SCRAP, SWAP, RIDE: World Bank pitches lease-to-own EVs to replace Iloilo jeepneys

ILOILO CITY — The World Bank Group has proposed a lease-to-own scheme for electric vehicles to replace traditional jeepneys, a move it said would protect operators’ livelihoods and improve transport efficiency under the scrappage component of the Public Transport Modernization Program.

The proposal seeks to replace the current loan-based vehicle acquisition model with a lease-to-own system and to link jeepney scrappage to guaranteed service payments, operator dividends, and lower operating costs.

The program, formerly called the Public Utility Vehicle Modernization Program, was launched in 2017 to phase out aging jeepneys in favor of newer, cleaner units run by consolidated cooperatives and corporations.

In Iloilo City, the World Bank said 70% of operators defaulted on loans from Land Bank and Development Bank because of ridership and revenue risks, which it described as a failure of earlier modernization efforts.

“Under the current net-cost model, operators bear the risks associated with ridership and revenue. With unregulated competition, they are not earning enough to repay their debts. As a result, they end up defaulting on their loans,” said Bowen Wang, senior transport specialist at the World Bank Group.

“We have tried this approach, and it has not worked very well. But modernization still needs to continue. We need to adopt a different approach,” he said.

Wang said the proposed model would allow operators to acquire modern public utility vehicles (PUVs) without taking out high-interest bank loans, addressing financial risks that have undermined previous modernization efforts.

“The promise was that we do not want any scrappage program that will lead to a loss of livelihood. That is fundamental,” he said.

Incentivized scrappage

Under the proposed scrappage mechanism, owners of traditional public utility jeepneys would surrender their vehicles to a transport enterprise in exchange for shares and profit dividends under the gross-cost service contracting model.

The proposal also calls for a scrappage leasing one-stop shop where operators could exchange three traditional jeepneys for one modern or electric PUV on the same day.

A scrappage certificate would entitle operators to a discount or waiver of leasing fees for several months.

Owners who become shareholders would receive monthly dividend payouts through the transport enterprise’s digital payroll system, according to the proposal.

The scheme would be paired with gross-cost service contracting, under which the government pays transport operators a predetermined amount to provide services according to specified standards, while the contracting authority retains farebox revenues.

This differs from the traditional boundary system, in which drivers’ earnings depend largely on passenger collections. Under the proposed arrangement, drivers would receive regular salaries rather than relying solely on daily passenger revenues.

The proposed model would also establish a centralized leasing and asset company to purchase electric PUVs in bulk, rather than requiring individual operators or cooperatives to finance vehicle purchases through separate bank loans.

The company would obtain funding from private and public investors and use it to acquire vehicles in large volumes, potentially lowering per-unit costs and strengthening its bargaining power with manufacturers.

It would also manage vehicle procurement, charging arrangements, battery-related risks, and after-sales services.

Transport companies would enter into lease-to-own agreements with the leasing company and service contracts with city governments.

Monthly leasing fees would recover the company’s investment, while government payments under service contracts, supplemented by farebox revenues and subsidies, would support transport operations.

The World Bank said the arrangement aims to reduce operators’ upfront capital and financing costs, lower vehicle acquisition prices through bulk purchasing, and cut operating expenses through the use of electric vehicles.

The proposed reform would also shift the transport system away from the traditional boundary model by separating drivers’ livelihoods from individual vehicle ownership.

Under the model, two to three drivers would share one vehicle through formal eight-hour shifts, allowing more efficient fleet use while providing drivers with regular salaries, employment protections, and adequate rest periods.

Wang said combining centralized vehicle financing, lease-to-own arrangements, and gross-cost service contracting would make modernization more financially sustainable for operators and improve service reliability for commuters.

 

Scrappage needed to curb competition

Wang said the absence of a scrappage mechanism could worsen competition among public utility vehicles, further reducing operators’ earnings and limiting transport services available to commuters.

“Why do we need scrappage? It is a financial issue,” he said.

The World Bank cited the 1,697 authorized vehicles, or certificates of public convenience, in Iloilo in discussing the effects of competition on daily revenues and operating costs.

Wang said commuter demand is relatively stable because population growth does not translate into a proportional increase in daily trips. As a result, the total farebox revenue available to transport operators is also relatively fixed.

When more vehicles compete for the same pool of passengers, revenue per vehicle declines, while high diesel prices continue to weigh on operating costs.

The study estimated that a vehicle traveling 100 kilometers daily would carry around 85 to 87 passengers.

However, amid stiff competition and insufficient earnings, operators could reduce their daily travel to about 70 kilometers to cut fuel expenses.

This would leave more vehicles competing for passengers while reducing the distance each vehicle travels, potentially leaving commuters waiting longer for transport.

The situation could worsen with the entry of colorum vehicles, Wang said, citing plate-scanning data indicating that around 4,000 vehicles enter Iloilo daily.

Colorum vehicles operate without a valid franchise or permit.

Under this scenario, the presentation estimated that passengers per vehicle could fall from around 85 to approximately 36 daily.

Operators might then reduce their daily travel to as little as 40 kilometers, further limiting service availability.

“This situation will worsen if we do not make changes. More vehicles will continue to enter the system without a scrappage mechanism, while existing vehicles remain on the road. The pressure on operators’ earnings will continue to increase,” Wang said.

Protecting operators’ financial security

Wang acknowledged that operators remain reluctant to surrender their traditional jeepneys because the vehicles represent both their livelihood and a financial safety net.

Even members of consolidated transport service enterprises retain ownership of their traditional jeepneys because the vehicles remain a fallback source of income in the absence of a guaranteed driver-shift mechanism.

He also cited mistrust over the proposed dividend system, noting that operators who surrender their vehicles in exchange for shares may not receive payouts if the transport enterprise fails to generate profits.

Under the current net-cost model, profits are not guaranteed, making dividend payments uncertain and potentially too infrequent to provide a reliable source of income.

Another concern is the valuation of scrapped vehicles, Wang said, as government scrappage facilities could offer amounts substantially lower than the second-hand market, where traditional jeepneys may sell for between PHP 100,000 and PHP 200,000.

Operators also view their vehicles as emergency assets that can be sold or rented out to generate immediate cash when unexpected expenses arise.

“These concerns are rooted in financial insecurity. Unless and until the new mechanism addresses all of these issues, you cannot even begin to discuss scrappage seriously,” Wang said.

“If I were in your position, I would stand firm and protest. We need to address all these concerns first before we proceed with scrappage,” he said.