Malolos-Clark Railway Project (RRP PHI 52083) ECONOMIC AND FINANCIAL ANALYSIS A. Introduction 1. The proposed Malolos–Clark Railway Project will construct two sections of railway line, totaling 53.1 kilometers (km), along the North–South Commuter Railway (NSCR), a flagship project of the Department of Transportation (DOTr) that will provide a 162 km elevated double- track connection from Clark and Clark International Airport (CIA) to Calamba through Metro Manila.1 The two sections are as follows: (i) Malolos–Clark section, a 51.2 km extension of the Tutuban–Malolos railway line north to Clark and Clark International Airport; and (ii) the Blumentritt extension, a 1.9 km extension of the same line southeast from Solis station to Bluementritt station in Metro Manila District I (City of Manila). 2. The DOTr carried out the feasibility study for the project during 2017–2018, with financing from the Japan Ministry of Land Infrastructure and Transport through the Japan International Cooperation Agency (JICA).2 This linked document summarizes the findings of ADB’s due diligence and includes adjustments required to meet ADB’ guidelines. 3 The economic analysis was undertaken to assess the economic viability of the project. It compares the benefits and costs of with-project and without-project scenarios over a 45-year operations period to estimate the economic internal rate of return (EIRR) and the net present value (NPV) at a discount rate of 9%. The analysis uses the world numeraire; findings are presented in this document in United States dollars using an exchange rate of ₱53.0 = $1.00. A financial analysis was undertaken to assess the financial sustainability of the project. A detailed financial cost– benefit analysis is not presented here because the tariffs will not be set at a level sufficient to ensure full recovery of the initial capital, and attempting to do so would reduce ridership, and hence the economic benefits of the projects. The project investment decision is based on its economic viability. B. Economic and Sector Context 3. The new railway line will provide a much-needed rail-based option for travel within the Greater Capital Region, which comprises the National Capital Region (Metro Manila) and its surrounding provinces. To the north of Metro Manila, the main highways are the North Luzon Expressway (NLEX), and the MacArthur Highway. The corridor serves very high levels of demand, reaching 120,000 vehicles a day in 2018 just north of Metro Manila’s circular road No4 (EDSA), and more than 50,000 vehicles a day further north around Malolos. Demand on the corridor exceeds 50% of the network’s capacity, a level at which performance quickly degrades. Further worsening of travel conditions is likely, as road traffic has been increasing twice as fast as demand for travel in Metro Manila. This is because a growing number of people have been shifting from public road transport (buses and locally made “jeepneys”) to private cars. From 1994 to 2017, while the number of trips in Metro Manila increased by 80%, road traffic increased by 170%. 1 The sections of NSCR are expected to start operation as follows: (i) NSCR phase 1 (Tutuban–Malolos) by 2022, (ii) Malolos–Clark Railway by 2022, and (iii) the South Commuter Railway from Blumentritt to Calamba by 2023. The extension to New Clark City is expected to commence operation by 2025. 2 Feasibility study report prepared as part of detailed design study of the Malolos-Clark Railway Project, prepared by JICA for the DOTr in August 2018. 3 ADB. 2017. Guidelines for the Economic Analysis of Projects. Manila, and ADB. 2015. Guidelines for the Financial Analysis of Projects. Manila 2 4. The government’s regional development plans envisage a spatial development strategy called Center/Cluster–Corridor–Wedge that aims to enhance development along east-west and north-south axes to accommodate future population growth. 4 As Manila’s Ninoy Aquino International Airport (NAIA) already exceeds its capacity, the government plans to develop CIA as a premier international gateway that can serve as a viable alternative to NAIA as demand for air travel in Metro Manila continues to rise. At the time of this analysis (2019), CIA remained underutilized because of the lengthy and unpredictable travel time from CIA to Metro Manila by road (at least 2 hours), and the absence of a rail alternative. 5. To improve the transport situation in Metro Manila, the government, supported by JICA, approved a regional transport master plan in 2014—the Roadmap for Transport Infrastructure Development for Metro Manila and its Surrounding Areas. The roadmap was based on extensive traffic simulations of the future transport situation, using a multimodal transport model developed for this purpose—the Metro Manila Urban Transportation Integration Study (MMUTIS) Update and Capacity Enhancement Project (MUCEP) model. The MUCEP model integrated the results of household and person trip surveys carried out in 2014. The study tested various alternatives, including upgrading the existing road network, and alternative configurations for transport links. It concluded that, because urbanization was extending well into the Greater Capital Region north and south of Metro Manila, development of transport infrastructure along north–south axis was required. Initial estimates of travel demand indicated that at least two parallel expressways and two new mass transit rail links would be necessary to accommodate future travel demand. C. Demand Analysis 6. The travel demand assessment for the project rests on the MUCEP travel model, which is a four-stage transport model. The MUCEP transport database is based on the person-trip survey conducted in 2014, which was complemented by additional cordon surveys carried out in 2017. The base year and horizon year planning data and transport network were updated and the model was run to derive the ridership on the proposed Malolos–Clark Railway during the analysis period. The model adopted updated population and development projections for New Clark City and CIA. The model also considered all planned and committed road and rail network development in the study area. The projected annual population growth rates in the project area from 2015 to 2040 are 0.7% in Metro Manila and 1.26% along the Malolos–Clark Railway corridor. The employment growth rate is projected to be 0.8% in Metro Manila and 1.44% along the Malolos–Clark Railway corridor. The per capita trip rate was kept constant over the analysis period. The overall growth in personal travel in terms of trips is estimated at about 1.3% per annum up to 2040, not including additional demand from New Clark City. The population of the New Clark City development is expected to reach 344,700 by 2035. The model does not consider additional demand induced by the new rail line. Forecasts are thus conservative, as international experience suggests that urban development will concentrate along the new commuter rail line. 7. The NSCR will comprise a fully grade-separated rail line built along the existing alignment of the Philippines National Railways (PNR) North Luzon line, and will include 20 stations. The line will connect Manila with Clark and CIA through a range of commuter and express services. The most direct express service will connect Manila (at Solis station) and CIA in 54 minutes, while local services will connect in 72 minutes. Express trains will cover the 4 National Economic and Development Authority. 2017. Philippine Development Plan (PDP), 2017-2022. Manila 3 Malolos–Clark section in just 24 minutes, while local services will cover this stretch in 32 minutes. By comparison, travel by direct buses from Metro Manila to Clark takes 2–3 hours and can take up to 4 hours during peak times. 8. Surveys carried out during project preparation show that in 2017 about 75% of passengers on the Manila–Clark corridor were riding buses or jeepneys, while the remaining 25% were in private cars. It is estimated that 57% of public transport passengers will shift to the new rail services, as well as about 5% of private car users. The Tutuban–Malolos section alone would achieve a daily ridership of 148,000 passengers by 2025. Together with proposed Malolos–Clark Railway, daily ridership will increase to 342,000 passengers daily. Together with the South Commuter Railway Project linking Blumentritt with Calamba, scheduled for completion before 2025, it is estimated that ridership of the entire NSCR line will reach 696,000 passengers daily by 2025. 9. The Malolos–Clark Railway is scheduled to start partial operation in 2022. A four-year ramp-up of traffic was considered, which assumes that in 2022, 25% of estimated demand will materialize, increasing to 50% by 2023, to 75% by 2024, and to 100% by 2025. Table 1 provides ridership projections for the NSCR, and those attributable to Malolos–Clark Railway alone. Table 1: Project Demand Estimates Year Maximum Sectional Load Daily Ridership Malolos –Clark Phase I + Phase II + Phase I only Phase I and Phase II (PPHPD) Phase III 2022 2,750 47,000 81,000 2025 11,600 148,000 342,000 696,000 2035 12,600 155,000 365,000 984,000 2040 14,300 166,000 403,000 1,096,000 Notes: Phase I = Tutuban–Malolos section; Phase II = Malolos–Clark section and Bluementritt extension (the proposed project); Phase III = Bluementritt–Calamba section; PPHPD = Passengers in Peak Hour Per Direction. Source: Feasibility study and Asian Development Bank estimates. D. Economic Analysis 1. Economic Costs 10. The costs to be incurred for the project comprise