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October 15, 2018

Is the PUV Modernization Program Doomed to Fail?

Is the PUV Modernization doomed to fail? The initial signs are worrisome as the pioneering cooperative, SETSCO is bleeding money, a report published in Entrepreneur Philippines.

The publication says that SETSCO, one of the pioneering cooperatives to gain a franchise from the LTFRB to operate a route of modern PUVs is bleeding about P 200 a day. The figure was calculated by Entrepreneur Philippines based on data gathered from SETSCO Chairperson Remedios Litong-Venturina.

Quoting the story (emphasis ours):
That [Return of Investment] is proving to be a big challenge as each unit costs P 1.7 million each, and government subsidy only amounts to P 80,000 a vehicle, representing payment for each old jeepney surrendered. That means the cooperative incurs a loan of P 1.62 million for each unit bought from Mitsubishi [Entrepreneur Philippines misidentified the supplier which is supposed to be Isuzu]. 
Venturina did not disclose the terms of the loan. Assuming they availed of the seven-year PUV modernization loan program from the Development Bank of the Philippines that charges six percent a year, Entrepreneur Philippines estimates that the monthly amortization should be around P 23,666. On a daily basis (excluding weekends), that translates to P 1,076
That looks very affordable. However, a SETSCO driver who agreed to speak anonymously to Entrepreneur Philippines, said that each of the cooperative’s vehicles generates only P 1,000 to P 1,500 a day after 12 hours of operation. Since 40 percent of that, or P 400 to P 600, is allotted for the driver, it could mean that only P 600 to P 900 is left for loan amortization and other needs. Clearly, it wasn’t enough.
Compounding the problem, Entrepreneur Philippines says is the fact that SETSCO “has hardly any passengers as of the moment.”

With the DOTr and the LTFRB still saying that the PUV Modernization program will proceed with “no delays,” SETSCO’s birthing pains points to a strong hinderance to the government’s ambitious program to replace more than 200,000 old and dilapidated jeepneys.

Currently, the DOTr and LTFRB says that 484 cooperatives have already been formed and 131 of them were already issued franchises, accounting for a total of 3,273 units. However, if the government does not provide the right ecosystem for these cooperatives to flourish, the PUV Modernization program may be doomed to fail.

The right ingredients are already there: a new and more reliable Modern PUV, rationalization of routes, organizing owner-drivers to cooperatives; but the government should also look at improving the current loan conditions either by lowering the interest rates or extending the loan term, increasing the trade-in value of old jeepneys, or finding ways to lower the cost of the modern PUVs themselves.

Source: Entrepreneur Philippines


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