The proposed government takeover of the Metro Rail Transit (MRT) train line, which deviates from the existing policy of privatizing infrastructure projects, is now up for the President’s approval.
Transportation and Communications Secretary Joseph Emilio Abaya on Thursday said the MRT takeover, spearheaded by the Department of Finance, was now “in its advanced stages and just a few steps away from fruition.”
“It’s refinancing the government’s existing obligations. There’s some logic to it too because of the lower cost of money today,” Abaya said.
Speaking at the 2012 Economic Journalists Association of the Philippines (Ejap) forum in Makati, Abaya said MRT’s private shareholders currently enjoy a guaranteed 15-percent return on their investment.
As a result, the government ends up paying about P7 billion a year in subsidies just to cover the guarantee, which was included in the original build-lease-transfer (BLT) deal as a sweetener for investors.
MRT Corp., the consortium controlling the train line, is led by the Manuel V. Pangilinan group. Despite controlling the train line’s board, the company receives only a fraction of the profit.
Most of MRT’s earnings are paid to state-run lenders LandBank of the Philippines (LBP) and Development Bank of the Philippines (DBP).
The economic and political rights over MRT Corp. were previously broken up into separate asset-backed instruments and sold to investors when members of the original consortium cashed in early. These MRT bonds, issued through special purpose vehicle MRT III Funding Corp., were acquired by private corporations. These bonds were bought back by the government through DBP and LBP in 2008.
As a result, the government now owns about 80 percent of the economic interests in MRT Corp. even though “its presence is not felt in the board,” Abaya said in a previous interview.
“The equity buyout is already in its advanced stage,” Abaya said, adding that the proposal was now at the Office of the President.
Aside from reducing subsidies, the buyout would also give the DOTC the flexibility to pursue the expansion of the MRT’s capacity. The MRT was designed to carry 350,000 passengers daily, but the system is used by more than half a million people during average weekdays.
Abaya said the government was also currently studying proposals from the private sector to solve congestion and unreliable service at the MRT.
Metro Pacific Investments Corp. (MPIC), the controlling shareholder of MRT Corp., has an existing proposal to buy the government’s stake in the MRT and invest an additional $300 million to buy more cars and expand train stations. In exchange, MPIC wants to hike fares and add 15 years to its concession.
San Miguel Corp., for its part, offered to add 40 more trains for the MRT, an increase of more than 50 percent from the system’s current fleet, at no cost to the government and with no accompanying fare hike.
However, Abaya said both private sector proposals were put on the backburner as the government explores the possible buyout.