FARE RESTRUCTURING EXECUTIVE REPORT Date : 27 October 2010 1. Most urban railway systems in the world are not financially viable, but are

implemented for their socio-economic benefits. Our Manila Light Rail Transit (LRT) systems promote the use of high-occupancy vehicles, thereby reducing traffic congestion on the corridors served, local air pollution and greenhouse gases emissions. Besides the substantial savings in travel time cost of LRT riders, the LRT systems reduce infrastructure investment in Metro Manila road expansion.

2. In keeping with international experience, railway costs are covered by

passenger fares, government subsidies and, to a certain degree, by commercial development at stations and advertisement. Compared with urban railway lines in neighboring countries, our LRT lines are not generating substantial revenues from commercial development and advertisement. More importantly, the farebox ratios1 of the three LRT lines are projected to fall below 1.0, thus requiring greater government subsidies to cover operating and maintenance (O&M) costs.

3. With the last LRT fare increase in 2003 and road-based public transport

modes allowed substantial fare hikes, the LRT fares have fallen below the fare levels of Metro Manila buses (regular and air-conditioned services) as shown in Table 1. End-to-end fares of our LRT lines are even lower than jeepney fares (Table 2).

Table 1: Comparison of Average Passenger Fares, P/passenger

Ave Trip Length,

km

LRT Jeepney Metro Bus (Regular)

Metro Bus (Air-con)

AUV/FX

LRT 1 8.00* 14.20 11.20 14.55 17.60 20.00 LRT 2 8.08 13.51 11.31 14.70 17.78 20.00 MRT 3 8.61 12.30 12.05 15.68 18.94 20.00

Average 8.25 13.35 11.55 15.01 18.15 20.00 * Projected average trip length for LRT 1 with opening of Roosevelt Station Table 2: Comparison of LRT End-to-End Passenger Fares, P/passenger

LRT Line Length,

km

LRT Jeepney Metro Bus (Regular)

Metro Bus (Air-con)

AUV/FX

LRT 1 13.96 15.00 19.54 25.58 30.71 40.00 LRT 2 12.49 15.00 17.49 22.86 27.48 40.00 MRT 3 16.50 15.00 23.10 30.28 36.30 40.00

4. Keeping the LRT fares at their current levels would increase the total

government subsidy from P13.85 billion in 2010 to P17.06 billion in 2011 (Table 3).

1 Proportion of the fare revenues to the total operating and maintenance expenses

2

Table 3: Government Subsidy Level by LRT Line, P/passenger 2010 2011 (forecast)

Annual Ridership,

million

Full-Cost Fare

Gov’t Subsidy

Annual Ridership,

million

Full-Cost Fare

Gov’t Subsidy

LRT 1 160.81 35.77 21.57 177.51 47.36 33.16 LRT 2 64.56 60.75 47.24 67.14 59.08 45.57 MRT 3 153.70 60.03 47.73 155.73 64.38 52.08 Total

Subsidy, P Billion

13.85

17.06

5. The proposed LRT fare adjustment is expected to result in:

• Optimized ridership and revenue leading to the reduction in wear-and-tear of LRT/MRT systems/facilities and postponing the required capacity expansion (additional trains);

• Improved fare revenue to at least cover the O&M expenses thus reducing the government subsidies to the LRT lines and cross-subsidies to Metro Manila commuters by all taxpayers;

• LRT fund reserves for rail service improvements to increase train frequency and reliability, minimize waiting lines at ticket booths and gates, improve passenger facilities/amenities, etc.;

• Reallocation of government resources to other priority infrastructure and social services projects; and

• Send clear signal to private sector investors that regulatory risks will be minimized in future public-private partnership projects.

6. Three LRT fare options were established to approximate the prevailing fare of

air-conditioned buses, namely: P9 (boarding fee) + P1 per kilometer; P10 (boarding fee) + P1 per kilometer; and P11 (boarding fee) + P1 per kilometer. The P10 + 1 option will bring the LRT fare close to air-conditioned bus fares (Table 4).

Table 4: Comparison of LRT Fare Options with Metro Manila Bus Fares, P/passenger

LRT Fare Options Current LRT Fare P9+1.0/km P10+1.0/km P11+1.0/km

Regular Bus Fare

Air-con Bus Fare

LRT 1 14.20 17.00 18.00 19.00 14.55 17.60 LRT 2 13.51 17.08 18.08 19.08 14.70 17.78 MRT 3 12.30 17.61 18.61 19.61 15.68 18.94

Average 13.35 17.25 18.25 19.25 15.01 18.15 7. The LRT fare adjustment will generate additional income for the three lines

ranging from a minimum of P1.56 billion (P9+1 option) to P2.36 billion (P11+1 option). Table 5 presents the estimated reduction in government subsidies for each fare option.

3

Table 5: Reduction in Government Subsidy by CY 2011, P Billion Reduction in Subsidy Subsidy without

Fare Adjustment

P9+1.0/km P10+1.0/km P11+1.0/km

LRT 1 5.89 0.49 0.67 0.85 LRT 2 3.06 0.24 0.31 0.37 MRT 3 8.11* 0.83 0.98 1.14 Total 17.06 1.56 1.96 2.36

Note: Projected increase in MRT 3 subsidy over and above the P 7.2 billion allocated in DOTC Proposed CY 2011 budget 8. The maximum average increase in passenger fares is estimated at 44.2%

(from average fare of P13.35 to P19.25 under the P11+1 option). Table 6 shows the average increase of fares by LRT line.

Table 6: Average Fare Increase by LRT Line

Average Fare Increase, P/passenger % Increase/passenger P9+1/km P10+1/km P11+1/km P9+1/km P10+1/km P11+1/km

LRT 1 2.80 3.80 4.80 19.7% 26.7% 33.8% LRT 2 3.57 4.57 5.57 26.4% 33.8% 41.2% MRT 3 5.31 6.31 7.31 43.2% 51.3% 59.4%

Average 3.90 4.90 5.90 29.3% 36.8% 44.2% 9. Based on the profile of LRT passengers, the impact of the LRT fare

adjustment will affect the most the following passenger groups: • Minimum wage earners, which account for about 8 to 9% of the total daily

LRT passengers; and • Students who are not granted fare discounts on LRT lines. Minimum wage earners will likely shift to cheaper alternative modes such as jeepneys and regular buses. On the other hand, the impact on students, particularly those taking the LRT Line 2 (Recto-Aurora Line) through the University Belt areas, could be eased by the grant of 15-20% fare discounts.

10. While MRT Line 3 (EDSA Line) passengers will be obliged to pay more from their current average LRT fare of P12.30 per passenger, they are expected to afford the increase in fare with their average personal monthly income of P13,560 or 1.5 times the minimum wage in Metro Manila.

11. The recommended LRT fare structure is P11 (boarding fee) + P1 per

kilometer. Stakeholders’ inputs/recommendations during the public consultation should be considered prior to the implementation of LRT fare adjustment.

DOTC-LRTA Study Team