Transit Service Contracting (for laymen) Part 5 - The institutional dilemma

Last week, we ended up saying, “Service contracting requires a specific institutional reality to execute, something which DOTr and LTFRB do not have.” One of the most important aspects of public transportation that we often fail to appreciate is the institutional aspect --how is the service contracted out. The old way is through LTFRB in both issuing “franchises” and setting up “fare rates” --both inherent functions it holds by law. But can it enter into a commercial service contract with private operators? Maybe. But one which has a disconnect with the fare collection system.

Let’s review the basics of service contracting. The government enters into a contract with a private operator. This is for a specific service, which may include route, number of vehicles, frequency, quality of service --all incorporated into a “minimum performance standards and specifications” or MPSS. It may include bonuses or penalties, depending on actual performance. To do that, the government agency must have a specific budget appropriated for the purpose and the authority to enter into such a contract.

On the other hand, the passengers pay the “fares” directly to the government. Without any specific provision of law for such collection, all payments to the government go direct to the national treasury, mixed with the general fund, which will be appropriated, or budgeted, the following year. Usually there is a three-year cycle between collection and budget execution. What happens in the interim? Or worse, what happens when the budget is held hostage by the entire budgeting process? In the meantime, what happens if the private operators do not get paid?

It’s quite easy to see that the old way works because the service and its payment (fares) were transacted directly between the operator/driver and the passenger, the balances realized even on a daily basis. With service contracting, how do we rationalize appropriation and disbursement, if they will have to pass through the entire budgetary process of Congress? The only way this can be done is to entrust the responsibility to a government body which has an internal separate budgetary system which is authorized by law to collect and disburse and does not need to remit revenues to the treasury or get annual appropriations from Congress. DOTr and LTFRB certainly do not fit these criteria. Those that can do this are government-owned and controlled corporations (GOCCs) --existing ones, or any other agency Congress may create with such autonomy.

That’s why DOTr/LTFRB has to resort to “Libreng Sakay.” If fares are collected, they have to issue Official Receipts (ORs). Imagine issuing ORs to all passengers every time they take a PUV ride. And all of these collected fares will go to the National Treasury to be appropriated again by Congress. It won’t work. I don’t know how they have managed to ask Congress to allocate money for the current “service contracts,” but these are already considered “sunk” expenses, not to be recovered, probably linked to the pandemic program. But it’s not the real “service contracting” of public transportation if we equate it to free rides (Libreng Sakay). Just wait --free rides will end eventually. We simply can’t afford it.