Philippines - The transport sector

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 3916-PH REPORT ON THE TRANSPORT SECTOR IN THE PHILIPPINES September 14, 1983 Transportation Division 2 Projects Department East Asia and Pacific Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit - Peso (P) US$1.00 = P 8 (October 1981) WEIGHTS AND MEASURES 1 meter (m) = 3.28 feet (ft) 1 kilometer (km) = 0.62 mile (mi) 1 kilogram (kg) = 2.2 pounds (lb) 1 metric ton = 0.98 long ton (ton) ABBREVIATIONS ADB - Asian Development Bank BAT - Bureau of Air Transportation BLT - Bureau of Land Transportation BOT - Board of Transportation BP - Batasang Pambansa CAB - Civil Aeronautics Board CHPG - Constabulary Highway Patrol Group DBP - Development Bank of the Philippines GNP - Gross National Product IATCTP - Inter-Agency Technical Committee on Transport Planning INPF - Integrated National Police Force LTC - Land Transportation Commission MARINA - Maritime Industry Authority METROCOM - Metropolitan Command MLGCD - Ministry of Local Government and Community Development MMTC - Metro Manila Transport Commission MND - Ministry of National Defense MOB - Ministry of Budget MOT - Ministry of Tourism MOTC - Ministry of Transport and Communications MPWH - Ministry of Public Works and Highways NEDA - National Economic and Development Authority NTPP - National Transportation Planning Project PADC - Philippine Aerospace Development Corporation PAL - Philippine Airlines PC - Philippine Constabulary PCG - Philippine Coast Guard PD - Presidential Decree PHILSUCOM - Philippine Sugar Commission PMU - Port Management Unit PNR - Philippine National Railways PPA - Philippine Ports Authority UNDP - United Nations Development Program USAID - United States Agency for International Development GOVERNMENT OF THE PHILIPPINES FISCAL YEAR January 1 - December 31  SR85761/TT-157/D1368/63 PHILIPPINES TRANSPORT SECTOR MISSION Main Report Table of Contents Page No. PRINCIPAL FINDINGS AND RECOMMENDATIONS . . . . . . . . . . . . . . (i) 1. THE ROLE OF TRANSPORT IN THE PRILIPPINE ECONOMY . . . . . . . . 1 A. Transport and the Economy . . . . . . . . . . . . . . . . B. Role of Government in Transport Development . . . . . . . 2 C. Major Transport Issues and Outline of Report . . . . . . 2 2. RECENT DEVELOPMENTS IN THE TRANSPORT SECTOR . . . . . . . . . . 3 3. ORGANIZATIONAL AND INSTITUTIONAL STRUCTURES . . . . . . . . . . 6 A. Institutions and Agencies . . . . . . . . . . . . . . 6 B. Ministry of Transportation and Communications . . . . . . 7 C. Ministry of Public Works and Highways . . . . . . . . . . 8 D. Regulation of the Sector ... . . . . . . . . . . . . . 9 E. Transport Tariffs . . . . . . . . . . . . . . . . . . . . ll F. Planning for the Sector .2.. . . . . . . . . . . . . . . 12 G. Recommendations .... . . . . . . . . . . . . . . . . . 12 4. ORGANIZATION AND ADMINISTRATION OF HIGHWJAYS . . . . . . . . . . 13 A. Road Network .13 B. National Roads .14 C. Provincial Roads .16 D. Barangay Roads. 8 E. Training . . . . . . . . . . . . . . . . . . . . . . . . 20 F. Recommendations .20 5. ROAD TRANSPORT . . . . . . . . . . . . . . . . . . . . . . . . 22 A. General .... . . . . . . . . . . . . . . . . . . . . . 22 B. Organization of the Industry . . . . . . . . . . . . . . 23 C. Vehicle Fleet .... . . . . . . . . . . . . . . . . . . 25 D. Operational Characteristics . . . . . . . . . . . . . . . 26 E. Tariffs and Costs ... . . . . . . . . . . . . . . . . . 28 F. Road User Charges ... . . . . . . . . . . . . . . . . . 30 G. Recommendations. 30  SR85761/TT-157/D1368/64 - ii - Page No. 6. THE RAILWAY SUBSECTOR ... . . . . . . . . . . . . . . . . . . 31 A. PNR Track and Other Infrastructure . . . . . . . . . . . 31 B. Locomotives and Rolling Stock . . . . . . . . . . . . . . 33 C. Management and Staff ..35 D. Traffic and Operations .. .37 E. Finances ..40 F. Recommendations ..41 7. PORTS AND INTER-ISLAND SHIPPING . . . . . . . . . . . . . . . . 43 A. The Port Subsector ...43 B. Inter-island Shipping.. . . . . 48 C. Airports and Air Transport . . . . . . . . . . . . . . . 52 8. THE URBAN SUBSECTOR .... . . . . . . . . ...... . . . . 55 A. Introduction .... . . . . . . . . . . . . . . . . . . 55 B. Adequacy and Financing of Urban Road Systems . . . . . 56 C. Public Transport .61 D. Urban Transport Institutions . . . . . . . . . . . . . . 65 9. TRANSPORT INVESTMENT PLAN FOR 1983-87: NTPP REPORT . . . . . . 69 A. Introduction .69 B. Recommended Investment Program . . . . . . . . . . . . . 70 C. HLighways .... . . . . . . . . . . . . . . . . . . . . 70 D. Railways .... . . . . . . . . . . . . . . . . . . . . 72 E. Ports .... . . . . . . . . . . . . . . . . . . . . . . 72 F. Airports . . . . . . . . . . . . . . . . . . . . . . . . 73 MAP Transport Network - IBRD 16188  SR85761/TT-157/D1368/58 PRINCIPAL FINDINGS AND RECOMMENDATIONS 1. This report deals with the findings of a transport sector mission which visited the Philippines during the fall of 1981./1 The purpose of the mission was to undertake a review of the transport sector in the Philippines focussing especially on (a) organizational and institutional developments in the sector since the last Bank sector mission of 1975; (b) organization of planning, construction and maintenance of roads, including rural roads; (c) bus, truck and intermodal operations with a view to improving utilization and reducing cost, including the impact of taxation and regulations on their operations; (d) the railway-s operations, with a view to defining an appro- priate role for it, if any; and (e) the development of secondary ports with a view to improving inter-island transport services. 2. The Government has implemented the principal recommendations of the Bank-s sector review mission of 1975 (Report No. lOl7a-PH). That mission recommended, among other things, a technical assistance program for advisory services to various transport agencies and for the preparation of a national transport study and an investment program for 1983-87. Both tasks were addressed by the consultant team under the National Transportation Planning Project (NTPP) with financing from Loan 1860-PR. The transport study has since been completed and will form the basis for the 1983-87 investment plan for the sector. 3. The 1981 mission's most important findings concern the importance of highway maintenance, measures needed to improve the efficiency of the domestic transport industry,> in particular, trucking; the future of rail- ways; and the staffing problem faced by technical agencies in the Philippines on account of the relatively unattractive government salary levels. These are discussed in the following paragraphs. Highway Maintenance 4. That highway maintenance is inadequate is almost universally acknowledged in the Philippines. The problem is the combined result of several factors: inadequate budgetary allocations for maintenance, poor use of available funds, diversion of routine maintenance funds for emergency works, inadequate staffing, and unclear division of responsibility for maintenance among several agencies. /1 The mission comprised Messrs. M.S. Parthasarathi (Leader and Economist), G. Trnka (Highway Engineer), C. de Castro (Road Operations Expert), J. Kesson (Railway Engineer/Consultant), R. Scheiner (Port Engineer/ Consultant) and J. Sackey (YP - Economist). Mr. R. Podolske (Planner, Urban and Water Supply Division) contributed the chapter on "The Urban Sub-Sector." Finalization of the report was delayed to incorporate a summary of the NTPP's recommendations on new investments for 1983-87.  SR85761/TT-157/D1368/59 - ii - 5. The mission recommends that MPWH should review the budgetary allocation formula regularly to ensure its adequacy in the face of increasing costs. It should seek an adequate, separate allocation for emergency maintenance based on past experience, so that routine maintenance funds can be fully used on routine maintenance. With the completion of major construction projects, MPWH should assign more experienced staff, with adequate powers, to maintenance activities especially in the field. (MPWH has already taken steps to upgrade several technical positions, but more remains to be done.) The division of administrative responsibility between MPWH (for national and Barangay roads) and MLG (for provincial and municipal roads) can continue but with technical responsibility fully resting with MPWH. Trucking Industry 6. There is excessive regulation, on paper, of the trucking industry with respect to entry, routes and rates, but none of these regulations are enforced in practice except on a random basis, giving rise to large-scale illegal operations. Nor are safety regulations on vehicle fitness, over- loading and driver training adequately enforced. An important consequence of lack of enforcement is that large numbers of T ("not for hire") trucks systematically operate for hire, depriving the Government of substantial revenues (about P 50 million annually) and competing unfairly with TH ("for hire") trucks. 7. The mission recommends the strict enforcement of all regulations that will promote safety and fair competition, but the abolition of all regulations that restrict or stifle competition, such as those on entry, routes and rates. (This recommendation applies equally to inter-island shipping.) The mission also favors either the abolition of the distinction between T and TH trucks or the strict licensing of T trucks to ensure that they are limited to cases where the need is clearly established. This move should substantially increase the number of TR trucks in operation, thereby improving the competitive climate on a fair basis, and simultaneously generate additional revenue to the Government from registration fees and turnover taxes. Future of the Railway 8. In the mission's opinion, the Philippine National Railway (PNR) does not have a useful role in the country's transport system in the present circumstances, with the possible exception of commuter services in Metro Manila and, perhaps, long-distance passenger traffic. There is no prospect of PNR's becoming financially viable in the foreseeable future.  SR85761/TT-119/D1368/60 - iii - 9. However, since the Government has decided to keep PNR open for social and administrative reasons, it should install a strong management which could operate PNR reasonably efficiently and with smaller demands for annual Government subsidies for operating expenses. The Government should also ensure that management has the minimum additional funds for capital outlays needed for an efficient operation - workshop improvements, spare parts for maintenance, and technical assistance. Consideration should also be given to curtailing the more uneconomic services and all proposals for new railway projects should be carefully reviewed for technical, economic and financial viability. Staffing Problem 10. A problem that transcends but vitally affects the transport sector is that of attracting and retaining qualified staff in Government service because of low salary scales. The problem is particularly acute in the newer Ministries dealing with transport such as MOTC and MLG. 11. The mission recommends that, as the problem is particularly serious in the technical Ministries, their situation should be examined separately from the general salary problem of the Government. Pending a solution, the mission feels that continued expatriate technical assistance, combined with the use of local consultants and contractors, will be needed for all Ministries dealing with transport, more especially for the newer agencies trying to build up planning units such as MOTC. The Bank should continue to assist the institutions it deals with (MOTC, MPWH, MLG, PPA, MARINA, etc.) through financing technical assistance. Future Investments 12. The mission is in broad agreement with the recommendations of the NTPP for new investments during the period up to 1987 totalling approximately PF 7.65 billion. However, the projects identified by NTPP need further technical and engineering studies and a review of the economic justification before a final decision on their implementation can be made. The mission emphasizes that the projects emerging from such studies should be combined with investments already under way or decided on in principle (which NTPP did not examine) to develop a phased program of implementation within the technical and fiscal constraints facing the Government. 13. In general, the mission endorses NTPP's recommendation that future outlays in highways in particular should emphasize maintenance. Areas that deserve greater attention in future investment planning are: rural roads (which NTPP did not cover); the provision of freight consolidation and transfer facilities for domestic trucking to improve its efficiency and reduce costs; and small ports serving isolated communities to bring them more fully into the national economic system.  SR85761/J111992/D1368/61 - iv - Sector Planning and Coordination 14. The mission concluded that, while the organization with respect to transport planning and coordination is still evolving, it is evolving in the right direction. Measures are needed to strengthen MOTC's staffing to enable it to play its coordinating role more effectively.  SR85761/J112442/D2552/12 1. THE ROLE OF TRANSPORT IN THE PHILIPPINE ECONOMY A. Transport and the Economy 1.01 The Philippines comprise some 7,100 islands and cover about 300,000 sq km in land area. The two largest islands, Luzon and Mindanao, represent about two thirds of the area and account for about three-quarters of the estimated population of 48 million in 1980, growing at about 3% a year. Since 1975, the economy has been hit by international oil price increases and depressed global economic conditions. Nevertheless, gross national product (GNP) increased by an average of 6% p.a. over the period. The country's transport system is centered on the capital, Manila, with the road and rail systems in Luzon and the whole country's maritime and air transport systems radiating out to other areas. The flow of traffic follows a similar pattern, with domestic and imported manufactured goods going out of Manila to other areas and agricultural and other products coming into Manila, with bulk foreign trade cargo handled mainly at private port facilities throughout the country. After Manila, Cebu is the most important focus of the transport network (see Map IBRD 16188). 1.02 The transport sector's contribution to economic development can be measured, in part, by comparing transport growth rates with those of the economy as a whole and its main sectors. In the Philippines, as in other less developed countries (LDCs), during the 1970s, transport sector s contribution to GNP has been growing faster than GNP as a whole, at the rate of 9% p.a. compared to about 6% p.a. for GNP, 7% for industry and 4.5% for agriculture. In cargo traffic, air transport grew at the annual rate of 18.7%, followed by water and road transport at 12.0% and 6.7%, respectively, while on the railway it declined 2.2% p.a. The rate of increase in passenger traffic has been 6.5% p.a. for roads, 8.2% p.a. for shipping and 2.9% p.a. for air transport, while it declined about 2.9% p.a on the railway. 1.03 In 1979, the Philippine transport system moved about 16 billion ton-km of intercity freight and 4 billion passenger-km of intercity passengers. Beside providing a medium for moving people and goods from one place to another, the sector also directly contributed to employment in the economy. In 1977, the transport and communications sector employed about 700,000 persons, about 4.7% of the total employed in the Philippines. During the preceding decade, employment in the sector grew at an annual rate of 6.5%, compared with 3.3% p.a. in employment in the economy as a whole. 1.04 During the period 1978-80, the transport sector absorbed about P 11.3 billion in national government expenditures, growing at an annual rate of 16.7%. Of the P 5.4 billion spent in 1980, roads and road transport absorbed 83.4%, the remaining going into air transport (11.6%), railways (2.8%), and water transport (2.2%).  SR85761/TT-119/D2552/13 -2- B. Role of Government in Transport Development 1.05 The important feature of the Government-s role in transport development in the 1970s was the emphasis on investments in additions to the network as well as on rehabilitation. Transport was an important part of the overall government policy strategy after Martial law in 1972 when the Integrated Reorganization Plan (IRP) was launched. Large expenditures in the sector were made possible through external assistance, notably by the Bank and the Asian Development Bank. Investments made in response to changing demand produced significant changes in the facilities and operations of the transport sector. Road transport and aviation experienced rapid growth, and shipping expanded modestly, while the railways declined due to both neglect and poor management. The Government-s investment policy was addressed specifically towards roads, thus assisting road transport to take the dominant role in internal transport. Consequently, freight has tended to divert to roads from other modes (notably railways). 1.06 Furthermore, as a deliberate policy, the Government has attempted to extend transport services to remote areas through the extension and rehabilitation of rural roads. The Bank is assisting in this through the Rural Roads Improvement Project (Loan 1860-PH). Along with the rehabilita- tion and improvement of infrastructure, the Government is attempting to pro- vide more efficient services. The most significant effort in this area is the recent purchase of 1,400 new buses to improve transit services in Metro Manila. To serve the growing Metro Manila urban population, the Government has also established the State-owned Light Rail Transit Authority to provide urban passenger commuter services. (See Chapter 8 for a summary of the report of the Urban Sector Mission). 1.07 In addition to its investment policy, the Government has used a variety of devices to influence the supply of and the demand for transport services: fixing of passenger fares and freight tariffs, non-price regula- tory devices including entry and route licensing, and policies which restrict the import of vehicles and favor local assembly. C. Major Transport Issues and Outline of Report 1.08 The Government of the Philippines faces a number of issues in the transport sector. The first one concerns the drawing up and periodic review of an investment plan (1983-87) for the sector. The task of preparing a plan was recently completed by a consultant team under the National Transportation Planning Project (NTPP), with financing from Loan 1860-PH (see Chapter 9). The second relates to the allocation of responsibilities among the various ministries in the central government and among them and the provincial and local governments, to promote coordinated planning, development, and operations and for the maintenance of facilities, in particular, for highway maintenance, which is seriously deficient. A third concerns the impact of government regulations and taxes on the utilization  S-85761/TT-159/D2552/14 -3- of existing transport facilities, especially in road transport. Other issues are the future of the railway, the development of secondary and tertiary ports to bring communities they serve more effectively into the exchange economy, and measures to improve, and reduce the cost of, trucking and, incidentally, promote inter-modal transport, where relevant. The 1981 sector mission, besides providing a status report on the recommendations of the 1975 transport mission (Report No. 1017a-PR), focussed mainly on the operational issues. 1.09 Chapter 2 provides an overview of transport infrastructure development during the past decade. Chapter 3 outlines the institutional organization of the transport sector and highlights its main problems. Chapters 3 to 7 contain analyses of the other issues mentioned above, with Chapter 8 devoted to urban transport and Chapter 9 to the NTPP investment proposals. 2. RECENT DEVELOPMENTS IN THE TRANSPORT SECTOR 2.01 The transport system of the Philippines is characterized by the dominance of road transport for movements within the individual islands, especially the two major islands (Luzon and Mindanao), and of interisland and coastal shipping. Railroads play only a marginal role, while domestic aviation is only of late developing rapidly to serve mainly upper class passenger traffic. Road transportation accounts for almost 60% of total freight movements and for over 80% of passenger traffic, while inter-island and coastal shipping account for nearly 40% of freight traffic and 8% of passenger movements. 2.02 A major effort to expand transport capacity commenced with the the UNDP-financed Philippine Transport Survey (PTS) of 1969-70, with the Bank as executing agency. The survey report provided the basis for the country's transport development program for the 1970s. The Bank's involvement with the transport sector in the Philippines dates back to l161 when it made the First Port Loan. This was followed by the Second and Third Ports Projects in 1973 and 1980, the First Shipping Project in 1974, four highway loans (the fourth in 1979) and a rural roads improvement project in 1980. The Bank also sent a sector mission in 1975 which recommended a comprehensive study of the transport sector, which has been recently completed under the National Transportation Planning Project (NTPP). The study will form the basis for transport planning in the 1980s and beyond. 2.03 In recent years the Government has directed its transport investments to the road network, especially the main roads, upgrading of the main seaports and airports, and rehabilitation and selective modernization of the declining railway system. With the possible exception of the railway investments, which failed to take fully into account the impact of highway improvements on rail traffic, the investments have been correctly undertaken,  S-85761/TT-159/D2552/15 -4- in many instances somewhat later than warranted on account of the financial and technical constraints facing the Government. Lately increased attention is being given to rural roads to bring the rural areas into the national economy more fully. Roads 2.04 After the merger of the Ministries of Public Highways (MPH) and Public Works (MPW) into the Ministry of Public Works and Highways (MPWH) (see Chapter 4), the highway program is maintenance-oriented: it seeks to improve the efficiency of the road network by rehabilitation and paving of main and secondary roads and improvement of gravel and feeder roads. Among the major projects under the program are the Bank's Third and Fourth Highway Projects (Loans 1353-PH and 1661-PH) scheduled for completion in December 1983 and 1984, respectively, with the latter in particular emphasizing upgrading of road maintenance. The proposed Fifth Highway Project will add to this emphasis. 2.05 The program also includes the construction of new development and feeder roads closely related to agricultural and industrial development schemes and supportive of investments in the main highways, ports and other social overhead facilities. The Bank is assisting the Government through the Rural Roads Improvement Project (Loan 1860-PH) in (a) improving high priority rural roads through reconstruction, restoration and improved maintenance; and '(b) strengthening the planning, administrative, engineering and maintenance capabilities of provincial highway authorities under the overall direction of the Ministry of Local Government (MLG). Railways 2.06 There are two railway systems in the Philippines: the Philippine National Railways (PNR) operating on the island of Luzon and the Panay Railways Incorporated (PRI) operating on the island of Panay. PNR also provides commuter train services in Metro Manila and Bicol. There are also some rail lines serving sugarcane plantations and private sugar companies in Central Luzon, Panay, Negros and Cebu. Some of the lines in Luzon are con- nected to the main lines of PNR, like those serving the Victoria sugar mills in Tarlac and Pampanga. A discussion of PNR is contained in Chapter 6. 2.07 PRI operates a total track length of 117 km from Iloilo City to Roxas City on the island of Panay. Its management has recently been reorganized under the Philippine Sugar Commission (PHILSUCOM). Some rehabilitation works are being undertaken to improve PRI services, which is mainly oriented to serving the sugar industry on the island. Ports 2.08 The country's two principal ports of entry are Manila and Cebu; together, they handle over 50% of port throughput in the Philippines. In the past few years the Government has received assistance from ADB for  SR85761/TT-119/D2552 /16 -5- improvement of port facilities at Manila, Davao and Cotabato, from the Federal Republic of Germany for port works at Davao and Iligan, and from the Bank for the expansion of the Ports of Cagayan de Oro and General Santos under the Second Port Project (Loan 939-PH) and the expansion of the ports of Cebu, Zamboanga, Iloilo and Cagayan de Oro (for further development), under the Third Ports Project (Loan 1855-PH), now under implementation. As part of the Second Port Project, the Bank supported the establishment of the Philippine Port Authority (PPA). Since it became operational in 1976, PPA has taken over the management and operation of'all national ports, expanded its technical staff and improved accounting procedures 2.09 The Bank's objective in the port sector is to assist the PPA in developing a national port policy, increasing port capacity to serve industrial developments in secondary urban growth centers, and improving administration, operations, and planning for all major national ports. PPA's current investment plan aims not only at increasing capacity at major ports, but also at consolidating port operations in outlying areas where improved overland mobility makes economies of scale and efficiency possible. The selection of ports for future improvement will be determined in the context of emerging road traffic patterns, the development potential of the hinterlands, and the natural conditions of the harbors, with a gradual shift in emphasis to secondary and tertiary ports. Shipping 2.10 The Bank has also attempted, with limited success, to assist the Government in developing and improving interisland shipping services through the Shipping Project (Loan 1048-PH) in 1974, primarily through replacement of very old ships. MARINA has since drawn up a ten-year plan for inter-island shipping, but the main problems continue to be the excessive regulation of interisland shipping on routes, entry, capacity and related matters and the inadequate enforcement of safety regulations, which combine to discourage new investments and encourage the continuation of old ships in service. The lack of adequate facilities at secondary ports is also an impediment to modernization of the shipping fleet. Air Transport 2.11 International and domestic air transport services are centered on 'Manila, the country-s capital. Altogether there are 86 national airports under the jurisdiction of the Burea of Air Transport of MOTC (BAT) and 120 privately operated airports throughout the country. The national airports include 2 international airports, 4 alternate international airports, 42 secondary airports and 31 feeder airports. About half of the national airports are operational in all weather conditions while the rest have limited service capability. There are 25 air traffic control facilities and 24 aeronautical communication facilities. To complement the Government-owned air navigational facilities (ANF), there are 39 ANF owned and operated by the Philippine Airlines (6), the Philippine Air Force (10), the US Air Force  S-85761/TT-159/D2552/17 -6- (14) and the US Navy (9). A modern new passenger terminal for Manila International Airport was completed in 1982 with ADB financing, and facilities at selected airports are being upgraded. 2.12 There are some 900 registered commercial and private aircraft operating in the Philippines, 39 of which represent the fleet of the Philippine Airlines (PAL). Apart from PAL that links Manila with 16 cities in 14 countries, 18 international airlines operate services to the country. PAL's domestic route system covers 43 cities and towns. Complementing the scheduled air services of the country, the 7 non-scheduled operators, who operate mainly DC-3s, serve the various airports, along with the 17 air taxi operators who serve the country's feeder airports with light aircraft. Coal Transportation 2.13 To deal with the high petroleum prices since 1973, the Government has adopted a policy of encouraging the substitution of coal for petroleum products wherever feasible. Currently, it is engaged in intensive coal exploration and, as an interim measure, has decided to import coal to meet the energy needs of industries such as cement. It is proposed to handle coal, estimated at around 850,000 tons annually from 1985, at a bulk terminal to be built at Batangas, 120 km south of Manila, and to transport coal by road/rail or slurry pipeline for eventual delivery to the cement units in central Luzon. This may require either some improvements to the Manila-Batangas road or improvement of some 60 km of rail track to Calamba and reconstruction of 60 km of rail track from there to Batangas on an abandoned track-bed. Eventually, the power stations in the area may also switch to coal if technically and economically feasible, at which time the coal movement could amount to 3-4 million tons per year, but this may not be until the 1990s. 3. ORGANIZATIONAL AND INSTITUTIONAL STRUCTURES A. Institutions and Agencies 3.01 Until 1979, transport planning, regulation, enforcement, and project execution and construction were integrated in the Ministry of Public Works, Transportation and Communications (MPWTC), with NEDA playing an overall coordinating role. Governmental transport enforcement functions were under several agencies, while transport regulatory functions were integrated in the Board of Transportation (BOT) attached to the Ministry. Responsibility for the construction and maintenance of roads and bridges was under its Bureau of Public Highways (BPH). A Presidential decree in 1974 elevated the BPH into a Ministry of Public Highways (MPH) to facilitate the planning, construction and maintenance of the road network.  S-85761/TT-159/D2552/18 -7- 3.02 In order to ensure coordination among the various modes, an ad hoc Inter-Agency Technical Committee on Transport Planning (IATCTP) was set up in December 1974 to oversee planning in the various transport agencies and resolve major transport problems and issues. IATCTP was intended to be a transitional organization to be replaced by the Ministry of Transport and Communications (MOTC), which was established in 1979. (The IATCTP is still in existence as a technical support unit.) At the same time the Ministry of Public Works (MPW) was established to handle the remaining functions of the former MPWTC. However, in July 1981, a Presidential order was issued merging MPW and MPH into the Ministry of Public Works and Highways (MPWH). 3.03 The organization, regulation and planning of transportation in the Philippines are, therefore, under MOTC, MPWH and the National Economic and Development Authority (NEDA). NEDA serves as a program review and coor- dinating agency across all sectors. It is also responsible for macro-level planning to assist in defining areas which should be given funding priority. MOTC and MPWH operate through various bureaus, boards, and agencies. There are also a large number of ministries and agencies, such as the Ministry of Budget, which currently have a significant role in funding for the transport sector. In addition, a ministerial level committee, the NEDA Committee on Transport Planning (CTP), with representatives from MOTC, MPWR, NEDA and the Ministry of Tourism (MOT), has been established to serve as a coordinat'ing body. B. Ministry of Transport and Communications (MOTC) 3.04 MOTC is designated as the primary policy planning, programming, coordinating, implementing, regulating and administrative entity of the executive branch of the government in the promotion, development, and regulation of a dependable and coordinated network of transportation and communications systems. Besides the Office of the Minister, the Ministry is composed of an Administrative Service, a Financial and Management Service, a Planning Service, a Management Information Service, and four bureaus, viz. the Bureau of Land Transportation (BLT), the Bureau of Air Transportation (BAT), the Bureau of Telecommunications (BUTEL) and the Bureau of Posts (BUPOSTS). The Board of Transportation (BOT) created under the Integrated Reorganization Plan (IRP) of 1972, and the redesignated National Telecom- munications Commission (NTC), are also under the administrative supervision of the Ministry. In addition, the following are attached to the Ministry: the Philippine National Railways (PNR), the Maritime Industry Authority (MARINA), the Philippine Aerospace Development Corporation (PADC), the Metro Manila Transit Corporation (MMTC), the Light Rail Transit Authority (LRTA), the Philippine Ports Authority (PPA), the Philippine National Lines, the Toll Regulatory Board, the Transport Training Center and the Committee on Transport Cooperatives. 3.05 The four bureaus are the operational wings of MOTC. BLT handles all administrative functions related to driver and vehicle licensing and the enforcement of the decisions of BOT with regard to public utility vehicles.  SR85761/TT-151/D2552/19 -8- BAT is responsible for the promotion and development of policies, plans, programs and standards for the construction and maintenance of airports and their facilities, The actual construction of runways and terminal buildings and related structures is the responsibility of MPWH, but the repair and maintenance of those facilities is BAT's responsibility. Finally, BUPOSTS is responsible for postal services, while NTC is responsible for regulating the country's privately-owned telecommunications facilities, including telephones, and BUTEL for providing telecommunications facilities in areas with inadequate or no private services. 3.06 The main regulatory agency for all public surface (road and water) transportation is BOT. BOT is entrusted with the granting of certificate of public convenience (CPC) or provisional authority (PA) to public utility vehicles and interisland vessels, as well as regulating routes, fares, and tariffs of road and water transportation utilities. The Board is composed of a Chairman and two Commissioners. BLT, on the other hand, is entrusted, among other things, with the administration and enforcement of laws connected with the registration of motor vehicles and the licensing of owners, dealers, conductors, drivers, etc. It is headed by a Director. 3.07 Of the other agencies, PNR is entrusted with the provision of a "nationwide" railway transportation system. PPA is charged with the control, operation, maintenance and development of port facilities to make port operations efficient and economic. MARINA is charged with the setting of standards for ship designs, establishment of a new route network for inter-island shipping services, investigation of the need for, and the means of, improving the training programs of marine schools in line with the development programs of the shipping sector, and the supervision of common carriers to ensure reliability and regularity of shipping services. LRTA has been established under MOTC, among other things, to design and build a comprehensive light rail transit system in Metro Manila. Finally, MMTC serves as a provider of bus transit services in Metro Manila, complementing/supplementing other bus services. Although operating as an essentially independent government corporation, MMTC's activities are also under the overall supervision of MOTC. C. Ministry of Public Works and Highways (MPWH) 3.08 MPWH has responsibility for planning, design, construction and maintenance of 23,000 km of national roads and 87,500 km of barangay roads. Responsibility for 29,000 km of provincial roads rests with the respective Provincial Governments and for 13,500 km of city and municipal roads with the respective city or municipal government, under the overall supervision of the Ministry of Local Government (MLG), but with MPWH usually providing technical assistance in major construction projects. Overall responsibility for estab- lishing design criteria and standards for all roads and for ensuring that these are followed in practice rests with MPWH. A fuller discussion of the organization of highway administration in the Philippines is given in Chapter 4.  SR85761/TT-119/D2552 /20 -9- D. Regulation of the Sector 3.09 The rationale for the extensive regulation of the transport sector in the Philippines has been to bring order and stability into the sector as part of the Integrated Reorganization Plan of 1972. It was also a recogni- tion of the imperfections in the market for transportation. Over time, the rationale has been extended to the promotion of adequate and regular services, control of costs and increase in efficiency, assistance to transport-dependent domestic industries and help for the economically under- privileged. Rate fixing and route allocations relative to land and water modes are under BOT, while regulation of air transportation is under the Civil Aeronautics Board (CAB) of the Ministry of Tourism for international operations and under BAT of MOTC for domestic operations. (See also Section E below and Chapter 5, Section E.) Although the regulation of transport is carried out by separate agencies without direction and guidance from a central agency, there do not appear to be major problems of coordination in practice. 3.10 In general, regulation limits the choices open to operators and users of transport and vitiates the working of transport markets. When the object is safety, health or the preservation of infrastructure, there are no realistic alternatives to regulation (speed limits, vehicle inspection, emission control or axle load restrictions). In these cases it is the cost-effectiveness of regulation and enforcement that require attention. In most other areas, however, it has been found that regulation militates against the economical use of resources. The presumption against regulation is particularly strong when the object is to suppress competition. The ultimate object may be to prevent excess capacity, to safeguard the regularity of service or the stability of fares and freight rates, or simply to protect public sector enterprises. Experience from many countries shows that all these purposes, except the last one, are no less fully achieved by competition, and at substantially lower cost. 3.11 The standard regulatory instruments of carrier licensing, route franchises and uniform pricing rules, often supported by controls on imports, foreign exchange and access to domestic credit, tend to distort incentives and the process of competition and generally to reduce the productivity of resources. While the policy purports to restrict price competition, it has undesirable effects on the choice of techniques or modes in transport. Not the least among the disadvantages of regulation is the abruptness of changes when they become unavoidable and thus the great difficulty of transition from more to less regulation or to a competitive system. Road Transport 3.12 Entry into the commercial road transport industry in the Philippines is regulated by BOT, and operations are possible only after the issue of a Certificate of Public Convenience (CPC). Granting of CPC is  SR85761/J112523/D2552/21 - 10 - based on proof of applicant's financial ability to provide the proposed service and the supply of and demand for the service in the area in which the applicant desires to operate. Beyond that various fees have to be paid to BLT for the license to operate: annual registration fees, franchise fees (every five years), supervision fees (annual), common carrier fees (quarterly) and other intermittent fees such as registration plate fees. BOT also regulates freight and passenger rates. 3.13 Maximum weights for vehicles are specified by MPWII. Vehicle safety is under BLT's jurisdiction which specifies (a) safety equipment (brakes, tires, horn, speedometer, windshield wipers, bumpers, mirrors, lights, etc.); (b) safety operation (speed limits, restrictions on overtaking, turning, parking, etc.); and (c) qualifications of personnel. 3.14 There are a number of general regulations which also apply to truck and bus operators. These govern, inter alia, (a) changes in levels/ ownership of company capital and (b) mergers, acquisitions or consolidation of companies, both of which require the prior approval of BOT. In addition, public utility truck and bus operators are required to submit annual finan- cial reports to BOT. The penalty, at present, for nonsubmission of finan- cial records is e 30. Many operators prefer to pay the penalty rather than submit the annual financial reports. Because of the value of the data for planning purposes, means should be found by BOT to collect them (e.g., by raising the fine to punitive levels). Water Transport 3.15 Regulation of water transport is the responsibility of MARINIA and PCG. The shipping operations office of MARINA enforces rules and regulations governing the safety of domestic and overseas shipping operations including shipbuilding and ship repair. On the basis of MARINA's recommendations, BOT regulates tariffs and route capacity. Tariffs follow the principle governing all public utilities (see Section E). Ship safety inspection and safety of life at sea are the responsibility of PCG. All ships entering Philippine waters are required to register with PCG before they can engage in any form of trade. PCG is charged with enforcing maritime and sailing rules, the maintenance of navigational aids, the inspection of vessels for sea- worthiness, the issuance of licenses for their operation and the provision of assistance to vessels in distress. Air Transportation 3.16 BAT regulates domestic air transportation. It has broad responsibility for the encouragement, regulation, promotion and development of civil aviation and the establishment of an air transport system adapted to the present and future needs of the country-s domestic and foreign air commerce, defense, and postal service. CAB is responsible for the regulation of international air transport to and from the Philippines.  SR85761/TT-153/D2552/22 -. ii - Enforcement Agencies 3.17 The following agencies of the Government enforce land transporta- tion and traffic laws, rules and regulations: the Philippine Constabulary (PC), the Integrated National Police Force (INPF), the Constabulary Highway Patrol Group (CHPG), and the Metropolitan Command (METROCOM), which are all under PC, and BLT. MMC also assists in traffic law enforcement and the barangay leaders in their respective barangays. When martial law was declared in the Philippines in 1972, all police and armed forces functions, including the air force, the navy and coast guard, were centralized under the Ministry of National Defense (MND). For Metro Manila there is an ad hoc enforcement group known as "the Flying Squad," composed of BLT, CHPG and INPF representatives. The officers of BLT and barangay leaders or their agents (local volunteer Barangay Police) are limited to noting down violations and reporting them to their respective offices for action. 3.18 In water transportation, enforcement of laws, rules and regula- tions rests with a number of agencies, namely, MARINA relative to the expansion of the Philippines' merchant fleet and rationalization and improvement of ship operations in order to make them effective instruments in promoting the shipping industry and interisland and overseas trade; PPA relative to port operations; and the Philippine Coast Guard (PCG) relative to maritime laws -and licensing of vessels. E. Transport Tariffs 3.19 The various agencies regulate passenger and freight tariffs guided by a general philosophy enshrined in the Public Service Act and related court rulings, which stipulate that (a) operators should be allowed a rate of return of not more than 12% and (b) fares should be reasonably within the reach of the low income groups, ignoring in practice differences in intermo- dal operating costs. Published tariffs tend to remain unchanged for long periods while other prices are changing. In practice, published tariffs are ignored, especially by the trucking industry, and actual tariffs charged in most situations are responsive to market conditions. But the uncertainty of the legal situation discourages adequate, timely and orderly investments to meet changing requirements. 3.20 Transport tariffs are invaluable tools for the proper allocation of traffic among modes, for regulating supply and demand, for ensuring that costs to users reflect the costs to society as a whole, and for assuring financial viability for operators, thereby promoting the optimum growth of the sector. They can also be employed to achieve income redistribution objectives, promote growth of particular regions or industries, and control congestion on a particular mode, route or area. Nevertheless, since in  SR85761/TT-119/D2552/23 - 12 - practice administering tariffs to serve a complex set of objectives is a difficult task, the Government should avoid setting tariffs, except in very special situations and to a very limited extent. F. Planning for the Sector 3.21 The transport planning process varies among the modes; nevertheless, overall transport planning is the joint responsibility of NEDA and MOTC. As a central planning agency, NEDA has responsibility for all capital invest- ments through its Infrastructure Program and Project Office (IPPO), which reviews and approves investments proposed by each transport operating agency. MOTC is responsible for intermodal transport planning, coordination and regulation. 3.22 Planning in land transportation is undertaken by both MPWR and MOTC. The Land Transportation Planning Division of MOTC's Planning Service identifies the overall development requirements of public transportation in relation to national development objectives. This is then carried a step further by the Planning Service of MNPR for highways. Project priorities are established and traffic and other studies relevant to proposed projects are then conducted by MPWH for highways and MOTC or one of its agencies for other modes. These planning functions are at an elementary stage now because of the limited staff of MOTC, which relies on consultants to prepare the Five-Year Investment Plan for the sector. Railway planning is rudimentary. Airport planning comes under BAT. 3.23 MOTC is responsible for the formulation of an overall water trans- portation plan, with PPA and MARINA being in charge of planning for national (primary and secondary) ports and shipping respectively. Planning and operational linkages between PPA and MARINA are now better established than they used to be by: (a) representation on the respective Boards by the head of the other agency, and (b) technical cooperation in the Ports and Shipping Advisory Committee created by MOTC. MARINA has jurisdiction over shipyards, dry-docks, freight forwarding agencies and similar activities. Planning for tertiary ports is under MPWH. G. Recommendations 3.24 Although the institutional structure in the transport sector is at an early stage, it appears to be evolving in the right direction. MOTC was established only in 1979, and MPM and MPW have been combined into one ministry in late 1981. The various attached bureaus, boards and agencies have been affected by these changes to varying degrees. In general, the frequent changes have implied parallel and duplicated efforts in planning, sometimes possibly lack of efforts. The mission feels such future changes should be kept to a minimum and undertaken only when the need is clearly felt.  SR85761/TT-151/D2552/24 - 13 - 3.25 The organizational problems are aggravated by the fact that the technical staff in most agencies is inadequate in both numbers and experience. A further problem is staff retention because of low salaries in comparison with salaries paid to qualified technical staff in the private sector. As this is a problem affecting all sectors, the mission feels that the salary structure of technical and professional staff in Government as a whole needs to be reviewed. Pending a solution, the mission feels that continued expatriate technical assistance, combined with the use of local consultants and contractors, will be needed for all Ministries dealing with transport, more especially for the newer agencies trying to build up planning units such as MOTC. The Bank should continue to assist the institutions it deals with (MOTC, MPWH, MLG, PPA, MARINA, etc.) through financing technical assistance. 3.26 This appears to be a particularly serious problem in MOTC which continues to rely on expatriate technical assistance experts for its principal planning exercises. However, the number of such experts is gradually declining, with local staff providing increasing back-up and co- ordination roles with the aim of eventually taking over all the functions. The Government can assist MOTC in doing this successfully and smoothly by upgrading the level of the planning positions and, perhaps also increasing their numbers, to enable this Ministry to attract and retain staff of the requisite caliber. 3.27 The mission believes that tariff, entry and licensing regulations should be simplified and reduced to a minimum; at the same time, it recommends that safety and related regulations must be strictly enforced. Safety and traffic rules enforcement is critical to the success of traffic management and the maintenance and efficiency of the transport network. It is, therefore, imperative that this be improved through placing primary responsibility on one agency which should then be held accountable. 4. ORGANIZATION AND ADMINISTRATION OF HIGHWAYS A. Road Network 4.01 The public road network in the Philippines consists of (a) national roads, (b) provincial, municipal and city roads, and (c) barangay roads. The total length of the network is about 153,000 km, of which only 18,000 km are paved. Responsibility for planning, design, construction and maintenance is divided, with some overlap, between the national government and local government agencies. 4.02 In the national government, responsibility for national and barangay roads was, until recently, with the Ministry of Public Highways (MPH) which was created in May 1974 from the former Ministry of Public Works, Transport and Communications. (The Bank supported the establishment of MPH as a separate entity in order to facilitate its complex operations.) In July 1981, a presidential order was issued merging the Ministry of Public Works (MPW) and MPH into the Ministry of Public Works and Highways (MPWIH) which took over all previous responsibilities of MPH and MPW. 4.03 Responsibility for provincial, municipal and city roads is in the hands of provincial and local governments under the overall supervision of the Ministry of Local Government (MLG).  SR85761/TT-151/D2552/25 - 14 - B. National Roads Organization 4.04 The planning, design, construction and maintenance of national roads (about 23,000 km) are the responsibility of MPWH. MPWH is headed by a Minister who is assisted by three Deputy Ministers (for planning, finance and administration; for construction, special projects, including Bank- financed projects, and construction quality control; and for design, equipment, maintenance and materials quality control). In addition, MPWR has six services (headed by Assistant Ministers) and five bureaus headed by Directors. MPWH organization is function-oriented rather than output-oriented, and the same concept prevails in its field organization which consists of 14 regional offices and 94 district offices. 4.05 The MPWH reorganization was mainly to assure better cooperation of government staff on projects and to avoid duplication of field organizations. MPWR has merged the former separate field offices of Public Works and Public Highways into one office from January 1, 1982. In the Government's view, the merger of the two Ministries at that time was justified because nearly all important infrastructure projects in the Philippines had been completed and emphasis hereafter would be on the maintenance of the facilities. Planning 4.06 Planning activities for national roads are initiated in MPWH, and the resultant proposals are forwarded to the Ministry of Budget (MOB) Office of Budget and Management, which incorporates them in a Budget Message of the President of the Philippines to the Batasang Pambansa (BP), the law-making body of the country. The programs and projects mentioned in the President's Message which are not covered by continuing appropriations under the Public Works Act or Decrees are embodied in a Bill and finally enacted into a General Appropriations Act. 4.07 Within the context of overall transport requirements projected in MOTC's NTPP studies, national road projects are initially identified by MPWH's Planning Service in cooperation with NEDA, with very little participation of the regional or district offices. In selecting projects, the Planning Service usually considers the recommendations of the Philippine Transport Study,/l its evaluation of relative priorities, and, in some cases, the priorities expressed by the Regional Development Councils. 4.08 MPWH prepares its annual infrastructure program consisting of two parts for approval by NEDA and, eventually, by the President of the Philippines. Part 1 of the Infrastructure Program comprises large investment projects normally spread over several years and with /. The Bank-financed study carried out by the METRA-SAUTI in 1970. Another Bank-financed study, the National Transport Planning Project (NTPP), was completed in October 1982.  SR85761/TT-151/D2552/36 - 15 - appropriations already approved under the various Public Works Acts or Decrees. However, funds for Part 2 of the Program under the General Appropriations Act, also prepared by the Planning Service, have to be appropriated by BP every year. MPWH proposals for works under this program, mainly smaller works and maintenance needs, are incorporated into a General Appropriations Bill which is then passed into law by BP. MPWH proposals for maintenance funds are also included in the General Appropriations Bill. 4.09 The preparation of the infrastructure program usually starts in the third quarter of a year with compilation of the funding requirements submitted by the different implementing agencies for all their projects, on-going as well as new ones. On this basis, the Planning Service consolidates and finalizes the overall program in accordance with MPWH priorities and the available budget. After approval by the Minister of Public Works and Highways, the Infrastructure Program is forwarded, through NEDA, to the President for final approval. Funds can be released following Presidential approval. Construction 4.10 For Government-funded projects, design and supervision of construction are carried out mainly by the MPWH regional offices, often through their district and city organizations. Most of the actual construction work is carried out by contract, generally in small contracts, let to local firms after local competitive bidding; some minor projects are executed by force account. 4.11 Externally assisted projects are implemented by the MPWH Special Project Management Offices (PMOs). At present, MPWH has one such office for each major source of financing: the Bank, the Asian Development Bank (ADB), the Overseas Economic Cooperation Fund (OECF), and the Philippine-Australian Development Assistance Program (PADAP), aside from PMOs for foreign-assisted integrated rural and urban programs with road components. These PMOs report directly to the Deputy Minister for construction and special projects. The design work for foreign-assisted projects is usually performed by local and foreign consulting firms and occasionally by the Bureau of Design and PMOs through specially organized units in the regional office. 4.12 Construction of foreign-assisted projects is generally by contract following international competitive bidding procedures; force account has been only exceptionally used for some minor components. Contract administration and construction supervision are performed by PMOs, usually with consultant assistance and sometimes through the appropriate MIPWH regional office. Maintenance 4.13 Maintenance of national roads, which continues to be a serious problem, is handled at the MPWH district or city office level under the control and direction of the appropriate MPWH regional office. After BP's approval of the MPWH annual budget, maintenance funds are suballoted by MPWH  SR85761 /TT-153 /D2552 /37 - 16 - to its 14 regional offices, using an allocation system based on an equivalent maintenance kilometer (EMK). Since 1977, the basic EMK requirement has been set at P 11,342 (US$1,418) per year for national roads. The regional offices, in turn, allocate the funds to the various districts and cities on the same basis. 4.14 The EMK is worked out in the MPWH Bureau of Maintenance (BOM) by applying to the road length the following adjustment factors: pavement width and type, length and type of bridges, and traffic volumes. Unfortun- ately, the system does not take into consideration other local conditions such as weather, terrain, availability of materials, and composition of traffic, which are also major factors in determining actual maintenance requirements. On the basis of EMK, MPWE requests its total budgetary requirements for maintenance from MOB. Usually, the funds released by MOB are less than the requested amount; this results in a pro rata decrease in the actual EMK allocation. As proper cost accounting for maintenance operations does not exist, it is difficult to assess if the yearly maintenance fund allocations are adequate or not. During 1982, maintenance programs in four pilot regions will be closely monitored by technical assistance experts to evaluate the adequacy of the EMK allocation. 4.15 At present, almost all maintenance work is done by MPWR through its regional and district offices using force account, under BOM technnical supervison. MPWH uses its own equipment which is managed (as from January 1982) by its regional offices. BOM is responsible for ensuring adequate maintenance on national roads and carries out field inspections once a quarter. The regional offices report quarterly to BOM but mainly on financial and physical accomplishments. 4.16 To help MPWH improve maintenance of national roads, under the Fourth Highway Project (Loan 1661-PH), the Bank is financing the services of six technical assistance experts, working at MPWH headquarters as well as in four regions. With their help, BOM, together with the MPWH Comptrollership Service, is preparing a monitoring system which should reliably report on the maintenance operations in the field. This should enable an assessment of the adequacy of funds being currently allocated for maintenance operations. These changes may require several years to result in improved maintenance operations. C. Provincial Roads Organization 4.17 The governments of the 73 provinces in the Philippines are responsible for planning, design, construction and maintenance of some 29,000 km of provincial roads. The 65 cities and 1,440 municipal  S-85'761/TT-159/D2552/38 - 17 - governments are similarly responsible for approximately 13,500 km of city and municipal roads. These three local government authorities operate under the general direction of the Ministry of Local Government (MLG) which provides funds, advice and overall supervision. Each province, city and municipal government has an engineering office which is responsible for all types of construction and maintenance, including roads. Planning 4.18 Project proposals for provincial, city and municipal roads originate at the local government level. As planning capability at these levels is weak, MLG coordinates the work on a regional basis through its regional offices. Coordination at the national level is rather limited. 4.19 Under the ongoing Rural Roads Improvement Project (Loan 1860-PH), rural roads programs prepared by consultants in six provinces in 1979 are being implemented. The project also includes preparation of rural roads programs in 22 more provinces; this work, also by consultants, was completed in July 1982. Construction 4.20 For Government-funded road construction projects, design and super- vision of construction are carried out by the provincial, city or municipal engineering offices. These offices lack the necessary expertise and experience, and usually request assistance from MPWH or MLG. MPWH administers most of the construction work which is carried out by contract or force account as agent for the local government. Funding for the projects may be provided either from the budget of the province, city or municipality, or directly from the MPWH budget by the national government. In some cases, the local government engineering offices also carry out small road construction under the MLG Provincial Roads Development Program. 4.21 For externally-assisted road construction projects, design and construction are handled by MPWH in the same manner as for national roads, with a greater likelihood of force account construction and greater involve- ment of the MPWH regional office in design and construction supervision. Funds for these projects are, with some exceptions, normally channelled through MPWH. After completion, the roads are handed over to the local government authorities for maintenance. However, the Provincial Development Assistance Program (PDAP), supported for some time by the United States Agency for International Development (USAID), and the Rural Roads Improve- ment Project (Loan 1860-PH), are implemented by MLG and the provincial governments with- technical assistance by foreign experts. Maintenance 4.22 Maintenance of provincial, city and municipal roads is the responsibility of the respective local government authorities. For this purpose, a maintenance equipment pool is generally maintained by the  SR85761/J112330/D2552/39 - 18 - Engineer-s office. Funds for maintenance are provided partly from the local government budget and partly through national government grants. The national government provides 67% of the total funds for provincial roads, 33% for city roads, and 60% for municipal roads. The total amount available for annual maintenance of provincial roads corresponds to 75% of the basic EMK for national roads, or P 8,506 (US$1,063) per kilometer, to cover both routine and periodic maintenance, and this is, in general, adequate. The national government funds are, however, channelled through MPWH which should: (a) set nationwide maintenance standards; (b) establish planning requirements and control procedures; and (c) monitor financial and physical aspects of all road maintenance activities. At present, MPWH provides the national aid funds to local governments without really performing the control and monitoring functions. 4.23 MLG is also expected to monitor road maintenance activities of the provinces and municipalities, duplicating the work of MPWH. However, in practice, it does little monitoring. 4.24 The status of maintenance operations on provincial roads also is generally unsatisfactory. The Bank is assisting MLG, under the Rural Roads Improvement Project (Loan 1860-PH), in improving the situation in the six provinces included in the project by providing technical assistance and maintenance equipment. Since 1982, MLG and the governments of the six provinces base their maintenance programs on physical targets in each province together with estimates of resource requirements, including organizational and procedural requirements. This represents an important first step towards improving provincial road maintenance. D. Barangay Roads Organization 4.25 The third and lowest class of roads in the Philippine road network is made up of barangay roads, about 87,500 km in extent. The barangay is the smallest political subdivision in the country. Nationwide, there are about 40,000 barangays, averaging about 20 to each municipality or city. Each barangay has a population of at least 1,000 and has a barangay captain and council, who are generally elected. 4.26 Except for routine maintenance, barangay roads have been largely the responsibility of MPWH. Thus, the national government is responsible for the highest class of national roads and the lowest class of barangay roads, while the intermediate class of provincial, municipal and city roads, are the responsibility of the local government units.  S-85761/TT-159/D2552/40 - 19 - Planning 4.27 Project proposals for barangay roads originate at the barangay level; they are coordinated first by the MPWH district office or the city engineer's office, and later by the MPWR regional office. Finally, the proposals are sent to MPWH headquarters in Manila. Normally, this process of coordination consists of a simple aggregation of project proposals that are considered acceptable by successive review levels. Construction 4.28 For Government-funded projects construction is sometimes handled as "self-help" projects with MLG equipment and materials and barangay labor under the direction of barangay captains. In these cases, technical assistance is provided by MLG, the provinces, the municipalities or the NPWH district offices. Other projects have been undertaken by the municipalities, the cities or the MPWH district offices using local contractors, force account, or "pakyaw" contracts./I 4.29 For foreign assisted barangay road projects, design and construc- tion are carried out by MPWH using its district offices. Construction on these projects is normally done by force account, using barangay labor; of late small contracts with local contractors are increasingly being used. Maintenance 4.30 The barangay council, through its Barangay Road Maintenance Committee, is responsible for routine maintenance of barangay roads in its area. For periodic maintenance, MPWH district offices provide direction and technical assistance, and paid barangay labor generally does the work. Funds for maintenance of barangay roads are provided by the national govern- ment to MPWH which releases them, through MLG, to the barangays. No contribution is required from the provincial and local governments. The amount of national aid for barangay road maintenance corresponds, at present, to 40% of the basic EMK of national roads, or P 4,537 (US8567) per kilometer of barangay roads per year. Again, it is difficult to assess the adequacy of the yearly maintenance funds for barangay roads because monitoring of maintenance operations and cost accounting do not exist. 4.31 Supervision and inspection of maintenance activities on barangay roads are still the responsibility of TPWR because MLG does not have the administrative and technical capabilities for this work. However, MPWH and MLG have agreed that barangay road maintenance should be performed by barangays under the technical supervision of the District Engineer's offices, with MLG providing administrative supervision. This arrangement is likely to work satisfactorily. /1 MPWR provides equipment and materials and the local government provides labor.  SR85761/J112330/D2552/41 - 20 - E. Training 4.32 Although ad-hoc training was conducted for many years by the various highway agencies, headquarters and regional training officer posts were only established in 1974 to meet manpower development and training needs in the Administrative Services, the Bureau of Equipment and the Bureau of Barangay Roads. Regular training programs in the regions were hindered by insufficient funds and support from headquarters. Under the Second Highway Project, a consultants' study to identify manpower development needs and recommend suitable training programs was completed in early 1976. The Manpower Development Service of MPWH continues operation and further development of the permanent training programs initiated with the help of the consultants. F. Recommendations 4.33 To summarize, the following recommendations emerge from the above analysis: (a) MPWH Staffing 4.34 The merger of MPWH has now been implemented. The new Ministry has set out to prove that it could handle its complex operations covering both public works and highways, and the Minister is optimistic that it can execute its functions efficiently. MPWH performance should be kept under close review and further steps taken in a year's time, if necessary, to strengthen and improve it. 4.35 Apart from the headquarters top management, the technical staff of MPWH at headquarters and in the field have a low level of experience and motivation, particularly in the maintenance organization. This is mainly due to the low salary scales and to the lack of glamour of maintenance activities, which do not attract better qualified professionals. 4.36 In general, MPWH staffing is a major problem. The MPWH merger resulted in an overall reduction in regular positions from about 24,000 to about 19,000, and the Minister reduced the salary budget only by 2.5% and thus improved the salaries of his staff. Although this is a welcome move, it offers only a partial solution; a complete review is required of the MPWH salary structure and upgrading of maintenance positions. 4.37 The mission agreed with the Minister on some changes in the staffing pattern for the MPWH field organization, such as upgrading of Maintenance Engineers positions in the regional and district offices. These changes should help to improve maintenance operations on national and barangay roads.  S-85761/TT-159/D2552/42 - 21 - (b) Equipment Management 4.38 A further matter of concern is the MPWH equipment management. Since all equipment is now being managed by the MPWH regional offices, they have no incentive to increase utilization of the fleet and to use it efficiently. A brief study is being done under the Fourth Highway Project (Loan 1661-PH) to recommend the most suitable organizational set-up for managing the MPWH equipment fleet to improve utilization and efficiency. (c) Maintenance of Provincial and Barangay Roads 4.39 Regarding maintenance of provincial and barangay roads, Bank staff have discussed with the Government the following proposals: (i) Maintenance funds earmarked in the national budget for maintenance of provincial and barangay roads should be transferred by MOB directly to MLG which would then apportion them among the provinces on the basis of their approved maintenance programs. All reporting on operations and on the use of the funds would be made by the provinces to MOB through MLG. (ii) Maintenance funds should also be allocated separately for routine and periodic maintenance. While routine main- tenance funds could be released on a quarterly basis, funds for periodic maintenance should be released for a whole year on the basis of approved work programs. A separate amount should also be allocated annually for maintenance of temporary bridges. (iii) To assure the availability of maintenance equipment in the provinces, equipment assigned to construction works and equipment assigned to maintenance operations should be kept separate. 4.40 The above proposals should be tested in the six provinces covered by the Rural Roads Improvement Project before they are extended to other areas. (d) Classification of Roads 4.41 Road classification is often arbitrary and not based on function. In many parts of the country, provincial and barangay roads are indistinguish- able: both are characterized by low volumes of traffic and serve limited areas, connecting rural communities with administrative and market centers. In remote areas such as northeastern Luzon and many parts of Mindanao, national roads serve as penetration roads providing the only access to vil- lages. Under the Rural Roads Improvement Project (Loan 1860-PH), the consul- tants for the Rural Roads Feasibility Study reviewed the classification of all categories of roads in 22 provinces (about 30% of the country). It is  SR85761/J112442/D2552/43 - 22 - recommended that an overall road classification study be undertaken which would coordinate the results of studies already completed and review the remainder of the road network. This would help to define more clearly jurisdictional responsibilities for road maintenance. 5. ROAD TRANSPORT A. General 5.01 In the Philippines transport system, road transport now accounts for about 80% of passengers and almost 60% of freight movements. This development has been made possible by the development of the highway infrastructure in the last decade in Luzon and by limited competition from other modes. However, the road transport industry suffers from two principal problems: (a) the absence of freight consolidation facilities even in the major traffic generating centers; (b) the unequal treatment in matters of taxation and licensing (turnover tax, registration tax, and franchise fee) of trucks for hire and trucks for own use, although the latter by and large engage in providing the same kind of services as the former. As a result, transport services cost more than they should. 5.02 According to Government data, there are some 267,000 trucks in the Philippines, of which the number operated for-hire is estimated at under 20%. About 55% of the total truck fleet operates in central and northern Luzon and in metropolitan Manila. The entire fleet has a carrying capacity of about 1.3 million tons with the for-hire fleet accounting for about 15%. Small trucks are still the norm: 6- or 8-ton trucks carrying up to 12 tons payload. The number of large trucks has been increasing over the last 10 years and their transport capacity in long distance trucking now accounts for about one fourth of the total. The vehicle fleet for transport of passengers (excluding taxis) was estimated at about 104,000 vehicles in 1979, of which 20,000 were buses or minibuses and 84,000 were jeepneys (urban and inter-urban). 5.03 The total capacity of the truck fleet (both "for-hire" (TH) and "not-for-hire" (T)) is sufficient to meet the demands even under the present inefficient operating conditions. Average load factors are low, of the order of 55%, although overloading is common. The low overall efficiency arises from a high proportion of empty truck movements due to the lack of freight consolidation, to the high proportion of small trucks in the fleet, and to the rather poor utilization of the T fleet (which is currently also used to provide unauthorized "for hire" services). 5.04 The present condition of the truck fleet and its poor utilization result from the combined effects of poorly coordinated operations, and of  SR85761/TT-153/D2552 /44 - 23 - the organization of the industry at various well-differentiated levels which operate in what are really separate markets. Of the various levels, only the top two are organized operations, have access to commercial financial resources and, therefore, invest in regular fleet replacement. 5.05 Passenger transportation appears to be generally adequate, except for remote areas with difficult physical access. Nevertheless, it would also benefit from the provision of common terminal facilities. Many operators welcomed the idea and were willing to share in the cost. MOTC is aware of this, and should be assisted initially in developing a program and later in its implementation. A beginning is being made with a proposal to build a common bus terminal system for Metro Manila with bilateral assistance, for which five possible locations have been identified and will be the subject of a feasibility study. 5.06 Modal interface between road and other modes, specifically ship- ping, has not developed except in the case of domestic container services where the larger interisland shipping companies have their own trucking operations. The efficiency of transport can be significancly improved by increasing the use of integrated services on major routes, but progress has been hampered by lack of freight consolidation facilities, by lack of appropriate equipment, and by the poor operations of the railway. Containerization of cargoes, which has developed very quickly in Manila and in other main ports, could help to foster the development of integrated transport services if adequate facilities are provided for freight consolidation and transfer in inland towns and cities. B. Organization of the Industry 5.07 The trucking industry is organized at four basic levels: a very small number of large companies, the trucking divisions of the inter-island shipping companies, a number of small family enterprises, and an unquanti- fied number of owner-operators. The fleet falls under two main legal classifications: TR trucks operated for hire, and T trucks operated as an ancillary service by traders or manufacturers to serve their main operations. Although T trucks outnumber TH trucks by a large proportion, the latter are responsible for a substantial portion of the road freight carried (at least 25% according to NTPP findings); this would indicate a certain professionalism within the industry operating TH vehicles. 5.08 Restrictions on entry do not account for the disparity between the numbers of TR and T trucks. The relatively higher registration fees for TH trucks, the franchise fees and common carrier tax on TH operators, and the possibility for widespread illegal operation of T trucks for hire stemming from lack of enforcement, account for the difference. 5.09 The fragmentation of the industry into well-differentiated levels has important consequences. The top level, mainly two companies, accounting for about 6% of the TH fleet, provides services to most state-owned companies (over one million revenue paying tons in 1980) with rates  SR85761/TT-1l9/D2552/45 - 24 - negotiated well above cost on a contractual basis. The more important of these two companies (about 500 trucks) is controlled by the public sector and its operations are poorly managed; its dominance of the most profitable market precludes the development of the lower levels of the industry. Most trucks operated by the two companies in this group are TH licensed. 5.10 The second level is made up of the trucking divisions of the inter-island shipping companies, which together account for about 5% of the TH fleet. These companies mostly operate TH-licensed trucks. They are well organized and relatively efficient. However, average load factors are below normal even for the Philippines as a result of the limited utilization of their fleets. Following a recent rapid decline in the volumes handled by inter-island shipping companies and their "captive" truck traffic, however, competition by these companies in long distance trucking is becoming important. 5.11 The third level of the industry is made up of a small number of family companies (between 50 and 60) accounting for about 14% of the TI fleet. These companies are poorly organized, their equipment is aging, and they subcontract their services to the two top levels of the industry and seasonally supplement T licensed fleets owned by producers and manufacturers. Most trucks operated by these companies are TH licensed. 5.12 The lowest level of the industry is made up of a large number of owner-operators representing about 75% of the TH vehicle fleet and an unidentified number of T licensed vehicles. A large number of these operators own single axle, small, aging trucks (average age: 15 years) engaged in urban movements or short-distance hauls. Only a relatively small number of owner-operators engage in long distance trucking; but they operate the most recent additions to the trucking fleet (mostly three axle vehicles imported from Japan). 5.13 The intercity passenger transport industry consists of a small group of large, mostly family-owned firms with fleets of 150 to 450 vehicles offering a range of very frequent, scheduled, fast and reasonably comfortable long-distance services, and of a large number of small operators. This latter group represents about 72% of a fleet of 20,000 buses (of which about 40% is in Central and Northern Luzon) offering a wide range of complementary short-distance services. Within the former group is PNR Motor Services, an operating department of the Philippine National Railways. It was originally developed to provide feeder bus services to PNR-s rail services. PNR bus services could only be rated as poor. 5.14 In addition, there are a vast number of "jeepney" operators offering a mix of short-distance urban and short inter-urban services;  SR85761/J112330/D2552/46 - 25 - in 1979, they operated a fleet of about 75,000 vehicles (of which about 23% is in Central and Northern Luzon). The "jeepney" represents an important ingredient in the passenger transport system in the Philippines. With a seating capacity of about 15, these provide short-distance local or interurban pick-and-drop services up to 30 km from their bases. The majority are owner-operated. Very few owners have more than three vehicles; jeepney owners are generally organized in local associations. 5.15 While there is lack of trucking associations to maintain proper communications with the Government and financial institutions, the passenger transport industry maintains contact with the Government through local operators associations. C. Vehicle Fleet 5.16 According to Government data, the road vehicle fleet has been growing at about 7.5% per year since the 1970s with trucks, buses and jeepneys growing at 8.9%, 4.0% and 6.7%, respectively. However, these averages mask wide differences in growth rates among the regions. 5.17 The range of sizes and age of trucks is very wide, from two axle straight truck to five axle semi-trailers, from five tons to over 30 tons carrying capacity, from 25-year-old reconditioned ex-US army vehicles to newly built trucks assembled locally. The NTPP O/D surveys provide the following typical proportions for long distance hauls: 2 axle straight 66%, 3 axle straight 26%, truck-semitrailer 8%. For short distance hauls, there is a higher proportion of low capacity 2 axle trucks (about 75%) and a very small proportion of high-capacity truck-semitrailer combinations (about 1%). Age and motive power are closely related, with all current long distance vehicles showing an average age of about 7 years and a high proportion of diesel power (80 to 90%). For short distance urban vehicles the proportion of diesel decreases to about 75% and the average age increases to about 15 years. 5.18 The current typical long distance truck is the straight three axle, 8-12 ton reconditioned second hand vehicle imported from Japan. If used for long distance hauls, as is the current practice, this vehicle cannot be operated profitably without overloading because of the unfavorable relationship between operating costs and capacity. 5.19 Truck ownership is pyramidal with less than 9% of the owners operating more than three vehicles and less than 1% operating more than 10 vehicles. Owners of fewer than three vehicles operate mostly two axle units and large owners operate the right mix of truck and truck-semitrailer fleets. 5.20 The physical condition of the bus fleet is generally satisfactory. Units range from very modern, air-conditioned, over 50-seat units providing service at a premium on long-distance routes, to the reconditioned Japanese  SR85761/J112330/D2552/47 - 26 - or US made 30-seat bus operating on short-distance routes. On the average, the age of this fleet is about 6 to 7 years. As for the "jeepney" fleet, the typical units are manufactured or assembled in the Philippines using engines imported mostly from Japan. D. Operational Characteristics 5.21 Specialization in operations in a particular commodity or type of service is not yet widespread in the industry. The operational pattern reflects shipper's behavior and a rather unsophisticated domestic transport market which encourages empty return trips at considerable cost to the economy. This situation will probably change in the future as freight consolidation facilities are set up and shipper's requirements become sophisticated. 5.22 In Central and Northern Luzon, and to some extent in the other regions, there is a directional imbalance in commodity flows with the main urban centers acting as main points of attraction for freight. The imbalance partly affects low round-trip load factors and vehicle utilization, which is estimated at about 55% countrywide: under 50% for T trucks and about 65% for TH trucks. 5.23 An interesting finding of the NTPP study, which was confirmed by information from industry sources, is that TH trucks carried between 25% and 50% of freight, a much higher proportion than their numbers in the truck fleet. This is indicative, on the one hand, of professionalism and effective traffic management in the TH industry and, on the other hand, of limited utilization of T trucks as a whole. 5.24 In all regions and for almost all operators except the two top levels of the industry, the factor of seasonality is important: the predominantly dry months of February to July and the predominantly wet months of August to October. In the wet season, there is a comparatively low level of agricultural traffic./2 Some traffic (e.g., fertilizers) and truckers (e.g., those operating on contract to state-owned companies) experience less marked seasonality. 5.25 The trucking operations described above are usually end-to-end line hauls with a single drop-point for a single consignor. Multi-consignee distribution patterns are not common for TH vehicles although they appear to /1 NTPP estimates at about 33% the trucker's ability to obtain backloads in Central and Northern Luzon. /2 Few crops are harvested; farmers (many surviving on credit) reduce their levels of purchase of all commodities; the construction industry ex- periences a sharp downturn in the level of activity.  SR85761/J112330/D2552/48 - 27 - be the norm for certain T vehicles. Break-bulk facilities have not developed and intermediaries appear to have only a minor role, with brokerage fees averaging 10%, a reasonable level. 5.26 Large vehicles achieve an annual utilization of 50,000 to 80,000 km with about 6 to 8 round-trips per month at 500/1,000 km per round trip, while smaller vehicles have a lower annual mileage of 40,000 to 60,000 km with more round-trips, about 8 to 12 per month at 200/500 km per round-trip. 5.27 Trucks engaged in long distance transport are generally overloaded in terms of gross vehicle weight (GVW) and axle weights. Although the link between increased revenue from overloading and increased costs from over- loading is recognized by operators, their typical equipment and operating practices make it difficult to cover costs without exceeding the legal weight limits. The three axle 10 ton straight truck typically used for long-distance hauls is a good example: having a licensed load capacity of 10 tons, it is often loaded with 20 tons and sometimes with 25 tons. The NTPP study found the following typical overloading in Central and Northern Luzon for both T and TH trucks: Axle % of overloaded overload vehicles in sample (in tons) GVW Axle 3 axle straight truck (10 wheels) 9.8 82.4 90.2 3 axle truck semi-trailer (10 wheels) 7.1 73.3 93.3 4 axle truck semi-trailer (14 wheels) 6.8 61.0 90.2 5 axle truck semi-trailer (18 wheels) 9.2 67.9 89.3 5.28 The implications for vehicle taxation,. Government policy on vehicle imports (which appears to favor 3-axle trucks) and design, construc- tion and maintenance of highways are clearly important: the common type of vehicle in long distance transport, the three-axle straight truck, may be responsible for greater damage to the highways in relation to Government revenue contributed by it. This also has implications for Government's policy on local assembly of new three axle trucks and the import of second-hand units from Japan. The taxation of vehicles should be more closely based on the damage they cause. Consideration should be given to substituting GVW by axle loading to define the legal maxima since axle weights seem to offer a better way of measurement of actual loads carried. 5.29 Since there seem to be no differences of consequence between the operations of T and TH trucks, there is no rationale for the difference in annual registration fees between the two groups using identical vehicles.  SR85761/Jll2330/D2552/49 - 28 - Other levies should be applied to both groups on the same basis, unless the operations of T trucks are strictly limited to hauling the licensees own freight, in which case a substantial number of T trucks will transfer to the TH category. 5.30 The bus industry is segmented into large and small operators. Large operators (companies) dominate the medium and long distance bus services and offer diversified services, including air-conditioned and first-class services. Small operators supplement long distance services and enter roads and areas where the more sophisticated equipment used by large operators would suffer excessive wear-and-tear. In general, large bus operators are efficient, have sound management practices and enjoy sound finances which allow for fleet replacement and modernization. Load factors (bus occupancy as percentage of seats available) ranged in 1980 from 22 to 65 depending on season, route and company, with a general average of about 55 to 60%. Bus versus rail competition in Luzon does not exist except for long runs. 5.31 Small bus operators and jeepney operators generally own and operate their vehicles. They do not compete with large operators, and offer mostly pick-up and drop services; they also carry cargo. In most cases, the two types of operators, small and large, tend to complement each other. E. Tariffs and Costs 5.32 NTPP estimates of basic vehicle operating costs in the Philippines shows costs of 45-93