This is a re-posted opinion piece.
Wednesday last week, hundreds of passengers were stranded during the early morning rush after a technical glitch delayed several trains of Metro Rail Transit (MRT) 3. The delays were caused by a defective switch track at the MRT-3 Edsa North Avenue depot discovered by engineers before the mass transit system opened at 5:30 a.m.
Last year, the MRT also sustained several technical glitches including a collapse of its automatic signaling system last October that forced a shut down for public safety. DOTC Secretary Mar Roxas in reaction said they will review maintenance procedures on the MRT.
Mar was also reported to have said that the continuing glitches shows privatization is not a cure-all to MRT’s problems because a private company, Sumitomo, is now in charge of maintenance and they don’t seem to be doing a good job. I have been told however, that Sumitomo’s maintenance contract had long lapsed and the contractor is just being kept on the job on a month-to-month basis. No wonder there is no incentive to do anything more than band-aid maintenance procedures for now.
That dig on Sumitomo and on privatization is Mar’s way of deflecting responsibility. In truth, the current sad state of the MRT is rooted on his inability to decide what to do next. Early this year, Mar was talking about bidding out the operations and maintenance of MRT but as is usual with Mar, he gave no timeline as to when this would happen.
Deciding what to do at the MRT is probably going to be the real test of leadership for Mar, the technocrat politician who thought he could be President. The financial and legal aspects of the problem are complicated but that shouldn’t faze the former New York investment banker and his high powered crew of four undersecretaries who are all supposedly very good lawyers.
What makes the challenge for Mar even more daunting is the time constraint. Mar’s teka teka approach will just not do in this case. The MRT problem requires a quick resolution one way or the other because the situation there can only get worse.
The rising cost of diesel and gasoline calls for an effective mass transport system. There is also an urgent public safety angle. There could be blood on the hands of Mar and the Aquino administration accused of negligence should a serious MRT accident happen (due to a malfunctioning signaling system, for example) that would take a lot of lives.
The MRT/LRT system has become a very important part of life in Metro Manila with about a million commuters dependent on it. Mar himself concedes that the MRT needs additional resources and investment should be put into the MRT upgrading which could come from either the government or the private sector.
Experts familiar with the MRT told me the Edsa Line urgently needs a major upgrade (double the number of trains now from the existing 73), replacement of ticketing system (no more parts, supplier ceased more than two years ago), and other rehabilitation measures. The ball is still on DOTC’s court and nothing has been done to address these problems. Hence, commuters will have to suffer the congestion and risk the dangers for at least two more years. Expect the breakdown incidents to become worse.
Improving the facilities of the MRT would likely require an increase in fares to generate enough revenues to help fund upgrading, including the acquisition of new trains. But even before we can talk of increasing fares, Mar and the government must decide a number of financial and legal questions that impact on the MRT’s future.
The government has poured in P75 billion in subsidies to the MRT operations for the past 10 years or P7.5 billion annually. The cost to run the MRT is at least P55 per train passenger to cover power consumption, general maintenance and other overhead costs. Commuters are only paying from P12-15 fare, with the remainder of the P55 per passenger operating cost subsidized by the government. Obviously, government cannot continue giving this much subsidy in the long term. There has to be a better solution.
And the solution may just be found in the private sector interest in MRT expressed by the perennial rivals in big ticket infrastructure projects: San Miguel Corp. (SMC) and Metro Pacific Investment Corp. (MPIC). “The government will not choose winners and losers,” Roxas said. The competition from the private sector will be expressed through their bids. Fair enough. But when?
MPIC had offered $300 million to expand the capacity of MRT 3 and $221.4 million to acquire some of the bonds issued by Metro Rail Transit Corp. (MRTC). MPIC said its proposal has three objectives: to retire the DOTC obligation to pay ERPs (equity rental payments) to the MRTC, thereby eliminating the department’s annual subsidies; to double MRT 3’s capacity by amending its build-lease-transfer contract; and to integrate MRT3 with LRT (Light Rail Transit) Lines 1 and 2.
SMC also submitted a proposal to the DOTC to undertake the capacity expansion of the MRT 3 and a bid to run operations and maintenance through its unit Optimal Infrastructure Development Inc. But when Mar assumed leadership in the DOTC, he suspended the bidding and declared that the department will only auction the maintenance contract for MRT 3. Roxas said then that he intends to keep the MRT 3’s operation with the government.
Let us back track a little to understand what is going on. MRT was originally a BOT project by a consortium composed of Fil-Estate, Ayala, Anglo Philippine Holdings and Ramcar. The consortium was guaranteed a 15-percent return on investment by government so that everything that could not be accounted for by the fare was made up by government. Strangely, government (think FVR) allowed the consortium to collect everything else earned by way of transit advertising along the MRT’s tracks and stations which could have helped subsidize fares.
The original members of the consortium have almost all given up their “economic rights” to the project, meaning the guaranteed 15-percent return, in a securitization effort by issuing bonds. The holders of the bonds now collect from government the consortium’s guaranteed return.
During the waning years of the Arroyo administration, DBP and Land Bank bought a sizeable amount of the debt papers. The issue on overpricing aside, it seems the action made sense. Because government will now collect on the “economic rights”, it will in effect be paying itself, effectively reducing the actual money out from the national treasury.
A side issue in this bond deal that Sen. Serge Osmena uncovered in ongoing Senate hearings is the fact that somebody bought the debt papers from the US market for less than US$200m, and flipped the same to DBP and Land Bank for more than 2x the price, which the GFIs now want to resell for a valuation of more than US$1 billion for 100% of the financial assets of MRTC. The Bangko Sentral has also ordered the GFIs to divest themselves of these debt papers by June 30 this year. The GFIs sent a proposal to DOTC on how to get this done last year and has recently followed it up with Sec Mar.
The proposals of San Miguel and Manny Pangilinan’s Metro Pacific have different cost implications for the tax payer. The fact that Metro Pacific has also bought control of the original MRT proponent must also be considered. It now has 77-percent voting control of MRTH II the entity that owns MRTC, the original proponent, 100 percent.
We will try to sort out the gory details in a future column. But for now, it looks like the MRT mess is a job tailor made for a DOTC secretary with a good grounding in the complicated world of international finance and a crew of good lawyers — just the team we have in place at DOTC or so we hope.
The thing is… they have to act quickly. They don’t have forever to make a decision because with the worsening condition of MRT facilities, delay may well mean a catastrophic accident with serious loss of lives. That could happen today, tomorrow or the next few months. If I were Mar, I would be losing sleep.
Hear! Hear!
Lito Balquiedra sent this one.
An elderly gentleman had serious hearing problems for a number of years. He went to the doctor and the doctor was able to have him fitted for a set of hearing aids that allowed the gentleman to hear 100 percent.
The elderly gentleman went back in a month to the doctor and the doctor said, “Your hearing is perfect… Your family must be really pleased that you can hear again.”
The gentleman replied, “Oh, I haven’t told my family yet. I just sit around and listen to the conversations. I’ve changed my will three times!”
Boo Chanco’s e-mail address is [email protected]. Follow him on Twitter @boochanco
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By: Boo Chanco – Demand and Supply
Source: The Philippine Star, March 26, 2012
To view the original article, click here.
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