FORMOSO, CHRISTOPHER

ECON401SU
Case Study # 2 Metro Rail Transit System in Metro Manila
A developed country is not a place where the poor have cars. Its where
the rich use public transportation. Enrique Penalosa, Former mayor of
Bogota, Columbia
I.

Introduction

Metro Manila, battleground of more than 15 million people on weekdays who

brave traffic congested roads rushing to work with blazing speeds of 5 kilometers
per hour.
Car ownership has been rising at 4% per annum while additional road networks
currently standing at approximately only 5,000 kilometers has barely budged over
the years. Only 1% of Filipinos own cars yet they dominate up to 90% of roads.
In 2012, Japanese International Cooperation Agency (JICA) estimated that our
economy is losing P2.4 billion per day or P864 billion per annum due to traffic
jams while one of Rapplers thought leaders estimates it at P48 billion annually
and another P380 billion in lost time. To put this in perspective, the whole Metro
Rail Transport System only cost around USD675.5 million or roughly Php 31
billion with todays exchange rate of Php45.75.
II.

Transportation System in Metro Manila

Filipinos who rely on EDSA for their daily commute have limited options. They
could A) purchase a private car or motorcycle, b) ride a taxi, c) take the bus, or d)
hop on the Metro Rail Transport (MRT).
The most comfortable and, as it stands, aspirational for most Filipinos way of
commuting would be to own a private car. The lowest cost option would be to
purchase a second hand vehicle and have it financed but get stuck with high

amortization, maintenance, fuel, and parking costs that it becomes not feasible
for most Filipinos.
The second and most expensive of public transports is the taxi. With minimum
fares at P40 that could easily run up to P300-400 going from Quezon City to
Makati City during rush hour, this option is not in the daily commute options of the
general public who are earning anywhere around minimum wage. On the flipside
its the fastest option to get from point A to B with the added benefit of private
space and comfort.
The third option is the bus. A regular bus ride along EDSA would cost a little over
P30 and take around 2 hours. The main advantage of buses on the other hand
are its varied routes that arent limited to a single line making it the second best
option for the low to low-middle class Filipino.
Costing only P28 at its maximum range and taking only around 30 minutes transit
time, the MRT, our last option, is clearly the best option for the daily commuter. It
might take another 30 minutes to an hour of queuing time but is still much better
economically than riding the bus.
As with any system, it is only as good as its weakest link. Ive chosen to focus
this paper on the weakest link in our transport system, that I believe to be is the
MRT. Given how much room for improvement the MRT has to accommodate and
improve the lives of the most daily commuters, it deserves the amount of
attention it gets in the media and more.
Despite being the only government operated of all the public transportation
options mentioned above, it is also in my opinion the advantage which private
sectors should consider as there are no set private groups that have a monopoly
over rooted industry practices.

III.

The Metro Rail Transport System

The MRT is 16.9 kilometers long with 13 stations spanning the main arterial
highway of the metro, Epifanio de los Santos Avenue (EDSA). The MRT is the
result of the Build-Lease-Transfer (BLT) agreement between the Department of
Transportation and Communications (DOTC) and a consortium of real estate
developers forming the Metro Rail Transit Corporation (MRTC).
Under the BLT agreement the MRTC constructed and turned over operations to
the DOTC in exchange for annual equity rental payments of Php7 billion until
ownership is to be turned over to the government by 2025. Until then, it is the
responsibility of MRTC on to maintain technical operations.
The reason why ticket fares for the MRT are so low is because of the subsidy it
receives from the Philippine government. Initially it was done to compete with bus
fares and entice commuters to take the habit of using the system with prices
pegged at P10 to P15. Yet only this year have prices been raised since it opened.
IV.

Issues

With over 500,000 daily passengers relying on the MRT well beyond its designed
capacity of 350,000 passengers, safety and reliability has become a huge cause
for concern. Recent accidents with at least 48 injured passengers in 2014 alone.
And more frequent breakdowns of cars leaving only 5 working trains, compared
to 17-19 cars running on average during rush hours.
Despite the accidents, ridership has not slowed down. However, more frequent
breakdowns create immeasurable ripple effects to the productive economy
affecting traffic jams Metro-wide forcing commuters to take buses and other
forms of public transportation ill-equipped to handle sudden demand. This directly
contributes to billions of pesos in lost productive time of the Filipino people.

Another gripe of passengers have been the long queue lines that can easily take
up to an hour just to buy a ticket and be able to hop on a train. Coupled with poor
crowd management, people expect pushing and shoving to be part of their daily
commute.
Another major issue is with price. According to President Aquino III, prices must
increase further as actual costs are between P45-60 per rider and all Filipino
taxpayers pay for this subsidy, which is unfair to those in the rural areas that dont
get to directly benefit from this.
Also according to the DOTC, low ticket pricing combined with increasing
operational costs, all its lines have only been running at break even, not giving
them the opportunity to invest in large-scale improvements for its facilities.
Since opening 16 years ago, the MRT owns the same 73 Czech made rail cars
and have an inconsistent technical team due to short-term service contracts hand
by the DOTC.
Recently we have been hearing about efforts for an automated ticketing system
and new rail cars, but unfortunately even after more than a year has passed,
there still hasnt been any real progress for commuters. The main reason I
believe is the way we see Public-Private partnerships. Given the sheer
magnitude of these projects, its expected to be riddled with issues but from a
different perspective, it also makes no business sense or from an operational
management standpoint to have only one supplier for your entire supply chain.
This was what was done with automated contactless fare management system.
The contract was awarded to a single consortium of business conglomerates.
And unfortunately, even after several delays, it has been postponed indefinitely
due to technical and supply issues without any timelines.

V.

Conclusion

The MRT is a broken and tired system. Leaving politics and policy making out,
the issues that remain are mainly technological and resources management.
Fortunately these are what make private sector solutions the most effective and
these will be the type of solutions I will be focusing on below.
With the perspective of the DOTC as a customer and its riders as the consumers,
the best solution would come out of urging technology entrepreneurs to make
public alternative solutions and proposals to the DOTCs true needs that itself
might not have considered.
For example, as an alternative to bidding out the automated ticketing system to a
single platform and applications provider, instead separate the platform
(hardware) from the application (software). These are two separate technologies
that need not be bundled together. Bidding out an open platform then creating a
separate application process for financial technology (FinTech) firms would be a
better longer-term solution. This has the single supplier benefit for the hardware
of uniformity and easy maintenance but also gives the consumer the power to
choose which e-payment solution is best for them. As a side effect, it creates new
opportunities for startup enterprises to compete against the big consortiums
spurring a new wave of innovation and choice for the consumer.
Another opportunity for entrepreneurs would be to create solutions for micro
problems for passengers such as long wait queues through smart data and
media applications. This has the potential of shortening commute times, overall
happiness and offload high traffic stations.
An example of this would be utilizing advertising spaces within and around the
stations to include real time information and advice which passengers might be
able to get new ideas for commuting routes in less crowded stations.

Another privatization program that I believe would be worth looking into is bidding
out all individual stations. Private companies would pay big premiums to secure
these prime properties and most likely do a better job in upgrading and
maintaining all of the station facilities. An added benefit and feature would be
having multiple owners of different stations competing for commuter traffic
potentially helping reroute commuters to using underutilized stations.
The last approach I would suggest would be taking from what spurred the new
space race. The Ansari X-Prize led by Peter Diamandis sought to spur new
development in the space industry by inviting private groups to develop new
space technologies and compete for a $10 million prize. Today, it successfully
created a new privatized space industry.
Tweaking the same model would be to gather enough capital commitments
through venture capitalists and/or crowdfunders to create a prize for private
individuals or groups present unique high impact pilotable solutions for the MRT
to win development and execution funding.
This type of approach would not only push for development in the MRT but spark
all sorts of other solutions that may be applied to other transportation systems
creating a potential butterfly effect of innovation despite the constraints of existing
political systems.
The solutions mentioned above are not unique frameworks that will solve all of
the MRTs problems, as private sector solutions will more often than not be
limited to tackling issues outside of government control. On the contrary, given
enough support by fellow citizens other government agencies like the DOST and
LGUs, I believe we would be able to create new technology solutions to age old
problems.

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