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Expensive

FIRST PERSON - Alex Magno (The Philippine Star) - August 31, 2015 - 10:00am

Rail commuters will not like this: fares for LRT-1 will likely be hiked once again next month.

The fare hike on the eve of the turnover of the facility is part of the agreement between government and the winning bidder, LRMC. It is a condition imposed by lending institutions financing the P65 billion required to extend the rail line to Bacoor.

Recall that fares were increased for the rail service last year. The fare increase is considered a sweetener to attract larger bids for the package including management of the rail line and extension of services to Cavite.

Upon the completion of the extension project to Niyog station in Bacoor, the private consortium will be entitled to another five percent fare hike. Henceforth, the consortium will be entitled to inflation-adjusted fare increases every four years until the end of their contract.

From the wording of the contract, it appears the inflation-adjusted fare increases will be over and above the periodic fare adjustments of 10 percent every two years. The consortium is likewise allowed to pass on to consumers power cost fluctuations up to five percent of notional fare.

A study of the voluminous concession contract done by Ibon Foundation finds that on top of the periodic fare increases allowed the winning consortium a P5 billion subsidy in the form of something called “viability gap funding.” This is on top of government absorbing the real property taxes for the facility. It is estimated that real property taxes will amount to P64 billion through the life of the 32-year concession contract bagged by LRMC.

Another intangible advantage given the concessionaires is access to official development assistance to finance the project. They might likewise acquire government guarantees to lower their financing costs.

Value added taxes imposed on the fares will automatically be passed on to commuters. With power cost fluctuations already covered, the private sector concessionaires will be basically operating the business risk-free. All they have to do is to count their profits.

Ibon Foundation thinks this model of public-private partnerships is grossly disadvantageous to the public. In an effort to attract investors into vital infra projects, government assumes all the risks and the public assumes all the costs.

In the long-run, this model adopted for LRT-1 could mean more expensive service for commuters without guarantee of quality in return. This could replicate the unholy situation in our IT services, where Filipino consumers pay the highest cost for the poorest quality of service.

Costly but poor internet services is attributable, among other things, to the duopoly that rules the industry. In the case of rail services, we are locked in without recourse for 32 years to service providers who could charge the most for the least service delivery.

Mighty

The steep increase in excise taxes for tobacco products produced a dramatic reconfiguration of the market. Where once a multinational corporation enjoyed near-monopoly dominance of the market, a Filipino company has now eked out major market share.

Philip Morris-Fortune Tobacco enjoyed almost complete dominance of the local cigarette market before the imposition of more punitive “sin taxes.” In a matter of only a few years, local player Mighty Corp. has taken a significant market share by catering to lower-priced products.

Few might have heard of Mighty until recently. The fact is, the company is probably the oldest Filipino cigarette manufacturer.

Mighty traces its roots to La Campana Fabrica de Tobacos, Inc.  This company was founded in 1945 by a highly entrepreneurial immigrant named Wong Chu King and several partners. The company celebrates its 70th anniversary this month, basking in the success of its strategy to win market share.

From its first factory located along Tayabas St. in Manila, La Campana produced native cigarettes as well as locally popular cortos and regaliz cigars. A second factory was built in 1948 along Pasong Tamo, Makati. In 1951, the company acquired the land along Sultana St. in Makati that now serves as the headquarters of Mighty Corporation.

In 1963, Wong Chu King founded Tobacco Industries of the Philippines (TIP) with a modern cigarette factory located in Malolos, Bulacan. From that sprawling nine-hectare factory, the company produced American-blended cigarettes using the brand names Duke, Windsor and Tricycle.   

The company went through a difficult period from 1965 to 1982. The unsinkable Wong Chu King persevered, however. By 1985, the company reestablished itself as Mighty Corp., acquiring the trademarks of its rival Alhambra Industries in 1993. This enabled the company to corner the native cigarette market.

Higher labor costs in Makati forced the company to consolidate all its manufacturing at the Malolos plant. In 2001, the company entered into a cigarette manufacturing agreement with Sterling Tobacco, producing blended cigarettes using the latter’s brand names.

Between 2001 and 2007, Mighty invested in modern plants and state-of-the-art packaging facilities. This enabled Mighty to achieve a fully integrated production and packing line. This acquisition of modern manufacturing technologies prepared the company to compete head-to-head with the once dominant player in the Philippine cigarette market.

A superior marketing strategy, expanding market share in the lower-priced segments and moving up to the higher-priced segments enabled Mighty to take advantage of otherwise hostile conditions under the new “sin tax” regime. They caught the competition by surprise, to say the least.

Wong Chu King passed away in 1987, but not without establishing a corporate culture that valued long-term relationships. He left behind a legacy of corporate philanthropy that his successors sustain. Recently, Mighty put out an add celebrating the achievement of scholars supported by the company’s foundation.

The founder’s widow, Nelia D. Wongchuking now chairs Mighty’s board.)

 

ACIRC ALHAMBRA INDUSTRIES BACOOR COMPANY FARE IBON FOUNDATION MAKATI MARKET MIGHTY MIGHTY CORP WONG CHU KING
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