) or provisional authority (PA) to public utility vehicles and interisland vessels, as well as regulating routes, fares, and tariffs of road and water transportation utilities. The Board is composed of a Chairman and two Commissioners. BLT, on the other hand, is entrusted, among other things, with the administration and enforcement of laws connected with the registration of motor vehicles and the licensing of owners, dealers, conductors, drivers, etc. It is headed by a Director.

3.07 Of the other agencies, PNR is entrusted with the provision of a "nationwide" railway transportation system. PPA is charged with the control, operation, maintenance and development of port facilities to make port operations efficient and economic. MARINA is charged with the setting of standards for ship designs, establishment of a new route network for inter-island shipping services, investigation of the need for, and the means of, improving the training programs of marine schools in line with the development programs of the shipping sector, and the supervision of common carriers to ensure reliability and regularity of shipping services. LRTA has been established under MOTC, among other things, to design and build a comprehensive light rail transit system in Metro Manila. Finally, MMTC serves as a provider of bus transit services in Metro Manila, complementing/supplementing other bus services. Although operating as an essentially independent government corporation, MMTC's activities are also under the overall supervision of MOTC.

C. Ministry of Public Works and Highways (MPWH)

3.08 MPWH has responsibility for planning, design, construction and maintenance of 23,000 km of national roads and 87,500 km of barangay roads. Responsibility for 29,000 km of provincial roads rests with the respective Provincial Governments and for 13,500 km of city and municipal roads with the respective city or municipal government, under the overall supervision of the Ministry of Local Government (MLG), but with MPWH usually providing technical assistance in major construction projects. Overall responsibility for estab- lishing design criteria and standards for all roads and for ensuring that these are followed in practice rests with MPWH. A fuller discussion of the organization of highway administration in the Philippines is given in Chapter 4. SR85761/TT-119/D2552/20

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D. Regulation of the Sector

3.09 The rationale for the extensive regulation of the transport sector in the Philippines has been to bring order and stability into the sector as part of the Integrated Reorganization Plan of 1972. It was also a recogni- tion of the imperfections in the market for transportation. Over time, the rationale has been extended to the promotion of adequate and regular services, control of costs and increase in efficiency, assistance to transport-dependent domestic industries and help for the economically under- privileged. Rate fixing and route allocations relative to land and water modes are under BOT, while regulation of air transportation is under the Civil Aeronautics Board (CAB) of the Ministry of Tourism for international operations and under BAT of MOTC for domestic operations. (See also Section E below and Chapter 5, Section E.) Although the regulation of transport is carried out by separate agencies without direction and guidance from a central agency, there do not appear to be major problems of coordination in practice.

3.10 In general, regulation limits the choices open to operators and users of transport and vitiates the working of transport markets. When the object is safety, health or the preservation of infrastructure, there are no realistic alternatives to regulation (speed limits, vehicle inspection, emission control or axle load restrictions). In these cases it is the cost-effectiveness of regulation and enforcement that require attention. In most other areas, however, it has been found that regulation militates against the economical use of resources. The presumption against regulation is particularly strong when the object is to suppress competition. The ultimate object may be to prevent excess capacity, to safeguard the regularity of service or the stability of fares and freight rates, or simply to protect public sector enterprises. Experience from many countries shows that all these purposes, except the last one, are no less fully achieved by competition, and at substantially lower cost.

3.11 The standard regulatory instruments of carrier licensing, route franchises and uniform pricing rules, often supported by controls on imports, foreign exchange and access to domestic credit, tend to distort incentives and the process of competition and generally to reduce the productivity of resources. While the policy purports to restrict price competition, it has undesirable effects on the choice of techniques or modes in transport. Not the least among the disadvantages of regulation is the abruptness of changes when they become unavoidable and thus the great difficulty of transition from more to less regulation or to a competitive system.

Road Transport

3.12 Entry into the commercial road transport industry in the Philippines is regulated by BOT, and operations are possible only after the issue of a Certificate of Public Convenience (CPC). Granting of CPC is SR85761/J112523/D2552/21

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based on proof of applicant's financial ability to provide the proposed service and the supply of and demand for the service in the area in which the applicant desires to operate. Beyond that various fees have to be paid to BLT for the license to operate: annual registration fees, franchise fees (every five years), supervision fees (annual), common carrier fees (quarterly) and other intermittent fees such as registration plate fees. BOT also regulates freight and passenger rates.

3.13 Maximum weights for vehicles are specified by MPWII. Vehicle safety is under BLT's jurisdiction which specifies (a) safety equipment (brakes, tires, horn, speedometer, windshield wipers, bumpers, mirrors, lights, etc.); (b) safety operation (speed limits, restrictions on overtaking, turning, parking, etc.); and (c) qualifications of personnel.

3.14 There are a number of general regulations which also apply to truck and bus operators. These govern, inter alia, (a) changes in levels/ ownership of company capital and (b) mergers, acquisitions or consolidation of companies, both of which require the prior approval of BOT. In addition, public utility truck and bus operators are required to submit annual finan- cial reports to BOT. The penalty, at present, for nonsubmission of finan- cial records is e 30. Many operators prefer to pay the penalty rather than submit the annual financial reports. Because of the value of the data for planning purposes, means should be found by BOT to collect them (e.g., by raising the fine to punitive levels).

Water Transport

3.15 Regulation of water transport is the responsibility of MARINIA and PCG. The shipping operations office of MARINA enforces rules and regulations governing the safety of domestic and overseas shipping operations including shipbuilding and ship repair. On the basis of MARINA's recommendations, BOT regulates tariffs and route capacity. Tariffs follow the principle governing all public utilities (see Section E). Ship safety inspection and safety of life at sea are the responsibility of PCG. All ships entering Philippine waters are required to register with PCG before they can engage in any form of trade. PCG is charged with enforcing maritime and sailing rules, the maintenance of navigational aids, the inspection of vessels for sea- worthiness, the issuance of licenses for their operation and the provision of assistance to vessels in distress.

Air Transportation

3.16 BAT regulates domestic air transportation. It has broad responsibility for the encouragement, regulation, promotion and development of civil aviation and the establishment of an air transport system adapted to the present and future needs of the country-s domestic and foreign air commerce, defense, and postal service. CAB is responsible for the regulation of international air transport to and from the Philippines. SR85761/TT-153/D2552/22

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Enforcement Agencies

3.17 The following agencies of the Government enforce land transporta- tion and traffic laws, rules and regulations: the Philippine Constabulary (PC), the Integrated National Police Force (INPF), the Constabulary Highway Patrol Group (CHPG), and the Metropolitan Command (METROCOM), which are all under PC, and BLT. MMC also assists in traffic law enforcement and the barangay leaders in their respective barangays. When martial law was declared in the Philippines in 1972, all police and armed forces functions, including the air force, the navy and coast guard, were centralized under the Ministry of National Defense (MND). For Metro Manila there is an ad hoc enforcement group known as "the Flying Squad," composed of BLT, CHPG and INPF representatives. The officers of BLT and barangay leaders or their agents (local volunteer Barangay Police) are limited to noting down violations and reporting them to their respective offices for action.

3.18 In water transportation, enforcement of laws, rules and regula- tions rests with a number of agencies, namely, MARINA relative to the expansion of the Philippines' merchant fleet and rationalization and improvement of ship operations in order to make them effective instruments in promoting the shipping industry and interisland and overseas trade; PPA relative to port operations; and the Philippine Coast Guard (PCG) relative to maritime laws -and licensing of vessels.

E. Transport Tariffs

3.19 The various agencies regulate passenger and freight tariffs guided by a general philosophy enshrined in the Public Service Act and related court rulings, which stipulate that (a) operators should be allowed a rate of return of not more than 12% and (b) fares should be reasonably within the reach of the low income groups, ignoring in practice differences in intermo- dal operating costs. Published tariffs tend to remain unchanged for long periods while other prices are changing. In practice, published tariffs are ignored, especially by the trucking industry, and actual tariffs charged in most situations are responsive to market conditions. But the uncertainty of the legal situation discourages adequate, timely and orderly investments to meet changing requirements.

3.20 Transport tariffs are invaluable tools for the proper allocation of traffic among modes, for regulating supply and demand, for ensuring that costs to users reflect the costs to society as a whole, and for assuring financial viability for operators, thereby promoting the optimum growth of the sector. They can also be employed to achieve income redistribution objectives, promote growth of particular regions or industries, and control congestion on a particular mode, route or area. Nevertheless, since in SR85761/TT-119/D2552/23

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practice administering tariffs to serve a complex set of objectives is a difficult task, the Government should avoid setting tariffs, except in very special situations and to a very limited extent.

F. Planning for the Sector

3.21 The transport planning process varies among the modes; nevertheless, overall transport planning is the joint responsibility of NEDA and MOTC. As a central planning agency, NEDA has responsibility for all capital invest- ments through its Infrastructure Program and Project Office (IPPO), which reviews and approves investments proposed by each transport operating agency. MOTC is responsible for intermodal transport planning, coordination and regulation.

3.22 Planning in land transportation is undertaken by both MPWR and MOTC. The Land Transportation Planning Division of MOTC's Planning Service identifies the overall development requirements of public transportation in relation to national development objectives. This is then carried a step further by the Planning Service of MNPR for highways. Project priorities are established and traffic and other studies relevant to proposed projects are then conducted by MPWH for highways and MOTC or one of its agencies for other modes. These planning functions are at an elementary stage now because of the limited staff of MOTC, which relies on consultants to prepare the Five-Year Investment Plan for the sector. Railway planning is rudimentary. Airport planning comes under BAT.

3.23 MOTC is responsible for the formulation of an overall water trans- portation plan, with PPA and MARINA being in charge of planning for national (primary and secondary) ports and shipping respectively. Planning and operational linkages between PPA and MARINA are now better established than they used to be by: (a) representation on the respective Boards by the head of the other agency, and (b) technical cooperation in the Ports and Shipping Advisory Committee created by MOTC. MARINA has jurisdiction over shipyards, dry-docks, freight forwarding agencies and similar activities. Planning for tertiary ports is under MPWH.

G. Recommendations

3.24 Although the institutional structure in the transport sector is at an early stage, it appears to be evolving in the right direction. MOTC was established only in 1979, and MPM and MPW have been combined into one ministry in late 1981. The various attached bureaus, boards and agencies have been affected by these changes to varying degrees. In general, the frequent changes have implied parallel and duplicated efforts in planning, sometimes possibly lack of efforts. The mission feels such future changes should be kept to a minimum and undertaken only when the need is clearly felt. SR85761/TT-151/D2552/24

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3.25 The organizational problems are aggravated by the fact that the technical staff in most agencies is inadequate in both numbers and experience. A further problem is staff retention because of low salaries in comparison with salaries paid to qualified technical staff in the private sector. As this is a problem affecting all sectors, the mission feels that the salary structure of technical and professional staff in Government as a whole needs to be reviewed. Pending a solution, the mission feels that continued expatriate technical assistance, combined with the use of local consultants and contractors, will be needed for all Ministries dealing with transport, more especially for the newer agencies trying to build up planning units such as MOTC. The Bank should continue to assist the institutions it deals with (MOTC, MPWH, MLG, PPA, MARINA, etc.) through financing technical assistance.

3.26 This appears to be a particularly serious problem in MOTCwhich continues to rely on expatriate technical assistance experts for its principal planning exercises. However, the number of such experts is gradually declining, with local staff providing increasing back-up and co- ordination roles with the aim of eventually taking over all the functions. The Government can assist MOTC in doing this successfully and smoothly by upgrading the level of the planning positions and, perhaps also increasing their numbers, to enable this Ministry to attract and retain staff of the requisite caliber.

3.27 The mission believes that tariff, entry and licensing regulations should be simplified and reduced to a minimum; at the same time, it recommends that safety and related regulations must be strictly enforced. Safety and traffic rules enforcement is critical to the success of traffic management and the maintenance and efficiency of the transport network. It is, therefore, imperative that this be improved through placing primary responsibility on one agency which should then be held accountable.

4. ORGANIZATIONAND ADMINISTRATIONOF HIGHWAYS

A. Road Network

4.01 The public road network in the Philippines consists of (a) national roads, (b) provincial, municipal and city roads, and (c) barangay roads. The total length of the network is about 153,000 km, of which only 18,000 km are paved. Responsibility for planning, design, construction and maintenance is divided, with some overlap, between the national government and local government agencies.

4.02 In the national government, responsibility for national and barangay roads was, until recently, with the Ministry of Public Highways (MPH) which was created in May 1974 from the former Ministry of Public Works, Transport and Communications. (The Bank supported the establishment of MPH as a separate entity in order to facilitate its complex operations.) In July 1981, a presidential order was issued merging the Ministry of Public Works (MPW) and MPH into the Ministry of Public Works and Highways (MPWIH) which took over all previous responsibilities of MPH and MPW.

4.03 Responsibility for provincial, municipal and city roads is in the hands of provincial and local governments under the overall supervision of the Ministry of Local Government (MLG). SR85761/TT-151/D2552/25

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B. National Roads

Organization

4.04 The planning, design, construction and maintenance of national roads (about 23,000 km) are the responsibility of MPWH. MPWH is headed by a Minister who is assisted by three Deputy Ministers (for planning, finance and administration; for construction, special projects, including Bank- financed projects, and construction quality control; and for design, equipment, maintenance and materials quality control). In addition, MPWR has six services (headed by Assistant Ministers) and five bureaus headed by Directors. MPWH organization is function-oriented rather than output-oriented, and the same concept prevails in its field organization which consists of 14 regional offices and 94 district offices.

4.05 The MPWH reorganization was mainly to assure better cooperation of government staff on projects and to avoid duplication of field organizations. MPWR has merged the former separate field offices of Public Works and Public Highways into one office from January 1, 1982. In the Government's view, the merger of the two Ministries at that time was justified because nearly all important infrastructure projects in the Philippines had been completed and emphasis hereafter would be on the maintenance of the facilities.

Planning

4.06 Planning activities for national roads are initiated in MPWH, and the resultant proposals are forwarded to the Ministry of Budget (MOB) Office of Budget and Management, which incorporates them in a Budget Message of the President of the Philippines to the Batasang Pambansa (BP), the law-making body of the country. The programs and projects mentioned in the President's Message which are not covered by continuing appropriations under the Public Works Act or Decrees are embodied in a Bill and finally enacted into a General Appropriations Act.

4.07 Within the context of overall transport requirements projected in MOTC's NTPP studies, national road projects are initially identified by MPWH's Planning Service in cooperation with NEDA, with very little participation of the regional or district offices. In selecting projects, the Planning Service usually considers the recommendations of the Philippine Transport Study,/l its evaluation of relative priorities, and, in some cases, the priorities expressed by the Regional Development Councils.

4.08 MPWH prepares its annual infrastructure program consisting of two parts for approval by NEDA and, eventually, by the President of the Philippines. Part 1 of the Infrastructure Program comprises large investment projects normally spread over several years and with

/. The Bank-financed study carried out by the METRA-SAUTI in 1970. Another Bank-financed study, the National Transport Planning Project (NTPP), was completed in October 1982. SR85761/TT-151/D2552/36

- 15 - appropriations already approved under the various Public Works Acts or Decrees. However, funds for Part 2 of the Program under the General Appropriations Act, also prepared by the Planning Service, have to be appropriated by BP every year. MPWH proposals for works under this program, mainly smaller works and maintenance needs, are incorporated into a General Appropriations Bill which is then passed into law by BP. MPWH proposals for maintenance funds are also included in the General Appropriations Bill.

4.09 The preparation of the infrastructure program usually starts in the third quarter of a year with compilation of the funding requirements submitted by the different implementing agencies for all their projects, on-going as well as new ones. On this basis, the Planning Service consolidates and finalizes the overall program in accordance with MPWH priorities and the available budget. After approval by the Minister of Public Works and Highways, the Infrastructure Program is forwarded, through NEDA, to the President for final approval. Funds can be released following Presidential approval.

Construction

4.10 For Government-funded projects, design and supervision of construction are carried out mainly by the MPWH regional offices, often through their district and city organizations. Most of the actual construction work is carried out by contract, generally in small contracts, let to local firms after local competitive bidding; some minor projects are executed by force account.

4.11 Externally assisted projects are implemented by the MPWH Special Project Management Offices (PMOs). At present, MPWH has one such office for each major source of financing: the Bank, the Asian Development Bank (ADB), the Overseas Economic Cooperation Fund (OECF), and the Philippine-Australian Development Assistance Program (PADAP), aside from PMOs for foreign-assisted integrated rural and urban programs with road components. These PMOs report directly to the Deputy Minister for construction and special projects. The design work for foreign-assisted projects is usually performed by local and foreign consulting firms and occasionally by the Bureau of Design and PMOs through specially organized units in the regional office.

4.12 Construction of foreign-assisted projects is generally by contract following international competitive bidding procedures; force account has been only exceptionally used for some minor components. Contract administration and construction supervision are performed by PMOs, usually with consultant assistance and sometimes through the appropriate MIPWH regional office.

Maintenance

4.13 Maintenance of national roads, which continues to be a serious problem, is handled at the MPWH district or city office level under the control and direction of the appropriate MPWH regional office. After BP's approval of the MPWH annual budget, maintenance funds are suballoted by MPWH SR85761/TT-153 /D2552 /37

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to its 14 regional offices, using an allocation system based on an equivalent maintenance kilometer (EMK). Since 1977, the basic EMK requirement has been set at P 11,342 (US$1,418) per year for national roads. The regional offices, in turn, allocate the funds to the various districts and cities on the same basis.

4.14 The EMK is worked out in the MPWH Bureau of Maintenance (BOM) by applying to the road length the following adjustment factors: pavement width and type, length and type of bridges, and traffic volumes. Unfortun- ately, the system does not take into consideration other local conditions such as weather, terrain, availability of materials, and composition of traffic, which are also major factors in determining actual maintenance requirements. On the basis of EMK, MPWE requests its total budgetary requirements for maintenance from MOB. Usually, the funds released by MOB are less than the requested amount; this results in a pro rata decrease in the actual EMK allocation. As proper cost accounting for maintenance operations does not exist, it is difficult to assess if the yearly maintenance fund allocations are adequate or not. During 1982, maintenance programs in four pilot regions will be closely monitored by technical assistance experts to evaluate the adequacy of the EMK allocation.

4.15 At present, almost all maintenance work is done by MPWR through its regional and district offices using force account, under BOM technnical supervison. MPWH uses its own equipment which is managed (as from January 1982) by its regional offices. BOM is responsible for ensuring adequate maintenance on national roads and carries out field inspections once a quarter. The regional offices report quarterly to BOM but mainly on financial and physical accomplishments.

4.16 To help MPWH improve maintenance of national roads, under the Fourth Highway Project (Loan 1661-PH), the Bank is financing the services of six technical assistance experts, working at MPWH headquarters as well as in four regions. With their help, BOM, together with the MPWH Comptrollership Service, is preparing a monitoring system which should reliably report on the maintenance operations in the field. This should enable an assessment of the adequacy of funds being currently allocated for maintenance operations. These changes may require several years to result in improved maintenance operations.

C. Provincial Roads

Organization

4.17 The governments of the 73 provinces in the Philippines are responsible for planning, design, construction and maintenance of some 29,000 km of provincial roads. The 65 cities and 1,440 municipal S-85'761/TT-159/D2552/38

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governments are similarly responsible for approximately 13,500 km of city and municipal roads. These three local government authorities operate under the general direction of the Ministry of Local Government (MLG) which provides funds, advice and overall supervision. Each province, city and municipal government has an engineering office which is responsible for all types of construction and maintenance, including roads.

Planning

4.18 Project proposals for provincial, city and municipal roads originate at the local government level. As planning capability at these levels is weak, MLG coordinates the work on a regional basis through its regional offices. Coordination at the national level is rather limited.

4.19 Under the ongoing Rural Roads Improvement Project (Loan 1860-PH), rural roads programs prepared by consultants in six provinces in 1979 are being implemented. The project also includes preparation of rural roads programs in 22 more provinces; this work, also by consultants, was completed in July 1982.

Construction

4.20 For Government-funded road construction projects, design and super- vision of construction are carried out by the provincial, city or municipal engineering offices. These offices lack the necessary expertise and experience, and usually request assistance from MPWH or MLG. MPWH administers most of the construction work which is carried out by contract or force account as agent for the local government. Funding for the projects may be provided either from the budget of the province, city or municipality, or directly from the MPWH budget by the national government. In some cases, the local government engineering offices also carry out small road construction under the MLG Provincial Roads Development Program.

4.21 For externally-assisted road construction projects, design and construction are handled by MPWH in the same manner as for national roads, with a greater likelihood of force account construction and greater involve- ment of the MPWH regional office in design and construction supervision. Funds for these projects are, with some exceptions, normally channelled through MPWH. After completion, the roads are handed over to the local government authorities for maintenance. However, the Provincial Development Assistance Program (PDAP), supported for some time by the United States Agency for International Development (USAID), and the Rural Roads Improve- ment Project (Loan 1860-PH), are implemented by MLG and the provincial governments with- technical assistance by foreign experts.

Maintenance

4.22 Maintenance of provincial, city and municipal roads is the responsibility of the respective local government authorities. For this purpose, a maintenance equipment pool is generally maintained by the SR85761/J112330/D2552/39

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Engineer-s office. Funds for maintenance are provided partly from the local government budget and partly through national government grants. The national government provides 67% of the total funds for provincial roads, 33% for city roads, and 60% for municipal roads. The total amount available for annual maintenance of provincial roads corresponds to 75% of the basic EMK for national roads, or P 8,506 (US$1,063) per kilometer, to cover both routine and periodic maintenance, and this is, in general, adequate. The national government funds are, however, channelled through MPWHwhich should: (a) set nationwide maintenance standards; (b) establish planning requirements and control procedures; and (c) monitor financial and physical aspects of all road maintenance activities. At present, MPWHprovides the national aid funds to local governments without really performing the control and monitoring functions.

4.23 MLG is also expected to monitor road maintenance activities of the provinces and municipalities, duplicating the work of MPWH. However, in practice, it does little monitoring.

4.24 The status of maintenance operations on provincial roads also is generally unsatisfactory. The Bank is assisting MLG, under the Rural Roads Improvement Project (Loan 1860-PH), in improving the situation in the six provinces included in the project by providing technical assistance and maintenance equipment. Since 1982, MLG and the governments of the six provinces base their maintenance programs on physical targets in each province together with estimates of resource requirements, including organizational and procedural requirements. This represents an important first step towards improving provincial road maintenance.

D. Barangay Roads

Organization

4.25 The third and lowest class of roads in the Philippine road network is made up of barangay roads, about 87,500 km in extent. The barangay is the smallest political subdivision in the country. Nationwide, there are about 40,000 barangays, averaging about 20 to each municipality or city. Each barangay has a population of at least 1,000 and has a barangay captain and council, who are generally elected.

4.26 Except for routine maintenance, barangay roads have been largely the responsibility of MPWH. Thus, the national government is responsible for the highest class of national roads and the lowest class of barangay roads, while the intermediate class of provincial, municipal and city roads, are the responsibility of the local government units. S-85761/TT-159/D2552/40

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Planning

4.27 Project proposals for barangay roads originate at the barangay level; they are coordinated first by the MPWH district office or the city engineer's office, and later by the MPWR regional office. Finally, the proposals are sent to MPWH headquarters in Manila. Normally, this process of coordination consists of a simple aggregation of project proposals that are considered acceptable by successive review levels.

Construction

4.28 For Government-funded projects construction is sometimes handled as "self-help" projects with MLG equipment and materials and barangay labor under the direction of barangay captains. In these cases, technical assistance is provided by MLG, the provinces, the municipalities or the NPWH district offices. Other projects have been undertaken by the municipalities, the cities or the MPWH district offices using local contractors, force account, or "pakyaw" contracts./I

4.29 For foreign assisted barangay road projects, design and construc- tion are carried out by MPWH using its district offices. Construction on these projects is normally done by force account, using barangay labor; of late small contracts with local contractors are increasingly being used.

Maintenance

4.30 The barangay council, through its Barangay Road Maintenance Committee, is responsible for routine maintenance of barangay roads in its area. For periodic maintenance, MPWH district offices provide direction and technical assistance, and paid barangay labor generally does the work. Funds for maintenance of barangay roads are provided by the national govern- ment to MPWH which releases them, through MLG, to the barangays. No contribution is required from the provincial and local governments. The amount of national aid for barangay road maintenance corresponds, at present, to 40% of the basic EMK of national roads, or P 4,537 (US8567) per kilometer of barangay roads per year. Again, it is difficult to assess the adequacy of the yearly maintenance funds for barangay roads because monitoring of maintenance operations and cost accounting do not exist.

4.31 Supervision and inspection of maintenance activities on barangay roads are still the responsibility of TPWR because MLG does not have the administrative and technical capabilities for this work. However, MPWH and MLG have agreed that barangay road maintenance should be performed by barangays under the technical supervision of the District Engineer's offices, with MLG providing administrative supervision. This arrangement is likely to work satisfactorily.

/1 MPWR provides equipment and materials and the local government provides labor. SR85761/J112330/D2552/41

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E. Training

4.32 Although ad-hoc training was conducted for many years by the various highway agencies, headquarters and regional training officer posts were only established in 1974 to meet manpower development and training needs in the Administrative Services, the Bureau of Equipment and the Bureau of Barangay Roads. Regular training programs in the regions were hindered by insufficient funds and support from headquarters. Under the Second Highway Project, a consultants' study to identify manpower development needs and recommend suitable training programs was completed in early 1976. The Manpower Development Service of MPWH continues operation and further development of the permanent training programs initiated with the help of the consultants.

F. Recommendations

4.33 To summarize, the following recommendations emerge from the above analysis:

(a) MPWH Staffing

4.34 The merger of MPWH has now been implemented. The new Ministry has set out to prove that it could handle its complex operations covering both public works and highways, and the Minister is optimistic that it can execute its functions efficiently. MPWH performance should be kept under close review and further steps taken in a year's time, if necessary, to strengthen and improve it.

4.35 Apart from the headquarters top management, the technical staff of MPWH at headquarters and in the field have a low level of experience and motivation, particularly in the maintenance organization. This is mainly due to the low salary scales and to the lack of glamour of maintenance activities, which do not attract better qualified professionals.

4.36 In general, MPWH staffing is a major problem. The MPWH merger resulted in an overall reduction in regular positions from about 24,000 to about 19,000, and the Minister reduced the salary budget only by 2.5% and thus improved the salaries of his staff. Although this is a welcome move, it offers only a partial solution; a complete review is required of the MPWH salary structure and upgrading of maintenance positions.

4.37 The mission agreed with the Minister on some changes in the staffing pattern for the MPWH field organization, such as upgrading of Maintenance Engineers positions in the regional and district offices. These changes should help to improve maintenance operations on national and barangay roads. S-85761/TT-159/D2552/42

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(b) Equipment Management

4.38 A further matter of concern is the MPWH equipment management. Since all equipment is now being managed by the MPWH regional offices, they have no incentive to increase utilization of the fleet and to use it efficiently. A brief study is being done under the Fourth Highway Project (Loan 1661-PH) to recommend the most suitable organizational set-up for managing the MPWH equipment fleet to improve utilization and efficiency.

(c) Maintenance of Provincial and Barangay Roads

4.39 Regarding maintenance of provincial and barangay roads, Bank staff have discussed with the Government the following proposals:

(i) Maintenance funds earmarked in the national budget for maintenance of provincial and barangay roads should be transferred by MOB directly to MLG which would then apportion them among the provinces on the basis of their approved maintenance programs. All reporting on operations and on the use of the funds would be made by the provinces to MOB through MLG.

(ii) Maintenance funds should also be allocated separately for routine and periodic maintenance. While routine main- tenance funds could be released on a quarterly basis, funds for periodic maintenance should be released for a whole year on the basis of approved work programs. A separate amount should also be allocated annually for maintenance of temporary bridges.

(iii) To assure the availability of maintenance equipment in the provinces, equipment assigned to construction works and equipment assigned to maintenance operations should be kept separate.

4.40 The above proposals should be tested in the six provinces covered by the Rural Roads Improvement Project before they are extended to other areas.

(d) Classification of Roads

4.41 Road classification is often arbitrary and not based on function. In many parts of the country, provincial and barangay roads are indistinguish- able: both are characterized by low volumes of traffic and serve limited areas, connecting rural communities with administrative and market centers. In remote areas such as northeastern Luzon and many parts of Mindanao, national roads serve as penetration roads providing the only access to vil- lages. Under the Rural Roads Improvement Project (Loan 1860-PH), the consul- tants for the Rural Roads Feasibility Study reviewed the classification of all categories of roads in 22 provinces (about 30% of the country). It is SR85761/J112442/D2552/43

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recommended that an overall road classification study be undertaken which would coordinate the results of studies already completed and review the remainder of the road network. This would help to define more clearly jurisdictional responsibilities for road maintenance.

5. ROAD TRANSPORT

A. General

5.01 In the Philippines transport system, road transport now accounts for about 80% of passengers and almost 60% of freight movements. This development has been made possible by the development of the highway infrastructure in the last decade in Luzon and by limited competition from other modes. However, the road transport industry suffers from two principal problems: (a) the absence of freight consolidation facilities even in the major traffic generating centers; (b) the unequal treatment in matters of taxation and licensing (turnover tax, registration tax, and franchise fee) of trucks for hire and trucks for own use, although the latter by and large engage in providing the same kind of services as the former. As a result, transport services cost more than they should.

5.02 According to Government data, there are some 267,000 trucks in the Philippines, of which the number operated for-hire is estimated at under 20%. About 55% of the total truck fleet operates in central and northern Luzon and in metropolitan Manila. The entire fleet has a carrying capacity of about 1.3 million tons with the for-hire fleet accounting for about 15%. Small trucks are still the norm: 6- or 8-ton trucks carrying up to 12 tons payload. The number of large trucks has been increasing over the last 10 years and their transport capacity in long distance trucking now accounts for about one fourth of the total. The vehicle fleet for transport of passengers (excluding taxis) was estimated at about 104,000 vehicles in 1979, of which 20,000 were buses or minibuses and 84,000 were jeepneys (urban and inter-urban).

5.03 The total capacity of the truck fleet (both "for-hire" (TH) and "not-for-hire" (T)) is sufficient to meet the demands even under the present inefficient operating conditions. Average load factors are low, of the order of 55%, although overloading is common. The low overall efficiency arises from a high proportion of empty truck movements due to the lack of freight consolidation, to the high proportion of small trucks in the fleet, and to the rather poor utilization of the T fleet (which is currently also used to provide unauthorized "for hire" services).

5.04 The present condition of the truck fleet and its poor utilization result from the combined effects of poorly coordinated operations, and of SR85761/TT-153/D2552/44

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the organization of the industry at various well-differentiated levels which operate in what are really separate markets. Of the various levels, only the top two are organized operations, have access to commercial financial resources and, therefore, invest in regular fleet replacement.

5.05 Passenger transportation appears to be generally adequate, except for remote areas with difficult physical access. Nevertheless, it would also benefit from the provision of common terminal facilities. Many operators welcomed the idea and were willing to share in the cost. MOTC is aware of this, and should be assisted initially in developing a program and later in its implementation. A beginning is being made with a proposal to build a common bus terminal system for Metro Manila with bilateral assistance, for which five possible locations have been identified and will be the subject of a feasibility study.

5.06 Modal interface between road and other modes, specifically ship- ping, has not developed except in the case of domestic container services where the larger interisland shipping companies have their own trucking operations. The efficiency of transport can be significancly improved by increasing the use of integrated services on major routes, but progress has been hampered by lack of freight consolidation facilities, by lack of appropriate equipment, and by the poor operations of the railway. Containerization of cargoes, which has developed very quickly in Manila and in other main ports, could help to foster the development of integrated transport services if adequate facilities are provided for freight consolidation and transfer in inland towns and cities.

B. Organization of the Industry

5.07 The trucking industry is organized at four basic levels: a very small number of large companies, the trucking divisions of the inter-island shipping companies, a number of small family enterprises, and an unquanti- fied number of owner-operators. The fleet falls under two main legal classifications: TR trucks operated for hire, and T trucks operated as an ancillary service by traders or manufacturers to serve their main operations. Although T trucks outnumber TH trucks by a large proportion, the latter are responsible for a substantial portion of the road freight carried (at least 25% according to NTPP findings); this would indicate a certain professionalism within the industry operating TH vehicles.

5.08 Restrictions on entry do not account for the disparity between the numbers of TR and T trucks. The relatively higher registration fees for TH trucks, the franchise fees and common carrier tax on TH operators, and the possibility for widespread illegal operation of T trucks for hire stemming from lack of enforcement, account for the difference.

5.09 The fragmentation of the industry into well-differentiated levels has important consequences. The top level, mainly two companies, accounting for about 6% of the TH fleet, provides services to most state-owned companies (over one million revenue paying tons in 1980) with rates SR85761/TT-1l9/D2552/45

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negotiated well above cost on a contractual basis. The more important of these two companies (about 500 trucks) is controlled by the public sector and its operations are poorly managed; its dominance of the most profitable market precludes the development of the lower levels of the industry. Most trucks operated by the two companies in this group are TH licensed.

5.10 The second level is made up of the trucking divisions of the inter-island shipping companies, which together account for about 5% of the TH fleet. These companies mostly operate TH-licensed trucks. They are well organized and relatively efficient. However, average load factors are below normal even for the Philippines as a result of the limited utilization of their fleets. Following a recent rapid decline in the volumes handled by inter-island shipping companies and their "captive" truck traffic, however, competition by these companies in long distance trucking is becoming important.

5.11 The third level of the industry is made up of a small number of family companies (between 50 and 60) accounting for about 14% of the TI fleet. These companies are poorly organized, their equipment is aging, and they subcontract their services to the two top levels of the industry and seasonally supplement T licensed fleets owned by producers and manufacturers. Most trucks operated by these companies are TH licensed.

5.12 The lowest level of the industry is made up of a large number of owner-operators representing about 75% of the TH vehicle fleet and an unidentified number of T licensed vehicles. A large number of these operators own single axle, small, aging trucks (average age: 15 years) engaged in urban movements or short-distance hauls. Only a relatively small number of owner-operators engage in long distance trucking; but they operate the most recent additions to the trucking fleet (mostly three axle vehicles imported from Japan).

5.13 The intercity passenger transport industry consists of a small group of large, mostly family-owned firms with fleets of 150 to 450 vehicles offering a range of very frequent, scheduled, fast and reasonably comfortable long-distance services, and of a large number of small operators. This latter group represents about 72% of a fleet of 20,000 buses (of which about 40% is in Central and Northern Luzon) offering a wide range of complementary short-distance services. Within the former group is PNR Motor Services, an operating department of the Philippine National Railways. It was originally developed to provide feeder bus services to PNR-s rail services. PNR bus services could only be rated as poor.

5.14 In addition, there are a vast number of "jeepney" operators offering a mix of short-distance urban and short inter-urban services; SR85761/J112330/D2552/46

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in 1979, they operated a fleet of about 75,000 vehicles (of which about 23% is in Central and Northern Luzon). The "jeepney" represents an important ingredient in the passenger transport system in the Philippines. With a seating capacity of about 15, these provide short-distance local or interurban pick-and-drop services up to 30 km from their bases. The majority are owner-operated. Very few owners have more than three vehicles; jeepney owners are generally organized in local associations.

5.15 While there is lack of trucking associations to maintain proper communications with the Government and financial institutions, the passenger transport industry maintains contact with the Government through local operators associations.

C. Vehicle Fleet

5.16 According to Government data, the road vehicle fleet has been growing at about 7.5% per year since the 1970s with trucks, buses and jeepneys growing at 8.9%, 4.0% and 6.7%, respectively. However, these averages mask wide differences in growth rates among the regions.

5.17 The range of sizes and age of trucks is very wide, from two axle straight truck to five axle semi-trailers, from five tons to over 30 tons carrying capacity, from 25-year-old reconditioned ex-US army vehicles to newly built trucks assembled locally. The NTPP O/D surveys provide the following typical proportions for long distance hauls: 2 axle straight 66%, 3 axle straight 26%, truck-semitrailer 8%. For short distance hauls, there is a higher proportion of low capacity 2 axle trucks (about 75%) and a very small proportion of high-capacity truck-semitrailer combinations (about 1%). Age and motive power are closely related, with all current long distance vehicles showing an average age of about 7 years and a high proportion of diesel power (80 to 90%). For short distance urban vehicles the proportion of diesel decreases to about 75% and the average age increases to about 15 years.

5.18 The current typical long distance truck is the straight three axle, 8-12 ton reconditioned second hand vehicle imported from Japan. If used for long distance hauls, as is the current practice, this vehicle cannot be operated profitably without overloading because of the unfavorable relationship between operating costs and capacity.

5.19 Truck ownership is pyramidal with less than 9% of the owners operating more than three vehicles and less than 1% operating more than 10 vehicles. Owners of fewer than three vehicles operate mostly two axle units and large owners operate the right mix of truck and truck-semitrailer fleets.

5.20 The physical condition of the bus fleet is generally satisfactory. Units range from very modern, air-conditioned, over 50-seat units providing service at a premium on long-distance routes, to the reconditioned Japanese SR85761/J112330/D2552/47

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or US made 30-seat bus operating on short-distance routes. On the average, the age of this fleet is about 6 to 7 years. As for the "jeepney" fleet, the typical units are manufactured or assembled in the Philippines using engines imported mostly from Japan.

D. Operational Characteristics

5.21 Specialization in operations in a particular commodity or type of service is not yet widespread in the industry. The operational pattern reflects shipper's behavior and a rather unsophisticated domestic transport market which encourages empty return trips at considerable cost to the economy. This situation will probably change in the future as freight consolidation facilities are set up and shipper's requirements become sophisticated.

5.22 In Central and Northern Luzon, and to some extent in the other regions, there is a directional imbalance in commodity flows with the main urban centers acting as main points of attraction for freight. The imbalance partly affects low round-trip load factors and vehicle utilization, which is estimated at about 55% countrywide: under 50% for T trucks and about 65% for TH trucks.

5.23 An interesting finding of the NTPP study, which was confirmed by information from industry sources, is that TH trucks carried between 25% and 50% of freight, a much higher proportion than their numbers in the truck fleet. This is indicative, on the one hand, of professionalism and effective traffic management in the TH industry and, on the other hand, of limited utilization of T trucks as a whole.

5.24 In all regions and for almost all operators except the two top levels of the industry, the factor of seasonality is important: the predominantly dry months of February to July and the predominantly wet months of August to October. In the wet season, there is a comparatively low level of agricultural traffic./2 Some traffic (e.g., fertilizers) and truckers (e.g., those operating on contract to state-owned companies) experience less marked seasonality.

5.25 The trucking operations described above are usually end-to-end line hauls with a single drop-point for a single consignor. Multi-consignee distribution patterns are not common for TH vehicles although they appear to

/1 NTPP estimates at about 33% the trucker's ability to obtain backloads in Central and Northern Luzon.

/2 Few crops are harvested; farmers (many surviving on credit) reduce their levels of purchase of all commodities; the construction industry ex- periences a sharp downturn in the level of activity. SR85761/J112330/D2552/48

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be the norm for certain T vehicles. Break-bulk facilities have not developed and intermediaries appear to have only a minor role, with brokerage fees averaging 10%, a reasonable level.

5.26 Large vehicles achieve an annual utilization of 50,000 to 80,000 km with about 6 to 8 round-trips per month at 500/1,000 km per round trip, while smaller vehicles have a lower annual mileage of 40,000 to 60,000 km with more round-trips, about 8 to 12 per month at 200/500 km per round-trip.

5.27 Trucks engaged in long distance transport are generally overloaded in terms of gross vehicle weight (GVW) and axle weights. Although the link between increased revenue from overloading and increased costs from over- loading is recognized by operators, their typical equipment and operating practices make it difficult to cover costs without exceeding the legal weight limits. The three axle 10 ton straight truck typically used for long-distance hauls is a good example: having a licensed load capacity of 10 tons, it is often loaded with 20 tons and sometimes with 25 tons. The NTPP study found the following typical overloading in Central and Northern Luzon for both T and TH trucks:

Axle % of overloaded overload vehicles in sample (in tons) GVW Axle

3 axle straight truck (10 wheels) 9.8 82.4 90.2 3 axle truck semi-trailer (10 wheels) 7.1 73.3 93.3 4 axle truck semi-trailer (14 wheels) 6.8 61.0 90.2 5 axle truck semi-trailer (18 wheels) 9.2 67.9 89.3

5.28 The implications for vehicle taxation,.Government policy on vehicle imports (which appears to favor 3-axle trucks) and design, construc- tion and maintenance of highways are clearly important: the common type of vehicle in long distance transport, the three-axle straight truck, may be responsible for greater damage to the highways in relation to Government revenue contributed by it. This also has implications for Government's policy on local assembly of new three axle trucks and the import of second-hand units from Japan. The taxation of vehicles should be more closely based on the damage they cause. Consideration should be given to substituting GVW by axle loading to define the legal maxima since axle weights seem to offer a better way of measurement of actual loads carried.

5.29 Since there seem to be no differences of consequence between the operations of T and TH trucks, there is no rationale for the difference in annual registration fees between the two groups using identical vehicles. SR85761/Jll2330/D2552/49

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Other levies should be applied to both groups on the same basis, unless the operations of T trucks are strictly limited to hauling the licensees own freight, in which case a substantial number of T trucks will transfer to the TH category.

5.30 The bus industry is segmented into large and small operators. Large operators (companies) dominate the medium and long distance bus services and offer diversified services, including air-conditioned and first-class services. Small operators supplement long distance services and enter roads and areas where the more sophisticated equipment used by large operators would suffer excessive wear-and-tear. In general, large bus operators are efficient, have sound management practices and enjoy sound finances which allow for fleet replacement and modernization. Load factors (bus occupancy as percentage of seats available) ranged in 1980 from 22 to 65 depending on season, route and company, with a general average of about 55 to 60%. Bus versus rail competition in Luzon does not exist except for long runs.

5.31 Small bus operators and jeepney operators generally own and operate their vehicles. They do not compete with large operators, and offer mostly pick-up and drop services; they also carry cargo. In most cases, the two types of operators, small and large, tend to complement each other.

E. Tariffs and Costs

5.32 NTPP estimates of basic vehicle operating costs in the Philippines shows costs of 45-93¢ per ton-km for trucks and of 9-12¢ per passenger-km for buses. Data collected by NTPP from operators of reconditioned three-axle trucks indicate that actual costs are about 60% over the estimated costs. This difference is due in part to overloading (about 15%) and in part to the higher fuel consumption of reconditioned (second-hand) trucks (about 44%). In general BOT-authorized freight rates should yield a profit when full return-loads are available. But taking into account the low load factors and the higher cost of operating reconditioned vehicles, the rates charged by the industry, especially by owner operators, do not appear to cover costs.

5.33 BOT-authorized freight rates range between 50 and 60c per ton-kilometer and a sample of actual freight rates collected by NTPP indicates that they range from as low as 25¢ to 30¢ per ton-km to above 100¢ per ton-km (150q per ton-km for specialized services). Only those for petroleum products fall within the BOT-set ranges. Rates charged by companies in the two top levels of the industry are close to BOT-set rates and markedly higher than rates quoted by the others.

5.34 Although freight tariffs are regulated by BOT, operators ignore them in practice, and trucking services in effect operate free of tariff regulation. Actual rates depend on a number of factors such as distance, SR85761/J112330/D2552/50

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level of service, return-load availability, and seasonality. Contractual rates with Government-owned companies are based on empty backhauls and conform to load regulations.

5.35 According to NTPP, the two top levels of the industry appear to be earning reasonable returns, but not the others. An analysis shows that a straight three-axle truck carrying general cargo with 66% load factor makes profits when operated 65,000-75,000 km/year. On the whole, the financial situation of the trucking industry seems to be unsatisfactory for the following reasons:

(a) poor collection of receivables. Over 90 days receivables were found to be common among the two top levels of the industry, reflecting the poor payment practices on Government contracts. Small companies and owner operators transact most of their business on cash-on-delivery terms;

(b) poor availability of return loads resulting from lack of coordination within the industry and from lack of freight consolidation facilities at freight generating centers; and

(c) use of short to medium range equipment on long distance hauls, resulting in high unit operating costs.

5.36 The industry suffers from lack of management know-how. A few companies are efficient and well managed, but overall there is poor marketing, record keeping and operational know-how. This is to some extent illustrated by the relative lack of long-term contracts between shippers and operators and the overwhelming predominance of single, ad hoc movements.

5.37 BOT rates for bus services are enforced and respected by the majority in the passenger transport industry. The consumer also appears to be well served in terms of frequency and quality of service. However, fares are higher than they would be if market forces were allowed to operate or even if only greater fare flexibility were permitted. Consequently, operators are able to break even at relatively low load factors, in some cases at around 50%.

5.38 In March 1981, BOT-approved fares per passenger-km were 13¢ for economy class, 14¢ for first class and 18¢ for air-conditioned buses. Between February 1974 and March 1981, economy fares tripled; the cost of living about doubled in the same period. As for bus operating costs, unit costs at a 50% load factor would be about 8-9q per passenger-km rising to 10-11< at a 40% load factor. It would appear that the passenger transport industry in general is earning reasonable returns. This is reflected in the healthy financial situation reported by the majority of the passenger transport operators contacted by the mission. SR85761/J112523/D2552/51

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F. Road User Charges

5.39 Road users pay several taxes and fees in the form of fuel tax, sales taxes on vehicles and parts, an annual energy tax on private cars, registration fees, inspection fees, franchise fees, common carrier taxes, tolls, and driver and conductor permit fees. Of these, the franchise fees and the common carrier taxes are paid only by TH trucks and public buses and jeepneys. In terms of revenue to the Government, the tax on fuel is the most important. Revenues from road user charges cover all highway maintenance and administration expenditures and, lately, all capital outlays. The adequacy of road user charges is, therefore, not an issue.

5.40 However, there are some distortions in the way the road user charges specifically fall on different users which need to be rectified. The first relates to the differential taxes on gasoline (high) and diesel (low), which unnecessarily encourage excessive consumption of diesel. The Government is taking steps to reduce this difference. The second one concerns the relatively insufficient license fees paid by three-axle trucks, compared with the damage they cause to roads. The third and most important is the exemption in practice of T trucks from common carrier taxes and franchise and other fees even on their "for-hire" operations, which adversely affects TE operators, probably prevents the rationalization of the truck fleet in terms of both numbers and types, and causes loss of revenue to the Government. According to NTPP, the amount of common carrier tax paid by TH trucks is between P 40 and P 60 million on their share of less than half the freight moved in road transport. The Government should either tax all trucks on the same basis or ensure that T licenses are issued only for genuine owner use.

C. Recommendations

5.41 From the above analysis, the following recommendations emerge:

(a) Although tariff regulations are in practice ignored, the trucking industry, in general, operates in an atmosphere lacking true competition. It is recommended that the Government should promote real competition by opening the market to small operators in order to discourage the pricing and contracting policies of the large truck groups which hinder the growth of the smaller operators and of the industry as a whole.

(b) The common type of vehicle in long-distance transport in the Philippines, the 3-axle truck, may be responsible for a greater amount of damage to highways in relation to road user taxation/

/1 An exception to this lack of enforcement is the movement of petroleum products by road tankers where the BOT-set rate of 92¢ per kilo-liter/km is paid by all major oil companies. SR85761/J112442/D2552/52

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government revenue contributed by it. It is recommended that its taxation should be better related to the damage it causes to roads.

(c) It is recommended that Government work out a strategy for the provision of common terminal and freight consolidation facili- ties for passengers and freight, respectively, to improve efficiency, reduce costs, and help facilitate intermodal transport where needed.

(d) While revenue from road user charges currently more than covers all highway expenditures, these should be periodically reviewed to ensure equitable incidence on different modes, and to collect a reasonable portion of capital expenditures on roads. In particular, either the distinction between T and TH trucks should be abolished or T truck operations strictly limited to owner use.

6. THE RAILWAY SUBSECTOR

6.01 There are two railways in the Philippines - the government-owned Philippine National Railways (PNR) on the main island of Luzon and the small Philippine Sugar Commission-owned Panay Railways Incorporated (PRI). The latter is almost exclusively used for hauling sugar and sugarcane, and discussion in the rest of this chapter will focus on PNR.

A. PNR Track and Other Infrastructure

6.02 The PNR system can be divided into two parts: (a) the Main Line North from Tutuban station, in Central Manila, to San Fernando, La Union (266 km), with a branch line from Tarlac to San Jose (55 km); and (b) the Main Line South from Tutuban to Legaspi (474 km). Most of the other branch lines have been closed over the years so that the northern section now contains only 323 km of line in operation (with 180 km closed), while the southern section has 484 km in operation (with 71 km closed). Thus the total length in operation is 807 km, mostly single track with only 30 km of double track within Metro Manila.

6.03 On the northern section, the line is periodically disrupted by flood damage in the vicinity of Bautista (km 160) where temporary timber bridges are provided, pending a 15 km realignment to be constructed by the Ministry of Public Works and Highways as part of a combined flood control and hydro-electric power project. The southern section has also had frequent washouts between Camalig (km 460) and Legaspi; this section was eventually closed in 1976, pending the construction of an 18.5-km diversion to avoid the SR85761/J112330/D1368/05

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affected area of fine silty volcanic soils. Work on this diversion, the Guinobatan-Daraga Project, was started by PNR in 1978, but progress has been slow until recently when effort has been increased to complete it at the same time as the Main Line South Rehabilitation Project.

6.04 The track gauge is 1.067 m (3-6") and the original rails were 65 lb/yd (32 kg/m). More recently rail used in relaying has been 75 lb/yd (37 kg/m). Sleepers are of local timber laid at 1700 per km. The rails are laid directly on the sleepers, without base plates, the fastenings being originally log, and later elastic, spikes. The original local hardwood sleepers gave a long life of 20-40 years, but the better timber having been worked out, less suitable hardwoods are being used giving shorter lives of 8-15 years. Some consideration is now being given to the use of concrete sleepers. There is an almost complete lack of stone ballast so that the sleepers are in direct contact with the road bed, which is badly drained, all of which shorten the sleeper life. On some sections of line the propor- tion of sleepers needing replacement may be 50-60x; the rate of replacement, according to PNR's Engineering Department records, has averaged about 40,000 per year over the past 17 years against a requirement of around 90,000 p.a. (based on a 15-20 year life).

6.05 The upkeep of bridges has also been inadequate. Repainting of steel superstructures has been neglected so that severe corrosion has taken place. There are many temporary bridges consisting of timber beams supported by wooden piles which were constructed following washouts; permanent restoration measures were never carried out.

6.06 The poor condition of the track and bridges has led to the imposition of many speed restrictions. There have also been an increasing number of breakages on the older poorly supported 65 lb/yd rail. The standard of signalling and communications is poor. There is no mechanical interlocked signalling: entry to stations is controlled by hand flags so that all trains have to pass over points and crossings at slow speed. Train control is mostly by telephone and paper line clearance. Maintenance of line wires and communication equipment generally has been poor, compounded by theft of line wire.

6.07 At the request of the Philippine Government, the Asian Development Bank (ADB) carried out a feasibility study in 1974 on the rehabilitation of the Main Line South and of communications equipment, and made a loan of US$24.2 million in 1976 to help finance the rehabilitation of track on the Main Line South at a total cost of some US$37.1 million equivalent. The Government provided the local currency costs through an increase in the PNR share capital from P 650 million to P 1,500 million (PD 741 of 1975). SR85761/TT-158/D1368/06

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6.08 The implementation of the project was initially very slow, but in 1981 PNR gave this work top priority, to the extent of cutting down public services, and with the aid of one of the ADB-financed technical experts, it hoped to complete the project by 1983. However, as of end-1982, the section between Manila and Lucena (134 km) and the deviation line between Camalig and Legaspi (not part of the ADB project) were only about 85% and 72% complete and work may be completed only by end-1984. After that, much improved passenger and freight train services would be possible. There will, however, still remain some problems to be tackled:

(a) maintenance of the rehabilitated track will need to be better organized. With the welding of rail joints (as is now being done) and the operation of mechanical ballast tampers (also now in use), it should be possible to organize the present labor force into larger, more effective groups for track maintenance;

(b) maintenance of the rehabilitated line wire system will also need to be properly organized to ensure its continuous operation;

(c) the densely built squatter housing on PNR reserves in Metro Manila and other towns will need to be cleared to reduce theft of rail property and the danger both to the people themselves and to trains, and especially to improve train services. Such clearance has already been carried out along one urban line towards San Pedro; and

(d) the introduction of interlocked points and signals, provision of improved train control, such as tokenless block operation, and the installation of automatically operated level crossing barriers, are necessary to minimize operational delays.

6.09 The Main Line North remains in poor condition and a decision for limited rehabilitation has been taken, as the traffic prospects, with parallel highways available nearby, cannot justify major investments.

B. Locomotives and Rolling Stock

6.10 PNR's fleet comprises 109 diesel locomotives, 132 diesel railcars, 222 passenger coaches and 1,185 freight cars. The main points to be noted are as follows:

(a) a large number of units on the books are now beyond repair and should be scrapped; SR85761/J112330/D1368/07

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(b) large numbers of units are out of service awaiting or undergoing repair;

(c) as a result low percentages of units are available for traffic; about 60% for diesel locomotives, 55% for railcars, 40% for passenger cars and 70% for freight cars;

(d) the addition, within the last five years, of some 40 new diesel locomotives, 33 new railcars, and 43 passenger coaches has not had any lasting effect on availability; and

(e) the age of the wagon fleet is in excess of 25 years; in fact, none is less than 25 years old.

6.11 It appears that routine and periodic maintenance of mechanical equipment according to established norms and procedures has never been done. This stems from the following problems:

(a) inadequate supply of spare parts and components;

(b) inadequate, badly drained and dirty running sheds for locomo- tives and railcars;

(c) unduly large number of unscheduled repairs due to derailments and breakdown of units;

(d) inadequate skilled engineers and technicians because of poor rates of pay compared with other local industry (and especially with foreign employment in the Middle East);

(e) the old main workshops at Caloocan were originally designed for steam locomotive maintenance and have never been adequately converted to diesel unit maintenance. Many of the tools and facilities are old; and

(f) the facilities for passenger car repair at Caloocan are not good; and there is no proper maintenance facility at all for freight cars.

The overall result is that nearly all the equipment is in poor condition, even the newer units, and the lack of care over the years has reduced their life. SR85761/TT-151/D1368/08

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6.12 With regard to spare parts, there is a covenant under the ADB loan that PNR should maintain six months' stocks but, owing to its poor finances, it has not been able to keep spares at these levels. The lack of running shed facilities means that routine checks are not carried out according to schedule and most units requiring even minor repairs have to be sent to the main shops at Caloocan. Damaged and line failure units are also sent to the main shops. The result is that the normal flow of scheduled major overhauls, on which the main shops should concentrate, is constantly interrupted and rarely carried out.

6.13 When the track rehabilitation project is completed, the danger is that the constraint on services may next arise from insufficient equipment being available. The mission, therefore, suggests that PNR should consider getting the services of a good expatriate railway mechanical engineer, not to write further reports, but to work closely with PNR staff in carrying out, first, changes that can be carried out locally at the existing sheds and shops, and, second, in planning better facilities at minimum cost to enable PNR to carry out adequate routine maintenance on the whole fleet. A physical inspection of the units has been carried out to identify those that are repairable and those that should be scrapped, as well as an assessment of the numbers needed for service in the next five years, with a reasonable, realizable level of maintenance efficiency.

6.14 The railcar fleet, all of which has been supplied from Japan, may receive maintenance assistance under Japanese aid, as the mission understood a feasibility study for a new railcar maintenance depot has been completed by Japanese consultants and detailed designs are now being prepared. Moreover, PNR has arranged for local engineering firms to repair some locomotives, passenger coaches and freight cars.

C. Management and Staff

Management

6.15 As provided by Presidential Decree No. 741 of 1975, PNR has a Board with a Chairman (who is now the Minister of Transport), the GM (who is ex-officio Vice Chairman), and seven other members. Under the GM, there is a cumbersome management organization, too large for the small railway system. There are six Special Assistants to the GM, on top of the department heads, with about 20 people reporting directly to him. A major re-organization of the set-up is under consideration, which will result in fewer functional divisions/departments. This should help improve PNR efficiency. SR85761/TT-151/D1368/09

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6.16 An Executive Committee of the Board, with the Minister of Transport as Chairman, closely monitors the day-to-day operations of the railway. In the mission's view the Board should confine itself mainly to policy matters, leaving the GM to run the operations and holding him responsible for them. Although the Government has a legitimate interest in trying to correct the PNR situation, the GM should be given the freedom to manage PNR within broad policy guidelines set by the Government and the Board. With PNR in decline for so long, a considerable shake-up in senior positions is probably needed to introduce more dynamic management, but permanent employees are on civil service terms, making this difficult. Also, the present low pay scales make it almost impossible to attract and keep well qualified, talented staff.

Staff

6.17 Between 1975 and 1978, PNR's total staff was around 9,000, too many for the size of the system and the volume of traffic. Since 1979 an attempt has been made to bring the numbers down, and at the end of 1982 the staff numbered 5,000, including temporary staff. Staff productivity in terms of traffic units (passenger - km plus freight net ton - km) has been low at around 60-70,000 p.a. A manpower plan is needed to assess future staff needs.

6.18 A training school was established in the late 70s (with Japanese aid funds). It gives short courses at junior and middle grade levels on a large mixture of subjects, a good deal of which seems to be general technical schooling and mostly theoretical. PNR also conducts a five-term post-graduate course (each term lasting 15 weeks) in Transportation Management, through a private university In the mission's view the training school should be properly equipped for practical demonstrations and operations on trackworks, mechanical equipment, train operations, signalling and telecommunications, etc. It is suggested that PNR should hire an expert from an overseas railway training school to help set out the best types of courses to be offered and to advise on the equipment required.

6.19 There is general complaint from all departments and all levels of staff over PNR's poor pay scales. This seems to be a general problem with all government and state enterprises, but it is worse with loss-making enterprises which are not allowed to grant cost-of-living increases as can profitable enterprises. The problem of keeping good skilled staff gets worse as those who can find alternative work in the better-paid state enterprises or in the much better paid private sector, both at home and in overseas jobs, especially in the Middle East, leave. SR85761/TT-151/D1368/10

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D. Traffic and Operations

Traffic

6.20 PNR traffic has fallen sharply since the peak periods of the late 1950s for freight, and of the early 1960s for passengers. The highest freight volume, 1.3 million tons, was recorded in 1957/58 and the highest main-line passenger volume, 11 million, was carried in 1963/64. The decline has not been continuous and there was some revival in freight, at 300,000-400,000 tons in 1973 to 1975, while main line passenger numbers remained relatively stable at around 4-5 million between 1970 and 1978. Since then there have been further traffic declines, and in 1980 only 142,000 tons of freight and some 2.5 million passengers were carried. Lengths of haul for freight and lengths of journey for passengers increased and the 1980 figures were 37 million ton/km of freight (198 million ton/km in 1957/58) and 416 million pass./km (920 million pass./km in 1963/64). Metro Manila commuter traffic is increasing and is estimated at 6 million passengers in 1981 against some 5 million in 1980.

6.21 The major cause of the loss of traffic but of increasing lengths of haul and journey has been the gradual improvement of highways to the north and south of Manila. Secondly, the cumulative effect of years of neglect of PNR track has caused reductions in train speeds and additional delays from frequent derailments. Lastly, inadequate maintenance of locomotives and cars has still further decreased PNR's ability to provide efficient and attractive services. Except for Metro Manila commuter traffic, 1981 traffic figures are expected to show some further declines from 1980, mainly due to the priority being given to the completion of the Main Line South rehabilitation project. A large proportion of available freight cars (70%) is currently being used on the project and other works, adversely affecting PNR's ability to offer freight services. Passenger traffic southward should improve from 1983 as completed sections of the rehabilitated line are gradually brought into use.

6.22 The Main Line South accounts for some 65-70% of the main line passenger traffic. Of the remaining 30-35% on the Main line North, about one third is internal to the Tarlac-San Jose branch line where so far there is no good parallel highway. As regards freight, almost the whole amount is on the South line. From 1971 there has been no regular freight service on the North line and the little traffic remaining has been some short haul seasonal movements of sugarcane and bagasse, plus a weekly trainload of cement from a plant at Bacnotan to Manila and stations south. SR85761/TT-158/D1368/11

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6.23 It is difficult to forecast traffic volumes for the future. But completion of rehabilitation of track and improvement of the maintenance of equipment are prerequisites for any traffic to move. The main possibilities seem to be:

(a) long distance passenger traffic on the South line; parts have no parallel good highway nearby;

(b) commuter traffic in the Metro Manila area; increasing congestion on the city streets will generate increased rail traffic, but increasing services (and speeds) will require:

(i,) clearance of dense squatter housing on PNR reserves;

(ii) doubling of some remaining single track sections serving commuter routes;

(iii) provision of electric automatic block signalling; for safety, and to prevent theft of this equipment, the clearance of squatter housing is vital;

(iv) grade separation of railway and roadway at heavily used level crossings;

(v) automatic level crossing gates and signals at other crossings; and

(vi) enclosure of commuter stations both for safety and to ensure revenue collection;

(c) longer distance bulk freight movements: commodities for the National Food Authority and other users such as cement, sugar, rice, beer, copra, timber, building materials, etc.; and

(d) lastly, a new possibility, coal.

6.24 Coal imports are planned by the National Coal Authority to take place at a new installation at Batangas, some 120 km to the south of Manila. The tonnage to be imported initially, to service cement plants being converted from oil to coal burning, is around 600-700,000 tons per year. Larger quantities could be needed later for power plants but this will depend upon the siting of new generating stations, the possibility of conversion of existing stations and the development of local coal aK85761/TT-158/D1368/12

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resources in the Philippines. Rail transport would involve the use of the Main Line South to Calamba and then the reconstruction of an old branch line, abandoned after the last war, to Batangas. Another possible traffic for PNR would be some 200,000 tons of soya beans a year which the National Food Authority plans to import, also through Batangas.

Operations

6.25 Under normal conditions PNR's timetable provides daily for five passenger trains and three freight trains each way on the Main Line South. On the Main Line North, there are three passenger trains daily each way and another three each way on the Tarlac-San Jose branch line. As noted earlier there are no regular freight trains on the North line, except for one cement train a week, consisting of about ten freight cars.

6.26 The Metro Manila commuter services, mainly railcar operated, serve as far south as College (67 km), and north to San Fernando, Pampanga (61 km), with a total of about 70 trains daily. Other local services are operated between Hondagua-Ragay-Naga on the South line and between San Carlos and San Fernando (La Union) on the North line. In general, even such PNR equip- ment as is available for use is not intensively utilized.

6.27 Freight trains on the Main Line South consist of between 12 and 15 cars having an average net load of about 10 tons each. The average passenger train on the same line consists of 9 passenger cars and 2 baggage cars. On the Main Line North the passenger trains consist of only 5 passenger cars and one baggage car. Longer trains could be operated, both passenger and freight, if the availability of rolling stock could be improved. Attention would also have to be given to improved signalling, train control, track (on the Main Line North) and clearance lengths at some crossing stations (particularly on the Main Line South).

6.28 Assessments of locomotive numbers required for current service, including project work and departmental service trains, vary between 39 and 47. These do not allow enough for continuing rehabilitation/departmental use, or for possible future coal/soya bean traffic; the total required then could become about 65, assuming a reasonable 80% availability (instead of the present 50%). Although the number of units fit for retention is said to be 80, a more realistic figure would be about 70. There are enough locomotives, if properly maintained, to meet traffic needs for at least a few years ahead, but this only emphasizes the need for a full technical assessment of the existing locomotive situation and possibilities of repair/rehabilitation. SR85761/J112523/D1368/13

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E. Finances

6.29 The financial position of PNR is weak. Since 1969/70, losses have been recorded every year except for 1973/74 and 1974/75 when tariff increases combined with a small increase in traffic (as some new and rehabilitated rolling stock came into use) helped to produce a profit. Thereafter losses have increased from P 4.1 million in 1976 and P 39.6 million in 1979 as traffic has declined. Following efforts to hold down costs and increase passenger revenue by raising fares, PNR hopes that, after 1982, services can be gradually restored and traffic regained following completion of work on the Main Line South.

6.30 Staff costs account for about 50% of PNR working costs, while fuel accounts for almost another 30%. PNR losses have, however, been consistently understated due to (a) insufficient expenditure on the maintenance of the infrastructure and equipment; (b) insufficient provision for depreciation; (c) allocating operating expenses to the capital account; and (d) (more recently) levying high charges for the use of rolling stock, etc., on the Main Line South rehabilitation.

6.31 Under the ADB loan conditions, local consultants were engaged to design an improved accounting system. The new accounts system has enabled income and expenditure to be broken down by services and to make an initial assessment of the net loss by railway line or service (that is, excluding nonoperating revenue). The results are as follows:

1979 1980 (P million)

Northern Line 15.5 17.5 Southern Line 1.9 3.5 Commuter services 5.4 1.4 Others 0.3 -

Total 23.1 22.4

According to NTPP, however, the allocation of costs by PNR is often arbitrary. PNR hopes to start soon the development of traffic costing data that can be used for tariff calculations.

6.32 Tariff revisions have been carried out periodically since 1975, the last occasion being April 1981, when long-distance passenger fares were SR85761/TT-l19/Dl368/14

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increased 9-14%, commuter fares by 25% and freight tariffs by 40-90%. Although PD 741 does not provide for any specific control of tariffs by the Government, in practice, passenger fares by rail and bus are controlled by BOT, while freight tariffs proposed by PNR have to be approved by the Minister (MOTC).

6.33 PNR operating expenses and subsidies should be clearly separated from the capital program and shown separately in the Government budget. The Government should be aware of the operating subsidies required and of the particular services involved and make payments in time. The accounts reporting of PNR should be organized so that this can be done and the audit system should ensure that it is done.

F. Recommendations

6.34 PNR assets and services have been in decline for over two decades. Numerous reports have been written clearly defining the problems, but effective action has been lacking. Complete operational failure could occur if preventive measures are not taken in time. In the mission's view, there is no prospect of PNR's becoming financially viable in the foreseeable future.

6.35 Nevertheless, with ADB's assistance the Government has already invested in a major improvement of the infrastructure on the Main Line South; the Government has also invested in recent years in new locomotives and cars for PNR. In these circumstances, if the Government wishes to retain the railway, it should aim to achieve efficient operations that would gradually reduce PNR's dependence on subsidies to meet operating deficits. To this end it should take urgent action on the following:

(a) give PNR management full responsibility for day-to-day operations. The PNR Board should deal mainly with policy matters;

(b) assess staff needs in accordance with a manpower plan and retrain or retire excess as required;

(c) improve facilities for training lower and middle grade staff (some input of foreign expertise is probably required);

(d) increase low staff salaries to bring them into line with other state enterprises to improve staff morale and commitment;

(e) improve maintenance methods, tools and equipment for infra- structure and communications; SR85761/TT-151/D1368/15

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(f) clear squatter housing from PNR reserves in Metro Manila and other cities and settlements, essential for the safety of people, rail traffic, and materials, and for improving train speeds and services;

(g) increase inventories for maintenance spares and materials to adequate levels;

(h) improve maintenance facilities and systems for mechanical equip- ment: firm steps are required in this matter;

(i) improve traffic operations and services to the public; make organized marketing effort to attract traffic. Possibilities are:

(i) passenger and freight traffic on the Main Line South to Legaspi;

(ii) commuter traffic in Metro Manila area;

(iii) bulk traffic, such as cement, sugar, rice, beer, copra; and

(iv) coal and soya bean traffic from the port of Batangas; large tonnages are envisaged which could be the natural traffic of PNR, if efficiently operated;

(j) make no major investments in extensions to the PNR system and for additional equipment until some improvement in PNR operations is seen; and

(k) separate PNR operating expenses and subsidies clearly from the capital program; and make timely payments to PNR of the subsidies required to compensate for uneconomic services provided in the public interest.

The mission recommends that there should be no investments in major projects on PNR until it can show that the decline in its operations has been arrested and some improvement in both operations and traffic is being achieved.

6.36 PNR should undertake a passenger and freight study so that it can determine which services and routes it can operate reasonably efficiently and perhaps profitably.

6.37 There are proposals of long standing for extensions to the railway system (a) from the North Line into Cagayan Valley in North Luzon, (b) southward to Sorsogon and Matnoy in South Luzon, (c) across Samar and Leyte Islands with train ferry connections, and (d) on Mindanao Island. SR85761/TT-151/D1368/16

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Only the first, into the Cagayan Valley, has been revived recently as a possible project and has been reported upon by NTPP and also by Japanese consultants. The NTPP conclusion, with which the mission agrees, is that the economic returns would not be adequate to justify any of the extensions in the near future.

7. PORTS AND INTERISLAND SHIPPING

A. The Port Subsector

Port Facilities

7.01 There are some 854 ports in the country broken down as follows: national ports - 94; municipal ports - 528; and private ports - 232. Of these, 377 are under PPA jurisdiction: base (primary) ports - 19; sub-ports (secondary) - 45; other public (tertiary) ports - 81; and private ports - all 232. All the major national ports are located in large towns and cities. They are either undergoing major development currently or have only recently undergone substantial expansion. The private piers and wharves are generally sited in deep water to serve industrial enterprises such as oil and mining companies. The secondary and minor ports are a legacy of the days when road transport was very poor and were thus "boat stops" along the coast - a situation still prevailing in many of the smaller islands. Many of them have been abandoned in recent years or function only intermittently, often with only small volumes of traffic, partly because of their poor physical condition.

7.02 Most of the secondary and tertiary ports were not planned for modern cargo handling techniques, and transit sheds are often lacking, though private warehouses are usually available nearby. M4anyof these port areas are small and inadequate, and suffer from unorganized port operations. Port facilities are poorly maintained and there is a lack of equipment.

7.03 The state of repair of these ports has an important bearing on the economic activities of the area. Ports with inadequate facilities and in a bad state of repair will be serviced only by vessels with low operational capability: in case of unfavourable weather these ships cancel their calls altogether. Such ports have long and unpredictable service times causing delays to vessels. Ships, especially liners with fixed time schedules, cannot afford expensive delays. As a result, these small ports are served by increasingly older and less efficient vessels. Upgrading of the existing facilities would improve the level of service both at and to these ports, reduce the cost of transport, and thus have a positive impact on the total economic activities of the areas they serve. SR85761/TT-157/D1368/17

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7.04 In the past few years the Government has received assistance from the Asian Development Bank (ADB) for improvement of port facilities at Manila, Davao and Cotabato; from the Federal Republic of Germany for port works at Davao and Iligan; and from the Bank for the expansion of the ports of Cagayan de Oro and General Santos under the Second Ports Project (Loan 939-PH) and for the ports of Cebu, Cagayan de Oro, Zamboanga and Iloilo under the Third Ports Project (Loan 1855-PH), now under implementation. As part of the Second Ports Project, the Bank supported the establishment in 1974 of the Philippine Ports Authority (PPA) to consolidate and assume all port-related functions which had previously been fragmented between the Bureau of Customs (BC) and the Bureau of Public Works (BPW) of the former Ministry of Public Works, Transportation and Communications (MPWTC). MPWH, however, continues to serve as the implementing agency of PPA for port engineering and construction.

Port Organization

7.05 The setting of broad policies in port matters is the responsibility of PPA's Board of Directors consisting of the Minister of Transport and Communications as Chairman and the PPA General Manager as Vice-Chairman. Other members of the Board are the Director-General of NEDA, the Ministers of Finance, Trade and Industry, Public lWorks and Highways, and Natural Resources, the Administrator of MARINA and a representative from the private sector, all appointed by the President of the Philippines.

7.06 Responsibility for implementing the policies rests with the General Manager and his Assistant Executive Officer who is also the Assistant General Manager for Operations. There are two more Assistant General Managers responsible for Finance and Administration and for Planning and Engineering. Under them are 12 departments, each headed by a Department Manager. In addition, there are semi-autonomous operating units called Port Management Units (PMUs) at the base ports which are also responsible for the supervision of national, municipal and private ports within their respective areas of jurisdiction.

7.07 The enabling decree of PPA (PD 857) provided for the creation of the National Port Advisory Council (NPAC), which assists PPA in policy formulation. NPAC will comprise PPA's General Manager as Chairman and representatives from the Ministry of Labor, Bureau of Customs, Chamber of Commerce and Industry, import and export associations, foreign and local shipping companies, cargo handling companies, consumer groups and shippers' councils.

7.08 PPA's responsibilities cover the coordination and improvement of the planning, development, financing, maintenance and operations of all ports. It is also responsible for the supervision and monitoring of cargo handling operations. All cargo handling is done by some 335 arrastre (cargo handling companies. PPA receives shipping and cargo throughput information SR85761/TT-157/D1368/18

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from the cargo-handling and shipping campanies, and this is often inconsistent, and incomplete, but the situation is improving.

7.09 The mission discussed how this could be improved further with PPA's General Manager and the Minister of Transport and Communications, and suggested that the Management Information Study (MIS), financed under the Bank's Third Ports Project (Loan 1855-PH), should pay attention to the total reporting system, as well as to the make-up of these statistics. For each port, the statistics must indicate to management whether the existing facilities are efficiently utilized and when additional facilities and equipment will be required. In addition, at least for the major ports, these statistics should help the formulation of operational schedules and policies. Reporting requirements for the smaller ports should be different from those for the major ports because of the differences in the services they provide, the scale of their operations, and the usefulness of such data for operational and planning purposes.

Port Traffic

7.10 In 1979, the ports of the Philippines handled a total of approxi- mately 75 million tons of cargo, 50% domestic and 50% foreign. They also handled 16 million passengers, nearly all domestic.

7.11 Some 45% of the total cargo traffic passed through the public ports, which also handled all the passengers. The balance of 55% of cargo was handled by private wharves, most of them owned by large enterprises such as oil and mining companies. Of cargo handled by the public ports, about 75% was domestic traffic, and the rest foreign. Of the latter, again, some 73% was imports and the balance of 27% exports.

7.12 Of the public ports, Manila is by far the most important, handling 10.3 million tons of cargo in 1979. Cebu, Davao and Iloilo are next in importance with 2.6, 1.0 and 0.9 million tons respectively. The top passenger port was Cebu, with 3.2 million passengers.

7.13 Private port traffic comprises mainly bulk cargo in relatively large volumes, often in specialized vessels. In 1979, some 58% (or 24.1 million tons) of cargo handled at private ports was foreign cargo, dominated by iron ore and petroleum. Of the 13.2 million tons of imports at these ports, 32% was iron ore and 51% petroleum products. Of the export tonnage, 36% was sintered ore, 10% sugar, followed by bananas, copra concentrate, coconut oil, plywood and chrome. Domestic traffic at the private ports (17.5 million tons) was also dominated by bulk cargo such as petroleum and products (56%) and limestone for iron ore sintering (7%). SR85761/J112330/D1368/19

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7.14 Altogether, in 1979, more than 95% of the total cargo traffic of the country's ports passed through the 18 base (major) ports of PPA and 232 private wharves and another 3.5% was handled by the 44 subports of PPA. Only some 500,000 tons (less than 1% of the total) was accounted for by the small ports, including the 29 minor municipal ports. However, these smaller ports are of major importance to the communities they serve, as in many instances they provide the only means of movement for people and goods in and out of their hinterlands.

Recent Developments in the Subsector

7.15 In the past, most public ports in the Philippines consisted of narrow wharves and piers with limited storage areas. During the mid-70s, there were major extensions with properly developed backup areas at the ports of Cagayan de Oro, General Santos, Cotabato, Davao and Iligan, financed by various aid organizations - the World Bank, the Asian Development Bank and KfW (Germany). The ongoing Third Ports Project will finance extension works for handling general cargo and containers at Cebu, Zamboanga, Cagayan de Oro and Iloilo. These facilities should be completed towards the end of 1984. At Manila, the international container terminal has started initial operation and is expected to be fully completed by 1985.

7.16 With the Bank's assistance PPA is developing a national port policy, improving administration, operations, and planning for all major national ports. The Bank has also financed some minor ports as components of multipurpose and rural development projects:

(a) Culasi and Dumagit ports in Capiz province, and San Jose de Buenavista port in Antique province, all in Region 6 - financed under the Rural Infrastructure Project, Credit No. 790-PH;

(b) Calapan port in Oriental Mindoro, Region 4 - financed under the Rural Development Project, Loan 1421-PH; and

(c) Catbalogan port in Western Samar, Region 8 - financed under the Samar Island Integrated Rural Development Project, Loan 1772-PH.

Recommendations

7.17 The development of the major public ports in the Philippines is thus either recently completed or well in hand, and the private ports for handling largely bulk exports and imports belong to private enterprises which own and operate them for their own use and are quite capable of developing them as and when needed. SR85761/TT-157/D1368/20

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7.18 The one area in marine transport which now needs attention is the more systematic development of secondary and tertiary ports. In the past these ports have received only limited attention, although they are of major importance to the isolated rural communities whose link with the rest of the Philippines and the world for transport of goods and people may depend solely on them. Under the Third Ports Project the Government will soon begin the planned improvement of some secondary ports, through a feasibility study aimed at assisting PPA in establishing priority ranking for expansion and/ or rehabilitation. The NTPP study has also suggested a list of ports for rehabilitation and development. MPWH is also currently preparing a program for the phased improvement of tertiary ports.

7.19 The mission visited 15 /I of the secondary ports and found that most of them could benefit from minor investments. The required improvements will depend upon the state of the existing facilities and will comprise:

(a) new berths;

(h) repair of fender system and/or construction of new ones;

(c) repair of existing berths;

(d) repair of access roads and/or construction of new ones; and

(e) dredging of shallow patches and removal of obstructions to enable the regeneration of deeper water.

Investments in each of these ports may amount to as little as P 5 million and up to a maximum of P 30 million.

7.20 In the future development of the port subsector, the mission recommends that the Government's principal focus should be on:

(a) continued modernization and improvement/expansion of facilities at the primary ports to meet growing/changing traffic requirements; and

(b) increased emphasis on the development/rehabilitation of secondary and tertiary ports to help the poorest communities in the country and bring them increasingly and more effectively into the modern exchange economy.

/1 Lucena, Batangas, Bahuan, Pulupandan, Bacolod, Tagbilaran, Surigao, Butuan, Masao, Nasipit, Legaspi, Tabaco, Calapan, Balanacan and Santa Cruz. SR85761/J112442/D1368/21

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B. Interisland Shipping

Shipping and Traffic Characteristics

7.21 The 37 million tons of domestic cargo and 16 million domestic passengers handled in 1979 by the ports in the Philippines were served by a shipping fleet consisting of about 3,200 vessels, of which an estimated 60% were under 100 GRT./l In addition, a fleet of 66 tankers (averaging 3,000 DWT) /2, some 900 barges and tugs, and 200 tramp cargo ships provide interisland services.

7.22 Most of the ships in the inter-island fleet were imported second hand from Japan, 40% are more than 25 years old and less than 20% under 10 years. The average age of the fleet is 20 years. The passenger-cargo ships are generally older than pure cargo ships: 54% of passenger-cargo ships are over 20 years, compared with only 11% of cargo ships. In general, local passenger-cargo vessels, which are of a low standard of maintenance and repair, comprise a large proportion of the nation's domestic vessels, and compete with liner operations especially those of lower standards. The low standard of vessels, whether liners or tramp, decreases safety at sea and results in too many accidents with a large number of casualties and significant loss of goods.

7.23 It is estimated that, in 1979, there were 242 inter-island liner ships, with an average GRT of 1,000 and an average DWT just below 1,300. The ships are owned by 30 companies, but 88% of the total DWT is owned by 15 lines. Mixed passenger-cargo ships dominate the fleet (about 60% of total), but in recent years there has been a trend towards pure cargo ships. Very few of the mixed ships are designed for efficient cargo handling; the smaller ships in particular are very badly designed, with passenger decks restricting access to cargo holds.

7.24 Shipping companies blame poor port facilities for lack of invest- ment in more modern ships with faster turn-around time. Nevertheless, in the last four years, shipping lines have started to introduce new methods. By far, the most important development has been the move into container- ization. In 1980, these companies handled 295,000 TEUs /3 with a total of 2.7 million tons of cargo (about 18% of domestic traffic), with a fleet of 12 lift-on/lift-off (LOLO) ships, 4 nominally roll-on/roll-off (RORO) ships and various conventional ships. Almost all the specialized ships (except 2 RORO) have been converted from general cargo vessels imported second hand from Japan. The ships are all small compared to international container ships: they range in size between 48 and 220 TEUs and their speeds are a modest 11-14 knots.

/1 Gross Registered Tons. /2 Deadweight Tons. /3 20-foot equivalent container units. SR85761/J112442/D1368/22

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7.25 All the container services introduced so far originate in Manila and usually serve only one port, although there is now an increasing tendency to call at two ports. The routes with the heaviest containerized traffic are those to Cebu and Davao, followed by Cagayan de Oro/Iligan, General Santos, Iloilo and Zamboanga. The main cargoes carried by the container lines are "general cargo" (mainly consumer goods), which dominate the more lucrative south-bound trips out of Manila. On the north-bound trip, agricultural and other goods, which are not generally considered suitable cargo, are containerized, mainly to avoid the return of empty containers.

7.26 A fleet of about 900 units over 100 GRT each were engaged mainly in the domestic tramp market in 1980. Of these about 700 were barges and 200 were cargo vessels., The largest three companies owned over 40% of this fleet and over 200 small companies the remainder. The cargoes they carry are mostly bulk petroleum, grain, coconuts and products, sugar, bottles, minerals, cement and fertilizers.

7.27 The small local passenger-cargo ferries are mainly domestically- built wooden-hull vessels. They are owned by small local operators. They serve secondary ports, and their routes are generally much shorter than those of the inter-island ships. There are over 800 of these passenger ferries and some 300 passenger-cum-cargo vessels. The ferry boat services are increasing, and in some minor ports farmers are making use of direct through delivery of trucks loaded with copra or other cash crops. The total cost of transferring a loaded truck from the farmer to the market (through- haul) is slightly below the cost of hauling the product to the port, loading it onto vessels, shipping it to a major port, unloading and loading again onto trucks to the market (break-haul). Since the vessels are of simple conr struction, they require minimum wharf facilities but need adequate access roads. Some are being replaced by RORO passenger-vehicle ferries.

Regulation

7.28 Regulation of the domestic shipping industry is the responsibility of the Maritime Industry Authority (MARINA), with the objective of ensuring effective, economical and efficient inter-island sea transport, for both passengers and freight.

7.29 Regulation of pricing and entry by Government contrasts with the normal practice in world shipping, which is more or less self-regulatory. A review carried out by NTPP came to the following conclusions:

(a) the rate structure imposed is obsolete, not enforced, and frequently disregarded by the shipping lines;

(b) regulation of capacity is better enforced, but it is not fully effective since it is difficult to measure capaciy, and there are loopholes in the regulations; and SR85761/TT-119/D1368/23

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(c) market forces could regulate both freight rates and capacity better than present Government regulations.

7.30 The control of tramp ships is vested in the Philippine Coast Guard (PCG), which is in charge of all regulations relating to safety at sea, lighthouses and other navigational aids. Because of the vast number of tramp vessels and the limited possibilities of Coast Guard control, many of them are below standard and not seaworthy. Yet they are often operating at maximum capacity, taking advantage of minor ports with insufficient facilities which are not served by more reliable, modern ships.

Principal Issues

7.31 In general, the inter-island shipping companies do not seem to be investing an adequate share of their profits and financial resources in the modernization of their fleet. Most financial institutions and companies operating shipping services consider shipping a risky business. According to a paper published in October 1981 by the Shipowners' Association, out of a total vessel transportation income of P 545.9 million, after total expenses of P 523 million, the inter-island shipping operators realized a net profit of P 22.9 million (2.46% on invested capital of P 930 million). The Government claims that this results from a decline in the volumes of freight handled by inter-island shipping during the last three years due to world economic conditions. In the meantime, however, technological developments in shipping have had a a substantial impact on both ships (fuel efficiency) and systems (RORO, LOLO, etc.) and the lack of modernization in shipping in the Philippines could seriously affect the competitiveness of the country's exports in the future.

7.32 A review of the problems faced today by inter-island shipping shows that the decline in traffic volumes in recent years is only one of the factors affecting the industry. The other factors are:

(a) Increasing Operational Costs. Even before the August 1981 fuel price increase in the Philippines, fuel alone accounted for 45% of total vessel operating costs, while salaries and wages accounted for 39%. With the large overseas demand for Filipino seamen, the wage cost is also going up. In addition, with the worldwide escalation in interest rates, the cost of borrowing has become a significant factor.

(b) Over-regulation by Many Government Agencies. Some 15 public agencies exercise regulatory and supervisory functions over domestic shipping. The most important of these agencies are: MOTC, MARINA, BOT, PPA, Bureau of Customs (BC), PCG, the Bureau of Animal Industry, the Bureau of Plant Industry, and the Bureau of Forest Development. (A one-stop clearance office has since been set up in Marina North Harbor, and similar offices are planned to be set up in Davao and Cebu.) SR85761/J112330/D1368/24

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(c) Policy Constraints. Government policies on taxation and on tax incentives on the import of equipment discourage investment in shipping.

(d) Inadequate Financial Resources for Interisland Shipping. The only serious attempts to provide inter-island and international shipping companies with financial resources for replacement of aged vessels were the German loan of 1965 for US$20 million and the 1975 Bank loan of US$20 million channelled through the Development Bank of the Philippines (DBP) /1. In the case of the Bank loan, no sizeable shipping firm took advantage of it because of the standard DBP terms that were considered too onerous for the shipping business. The prevailing lending terms and conditions of commercial banks are said to be beyond the reach of most interisland shipowners.

7.33 In addition, the following are considered to be further deterrents to investments in interisland shipping:

(a) the substandard quality of maritime education as a result of the proliferation of inferior schools, which need to be upgraded; and

(b) competition by Government-owned corporations despite the avail- ability of private shipping lines to provide the required services, especially in tankers, tugs and barges, with their ability to obtain Government contracts.

Recommendations

7.34 To summarize, the mission believes that the economic regulation of interisland shipping should be kept to a minimum except, possibly, for establishing maximum freight and passenger tariffs and minimum service levels, in order to encourage investment and to promote better service and competition. The Government should also enforce more effectively the safety and related regulations and develop a long-term plan for the improvement and rehabilitation of small ports as further means of encouraging the development of shipping services and thereby reducing the real cost of inter-island transport.

/1 About US$19.4 million was actually disbursed. SR85761/TT-119/Dl368/25

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C. Airports and Air Transport

Facilities

7.35 There are 86 national airports and 120 private airports in the Philippines. Of the former, four are designated as international airports - Manila, Cebu,Davao and Zamboanga. The remainder are classified into trunk- line airports (which serve the principal commercial centers), secondary airports, and feeder airports (serving small towns and rural communities). Eight of the private airports are also open to "public use." There are, in addition, 20 heliports in the country, the majority in the Metro Manila area. Three of the 20 are open to the general public.

7.36 BAT operates an extensive network of airways communications facilities in accordance with the International Civil Aviation Organization (ICAO) standards. The network of navaids includes 10 VOR (Very High Frequency Omni-Directional Radio Beacon) and 9 VOR/DME (Distance Measuring Equipment) installations. BAT also operates 16 NDB (Non-Directional Beacon) facilities; in addition there are 12 NDB's owned and operated by other agencies such as PAL, PAF, USAF and USN. Both Manila and Cebu airports have ILS installations. Manila, Cebu, Davao, Iloilo and Zamboanga have runway and approach lighting for night operations.

Organization

7.37 The operational and technical aspects of civil aviation are under the jurisdiction of BAT of MOTC, while the regulation of routes, permits, rates and fares is the responsibility of the Civil Aeronautics Board under the Ministry of Tourism. Thus the CAB:

(a) specifies routes and points to be served by a carrier;

(b) fixes the rates and fares that may be charged; and

(c) issues operating permits and may cancel them if warranted.

7.38 BAT has the following responsibilities:

(a) operate, manage, maintain and develop all Government-owned airports;

(b) establish, maintain and operate air navigation facilities;

(c) fix and collect lending fees and other charges for the use of its facilities and services; and

(d) issue airmen's certificates and certificates of airworthiness for aircraft, after ensuring that legal and other requirements are met. SR85761/J112330/Dl368/26

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7.39 The planning of all air transport facilities rests with BAT, which also carries out all projects related to air navigation, airport lighting, airport water supply, buildings, fencing, etc., but MPWH is responsible for all horizontal airport works such as runways, taxiways, and so on.

Air Traffic

7.40 Manila is by far the busiest airport in the country with over 4.0 million passengers in 1980, compared with a systemwide total of about 7.5 milion. It also accounted for over 100,000 aircraft movements out of a total of about 225,000 for all airports, about half being scheduled air carrier movements. At Manila, over the 1970 - 1980 period, domestic passenger traffic has grown over 5% a year, while international passenger traffic has grown over 12% a year. Cargo traffic by air, both domestic and international, is not significant.

Air Transport Services

7.41 Since 1974, PAL has provided nearly all scheduled air services on domestic routes. PAL's domestic fleet comprises 12 BAC l1ls, 7 YS-lls and 7 HS-748s. The BACs cover 40% of the routes but provide over 80% of the airline's capacity. Manila is the main base of operations, with Cebu providing a secondary base for some turbo-prop services.

7.42 On many of the trunkline routes flown by PAL, load factors exceed 75%, with the Manila-Iloilo route having the high load factor of 84% in 1981. The average load factor is about 70%. As BAC-Ills connect mainly the principal airports which have night landing facilities, their utilization exceeds 2,000 hours a year, while the other aircraft, used mainly in daylight operations to connect secondary and feeder airports, are used for an average of only 1,200 hours a year.

Recent and Proposed Development

7.43 Under the 1978-82 Five-Year Development Plan, construction of a new international passenger terminal at Manila was completed in 1982, with loan assistance from ADB. The Plan also included development works at Cebu, Davao, Zamboanga and Laoag. For the 1983-87 period, BAT proposes to under- take modernization of air navigation facilities, further development of Manila (a new domestic terminal), and further improvements to Cebu, Davao, Zamboanga and Canlubang.

Recommendations

7.44 The objective in the development of civil aviation should be to serve the needs of the business traveller for speedy travel between the main cities, while providing minimum access to outlying areas which are not served by other modes. Within this broad framework, the immediate goals should be SR85761/Jll2330/D1368/27

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to promote operational safety at airports and en route, to provide facilities for handling growing traffic, to ensure that these are done economically and efficiently, and to ensure that the users of airline and airport services pay full for the services they receive.

7.45 As the land transport system improves, certain airports may have to be closed down on economic grounds. Nevertheless, due to its geography, the Philippines will continue to need a good network of airports to link the country's far-flung regions and provinces. Bearing that in mind, the Government should develop a long-term plan which will concentrate on the development of, say, at least one airport in each region and possibly in each island of some size. Meanwhile, investments in the next five years should be modest and designed only to meet medium-term needs of the next 10-15 years.

7.46 A major problem at most airports identified by BAT-s National Airspace and Airports System Planning Study, carried out with assistance from the US Federal Aviation Administration, is insufficient land area limiting visibility, security and future growth. The study recommended as a priority measure land acquisition at various airports, followed by other measures to improve operations, safety and security. Studies for the development of Master Plans were also recommended for nearly all locations.

7.47 PAL has recommended the installation of night landing facilities at five airports - Bacolod, Cagayan, Legaspi, Puerto Princesa and Tacloban - to improve aircraft utilization and refuelling facilities at Calbayog, Legaspi, Naga and Roxas to improve payload.

7.48 With respect to PAL itself, the future outlook is for a continua- tion of the present fleet mix of jet aircraft for the busy corridors, with turbo-props for the secondary routes with lower traffic densities, both present and potential. The NTPP consultants have come to the conclusion that the BAC-Ill is a suitable aircraft for jet route operation, with gradual introduction of the A-300 on the Manila-Cebu route. Since PAL already operates A-300s on its regional international routes, this should not be difficult. For the secondary routes, the HS-748 or some other similar air- craft would be adequate for the foreseeable futures. Since the HS-748s are due for replacement in the near future, PAL is currently undertaking a study on replacing them with other similar aircraft available on the market. SR85761/J112330/D1368/31

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8. THE URBAN SUBSECTOR

A. Introduction

Factors Influencing Urban Travel Demand

8.01 Urbanization. The Philippines urban population in 1980 was esti- mated at about 16.4 million, approximately 34% of the total national popula- tion of 47.9 million. Metropolitan Manila dominates the Philippines urban scene with approximately 5.9 million persons (1980), or 36% of the total urban population and 12% of the national population. The only other major urban center is Metro Cebu with a population approaching 1 million persons. There are five additional urban areas with populations ranging from 200,000 to 600,000 persons.

8.02 Between 1960 and 1980 the urban population more than doubled increasing at an average annual rate of above 3.6% as compared to 2.9% for the total national population. Within the next 20 years the population of the Philippines will grow to approximately 80 million people. At least half of this added population may have to be absorbed in urban areas even under optimistic projections of rural employment.

8.03 The severity of urban transport problems is generally related to city size; as a city grows, density of development and trip-lengths generally increase resulting in greater demands on available transport infrastructure and public transport services. Often inhabitants of larger cities have higher incomes further increasing travel demand. This phenomenon is observed in the Philippines -- the principal urban transportation problems are concentrated in Metro Manila and Metro Cebu. As the urban population and incomes increase the severity of the problem is likely to increase in these two cities, and gradually spread to smaller cities.

8.04 Urban Income. Family income profiles are particularly important at the upper and lower ends of the income spectrum as they determine the choice of private and public transport respectively. Based on an analysis of available income and expenditure data, urban Filipinos can be classified in three broad travel groups: (a) car dependent families accounting for less than 10% of the population; (b) public transit oriented families accounting for about 60% of the population; and (c) walking dependent families accounting for about 30% of the population.

Travel Characteristics and Trends

8.05 As in many developing nations, the national capital region domi- nates the spatial distribution of the motor vehicle fleet. With only 12.4% of the national population, Metro Manila has over 40% of the motorized vehicles in the country and over 57% of all automobiles. It is estimated that at least 80% of all vehicles in the Philippines are registered in urban areas. SR85761/J112330/D1368/32

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8.06 The jeepney (an open-air vehicle typically seating 10-15 persons) is the dominant form of urban transport accommodating between one-half to three-quarters of all motorized persons trips in the larger cities. In smaller cities the motorised tricycle plays a similar role in conjunction with the jeepney. Walking is a very significant mode of transportation in the principal cities making up about a third of all trips.

8.07 The future level of urban travel demand in the Philippines is closely related to the population and economic growth in the country and to the future level of family incomes. The overall conclusion on future trends is thus one of a sustained rise in total trip-making and towards longer trips. Future sustained increases in the vehicle fleet will continue to place increasing strain on the limited infrastructure in principal cities - in particular in Metro Manila, where lack of capacity is already a serious problem and in Cebu where the problem is becoming serious.

B. Adequacy and Financing of Urban Road Svstems

8.08 For all practical purposes the urban road system accommodates all intra-urban travel in the Philippines. An insignificant amount of urban travel is provided by the Philippine National Railways within Metropolitan Manila; there is no other intra-urban rail travel within the Philippines. A 16 km first-stage elevated light rail system is under construction in metro- politan Manila. It is scheduled to be completed in the mid-80s, and will operate on a north-south alignment.

8.09 Urban roads are classified by the Ministry of Public Highways in three categories: (a) national; (b) local (provincial, municipal and city); and (c) barangay. Typically, the most important roads in urban areas in terms of volume carried are national roads. While barangay roads constitute over half of urban road kilometerage, they are not highly significant in terms of traffic volume, their primary purpose being to provide access to land, often in rural fringes of urban areas.

Urban Road System Deficiencies

8.10 Traffic Congestion. Traffic congestion has become a serious problem in Metro Manila and Cebu and is beginning to become a concern in the central business districts of larger secondary cities. This problem is due to the growing number of motor vehicles which has not been matched by a corresponding increase of road space and improved traffic management of existing road space. Further accentuating the problem is a lack of well planned and devel- oped secondary arterial and distributor road system to support a reasonably good primary arterial system.

8.11 High Accident Rate. From qualitative evidence and by analysis of limited accident data, it can be stated that there is a serious traffic SR85761/J112330/D1368/33

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safety problem in Philippine urban areas. Even discounting possible large discrepancies in reporting procedures, it is clear that urban areas suffer from very high accident rates. Recent data show that the Philippines has about double the traffic accident casualties as most developed nations on a per capita basis.

8.12 Poor Pedestrian Conditions. The pedestrian fares poorly in many parts of the larger Philippine urban areas. Along principal arterial streets where pedestrian protection needs to be the greatest, not enough attention has been directed toward constructing and maintaining continuous pedestrian travel networks. For example, in Manila 42% of all primary road links have no sidewalks or they are in poor condition. The result is that in many locations pedestrians are forced to mix on street with moving vehicular traffic to the detriment of the pedestrian and motorist alike. At intersections, pedestrian crossings are generally not well marked and motorists seldom yield to pedes- trians. Given the low density of traffic signals, few "safe" pedestrian crossing locations exist. Analysis by the traffic management unit in Manila shows that a disproportionate proportion of traffic victims are pedestrians: approximately 45% of those seriously injured and 75% of all those killed by traffic accidents in the city are pedestrians./l

8.13 Poor Pavement Conditions. Principal urban roads are generally not maintained to an acceptable standard which has adverse impacts on vehicle operating costs, road safety, and travel comfort. Secondary streets are in an even poorer state of repair. Road pavement conditions vary considerably among cities but poor pavement conditions are common in most urban areas.

8.14 Unbalanced Road Development. Many cities have a good primary arterial road network, but a very limited or poorly developed secondary network with consequent traffic concentration on and overtaxing of this network. The quality of the urban road system is highly variable among Philippine cities, even among those in the same size class exhibiting similar traffic problems. This suggests that there is a lack of balanced planning and budgeting to meet system needs. For example, 62% of all roads are paved in Bacolod, while only 15% are paved in Davao.

Proposed Remedies

8.15 Improve Traffic Management and Enforcement. The traffic conges- tion, high accident rates and poor pedestrian environment problems described above are all symptomatic of the indequate level of traffic management in the principal Philippine cities. While some streets are well designed

/1 Stanley A. Mack, paper presented to 11th National Road Safety Convention, Manila, May 26-27, 1981. SR85761/J112330/D1368/34

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for traffic management, inadequateintersection design, lack of intersection control, inadequate street signs and markings, and poor lighting conditions are the rule rather than the exception. With the exceptionof TEAM in Manila and MCLUTS in Cebu, no Philippine urban area has a staff of trained traffic engineerswho concentrateon traffic managementproblems./l Moreover, deficienciesin traffic management are aggravatedby the general lack of disciplineon the part of both motorists and pedestrians.

8.16 Enforcementof existing traffic laws is noticeablydeficient in Manila and in other Philippine cities. Among the more serious problems are: non-observanceof traffic signals, lack of traffic lane discipline,public transit vehicle picking up/setting down passengers in the roadway, and non observance of pedestrian crossings. This lack of enforcementcontributes greatly to traffic congestion and accidents.

8.17 Upgrade Transport Planning and Programming. Traffic congestion and unbalanced road developmentin Philippinesurban areas is due in large part to weak transportationplanning and programming. To date comprehensive transportationplans have been developedonly for Metro Manila, Metro Cebu, and Davao. While these plans have had some impact on subsequent investment there has not been a consistent and coherent follow-upin which transporta- tion plans (or modificationsof these plans) have been systematically translated into realistic investmentprograms. Furthermore,in Metro Manila there have been a proliferationof studies the results of which have not been consistentor complementary. At the national level the lack of strong investmentprogramming among the key agencies - MPWH, MOTC, NEDA - has led to a wide diversity in the level of transport investmentsamong the principal Philippine cities.

8.18 The followingmeasures are recommended:

(a) Comprehensivetransport plans should be developed for all major cities (say, over 100,000 population)and should be regularly (every 5-10 years) updated.

(b) All significantcities (say, over 50,000) should have rolling 3-5 year capital investmentprograms which include urban transport investmentsin the context of other urban investments and a realisticestimate of available funds.

/1 The Traffic Engineeringand Management (TEAM)unit in Manila has been assisted by the First Urban Project (Credit1272/Loan 1282-PH) and the Metro Cebu and Land Use TransportationStudy was financed initiallyby Australian aid and more recently assisted by the Urban Engineering Project (Loan 2067-PH) for the preparation of a proposed Central Visayas Urban Project. SR85761/TT-119/D1368/35

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(c) At the national level, there is a need on the part of the key line agencies (MPWR and MOTC) to recognize the growing importance of urban transport as a specific problem, and to start aligning their planning and budgeting processes to deal with this. At present, planned highway investments are categorized by region and by road category; introduction of an urban/rural differentiationwould be useful for analysis and planning.

(d) The Committee on Transportation Planning comprising the principal agencies concerned with urban transport (MPWH, MOTC, and NEDA) should continue to meet regularly with the aim of setting investment policies and priorities. These priorities should be based on a systematic analysis of needs.

8.19 Clarify Jurisdictional Responsibilities for Constructing and Maintaining Urban Road Systems. Substantial variations in road system development are exhibited when considering jurisdictional responsibilities. A particularly surprising finding was that barangay roads constitute a very significant percentage of total road kilometerage in most Philippine cities. In most cases the barangays do not have the technical and financial means to deal with their extensive urban networks. Based on the considerable observed disparities in jurisdictional contributions to the development of urban road networks among major Philippine cities, the following actions are recommended:

(a) existing road systems in all cities should be subjected to a standardized functional classification in order to system- atically assess needs and to assign responsibilities (especially funding) for road construction and maintenance;

(b) a corresponding action program for reassigning jurisdictional responsibilities should be developed; the possibility for reducing or eliminating barangay involvement in urbanized road system construction and maintenance should be specifically investigated in view of their limited technical and financial resources; and

(c) clearer criteria for determining jurisdictional responsibilities for financing new road construction should be developed.

8.20 Upgrade Urban Road Maintenance. The financing of urban road maintenance is essentially controlled by MPWH, which disburses budgeted funds through its 13 regional offices which, in turn, pass the funds to the districts and cities. Actual maintenance work is carried out by District and City Engineering offices almost entirely by force account. Only about 2% of MPWH road maintenance budget is allocated to cities for roads under its jurisdiction. SR85761/TT-119/D1368/36

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8.21 The allocation mechanism to local units of government is based on a per kilometer funding system. Cities receive only one third of the estimated total cost of road maintenance for streets under their jurisdiction to be matched by two-thirds local funds. In practice, however, even the total allocation for maintenance of city streets is not sufficient; therefore, cities generally concentrate their annual maintenance budgets on small por- tions of their overall network to maintain adequately critical segments and to rehabilitate portions in the worst condition.

8.22 Recent project preparation studies /t suggest that local road main- tenance budgets should be at least double current levels. Cities typically have inadequate or poorly maintained equipment to conduct appropriate road maintenance; maintenance tends to be remedial as opposed to preventive; and staff appear to lack training and sufficient motivation.

8.23 Since 1980, responsibility for funding barangay road maintenance has been transferred to the Ministry of Local Government (MLG). But neither the MLG nor the barangays have experienced staff or equipment. While having no official role in maintaining barangay roads, the city engineers office is often requested to provide technical and equipment assistance. Overall, this dual jurisdiction system does not appear to be working satisfactorily.

8.24 Based on the above observations it is recommended that (a) MPWH and particularly the cities allocate a higher level of annual funds for road maintenance; (b) cities establish carefully formulated routine maintenance programs; (c) a nationwide program be developed for training municipal officials in road maintenance; and (d) the role of barangays in urban road maintenance should be reviewed with a view to its reduction or elimination.

8.25 Increase Central and-Local Level Funding for Road Construction. The majority of all capital investments in urban roads has been made by the Ministry of Public Works and Highways. Cities and municipalities by compari- son contribute very small sums to road investment. Even in the National Capital Region, where municipal finance is strongest, local government investment has up to recently been less than 20% of the total road construction budget.

8.26 Given Metro Manila-s sizeable population, and its contribution to the national economy, this area deserves especially careful transport investment consideration. The great bulk of urban transport spending up to 1980 has been on roads, with lesser investments in the bus and rail systems./2 It appears that over the past several years the Metro Manila

/I Cowiconsult on urban road maintance in Davao for the Regional Cities Development Project.

/2 Port and airport investment is treated here as national rather than as urban investment. SR85761/TT-119/D1368/37

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region has received about 10% of the MPW{ highway investment for the country as compared to its 12.4% share of the total population and 40% of the vehicle fleet. If this modest level of investment is not increased traffic conditions will severely deteriorate and the basic road system will not be adequately developed on the urban fringes. An important positive trend, which should be encouraged, is the increasing share that local (city and municipal) governments are contributing to urban road construction in Metro Manila; during the 1977 to 1980 period the share of construction expenditures by local units of government rose from 14% to 31% of total funding.

8.27 Outside Metro Manila, MPWH urban road investments in principal Philippine cities have tended to be small over the last several years. Furthermore, the investments have tended to occur in "lumpy" project invest- ments rather than in sustained programs. Investments overall are well below Metro Manila and the national average. There is need for increased invest- ments in urban roads in principal secondary cities outside metro Manila.

C. Public-Transport

Description and Evaluation of the Existing System

8.28 The urban public transport system in the Philippines is one of the most unusual in the developing world. A dominant proportion of all person-trips in principal cities is accommodated by jeepneys most of which are operated by drivers who rent vehicles on a daily basis from jeepney owners. The only intra-city bus service with typically sized buses (40-60 seats) serving fixed routes is in Metro Manila where the Metro Manila Transit Commission (MMTC) and several private bus companies provide service; but their total combined patronage is less than half of that of jeepneys. Taxi service is available in Manila and in principal secondary cities but is too expensive for general use by most of the general public and thus is not a significant public transport factor.

8.29 The urban public transport system is overwhelmingly a private enterprise operation. The only publicly owned services at present are the bus system (about 850 units) of the Metropolitan Manila Transport Commission (MMTC) and commuter rail services operated by the Philippine National Railways (PNR). Together these services account for about 7% of the 8 million daily public transport trips in Manila. Cities and towns outside Manila are served entirely by privately owned and operated public transport.

8.30 Assets. The Philippines urban public transport system must be considered good for a nation at the Philippines level of economic development. It is generally convenient (good system coverage, high frequency of service, reasonably reliable, and reasonable speeds in most locations) and is affordable by the majority of the population. Furthermore the system is provided to the general public almost entirely by the private sector with very SR85761/TT-119/D1368/38

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little governmental subsidy. The area of coverage of public transport is especially good. For example, essentially all residents of the built up area of Davao are within 250 meters of jeepney routes and most routes are served at headways of one minute or less. In less dense areas, tricyles provide a feeder service to the jeepney or bus routes, bringing public transport almost "door-to-door."

8.31 Liabilities. While the general level of public transport mobility appears to be high, a number of major problems limit the performance of the system. The emergence of moderate to severe traffic congestion along selected major arteries, which increases travel times and limits capacity is a major concern. Other problems are long travel times (in Metro Manila and Metro Cebu), too many transfers, excessive fuel consumption, unsafe driving, .ruinous" competition, and excessively fragmented ownership that is difficult to regulate. Air pollution also appears to be a further problem. While public transit is affordable to most families, fare levels unquestionably restrict the frequency of use of the system by the urban poverty group which constitutes about one-third of the urban population.

Proposed Remedies

8.32 Route Rationalization. In an effort to improve the level of service provided by the public transport system, MOTC and BOT are investigating the possibility of rationalizing the route structure of public transport modes in Manila. The specific objectives are: (a) to define complementary roles for buses, minibuses, and jeepneys; and (b) to determine the required number of public transport vehicle units on each of the proposed routes. Based on indications to date, the MOTC/BOT team has tended towards a solution that would constrain jeepney operations on principal thoroughfares, in favor of full size buses.

8.33 A major reason for Government's serious consideration of this approach in Metro Manila is derived from the recognition that the bus has a theoretical passenger carrying capacity per unit of road space that is about double that of the jeepney. An additional objective of the route rationali- zation effort is to reduce the fuel consumption associated with public transport travel, as the higher capacity public transport modes consume less fuel per seat-kilometer.

8.34 The proposed route rationalization scheme in Metro Manila may indeed increase passenger-carrying capacities in the affected corridors and, if adopted, may save up to 2% of national transport petroleum consumption. However, these benefits come at the high cost of banning the popular, efficient, and self-supporting jeepney. Rationalization is likely to mean less frequent service, more standing, and possibly more transfers (which may mean higher costs to patrons). There is danger of downgrading a system that is generally successful in serving the public and is self-supporting, with a system which has proven to be less popular and less profitable (if not unprofitable). It is concluded that: SR85761/TT-153/Dl368/39

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(a) a complete restructuring of jeepney operations to complement line-haul bus services on principal streets by acting as a feeder service is likely to be too abrupt an evolution at this stage in Manila's public transport development. The resultant decline in service will be too sharp in relation to likely congestion reduction and fuel savings.

(b) Only when it is established that measures aimed at increasing the capacity and restricting low-occupancy vehicle use - principally automobiles - will not sufficiently reduce congestion to acceptable levels should the number of jeepney operations be restricted in favor of encoraging higher occupancy buses to increase the efficient use of available space. Given the technical and political problems associated with restricting jeepney operations on congested streets, a careful stepwise approach in which the impact of Government policies are tested might be the most practical approach.

(c) Along routes or in areas where congestion is not a substantial pro- blem, allowing entry to all qualified jeepney operators appears appropriate. The resultant strong competition should encourage retention of low fares consistent with the need to serve the urban poor at the lowest possible rates (para. 1.06). The argu- ment that this will result in ruinous competition does not appear to be supported by current conditions under which jeepney patronage is growing, illegal operations exceed legal franchise by a wide margin, and those wishing to become jeepney drivers substantially outstrip available openings.

(8) High priority should be directed at addressing the currently "chaotic" aspects of jeepney operations, especially congestion - causing illegal stopping and hazardous driving, through (i) pro- vision of complementary traffic management measures; (ii) improved traffic enforcement; and (iii) development of organized cooperatives or associations to promote industry self-discipline.

8.35 Light Rail System Investment. Since the late 1960s a number of alternative proposals have been considered for expanding the capacity of Manila's public transport system by constructing monorail, heavy rail, or light rail transit (LRT) services, each on a segregated right of way. The most recent comprehensive transport study for Manila (September 1977) rejected all of the fully segregated rail options, concluding that any such system would be uneconomic and would require the appropriation of most, if not all, of the available funds for transport in Metro Manila for the foreseeable future. Along with pricing restraints on private cars and express lanes for high-occupancy vehicles, the study recommended a European style street-level LRT system at a cost of P 4 million/km in 1977 prices. After several additional studies were completed, the MOTC in late 1979 concluded that an elevated 15 km line along the Taft-Rizal corridor should be constructed at a (1979) cost of P 135 million/km. SR85761/TT-153/D1368/40

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8.36 The elevated double-track system is being built on single concrete columns in mid street, with 18 stations located every 600-700 m and connected by stairways to street level./l Total costs for the Taft-Rizal line are estimated to be P 2.1 billion, including possible cost escalation and physical contingencies: P 1.1 billion for the civil works and P 1 billion for equipment and track. Construction commenced in late 1981 and the line is scheduled to go into operation in 1984.

8.37 System Patronage and Financial Status. With 64 railcars the initial capacity of the system is estimated to be 20,000 passengers per hour per direction in the range of 400,000 to 700,000 total passengers per day. While the LRT system can be expected to attract longer trips by virtue of higher travel speeds, jeepneys will continue to attract most of the shorter trips in the corridor. System patronage and overall LRT financial status is likely to be highly dependent upon the fare levels set for the LRT. Current Government estimates are that the fare should be in the range of P 1.0 to P 1.5 (compared with P 0.65 for the existing basic bus and jeepney fare) in order to balance the objectives of maximizing profits and patronage. Numerous studies have been made of LRT finances based on various levels of patronage, fare, and cost estimates. The most recent estimate is that a P 100 million annual subsidy may be required for the first 10 years of operation./2

8.38 LRT Extensions. With the Taft-Rizal LRT line under construction LRT planners have studied a number of potential extensions to this first line, both on radial and circumferential routes. However, further invest- ments are being deferred pending a careful analysis of the actual patronage and financial performance of the initial LRT system.

8.39 The following are recommended for Government consideration regard- ing investment in rail transit within Metro Manila:

(a) The following steps to minimize the substantial financial losses the system is likely to incur should be strongly supported: (i) efforts to provide feeder-bus services, especially at the north and south terminals; (ii) a careful review of fare levels to optimize net revenues; and (iii) consideration of the potential for increasing patronage by encouraging intensive urban develop- ment at or near the stations.

/1 The construction is being carried out by the Constrution and Development Corporation of the Philippines (CDCP), and the system will be operated by Meralco Transit Organization, Inc.

/2 Metro Manila Urban Transportation Strategy Planning Project - Final Report, Part A, page 7, April 1983. SR85761/TT-151/D1368/41

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(b) Construction of further light rail lines should be deferred pending a re-examination of the financial and economic feasibility of system expansion especially with regard to alternative traffic management and infrastructure options. Interim measures could be taken to defer the costly option of LRT expansion, such as traffic management policies aimed at giving priority to high occupancy vehicles and selected investments in road infrastructure.

D. Urban Transport Institutions

8.40 Institutions involved in transport are described in Chapter 3. This section presents institutional recommendations for urban transportation in the following general categories: (a) Transportation Planning, (b) Road Design, Traffic Management, and Enforcement, and (c) Public Transit Regulation.

Transportation Planning

8.41 The following recommendations are suggested to improve the institutional aspects of urban transportation planning:

(a) Given their current respective mandates MPWH and MOTC will need to share and coordinate assistance to local units of government in producing urban transport plans and programs. While MOTC has the prime resposibility in preparing multi-modal transport plans, MPWH has imporatant responsibilities in road programming, design, construction, and maintenance. While MOTC could initiate the urban transportation planning process, MPWH would need to become heavily involved as the process moves towards funding and imple- mentation. This sequential approach would likely prove to be awkward and could result in the implementation agency - in most cases MPWH - questioning assistance rendered by MOTC. A more pragmatic approach would be to have both ministries jointly involved in the planning and programming exercies from the incep- tion.

(b) Consider providing a joint MOTC/MPWH team to assist local units of government in comprehensive transport planning. As a practical matter, MOTC may not (and probably should not) attempt to attract all the skills to develop comprehensive transport plans for Philippine urban areas especially in the areas of detailed road planning and traffic management planning. A more pragmatic solu- tion may be to provide joint MOTC/MPWH technical assistance plan- ning teams to assist urban areas under overall MOTC guidance.

(c) Gradually shift urban transportation planning from the national to the local level. Urban area transport planning should be responsive to unique urban area needs and accordingly eventually should become a local function. This transfer may be accomplished in several ways. One example is the Metro Cebu transportation SR85761/TT-151/D1368/42

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planning experience where a special project team was assembled on-site and a significant component of locally recruited staff was included. The project serves as a training mechanism for the local staff which can ultimately be absorbed by local government. In Metro Manila and Metro Cebu immediate steps should be taken to institutionalize transportation planning on a full time basis with competent staffs.

Road Design, Traffic Management and Traffic Enforcement

8.42 The following are suggested to improve the institutional basis for improving road design and traffic management:

(a) The Urban Roads Projects Office should be strengthened to provide urban road design assistance to urban areas. Regional offices of MPWH and local units of government clearly need assistance in designing highways and streets within urban areas. An evolutionary process similar to that noted for transport planning in MOTC should be used. Namely, a core group within the Urban Roads Projects Office should be strengthened and trained first; this group should assist in training field office staff of MPWH an"a 103?o-t{ engineering offices, and the function should gradually devolve to the local level with monitoring and support from the national level core group.

(b) Consideration should be given to developing a national core group for traffic management. Improved traffic management is the most cost-effective means available for improving transport in the urban areas. Since traffic management is directly related to solving specific problems in given urban areas and is an on-going activity, the institution should be locally based. Traffic engineering, however, is a speciality skill, and its availability in the Philippines is extremely limited and hard to develop. The only in-country resources are being developed through two projects, TEAM and MCLUTS. TEAM is currently attached to the MPWH and MCLUTS and is monitored by MOTC with some assistance by NEDA. In essence, no firm institutional structure exists since both examples are project groups, not operational agencies. However, given that TEAM is the more experienced and it is attached to the road building agency, it is the logical group to provide similar services to other cities. Emphasis should be placed on continued staff development and training of this core group. Staff teams could then be assigned to given urban areas and to train district MPWH and local staff. The ongoing work could be accomplished locally with core-group monitoring and technical support.

(c) Consolidation of traffic enforcement units should be considered. The need for improved urban traffic enforcement improvement in the urban areas of the Philippines is obvious and particularly crucial in Manila and Cebu. The number of violations of BOT regulations - parking, loading and unloading, and general traffic regulations - SR85761/J108621/D1368/43

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are substantial. The enforcement problem is essentially three- fold: (i) lack of clear institutional responsibility; (ii) severe undermanning; and (iii) widespread corruption. As with transport planning, several agencies are involved in traffic enforcement in the Philippines with overlapping functions namely the PC/INP, CHPG, MMC, and BLT. Resources in the CHPG and BLT are so restricted that serious enforcement is not possible.

Regulation of Urban Public Transport

8.43 Franchising. BOT's franchising responsibilitiesare carried out by means of a quasi-judicial process which requires that each proposed franchise change be considered at a public hearing, typically with full legal represen- tation for each of the interested parties. All public hearings are conduc- ed in Manila. Applications from outside Manila are processed by one of BOT's eleven regional offices and then forwarded with recommendations to BOT staff in Manila. This is a very expensive and time-consuming process; a'decision on a typical application with no problems takes about six months and costs the applicant a minimum fee of P 100 per operating unit plus legal repre- s entation.

8.44 Because of the time and effort required by the quasi-judicial process and the limited BOT staff size, BOT is unable to process expeditiously the almost 100,000 applications it receives annually from tricyle, taxi, jeepney, school bus and tourist bus operators. Some applications have been pending for almost five years. BOT has circumvented this tedious process to some extent by issuing provisional franchises pending a hearing. In practice these temporary franchises are often extended and the required hearing may never occur. BOT's inability to process franchise requests expeditiously has led to a large number of on-the-street changes occurring without BOT approval.

8.45 Senior BOT officials are anxious to find an administrative means of clearing this backlog and generally streamlining public transport franchising. One favored proposal is to eliminate the quasi-judicial process entirely and replace it with a strictly administrative function, though concerns exist about ensuring adequate opportunity for existing operators to express their views on proposed changes.

8.46 Fares. With regard to urban public transport fares, BOT approves the same fare structure (with a few minor variations) for the entire country. Compared to entry and route controls, the fare structures specified by BOT appear to be relatively better respected. Fare increases have been made regularly to reflect price inflation (particularly for fuel), apparently without any significant public protest. Nevertheless, individual operators sometimes charge more or less than the regulated rate depending on market conditions; this indicates the need for greater flexibility in setting rates. SR85761/TT-153/D1368/44

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8.47 Principal Public Transit Regulation Conclusions. The relatively good service provided by urban public transport combined with the near collapse of the regulatory system designed to improve service suggests the need for a fundamental restructuring of urban public transport regulation in the Philippines. Described briefly below are the principal recommendations:

(a) The regulation of intra-urban public transport should be decen- tralized. The administration of thousands of applications in Manila by authorities who cannot be fully aware of local conditions is bound to be less than satisfactory. Furthermore, assuming reasonable regulatory competence can be achieved at the local level, there is very little justification for central government involvement since intra-urban public transport does not involve service to many local governmental unit areas as does inter-city bus service.

(b) There should be a careful but sustained trend toward easing of regulatory restrictions on urban public transport. Beyond the lack of capability to enforce current public transport regula- tions, there is considerable doubt if the current regulatory framework, which touches on virtually all aspects of operation, is appropriate. Clearly there is a case for maintaining regula- tory controls to assure that drivers are qualified and that vehicles are safe. Thus complete deregulation of public trans- port services is not a viable option. The issue is one of degree rather than elimination of regulatory controls. However, there does not appear to be a strong case for maintaining the current considerable regulatory controls on market entry and route assign- ment (with the exception of a few heavily congested corridors in metro Manila and Metro Cebu). Based on the observed high level of service offered to urban residents - in some cases by illegal operators - it does not appear that unrestricted entry would result in "ruinous competition" in urban areas. Furthermore, a liberal entry policy is probably the best means to hold down fares which has major implications for the low income group. There is little evidence to support the contention that significant portions of urbanized areas are underserved. Even if they were, liberal market entry, routing and fare policies would probably be the best way to assure service to underserved areas. Perhaps the best way to move toward the objective of easing regulatory restrictions is to test the process in a few pilot cities. Recent study recommendations on truck routes and rates appear to be a step in the right direction./3

/3 Metro Manila Urban Transport Strategy Planning Project - Part A, Draft Final Report, DCCD Corporation and Pak-Poy Kneebone Pty, Ltd., March 1983. SR85761/TT-151/D3201/02

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9. TRANSPORT INVESTMENT PLAN FOR 1983-87: NTPP REPORT

A. Introduction

9.01 Subsequent to the completion of the draft yellow cover report of the Sector Mission, the National Transportation Planning Project (NTPP) team engaged in developing a Five-Year Investment Plan for transport submitted its recommendations. This chapter attempts to summarize and evaluate NTPP's investment suggestions.

9.02 The main objectives of the NTPP study were the following:

(a) to determine the investment needs in the country's transportation network over the five years, 1983-87;

(b) to determine the orders of priority among the projects identified; and

(c) to recommend projects for further feasibility studies and detailed engineering.

9.03 In developing its investment program, the NTPP team made the following assumptions

(a) gross domestic product of the Philippines would grow about 6.1% p.a.;

(b) Population growth would average 2.3% p.a.;

(c) Per capita consumption would grow 2.2% p.a. on average; and

(d) The income elasticity of demand for passenger transport would be 1.4 for public vehicles, 1.8 for private cars and 0.95 for freight.

9.04 Subsequent events have made it clear that GDP growth on the average is likely to be less - around 3-4% p.a. On the other hand, the income elasticity of the demand for freight transport appears to be understated considering the experience of countries at similar stage of development.

9.05 In evaluating the economic feasibility of investment projects, the team has generally used order-of-magnitude cost estimates and 15% as the minimum economic return required. For forecasting freight traffic, the team reviewed current patterns of traffic flows both within the larger islands and between the various islands. In addition, it studied the flows of major commodities (e.g., copra, fertilizer and cement) and possible future production trends to establish a basis for evaluating investment proposals. The present pattern of passenger traffic flows was also studied. SR85761/TT-157/D3201/03

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B. Recommended Investment Program

9.06 On the basis of their studies, the consultants have recommended a total investment program for new projects in the transport sector of P 7.65 billion during 1983-87, allocated as follows:

P million

Roads 6,358 Railways 382 Ports 298 Airports 616

Total 7,654

The balance among the modes appears somewhat distorted as these do not include ongoing investments which amount to substantial sums for highways and ports and to very little for railways.

9.07 While Bank staff are in broad agreement with these recommendations, given the circumstances in which and the time at which the study was under- taken, they wish to emphasize that the actual plan must be reviewed continu- ally to take into account changing economic conditions and priorities. The growth prospects facing the Philippines at present are, for instance considerably lower than when the study was done, and this should be reflected in the actual plan implemented, as for as is practicable. The study also did not explicitly consider the possible size of the overall investment plan and its distribution among sectors. Therefore, while the recommendations of the study provide a useful starting point, these should be reviewed regularly as part of the overall investment planning exercise. Also, the projects recommended need further detailed studies, especially technical, engineering and economic studies based on current conditions and prospects, and the ultimate decision on any particular project should be based on the results of those studies. Nor do NTPP's recommendations cover rural roads (which constitute a growing portion of the Government's allocation for transport), pipelines (which are not yet important in the Philippines) and urban transport (since the NTPP was primarily inter-urban in scope).

C. Highways

9.08 NTPP limited its investigation of highway projects to the main inter-urban network, essentially the national road system, and to areas where significant population centers are not connected to the present road network. The vast majority of projects identified by NTPP are improvements of existing facilities. SR85761/TT-157/D3201/04

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9.09 For the assessment of road improvement projects, NTPP used, as a screening device, an analysis based on average conditions such as road surfacing, volume of heavy vehicle traffic, etc., and the first year rate of return using standardized costs but with specific information on volume and composition of traffic and on vehicle operating costs.

9.10 The proposed projects are divided into two groups: Type "A" projects justified by road user benefits; and Type "B" projects justified by anticipated social and economic development benefits. Type "A" projects are further subdivided into four groups according to economic feasibility ranking. For Type "B" projects no ranking is made within the group.

9.11 In summary, NTPP has identified new (uncommitted) road projects for a total investment outlay of some P 6.4 billion as economically justifiable for implementation during the 1983-87 period.

9.12 The study has, however, stated that the deteriorating condition of the road network is one of the most critical issues facing the transport sector, and inadequate maintenance is the main factor for this state of affairs. It feels that inadequate funding may be a factor, but it is not the only problem that needs to be addressed. NTPP recommends that MPWH should:

(a) upgrade the road maintenance organization and emphasize that proper and efficient maintenance of existing facilities has priority over any expansion or improvement project;

(b) carry out a detailed inventory of the road network, determine the road condition, and identify which roads can be adequately maintained, which are to be restored, and which need to be reconstructed;

(c) provide for adequate maintenance funding by increasing the allocation by some 50% above the present level;

(d) institute a system for monitoring and cost accounting of field maintenance operations;

(e) use private contractors for the execution of periodic maintenance;

(f) establish a permanent calamity fund to avoid arbitrary allocations for national disasters from the regular maintenance budget; and

(g) expand the present road restoration program to a level that will bring the network to a maintainable condition in a reasonable period of time.

9.13 Bank staff strongly support NTPP recommendations on road maintenance. As MPWH has recently begun to recognize road maintenance as its highest priority, some progress is already being made. MTWHI is SR85761/TT-157/D3201/05

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executing pilot maintenance programs in four regions and has embarked on a countrywide road condition inventory. The proposed Fifth Road Project will provide further support to MPWR in this matter.

D. Railways

9.14 The NTPP study concludes that, on the basis of known traffic prospects for the immediate future, the operations of the Philippine National Railways cannot be economically justifiable. The Main Line South rehabilita- tion project (P 500 million), nearing completion, appears unlikely to give a satisfactory economic return. If PNR as a whole cannot be closed down for social and other reasons, the NTPP study recommends that the Main Line North, which is a much more expensive operation relative to traffic volumes, should be abandoned (except possibly for Metro Manila commuter services).

9.15 As, however, the Government has decided to retain PNR as a whole, the NTPP team recommends minimum investments to keep the North Line open to service. On the Main Line South, it recommends the completion of the ongoing rehabilitation project and the deviation works in the far south (to avoid unfavorable soil conditions). In addition, the provision of adequate rolling stock maintenance facilities is recommended as the minimum new investment, since without them there is little prospect of success for PNR, as well as the purchase of some rolling stock and track maintenance equipment. Based thereon, the Government has decided on an overall program of new investments totalling P 788.5 million, of which P 400 million is for repair and acquisition of rolling stock and P 108.5 million for rehabilitation of the Main Line North.

9.16 The study concludes that no new railway project proposals should be taken up in the near future, as none of them have adequate economic justification. It recommends that traffic development on PNR should be closely monitored over the next few years and all new investment proposals carefully evaluated. Bank staff support this recommendation.

E. Ports

9.17 In the maritime sector, the main development is the steady and rapid growth of containerization, in both international and domestic trades. NTPP is of the view that the development of facilities for handling this traffic is well in hand. The shipping fleet is being modernized by the private shipping companies, mainly through conversion of imported second-hand Japanese ships to handle containers. In ports, major investments to provide container handling facilities, among others, are already under way at Cebu, Iloilo, Zamboanga, Cagayan de Oro, Manila and Tacloban and for the acqui- sition of dredging and handling equipment involving an outlay of P3,000 million during 1983-87. NTPP recommends new investments totalling P 300 million covering some ll ports during 1983-87. At the remaining national SR85761/TT-157/D3201/06

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ports, the consultants conclude, on the assumption that an 80% occupancy is generally acceptable, there is sufficient capacity for the next 5-10 years.

9.18 NTPP recommends that attention should now shift to the secondary ports, but finds that only small extensions are needed at some 14 ports in the period up to 1992. NTPP believes that most of the other ports have adequate capacity. However, adequate capacity need not imply that the facilities do not need improvement or modifications to reduce costs and raise efficiency. In many of the smaller ports, the problem is not one of lack of capacity for the volumes of traffic offered (which is usually quite small) but of the very poor facilities available which impose very high handling and transport costs on the users. While considering facility improvements, however, a careful evaluation of the particular project's operations and long-term future should be made. Some ports may cease operations when roads in the region are improved facilitating connections to a larger or better port nearby.

9.19 To summarize, NTPP recommendations for new investments in ports are sound, but are perhaps on the conservative side. It is suggested that the recommendations emerging from the feasibility study for secondary ports soon to be undertaken by PPA, with the assistance of consultants financed under the Bank's Third Ports Project (Loan 1855-PH), should be used as the basis for selecting secondary ports to be developed during 1984-87.

F. Airports

9.20 The NTPP study reviewed the scale and pattern of investments on airport improvements during 1983-87 proposed by BAT and other proposals and concluded that an investment of about P 600 million in airport infrastructure would be adequate during 1983-89. Included in this is a proposal to build a new airport at Canlubang for Manila's general aviation traffic. It finds no economic justification for any other new airport.

9.21 In NTPP's opinion, to enable all-weather service by turbo-props, runway, taxiway and other improvements are justified at some 12 /1 of the airports BAT has proposed for improvement. Also, work at Mamburao is already in progress and should, therefore, be completed. NTPP feels that runways should be extended at Masbate and Romblon to enable all-weather operation by turboprops without payload restrictions, at Butuan and Roxas for BAC-111 operation, and at Davao to bring it to the same standard as Cebu and Zamboanga. It concludes that the need for runway extension at other airports during 1983-87 has not been adequately established.

/1 Allah Valley, Basco, Bislig, Cagayan de Sulu, General Santos, Jolo, Masbate, Ormoc, Ozamis, Sanga-Sanga, Tandag, and Tuguegarao. SR857616/TT-151/D3201/07

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9.22 As regards widening of runways, NTPP supports the proposalsto widen runways at ll airports. As for terminal facilities,the most important project concerns the conversion of the old international terminal at Manila into a domestic terminal, or a PAL terminal for both domestic and internationaloperations. The second priority project is to improve passenger facilitiesat Zamboanga. Terminal building improvementsare planned for 12 other airports,of which NTPP believes 9 to be justified and the other three (Malabang,Mamburao and Vizan) worth closer examination.

9.23 In summary, the NTPP report concludes that the followingnew investments in airport facilitiesare justifiedover the period 1983-87:

P million

Runway, taxiway, apron paving for all-weatheroperations 50

Runway extension for jet aircraft operations 35

Runway widening 65

Terminal building improvements 25

Other general improvements 95

New airport construction 140

Improvement to air navigation facilities and air traffic control services 200

Feasibility studies, etc. 6

Total 616

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