CPBRD Policy Brief

No. 2020 - 02

Looking into the Implementation of

Public Utility Vehicle Modernization Program

Congressional Policy and Budget Research Department

House of Representatives
The views, opinions, and interpretations in this report do not reflect the perspectives of the House of
Representatives as an institution or its individual Members.
 Abstract

The Philippine government launched the Public Utility Vehicle Modernization Program (PUVMP)
in 2017 as a move towards changing the landscape of public transportation in the country.
Despite PUVMP’s objective to provide a comfortable, accessible, reliable, environment-
friendly, and sustainable public transportation for every Filipino, several challenges impede
the progress of its implementation. This paper examines the current state of public utility
jeepney industry, recent developments in PUVMP implementation, and challenges in
program implementation. Notwithstanding pending legislative reform measures such as
House Bill Nos. 6136 and 4823, the study suggests that right sequencing of activities and
programs in the implementation of the PUVMP is very critical. For instance, the program
could have started with regulatory reform, Local Public Transport Route Plan formulation
and submission, and route rationalization first before embarking on fleet modernization. This
would give stakeholders better appreciation of the program and additional grace period
and more time for the operators and drivers to prepare.
 1

Looking into the Implementation of

Public Utility Vehicle Modernization Program
by JHOANNE L. ESTIPULAR*

In 2017, the government, through the Department of Transportation (DOTr), embarked on

a Public Utility Vehicle Modernization Program (PUVMP) as a move towards changing the
landscape of public transportation in the Philippines. This is in response to the prevalent
challenges brought about by the continued increase in motor vehicles in the country especially
in urban areas which lead to traffic congestion, air pollution, and reduced road capacity, among
others. Contributing to the motor vehicle growth rate is the continuous operation of public
utility jeepneys (PUJs), majority of which are already 15 years old and above. The lack of
mandatory age limit for PUJs allows vehicles to ply around despite old age. The commuting
public’s safety from road accidents is also put at risk due to the questionable roadworthiness
of these PUJs. As more PUJs are deemed unsafe and unreliable, individuals are incentivized
to rely on privately-owned vehicles instead of public conveyances. Consequently, automobile
dependency or the level of vehicle ownership rises which exacerbates the traffic congestion.

The “one franchise-one operator-one unit” policy of government should also be evaluated.
Mettke et. al. (2016) in their study observed that the lack of consolidation and coordination
of jeepney operators has led to a significant amount of single operators competing on road
space and overlapping routes. This scenario further causes inefficient PUV operation and
proliferation of colorums in the country.

Despite the prospects of PUV Modernization Program to address problems related to traffic
congestion, air pollution, reduced road capacity, and inefficiency in PUV operations, among
others, various transport stakeholders, particularly the drivers and operators, persistently
show resistance to the adoption of program.

House Bill (HB) No. 4823 or Fair and Reasonable Public Utility Jeepney Modernization Act,
authored by Representative Michael Edgar Y. Aglipay (DIWA Party-list) supports the PUVMP
in order to provide an adequate, efficient, reliable and environment sustainable PUVs. The
proposed HB seeks to ensure the safety and comfort of the riding public, and at the same time
promote the welfare and protect the rights of industry players, most especially the drivers and
operators of PUJs, who will be greatly affected by the modernization.

In a related development, HB No. 61361 which was approved on third reading on 10 March
2020, provides that 45% of the incremental revenues to be collected from the adjusted motor
vehicle user’s tax will be earmarked for the implementation of the PUVMP.

*
This paper benefitted from the inputs and overall guidance of Director Dina de Jesus-Pasagui, OIC-Executive Director Novel V.
Bangsal, and Director General Romulo E.M. Miral, Jr., Ph.D.
1
Approved by the House Committee on Ways and Means
 2

Likewise, Senator Grace Poe filed Senate Bill No. 867 otherwise known as the Just and
Humane Public Utility Vehicles Modernization Act. The bill seeks to provide 10% of the total
modernized vehicle price as subsidy to drivers and/or operators.

This paper examines the status of the PUVMP implementation and provides relevant reference
material for legislators in the deliberations of pending legislative measures. Specifically,
the paper presents the current state of PUJ industry, recent developments in PUVMP
implementation, and challenges in program implementation.

While PUVMP covers not only PUJs but also UV express, bus, minibus, and P2P vehicles, the
discussion in this paper focuses on the PUJ industry because of its dominant position in the
country’s road-based public transportation, especially in urban areas.

State of PUJ Industry in the Philippines

Based on the Annual Report of the Land Transportation Office (LTO), there are 12.7 million
units of motor vehicles registered in the country as of 2019. Of this figure, 18% or 2.3 million
units are PUJs or simply jeepneys, and metered taxis with 2,700-4,500 kg GVW. Cars and
sports utility vehicles account for 9% and 5% share, respectively, while motorcycles/tricycles
corner has the highest share (63% of total vehicles registered in the same year). Figure 1
presents that among the four-wheeled motor vehicles, PUVs2 continuously dominate the total
number of motor vehicle registration from 2017 to 2019.

Notably, in terms of new registrations, the growth of PUVs edged up by 1.8%, from 238,708
units in 2017 to 243,033 units in 2019. Moreover, the ASEAN Automotive Federation (2019)
reported that the Philippines ranked second in terms of growth in motor vehicle production
with a 16.1% growth rate for the same period, ahead of Malaysia (1.1%), Indonesia (-4.6%),

Figure 1
Four-Wheeled Motor Vehicle Registration, 2017-2019

Source: LTO

2
Refers to a motor vehicle considered as a public transport conveyance or common carrier duly registered with the LTO and
granted a franchise by the LTFRB as stipulated under Republic Act No. 10916 or Road Speed Limiter Act of 2016.
 3

and Thailand (-5.9%). In the same report, Philippine motor vehicle sales jumped from 325,465
units in 2018 to 336,226 units in 2019, or a growth of 3.3% compared to Malaysia
(-0.2%), Indonesia (-11.6%), and Thailand (-1.1%).

The road-based public transport system in the Philippines is primarily serviced by PUJs,
especially in urban areas. Napalang and Pontawe (2018) noted that out of the 21.5 million
trips per day in Metro Manila, 70% or around 15 million trips are of public transport. Of this
public transport trips, around 7 million are PUJs. This entails gaps between vehicle demand
and road space. As noted by the DOTr, public utility buses (PUBs) and PUJs serve 67% of
demand but uses only 28% of road space. Mettke, et. al. (2016) also observed that as early as
2016, there are about 685 PUJ routes in Metro Manila alone, extensive enough for commuters
anywhere to get a ride within 500 meters.

Franchising. PUJ industry players operate under “one franchise-one operator-one unit”
scheme. Figure 2 shows the gap between number of valid jeepney franchises vis-à-vis number
of jeepney units in 2017. There appears to be a large gap in the National Capital Region
(NCR), Region III, and Region IV. In NCR alone, there are about 9,700 jeepneys without valid
franchise operating in the area. This franchising system causes inefficient PUV operations as
well as proliferation of colorums in the country. In fact, colorum vehicles impounded by DOTr
already reached 2,587 units in 2019.

Figure 2
PUJ Franchise and Units per Region, 2017

Sources of basic data: LTFRB as cited by Napalang and Pontawe (2018)

Vehicle age. Data from the Land Transportation Franchising and Regulatory Board (LTFRB)
indicates that 90% of the total 180,000 PUJ units nationwide are already 15 years old and
above, as of 2018. By looking at the summary of vehicle age of PUJs in Table 1, in 2016,
about 75% of the total or 177,856 PUJ units are already 15 years old and above (year 2000
and earlier). This vehicle condition places the commuting public 10 times more likely to get
into accidents than private car riders (GIZ Jeepney Market Tranportation Program as cited by
LTFRB 2018).
 4

Table 1
Vehicle Age of Public Utility Jeepneys in the Philippines
Number of Percent Share
Year Model
Units (%)
No Record 2,427 1.02
Pre - 1976 7,974 3.34
1976 - 1980 9,108 3.82
1981 - 1985 10,973 4.60
1986 - 1990 20,895 8.76
1991 - 1995 59,873 25.11
1996 - 2000 66,606 27.93
2001 - 2005 40,410 16.95
2006 - 2016 20,206 8.47
TOTAL 238,472 100.00
Source: LTFRB as cited by Napalang and Pontawe.(2018)

PUJs have also been identified as a major source of air pollution especially in Metro Manila.
This is primarily attributed to the fact that among the PUVs in the country, only PUJs do
not have a mandatory age limit, despite its dominance in public transportation (Napalang
and Pontawe 2018). Mettke (2016) also observed that although PUJs only make up a small
proportion of the total vehicle fleet in Metro Manila, the jeepney sector contributes significantly
to GHG emissions from the road sector with 7% of all transport-related GHG emissions in 2015.
Blacksmith Institute and Clean Air Asia (2016) reported that other factors which contribute to
the air pollution caused by PUJs include poor maintenance practices, poor vehicle design and
production processes, and among others. Napalang and Pontawe (2018) even noted in their
study that the vehicle age in the country is determined by the year the vehicle is registered
with the LTO, and not the actual age of the vehicle’s major components (e.g., engine, chassis,
etc). Thus, a vehicle may be technically considered 15 years old in the country but its engine
is a lot older.

Table 2 shows the vehicle age limit in the Philippines per motor vehicle type as compared to
other Asian countries. As may be seen from the table, in Singapore, the maximum age limit

Table 2
Vehicle Age Limit of Motor Vehicles in Selected Asian Countries
Country Vehicle Age Limit
Philippines** UV express: 15 years
PUB: 15 years
Taxi (unleaded/diesel): 13 years
Taxi (LPG): 15 years
Trucks: 15 years
China*** Taxi: 8 years
PUBs: 13 years
Hong Kong Diesel CVs: 15 years
Nepal PUVs: 20 years
Pakistan PUBs: 10 years
Singapore Cars: 10 years
Vietnam Cars: 20 years
Source: Clean Air Asia (2016), **Napalang and Pontawe (2018), ***Posada, et. al., (2015)
Draft as of 19 March 2020 | 1
 5

for cars is 10 years compared to 13-15 years in the Philippines. On PUBs, China’s 13 years
and Pakistan’s 10 years vehicle age limits are significantly lower compared to the Philippines’
limit. This shows that PUVs plying in the country in general are much older than the PUVs in
other countries.

The Environmental Management Bureau (EMB) of the Department of Environment and Natural
Resources (DENR) in its 2018 Emissions Inventory noted that 73% of the total emissions in
the country or air pollution is attributed to mobile sources , 16% from stationary , and 11%
from area sources. The same report revealed that for NCR alone, mobile sources3 contribute
an enormous 81% to total air pollution, followed by stationary4 sources (18%) and a mere
1% from area5 sources. Major pollutants coming from mobile sources are Volatile Organic
Compound (94.3%) and Carbon Monoxide (88%).

Recent Developments in PUV Modernization Program

The Public Utility Vehicle Modernization Program or PUVMP has been at the heart of most
of the policies and directives of the DOTr/LTFRB whose key objectives are to ensure safe,
efficient, and reliable public transportation and at the same time provide an inclusive and
holistic treatment to the public transport industry.

The PUVMP is not merely a vehicle modernization program but one that entirely changes the
public land transportation industry. The program specifically aims to: a) modernize the current
PUV fleet; b) reform and consolidate the industry; c) move towards low emission PUVs; d)
improve welfare of commuters and encourage modal shift; and e) improve standards of living
of drivers, operators, and their families.

It is consists of 10 major components: (1) Regulatory Reform; (2) LGU Local Public Transport
Route Planning; (3) Route Rationalization; (4) Industry Consolidation; 5) Fleet Modernization;
6) Financing; 7) Vehicle Useful Life Program; 8) Initial Implementation; 9) Stakeholder Support
Mechanism; and 10) Communication.

The initial implementation of the PUVMP was launched in January 2018 (PUVMP-PMO 2020).
Notably, Tacloban is the first city to adopt the PUVMP in the country. Table 3 presents the other
pilot areas with franchises already issued by DOTr/LTFRB (see Annexes A and B for sample
modernized units), as of August 2018.

As of January 2020, the program has already authorized a total of 27,606 units which
corresponds to 1,022 routes nationwide. Of the 27,606 units, 66.8% or 18,443 units compose
operational units (combined interim and modernized units), while 7.4% or 2,029 units are
OFG-compliant or modernized units. According to PUVMP PMO (2020), the NCR accounted
for the largest number of modernized units (580 units) since most existing public transportation

3
Refers to any vehicle (e.g., diesel and gasoline-fed vehicles such as cars, utility vehicles, buses, trucks, and motorcycles),
propelled by or through combustion of carbon-based or other fuel, constructed and operated principally for the conveyance of
persons or the transportation of property goods as stated in RA 8749 Philippine Clean Air Act of 1999.
4
Refers to any building or immobile structure, facility or installation which emits or may emit any air pollutant as stated in RA
8749.
5
A source of air emissions that is not confined to a discrete point or points of emissions, examples of which are industrial
facilities, household cooking, waste burning, etc (DENR-EMB).
 6

services are saturated in the NCR due to high population density. Authorized units are those
target number of units which could operationalize in routes that are found to be viable by the
LTFRB based on the LPTRP or DOTr Route Rationalization Study.

Table 3
Pilot Areas with Franchises, 2018

Number
Date of
Pilot Areas of PUV
Launching
Units
23 January Yolanda relocation area in Tacloban 45
2018
18 June CCP-MOA-PITX Route (Senate Route) of Senate 15
2018 Employees Transport Service Cooperatives
18 July Taguig-Pateros Route of Pateros-Fort Bonifacio 35
2018 Transport Service and Multi-Purpose Cooperative and
Taguig Transport Service Cooperatives
31 July Iloilo routes: 45
2018 1. Vista Mall - Mohon Terminal
(via C1 road)
2. Vista Mall - Jaro New Ceres
Terminal (via C1 road)
3. Vista Mall - Pavia Terminal
(via Gorriceta)
TOTAL 140
Source: LTFRB

The PUVMP is implemented by the LTFRB and DOTr, in coordination with relevant government
agencies such as the LTO and Office of Transport Cooperatives. For efficient monitoring and
implementation of the program, the LTFRB established its National and Regional Project
Management Offices. In August 2019, the PUVMP Project Management Office (PMO) was
established with the aim of delivering the objectives of the program (PUVMP PMO 2020).

Regulatory reforms. On 19 July 2017, the DOTr issued Department Order 2017-0116
otherwise known as the Omnibus Franchising Guidelines (OFG). This is in consonance with
Section 17 of Republic Act (RA) 7160 or the Local Government Code (LGC) of the Philippines
which provides that local government units (LGUs) particularly cities shall endeavour to
provide adequate, effective, and efficient transportation facilities that would provide access and
mobility for the people to pursue socio-economic activities as stipulated in its Comprehensive
Land Use Plan (CLUP).7 The LTFRB was tasked to implement the OFG by encouraging and
requiring the consolidation of operators and the establishment of bigger coordinated fleets of
PUVs.

In the same study conducted by Napalang and Pontawe, it revealed that the current
one-franchise-one operator-one unit set-up of PUJ industry resulted in the operational
inefficiency in the industry due to on-street competition and disorganized dispatching system.
The study further highlighted the need to shift to a collective ownership or industry consolidation

6
Omnibus Guidelines on the Planning and Identification of Public Road Transportation Services and Franchise Issuance.
7
A planning document prepared by LGUs to rationalize the allocation and proper use of land resources.
 7

which would entail requiring individual franchise holders to either join or form legal entities
such as cooperatives or corporations.

Apart from DO 2017-11, LTFRB also issued various Memorandum Circulars related to
garages, selection of transport safety officers, inter-regional and inter-province public transport
route plans, off-street terminal operations, consolidation of franchise holders, applications for
appropriations of abandoned and/or expired Certificates of Public Convenience (CPCs), and
dropping and substitute for PUJ, among others.

Local Public Transport Route Plan (LPTRP). The DOTr delegated the formulation of
transport route plans to LGUs8 since they are more versed in the terrain and passenger
demand within their respective territorial jurisdictions. The LPTRP is also a requirement by the
LTFRB as basis for issuance of franchise.

As of July 2018, the DOTr in coordination with the DILG has already conducted the first session
of the two-part LPTRP capacity building to 35 batches (out of 59 batches), or 866 LGUs out of
a total of 1,499. Meanwhile, 29 batches or 753 LGUs out of 1,499 LGUs have finished both
1st and 2nd sessions of said course.

As of January 2020, six (6) LPTRPs with issued Notice of Compliance (NOC) were adopted
by the following LGUs: 1) Province of Oriental Mindoro; 2) Sablayan, Occidental Mindoro;
3) General Santos City; 4) Bacolod City, Negros Occidental; 5) Puerto Princesa City, Palawan;
and 6) Zamboanga City (PUVMP-PMO 2020).

While LPTRP is vital in obtaining a franchise to operate modernized units and important in route
identification, PUVMP PMO noted a low submission rate. As of January 2020, only 20.63%
(325 out of 1,575) of LGUs all over the country have submitted their respective transport route
plans. This low rate is partly attributed to the lack of motivation of LGUs to finish their LPTRP
over other developmental plans (PUVMP PMO 2020).

Route rationalization and industry consolidation. Route rationalization and industry

consolidation would require major changes in the public transportation system in the country.
First is the change from one franchise-one operator-one unit mode to formation of legal entities
such as cooperatives or corporations.

With proper industry consolidation, the DOTr noted that there will be expected benefits such
as, maximized revenue while keeping maintenance costs low, spread of capital, operation,
and maintenance expense, operational efficiency, access to more discounts in fuel and spare
parts, and access to common garage/depot, among others (Napalang and Pontawe 2018).

Second is the rationalization of routes by adopting hierarchy of modes to address issues on

reduced road capacity due to increasing number of low-capacity vehicles in high-demand
areas. The basic policy in route rationalization is that higher capacity PUVs are assigned to
high demand routes. Route rationalization studies determine the appropriate mode, quantity
and service characteristics of the public transport service in each area to make the routes
more responsive to passenger demand and ensure that the hierarchy of roads and modes of
transportation are followed (LTFRB 2017).

8
As prescribed under DOTr-DILG Joint Memo No. 1 series of 2017.
 8

According to PUVMP-PMO (2019), the identification of routes or rationalization study for

Inter-Regional, Inter-Provincial (IRIP) has been awarded to the UP National Center for
Transportation Studies Foundation Inc. (NCTSFI) - ALMEC Corp. Joint Venture Agreement.
Meanwhile, the Metro Manila Update and Capacity Enhancement Project (MUCEP) routes
have been awarded to the Transport and Traffic Planners Inc (TTPI). MUCEP is the equivalent
of LPTRP for other regions in the country.

The IRIP’s scope of study is expected to cover all IRIP routes terminating at MUCEP cities as
well as IRIP routes in Regions 1, 2, 3, 4A, 5, 9, 10, 12, CAR, and CARAGA.

Fleet Modernization. Among the major components of the PUVMP is fleet modernization. This
entails modernizing the PUVs/PUJs in order to achieve a comfortable, accessible, reliable,
environment-friendly, and sustainable (C.A.R.E.S) with due consideration to Persons-with-
Disabilities (PWDs) and elderly (PUVMP PMO 2020). The PUVMP also promotes environment-
friendly units that use electric drive and/or a combustion engine that complies with Euro-49 or
better emission standards as prescribed by the DENR to reduce greenhouse gas emissions,
toxic fumes, and other forms of air pollution.

Modernized units or those that conform with the OFG have safety features. As required under
LTFRB MC 2019-013, which covers the selection process, all PUVs (i.e., PUB and Mini-bus,
PUJs/UV Class 1-3) shall be installed with following OFG-required devices: GNSS Receiver,
Free Wi-Fi, CCTV (4 cameras, continuous recording of past 72 hours of operation, Automatic
Fare Collection System for PUBs/PUJs/UV within highly urbanized independent cities,
speed limiter, and dashboard camera (at least 24 hours of recording) compliant with LTFRB
specifications, with lay-over/garage sufficient space for all units, plus additional space of at
least 30% of the total PUV space requirement.

To soften the impact and assist small operators who will be affected by the PUVMP, a special
loan program is being offered by the Land Bank of the Philippines (LBP) and Development
Bank of the Philippines (DBP). The two financial institutions have agreed to provide affordable
loan packages consisting of: (1) 5% equity or downpayment equivalent to P80,000 which
could be shouldered by the government; (2) 6% interest per annum; and (3) seven (7) years
repayment period.

Initially, the government has allotted P2.2 billion budget subsidy in 2017 to finance the equity
requirement (P80,000 each to at least 28,000 jeepneys) in modernizing PUVs. However,
according to PUVMP PMO, only 7.34% was released by both banks out of this amount as of
January 2020.

According to the PUVMP PMO, the LBP has approved 397 units amounting to P718 million,
while DBP has approved 1,725 units amounting to P3.743 billion, releasing about P170 million
in subsidies as of January 2020. Both banks have approved a total of 2,122 units amounting
to P4.46 billion.

9
Refers to European Emission Standard use to define the acceptable exhaust emission limits for vehicles across the world.
Europe and North America have implemented Euro-3 as early as 2005 and implemented Euro-5 since 2009. The Philippines is
now moving from Euro-2 to Euro-4.
 9

As of January 2020, LBP is processing loans for 383 units with an equivalent amount of
P867.5 million, while DBP is considering loans for 1,362 units which amounts to P2.8 billion,
potentially releasing about P140 million in subsidies.

Delays in release could be partly attributed to the delays in the issuance of necessary
requirements by the banks such as letters of guarantee, among others. The transport group
Federation of Jeepney Operators and Drivers Association of the Philippines (FEJODAP),
during the August 2018 TWG Meeting of the Committee on Transportation, even complained
about the difficulty in complying with the requirements to access the credit facilities and
financing as well as the fleet system. The group said that bank requirement to have end-to-
end terminals is not feasible especially in densely populated areas.

Department-wide Underperformance. Despite the reported accomplishments and with

a higher budget allocation in 2018, the DOTr Office of the Secretary (OSEC) appears to
underperform in terms of implementing its Land Public Transport Program, where PUVMP is
lodged. Only 1.4% has been accomplished out of the 11% target to modernize public transport
vehicles (i.e., improved model year and use of environment-friendly fuel).

Social support from the government. The PUVMP also adopts a Vehicle Useful Life Program
which consists of policies and programs that deal with different stages of vehicles’ useful
life. This includes the provision of a Motor Vehicle Type Approval System and a Scrappage
Program for end-of-life vehicles. This component ensures that the old PUVs are surrendered
and effectively scrapped (LTFRB 2017).

On the other hand, stakeholders will also have access to various training and social support
programs which will be offered to enable them to be competent, self-sufficient and well-
equipped with the necessary technical knowledge and skills (LTFRB 2017). Trainings,
livelihood, and job opportunities programs are offered in cooperation with TESDA, DOLE,
DSWD, and DTI. A Driver’s Academy was established to effect the behavioral change among
the public transportation drivers and operators.

The PUVMP Roadshow Caravan themed “Arangkada ng Pagbabago Tungo sa Kaunlaran”

was launched in July 2019, in partnership with the public and private sectors, in Clark, Angeles,
Pampanga. Various caravan stops were successfully conducted in North Luzon, Mindanao,
and Visayas resulting in a total of 29 successful stops as of January 2020 (PUVMP-PMO
2020).

Challenges in Program Implementation

Financial viability of modernization. There is an apparent constant resistance of single

operators, transport entities, associations, and radical groups to undergo the modernization
program. However, primary data obtained from the Taguig Transport Service Cooperative
(TSC) indicates a positive operating income increasing from P587,642.76 in 2017 to
P806,345.21 when the cooperative embarked on PUVMP in 2018 (Table 4). This reflects
 10

the amount of profit realized from the cooperative’s operations after investing on modernized
PUJs. In 2018, the Taguig TSC, one of the first entities in the country to operate modernized
PUJs, initially invested P50 million for a total of 30 units to serve the community within Pasig
and Taguig, by plying the Pasig Palengke to Bagumbayan Taguig via San Joaquin route.
The following year (2019), the Cooperative acquired 58 additional modernized units, an
investment of about P150 million. The loan from the DBP was payable in seven (7) years with
6% interest per annum. The government on the other hand provided P80,000 subsidy per unit.
These modernized units are already Euro-4 compliant equipped with OFG-required facilities.
Table 4
Operating Income, Taguig Transport Service Cooperative, 2017-2018
2017 2018
Particular
(before PUVMP) (after PUVMP)
Total Revenues (in Pesos) 8,703,726.31
3,104,649.61
(a)
Total Operating Expenses 7,897,381.10
2,517,006.85
(in Pesos) (b)
Total Operating Income (in
587,642.76 806,345.21
Pesos) a-b
Expense-to-Revenue Ratio
81.07 90.74
(%) b/a
Source of basic data: Taguig TSC

As of February 2020, Taguig TSC has 102 drivers, 105 passenger assistant officers, and
75 investors/operators for its 88 modernized units already. The Cooperative still plans to
expand its operation, however, it finds it difficult to convince individual jeepney operators to
invest in their fleet as old PUJs are still being allowed to operate around the country, especially
in the urban areas.

In another study conducted by Agaton, et. al., (2019), their financial estimation results also
showed positive returns on investing in modernized diesel jeepney (Table 5). Despite the
high investment cost of modernized PUJ which is roughly P1.6 million to P2.2 million, the
computed NPV revealed positive returns on an investment of USD 3.138 million. A positive
NPV indicates that the projected earnings exceeded the anticipated costs. On the other hand,
the PBP estimation shows that an investment in modernized diesel PUJ can be recovered
in three (3) years. Over the 30 year-lifetime of PUJ operation, the diesel project returns the
investment by five (5) times. More importantly, a 43.89% IRR is higher than the hurdle rate of
15% set by the Philippine government, implying that investing in modernized diesel PUJs is
indeed profitable.
Table 5
Financial Estimation Results on Modernized Diesel PUJ
Valuation Method Financial Estimation
Net Present Value (NPV) USD 3.138 million
Payback period (PBP) 3.28 years
Return on investment (ROI) (30
490%
years)10
Internal rate of return (IRR) 43.89%
Source: Agaton et.al., 2019

10
The ROI was computed with an assumption of 30-year lifetime of PUJ operation. Note that the average vehicle age limit of
PUV in the country is around 15 years, while there is no mandatory vehicle age limit for PUJs.
 11

Similarly, in a case study conducted by Napalang and Pontawe (2018) on 1-Transport Equipment
Aggregator and Management Inc’s (1TEAM) experience in modernizing PUJs, it was found
that operators and drivers received higher monthly net income/salary after they modernized
their jeepneys under the fleet management. Table 6 shows that operators gained only an
estimated monthly net income of P2,906 to P6,700 before modernization or operating under a
boundary system compared to P7,000 monthly net income gained after modernization. On the
other hand, a driver which operates a modernized jeepney benefited with a net monthly salary
of P23,000 compared to the monthly net income ranging from P10,000 to P16,000 under the
boundary system prior to modernization. 1TEAM is a transport management corporation in
the Philippines which has been operating with modernized PUJs in Metro Manila since 2014.

Table 6
Monthly Net Income of 1Team Drivers and Operators
Before and After Modernization, 2018
Stakeholder Monthly Net Income (in PhP)
Before Modernization After Difference
(under boundary system) Modernization
Operators 2,906 to 6,700 7,000 300 to 4,094
Drivers 10,000 to 16,000 23,000 7,000 to 13,000
Source: Napalang and Pontawe (2018)

Prior to modernization, drivers shoulder the operational expenses of the jeepneys under the
boundary system, which average from P960 to P1,090 per day. These include parking fees,
payment for the jeepney barkers, fuel expenses, food, and the butaw or daily membership fee
for a transport group. With a gross daily income of around P1,590 to P1,760, jeepney drivers
are left with a daily profit of only P500 to P800 or about P10,000 to P16,000 for 20 days of
operation per month.

In contrast, under fleet management of 1TEAM, all expenses are already shouldered by
the corporation, including the driver’s salary, compensation for other personnel, operational
expenses, maintenance expenses, downpayment for the purchase of the new PUJ unit, and
amortization expenses for duration of seven (7) years.

The case study noted that each brand-new Euro-2 PUJ of 1TEAM fleet costs around
P1.35 million and are amortized for P17,000 per month. Just like the Taguig TSC, the DBP
granted the corporation a 7-year loan with an interest rate of 6.25% and downpayment of 30%
for new PUJs.

Legal concerns. Various HBs propose that a portion of incremental revenues to be derived
from Motor Vehicle User’s Charge (MVUC) rate adjustment be set aside as subsidy for PUVMP.
Being a private undertaking, this provision on subsidy out of tax collections may be met with
legal questions.

In 2011, the Pilot Testing Program of Alternative Engines/Fuel Efficiency and Emission
Reduction Technology for Public Transport program of the DOTr amounting to P33.4 million
was not implemented due to a legal opinion rendered by the Department of Justice (DOJ) that
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the use of public funds for private endeavors (i.e., public transportation modes privately owned
and managed) is unlawful (Napalang, et. al., 2018).

Relatedly, the Department of Budget and Management released SARO No. BMB-A-12-0008165
amounting to Php 45.9 million to cover the implementation of FY 2012 projects, the budget
for which was obligated until December 2013. Included in the list of projects is the PUJ
Modernization Program, but it was not implemented after the Road Board requested for a
DOJ opinion. The DOJ asserted that public transportation modes, which are privately owned,
are not eligible for funding through the MVUC. As a result, no disbursements to the DOTC
(renamed as DOTr) were made in 2013.

Notably, there are already interrelated cases resolved such as Petitioner-Organizations vs.
Executive Secretary, G.R. Nos. 147036-37 and 147811, promulgated on 10 April 2012, and the
Fort Bonifacio Development Corp vs. Commissioner of Internal Revenue, G.R. No. 173425,
promulgated on 22 January 2013. In Petitioner-Organizations, the Court stated that “all money
collected on any tax levied for a special purpose shall be treated as a special fund and paid
out for such purpose only. Assisting other agriculturally-related programs is way off the coco-
fund’s objective of promoting the general interests of the coconut industry and its farmers.”
Meanwhile, in Fort Bonifacio, the Court explained that “Congress cannot validly enact a law
transferring government funds, raised through taxation, to the pocket of a private individual
or entity. A well-recognized inherent limitation on the constitutional power of the State to levy
taxes is that taxes can only be used for a public purpose.”

Financial Issues. According to PUVMP-PMO, the Program’s budget in 2019 has been
reduced to P447.03 million, 47% lower than its 2018 budget which amounts to
P843.45 million. Programs that remained intact albeit with lower allocations include training,
information education campaign, and PMO funds.

For fiscal year 2020, the PUVMP-PMO initially proposed a budget of P691 million for execution/
operation of the PUVMP. The DOTr, as mother agency, however, did not approve the budget
proposal (PUVMP-PMO 2019). Among the scrapped programs is the Tsuper Iskolar initiative
of the LTFRB under its Driver’s Academy which was established to provide free skills training
for displaced drivers and operators (Tuquero 2019).

Slow disbursement rate has already been observed since 2015 when the program is still
named as PUV Rationalization Program. COA reported that of the total funds earmarked
in the 2015 to 2017 General Appropriations Act (GAA) amounting to P569.5 million, only
15.5% or P88.5 million was transferred to the implementing agencies as of end-2017 due
to their unpreparedness to implement the projects (CPBRD 2018). Further, of the total funds
transferred, only P1.9 million or 0.3 percent was disbursed.

Conclusion

The PUVMP is considered a large-scale transformative initiative of the current administration.

It is a comprehensive program with several components and is not limited only to replacement
of old vehicles.
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Unfortunately, it has been too focused on vehicle replacement. Sequencing in the implementation
of the PUVMP is very critical. It could have started with regulatory reform, LPTRP formulation
and submission, and route rationalization first before embarking on fleet modernization. This
would give stakeholders better appreciation of the program and additional grace period and
more time for the operators/drivers to prepare.

The financial viability of the project should also be carefully studied to determine the right
amount of subsidy to be given in order to lighten the capital burden of the operators and
encourage them to modernize.

Equally important to emphasize is the DOJ opinion that asserts that public transportation
modes, which are privately owned, are not eligible for funding under the MVUC. This would
require further study since a house bill which was approved by the House Committee on Ways
and Means allocated 45% of incremental revenues from the proposed MVUC rate adjustments
as earmarked funds for PUVMP for the next five years.

The PUVMP’s objective to improve public transport level of service, passenger and commuter
welfare that would eventually boost transportation industry and the economy as a whole is
laudable. However, unless properly implemented, benefits to be gained from the program may
not be fully realized.

Annexes

Annex A
Modernized Units in Tacloban City
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Annex B
Modernized Units Operated by Taguig Transport Service Cooperative

References
Agaton, C., et. al., (2019) ‘Diesel or Electric Jeepney? A case Study of Transport Investment in the Philippines Using the
Real Options Approach’, World Electric Vehicle Journal .

ASEAN Automotive Federation (2019) ‘ASEAN Automotive Statistics 2019’, Avalibale at http://www.asean-autofed.com/
files/AAF_Statistics_ytd_december2019.pdf (Accessed 12 March 2020).

Department of Budget and Management (2020) ‘National Expenditure Program’, Manila.

Gatchalian, S (2019) ‘Press Release: Time to revisit Public Utility Vehicle Modernization Program’, Manila: Senate of the
Philippines.

Land Transportation Franchising and Regulatory Board (2017-2018) Available at http://ltfrb.gov.ph/index.php/puv-

modernization-2/ (Accessed 12 March 2020).

Land Transportation Office (2019) ‘Annual Report’, Available at https://www.lto.gov.ph/transparency-seal/annual-reports/

file/908-annual-report-2019.html (Accessed 12 March 2020)

Mettke, C., et. al. (2016) ‘Transforming Public Transport in the Philippines’, Mandaluyong City, Metro Manila: Department
of Transportation.

Mira, R. (2018) ‘Agency Budget Notes on Department of Transportation’, Congressional Policy and Budget Research
Deparment.

Napalang S., et al.(2018) “Results of the Assessment of the Motor Vehicle User’s charge utilization in the Philippines,”
Philippine Institute for Development Studies.

Napalang, M. S., and Pontawe, J. (2018) ‘Examining the Potential Significance of Industry Consolidation and Fleet
Management in Implementing DOTr’s PUV Modernization Program: A Case Study of 1TEAM’, Quezon City: National
Center for Transportation Studies, University of the Philippines-Diliman.

Posada, F., et.al (2015) ’Survey of Best Practices in Reducing Emissions Through Vehicle Replacement Programs’,
Washington DC.

PUVMP-PMO (2019) ‘Public Utility Vehicle Implementation Program Accomplishment Report’, Quezon City: PUVMP-
PMO.

PUVMP-PMO (2020) ‘Public Utility Vehicle Implementation Program Performance Report’, Quezon City: PUVMP-PMO.

Tuquero, L (2019) ’PUV modernization gets no budget in 2020: Who suffers?’, Rappler, 7 October, Available at https://
www.rappler.com/nation/241904-dotr-no-budget-puv-modernization-2020-who-suffers (Accessed 12 March 2020).
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Notes
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Congressional Policy and Budget Research Department

3/F Main Building, House of Representatives
Batasan Hills, Quezon City, Metro Manila, Philippines
Tel. No. (DL) 8-931-60-32 (Fax) 8-931-65-19
Website: cpbrd.congress.gov.ph