Toll Road Fees and Willingness-to-Pay in the Philippines Crispin Emmanuel D. DIAZ Associate Professor School of Urban and Regional Planning University of the Philippines Diliman, Quezon City 1101, Philippines Telefax: +63-2-9206854 E-mail: [email protected] Abstract: The charging of fees for the use of infrastructure facilities such as toll roads necessarily prices out potential users whose willingness-to-pay is exceeded by the toll fees that are charged. This means that economic gains, such as travel time and vehicle operating cost savings, may not be realized for those who have been priced-out. It becomes necessary to verify if the cost-recovery aspect does not adversely affect the project’s economic viability. A description of the current level of willingness Philippine motorists to pay for the use of toll roads is presented and the implication of the current toll fees structures is discussed. Some lessons from the Philippine case are presented. Keywords: willingness-to-pay, toll roads, 1. INTRODUCTION Public Private Partnerships (PPP) in roads have been in the Philippines since the 1970s. Yet since then, only six toll roads have become operational. Even after the enactment of the BOT (Build-Operate-Transfer) Law, as amended in 1994, which laid down rules for private sector financing and development of infrastructure, only six projects were completed, of which two were the rehabilitation and extension of the North Luzon Expressway (NLE) and the South Luzon Expressway (SLE). The other four deals included: • Skyway (under the Citra Metro Manila Tollways Corporation) • Manila – Cavite Toll Expressway, MCE (under the Coastal Road Corporation) • Southern Tagalog Arterial Road, STAR (under the STAR Infrastructure Development Corporation) • Subic-Clark-Tarlac Expressway, SCTEx (under the BCDA) During the same period, neighboring countries, like Malaysia and Indonesia, which started having PPP in toll roads later than the Philippines, have increased their number of toll roads to 29 and 24, respectively. Vietnam and Cambodia which only recently began their own programs have already 2 each. These figures reflect a relatively poor performance of the Philippines in attracting private investment to road infrastructure. There have been several foreign funded studies that discussed the need for clearly process for developing a “pipeline” of toll road projects that take the business-worthiness of proposed toll road projects into account. Processes for business case have been recently gained more support, evidenced by specific funds being set aside for business case studies to be conducted under the auspices of the planning offices under the Department of Public Works and Highways. 1 Table 1 Regional Comparison: 1990 to 2007 – Private Investment in Toll Roads Infrastructure Year 2007 Number of Investment (US$ GDP per Country Population, Roads Capita (US$) Millions) (millions) Malaysia 29 7,992 27 14,225 Indonesia 24 2,706 220 3,990 Philippines 5 1,509 90 3,539 Vietnam 2 143 87 2,774 Cambodia 2 13 14 1,995 Source: Derived from basic figures of the World Bank Public Private Infrastructure Advisor Facility (PPIAF) database In relation to the development of new projects, it is necessary to have a clear view of the aspect that cuts through both the demand and supply side – the price (toll fees). This paper is to discuss the manner in which toll fees are set and adjusted in the context of the Philippines, the willingness of Philippine motorists to pay for the use of toll roads, a discussion of other issues affecting the setting of tolls, and finally discusses some lessons from the Philippine experience. 2. TOLL FEE STRUCTURE The following table summarizes the current toll fee levels averaged on a per-kilometer basis. What it shows is that these rates vary among these expressways. The fees do have a common attribute in that the fee levels for Class 2 and Class 3 are, respectively, twice and thrice the level for Class 1. Table 2 Comparison of Average Toll Fees (in Pesos/Kilometer)1 Expressway Description Class SCTE NLE STAR SLE2 Skyway MCE (Cars, Motorcycles, SUVs, Class 1 2.00 2.2 0.73 0.56 8.50 3.33 Jeepneys) Class 2 (Buses, Light Trucks) 4.00 5.49 1.68 1.12 17.00 6.52 Class 3 (Heavy Trucks) 6.00 6.59 2.59 1.68 25.50 9.85 Source: Compiled from recent toll fee matrices of the different toll roads 1 The current foreign exchange rate is 48.2 Philippine Pesos to 1 US Dollar 2 Alabang to Calamba section 2 Toll agreement documents are not very easy to obtain. Even the copy that the researcher was able to secure contained a specific clause stating that the contents of said contents were confidential and could not in whole or part be divulged to others without the express consent of all parties involved – and no divulgence would be allowed at “anytime, before or after expiry or earlier termination” of the agreement. While it can be understood that during negotiations and while there is competition between other prospective investors to win the project, once the selection has been made, the basis of the selection and the details of operational arrangements should be made public – in order to foster greater trust for the process of selection. Without this kind of track record, it is obvious that there will remain many private investors who would stay away from the business of providing toll roads. The toll fees are set based on negotiations between the government and the tollway operators. The toll agreement documents reflect the initially agreed toll rates and the manner by which future adjustments would be made. Several consumer price indices and foreign currency exchange rates are cited as part of the basis for these adjustments. Another factor is a value that is tracked against whether the date is within 15 years of the start of operation, with a lower value indicated for the years from 16 up to the end of the franchise coverage. With reference to the Metro Manila Skyway project in the Philippines, a toll rate adjustment formula was agreed upon which allowed for periodic adjustments based set escalation rates for particular years of operation. On the other hand, the agreement for the Manila-Cavite Expressway allowed for adjustments based on consumer price index and currency exchange rates. However, while these clearly stated arrangements make it very easy for regulators, the traffic volumes for the Skyway have not been high enough to generate sufficient revenues, partly because the revealed willingness-to-pay of motorists has not been very high. This is perhaps exacerbated by the fact that the Skyway is not very long, and therefore does not provide a very large amount of travel time savings. Also, it is in direct competition with the South Luzon Expressway which runs parallel underneath, and which has substantially lower toll rates While these methods of adjustment seems to have some basis (such as in the use of consumer price indices) it is not clear exactly that these necessarily track the profit position of the investor. The risk for foreign exchange is borne mainly by the users, as evidenced by the tracking of the exchange rate as part of the adjustment factors. What is the government policy for the project itself? Is the project meant to provide economic benefits in excess of the economic cost of doing it (as is common evaluation basis for “ordinary” government roads)? There is no mention of monitoring economic welfare in the areas served by the road. From other papers (Diaz, 2009 to be published) it is clear that not all toll projects are economically viable since the toll fees required to make them profitable are just too high – resulting in the pricing out of a good portion of the expected beneficiaries. This means that the resulting traffic numbers are lower than if the prices were lower. 3. TOLL WILLINGNESS-TO-PAY IN THE PHILIPPINES Information on travel demand elasticities is an integral part of analyzing the potential revenue collection of proposed toll road projects. Not many studies have been made on this, and these 3 have tended to be kept confidential by the companies since these constitute a kind of trade secret. A number of studies do present some indication of the WTP aspect, and these are summarized below. Data from a WTP survey conducted as part of study for the Manila North Tollways Corporation (MNTC) by the UP-Planades in 2003 indicated that a 900% increase in toll fees would result in a 1/3 reduction in traffic numbers, especially for shorter trips. This relatively small reduction indicated that the toll fees at that time for the North Luzon Expressway (NLEX) were somewhat low. Using the data from the UP-Planades survey, the point at which the traffic would be maximum is extrapolated to a zero toll fee condition. In the opposite direction, the zero volume condition, or maximum toll fee after which no motorist will use the roads was extrapolated to be 5.584 pesos per km for a Type 1 Vehicle3. The traffic share within this range would be interpolated on this straight-line. Figure 2 shows this approximated demand (WTP) curve. The x-axis is the share of the maximum possible traffic, which is the traffic under the zero toll fee condition. This WTP curve is a very strong assumption and may not be exactly realistic for all project cases, since it is based on only one example of WTP in a location with its own peculiar road network and socio-economic condition. Also, this approximation does not account for the variation of WTP with the length or purpose of the trip, nor for the socio-economic characteristics of the respondents.