MRT 7 construction delayed anew due to House probe

MANILA, Philippines—Construction of the Metro Rail Transit Line 7 (MRT 7) may be delayed anew as Congress seeks to scrutinize the financial terms involving a private sector proponent, a lawmaker said on Thursday.

The elevated railway from Quezon City to Bulacan was awarded under the previous administration.

Rep. Terry Ridon, a member of the House committee on transportation, said they would review the concession agreement for the P62.7-billion project between the transportation department and Universal LRT Corp., led by San Miguel Corp. and businessman Salvador Zamora III.

Ridon said that special focus would be placed on the revenue-sharing terms between Universal LRT and the government, and the project’s proposed fare-setting scheme.

Both of these aspects, he said, could be disadvantageous to the government and the public in their current structure.

The lawmaker also seeks clarification on the impact the project will have on families to be “displaced” by the MRT 7 project, he said.

The move comes at a tough time for the Aquino administration, which has been criticized for the slow pace of implementation of its transportation infrastructure projects.

The case of MRT 7, which should have been completed this year, was due to delays in the issuance of a performance undertaking, a type of financial guarantee the proponent would need to secure before tapping a Japanese government-backed loan that would fund most of the project.

“We just want more information, this is the first time Congress is looking into these details,” Ridon said on Thursday.

He pointed to the revenue sharing terms of the 25-year concession, which stated that Universal LRT would get 70 percent of net revenue while the government would get 30 percent, assuming a return on equity below 11.9 percent.

The government’s share increases as the railway line becomes more profitable, with the government’s share rising to 50 percent upon an ROE range of 11.9 percent to 14 percent. The government may collect the entire net revenue once the project breaches the 14-percent mark, Ridon said.

“With the percent share in the net revenue for [Universal LRT] sharply falling upon reaching the 12-percent mark and above, the private concessionaire may strive to press down profits so as not to breach the 11.9-percent return on equity, thereby resulting in loss of potential revenue for the government,” Ridon said.

He also questioned the proposed fare for a full 14-station single journey on MRT 7 which would amount to P38 in the first year of operation, increasing by 5 percent per annum for 25 years. He calculated this would amount to a final fare of P128.68 by the end of the concession.