Extension of Makati subway project eyed

In the aftermath of the mid-term elections, businessman Antonio Tiu plans to extend his subway project—currently designed to run 10 kilometers under a public-private partnership (PPP) with the local government of Makati—to other cities adjacent to the country’s central business district.

The election of young and progressive mayors in neighboring cities may offer an opportunity for Tiu-led Philippine Infradev Holdings Inc., (formerly IRC Properties Inc.) to initiate discussions with other local government units (LGUs) to extend the subway project.

“Let’s wait for the mayors, these are new millennial mayors,” Tiu said.

One such young new mayor from an adjacent city who won during the recent elections is 30-year-old Vico Sotto of Pasig.

“The reason why we started with Makati is that it’s the CBD. That’s the [area with the] highest value of property price and the most aggressive visionary mayor who’s friendly to us (referring to newly reelected Abby Binay), so it makes it a lot easier for us. But having the subway only within Makati doesn’t make sense, but that’s the best way to do it—through LGU PPP. After the election, we can now talk to the right people to connect [with],” Tiu said.

“For our outward extension, we have to consider partnerships with the next city. Pasay, Pasig, San Juan, Mandaluyong, Manila—these are all possible,” he said.

The Makati CBD has a daytime population of about five million and a night time population of only 500,000, which means that the rest of the 4.5 million workers mostly commute from other cities every day. This is the market that Tiu seeks to serve.

The Makati subway system, which is targeted to be completed by 2024 or 2025, is projected to cost $3.7 billion, including the cost of expropriation, demolition and relocation of structures to be affected by the project. Each station is expected to cost $100 million to build.

Based on the financial model, the project can turn cash flow-positive by the third or fourth year of operating the subway. Breakeven point is seen by the 15th year.

Asked how much is the revenue share of the LGU, Tiu said it would depend on the land contribution of the city per station and the cost associated per kilometer. In the case of Makati, the city will have a share of about 20-25 percent, subject to the final valuation report.

Most subway systems elsewhere in the world do not make money and in some places, subsidized by the government. Tiu noted that the only subway systems making money are those in Hong Kong and Singapore because of the property developments in each station.
“So that’s exactly how we’ll do it,” he said. “Based on our financial model, we are going to build about 6.4 million square meters of property over the next 15 years.”

Under Philippine Infradev’s business model, fare revenue will only cover the operating expenses of the project while interest payments and depreciation will be covered by non-fare revenues, which are projected to be much higher than the fare revenues. On the property development component, each station is expected to create 5,000 to 10,000 square meters of leasable area.

“We have the air rights so we can partner with property owners to build high-rise and have some [revenue] sharing,” Tiu said. For instance, he said two of the investors participating in the project were planning to build the tallest buildings in the city. “It will change the landscape of Makati.”

To date, the proponents have finalized the location for eight of the 10 stations. Two of the stations were originally envisioned to be along the stretch of Ayala Avenue, but these have yet to be finalized because the landlords were “not responsive,” Tiu said. “We can’t wait so we’ll start with station 3 and we may tweak stations 1 and 2. We’re thinking of the best alignment to go to Buendia to connect with PNR and LRT 1 or go toward Mile Long area,” he said.

Station 3 will be at the Makati fire station, which will be relocated elsewhere. The next station will be at a property owned by the Lucio Tan group near Circuit Makati, followed by a station at Makati City Hall. The next stations will be close to Century City, Rockwell Center, Makati Bliss Housing near Pasig River, University of Makati, Cembo and the final station will be in the vicinity of Ospital ng Makati.