Balancing act in PPP governance

Public–private partnerships (PPPs) play a crucial role in advancing the Philippines’ transport infrastructure, particularly in areas where government resources alone cannot meet the growing demand. These partnerships operate on a framework of shared responsibilities: the private sector provides investment and operational capacity, while the public sector creates a supportive regulatory environment and honors its contractual obligations. The recent challenges surrounding the LRT-1 Cavite Extension, however, reveal how difficult it can be for the government to maintain this balance—particularly when it must weigh contractual commitments against the welfare and sensitivities of the riding public.

The final stages of the Cavite Extension now risk delays as Light Rail Manila Corp. (LRMC) faces mounting financial pressure from long-delayed fare adjustments. Metro Pacific Investments Corp. (MPIC), one of LRMC’s principal shareholders, has expressed disappointment over these delays, noting that the concession agreement envisioned regular fare reviews to maintain the project's financial viability. From MPIC’s standpoint, private proponents invest capital sourced from lenders and shareholders who expect fair and predictable returns. When revenue mechanisms become uncertain, the financial foundation of the partnership weakens, prompting MPIC to consider exiting the project.

At the same time, the government’s hesitation reflects its own responsibilities. Fare increases directly affect millions of commuters who rely on LRT-1 and may already be strained by rising living costs. Public officials must weigh contractual obligations against the social and political impact of higher fares, especially during periods of inflation or economic stress. This creates a difficult balancing act: fulfilling commitments to the PPP partner while ensuring that public transport remains accessible and affordable. The resulting tension is not a failure of either side but a reflection of the dual mandate the public sector must navigate.

Although LRMC’s concession allows fare adjustments every two years, only two have been approved in the past decade, creating a widening gap between what the contract envisioned and what has been implemented. This has strained LRMC’s finances, even as the operator continued delivering on its obligations. Recent, more active engagement from the Department of Transportation suggests that the government recognizes the urgency of the issue and the importance of preventing further risks to a vital transport project.

The LRT-1 case highlights a crucial lesson: PPPs require not only contractual discipline but also a governance approach that acknowledges the public sector’s dual responsibilities. The government must uphold its commitments to private partners to preserve investor confidence, while also ensuring that essential services remain affordable. Striking this balance is difficult, but it lies at the heart of effective public-sector stewardship in PPPs.

Restoring confidence in the PPP model requires a steadier and transparent approach to reconciling contractual obligations with public welfare concerns. Transparent, predictable processes for evaluating fare adjustments—supported by phased increases, targeted subsidies, or temporary assistance when hikes are deferred—can help the government meet its commitments without overwhelming commuters. Greater transparency would also reduce friction. Explaining which fare changes are required under the contract, how they affect operators, and what safeguards are in place for riders helps build trust and counter perceptions of arbitrary decision-making.

Institutional continuity is just as important. Because PPPs span multiple administrations, a stable mechanism for overseeing obligations is needed to ensure commitments survive political shifts. This reassures operators that agreements will be upheld and assures the public that fare decisions are based on consistent, rational criteria. Clear communication is vital. Transport systems cannot remain reliable or expand if their financial models are continually constrained. Gradual, well-justified fare adjustments—paired with visible service improvements—can help commuters understand why periodic changes are necessary.

The recent opening of Phase 1 of the Cavite Extension, featuring five new stations and an expanded 26-kilometer line, demonstrates what PPPs can achieve when both partners function effectively. Yet the project’s challenges also reveal how sensitive PPPs can be when public-welfare concerns intersect with private-sector financial realities. The solution is not to move away from the PPP model, but to strengthen the public sector’s capacity to balance its obligations—both to the commuting public and to its private partners. Mastering this balance is essential if PPPs are to continue driving transformative infrastructure across the country.