A Risk and ESG Approach to Assessing the Barriers to Modernization and Cooperative Formation in Informal Public Transportation: Case of Philippine Jeepney Sector

Abstract

The Public Utility Vehicle Modernization Program (PUVMP) of the Philippine Department of Transportation (DOTr) remains challenged by operators and drivers of the public transport sector. Jeepney operators and drivers remain the most vocal sector as the most affected stakeholders of the program. The DOTr set deadlines to consolidate the operators in line with the program and franchising requirements. Yet, the sector points out multiple challenges in compliance to the program mandates. Our past case studies report that the cost of modernization extends beyond vehicle ownership (Tacderas et al, 2021). However, existing subsidies and fiscal support from government prioritizes vehicle ownership. Yet, the costs of modernization include capital and operational costs that burden and disrupt the long-term sustainability of the sector. Meanwhile, there are currently limited options for financing the transition (Sunio and Mendejar, 2022), with the financial sector perceiving jeepneys as a risky investment. The PUVMP cover some social safeguards and non-fiscal support, but they may still be limited. There are also other material risk factors, such as environmental regulation compliance, labor management costs, human capital development, and corporate structures and practices. For instance, environmental risks may include regulation and investment costs to comply with the mandate to operate Euro 4-compliant vehicles. Labor management risks include availability and skills of drivers. Human capital development pertains to retaining or hiring highly skilled personnel to adapt to the technological requirements of modernization. Consolidation and cooperative formation—components of the PUVMP—entail corporate structures and capacities necessary to operate, manage assets, and manage competition. The jeepney sector is a semi-formal paratransit service, where single-unit driver-operators are common. Yet, cooperative formation may be seen as a threat to their livelihood. The OECD reported that the informal sector, like the jeepney operators, face larger poverty and occupational risks compared to formal private enterprises; yet their contribution to the economy is largely unrecognized, which impedes proper arguing for public and private financing. It is a question, therefore, if the attempt of government to organize and modernize the sector is beneficial or detrimental, despite the intent of improving overall public transport services. This paper uses an ESG exposure and risk management framework to craft a risk management approach in addressing known barriers for prioritization of programs for the PUVMP, taking the perspectives of the transport service entities and financial institutions. This would inform financing, policy making and program implementation. We gather empirical data on ESG risk factors and financial performance from a sample (peer group) of paratransit operators. In particular, we gather data on: (1) environmental risks and practices, (2) labor management, (3) human capital, (4) service quality, and (5) corporate governance practices. The peer set covers three regions in the Philippines: Cordillera Administrative Region, Region 6, and Region 12. We determine the materiality of ESG risks through focused group discussions and consultation workshops with financial institutions and transport operators. The data and analysis are used for developing an expert system to assist key agencies and regulators to diagnose and assess performance of transport service entities.