Business World, 17 December 2013
President Aquino III got it right when he proposed to increase the fares for the Metro Rail Transit (MRT) 3 and Light Rail Transit (LRT) 1 and 2 in his fourth State of the Nation Address. The proposal though unpopular makes good economic sense. But he runs the risk of committing poor economics if he heeds the proposal to use the P130-billion Malampaya Fund to subsidize Meralco consumers pay their electricity bills.
Mr. Aquino said the true cost of a whole trip on the MRT is P60, and on the LRT it’s P40. Yet, commuters using MRT-3 pay P15 for a one-way trip along the entire line from Taft Avenue in Pasay City to North Avenue in Quezon City.The same fare is charged by LRT-1, which connects Baclaran in southern Metro Manila to Roosevelt Avenue in Quezon City.
Hence, a P45 subsidy is provided for each commuter using MRT-3 while a P25 subsidy is provided for each commuter using the LRT-1 line.
Who bears the burden of the subsidy? Practically all Filipinos who pay any form of direct or indirect taxes (VAT for example).
Mr. Aquino recognized the unfairness of the current pricing arrangement. He said: “Each and every Filipino pays a share of the subsidy – whether you live in Mindanao or Visayas and not once have you ever stepped onto the LRT or MRT, you help fund this.”
Indeed, why should the farmers in Northern Luzon and fisher folks in Southern Mindanao who have never taken a ride on the LRT or MRT subsidize Metro Manila rail transit riders?
Mr. Aquino was right when he said: “Perhaps it is only reasonable for us to move the fares of the MRT and LRT closer to the fares of air-conditioned buses so that the government subsidy for the MRT and LRT can be used for other social services.”
The plan is to increase by P10 the fare for both trains, in tranches, for both trains. The sad part in this sensible policy action is that the scheduled fare hire has yet to be implemented.
WHY USE THE MALAMPAYA FUND TO SUBSIDIZE MERALCO CONSUMERS?
In the face of record-high electricity rate adjustments, here comes the proposal to use the Malampaya Fund to subsidize Meralco consumers. It’s populist no doubt. And it might give some politicians an opportunity to recover lost citizen support as a result of the congressional and presidential pork scandals.
But it is a horrible proposal for many reasons. First, why should the Aquino administration use the Fund to subsidize electricity consumers in the Meralco franchise area (Metro Manila and some adjacent provinces)? That’s similar to the earlier argument against subsidizing the MRT and LRT riding public.
Why provide a subsidy toMeralco electricity consumers and deny the same for those outside the Meralco franchise area?
Second, subsidy leads to inefficiency. If power rates are subsidized, there will be no pressure on the consumers to conservetheuse of electricity, even if rates are rising. Consumers would behave as if power rates have not gone up. In the face of rising prices, consuming as if nothing has changed would only lead to waste.
Price is the best rationing device. The role of government is to make sure that market forces determine the price adjustment, not by artificial, contrived, and non-competitive factors.
Third, a subsidy on power consumption might lead to higher income inequality. It favors large consumers who are likely to have higher ability to pay and benefits less the poorest of the poor.
Fourth, it goes against the intent of the law creating the Malampaya Fund and the recent Supreme Court decision on the pork barrel system. The Fund is designed to develop new sources of energy.
A subsidy to consumers and transport groups promotes the use, not the development, of energy.
That’s the essence of the recent Supreme Court decision of the unconstitutionality of certain uses of the Malampaya Fund.
The Malampaya Funds are intended “to finance energy resource development and exploitation programs and projects of the government.” The Supreme Court declared as unconstitutional the use of the Funds “for such other purposes as may hereafter directed by the President.”
The provision of subsidy to small electricity users, the grant of discounts to jeepney and tricycle owners, the purchase of naval ships – none of these activities lead to energy resource development. On the contrary, they do lead to higher energy use.
The Malampaya Funds have a long-term, lofty goal: to ensure and sustain the development and exploitation of energy sources. The development of sufficient and reliable power supply is an indispensable condition for strong and sustained economic growth.
Politicians: Don’t fritter away the Malampaya Funds for short-term political gains. Heed the unanimous decision of the Supreme Court on the use of the Malampaya Funds.