RECTIFYING what was deemed as a “messy” contract with a private rail company has been on the government’s drawing board for over six years now. Up to this day, however, the multibillion-peso initiative remains in limbo.
The P54-billion buyout plan for the Metro Rail Transit (MRT) Line 3—commonly seen as the most problematic of all three overhead railway systems in the Philippines—has yet to move an inch from the 2012 plan.
It has been a six-year roller-coaster ride for the program, as government agencies and branches could not align themselves on the manner of executing the plan, or just simply how to move forward with it.
Today, with the new administration on board, the plan is still in limbo, being discussed on different levels due to the complexity of the issue, which is marred by legal tussles and economic implications.
Transportation Undersecretary Timothy John R. Batan said the agency and the Department of Finance (DOF) are now reviewing the viability of the plan.
Restart of discussions
“Discussions are ongoing among the DOF, DOTr and other concerned government agencies on this subject,” Batan told the BusinessMirror. “The government is reviewing the best approach that will best serve the public’s interest.”
Under the buyout plan, the government aims to acquire MRT Corp., the owner of the train line, controlled by businessman Robert John L. Sobrepeña, through a holding company.
This will free the government up from the equity rentals that the State pays to operate the railway system.
To recall, the government entered into a build-lease-transfer agreement with MRT Corp. two decades ago for the construction of the train facility along Edsa to cater to the growing public transportation needs in Metro Manila.
Through the said contract, the private company was to own the said facility for 25 years, while the government is required to rent and operate the train system throughout the concession period.
Equity rental payments amount to P610 million per month, or about P7.3 billion annually. Revenues of the train system, however, are solely for the government.
Aside from freeing the government from paying billions of pesos to the private company, the State’s intention in acquiring the train line intends to put an end to the hellish rides commuters face on a daily basis.
Acquisition steps
The takeover is enshrined in Executive Order 126 issued by President Aquino in February 2013. The order mandates the Department of Transportation and Communications and the Department of Finance to execute an equity-value buyout of the private company that owns the MRT 3.
The takeover was seen as key to the modernization of the railway system that ferries more than 540,000 passengers daily.
Before the government can actually buy out the private partner, several steps must be taken to ensure the takeover will be smooth and consistent with global best practices and international law.
To take over the line, the government must purchase all the shares and bonds of the railway company. Another requirement for the buyout is for the government and the private partner to strike a compromise, end the ongoing arbitration case in Singapore lodged in 2008 due to the State’s failure as line operator to pay billions in equity rental to the owner of the rail system.
But six years into the issuance of the President’s order, the transportation and finance departments have not moved an inch in completing the buyout. The plan encountered roadblocks, including the rejection of the takeover budget by lawmakers during the 16th Congress.
Hindrances
“We have discussed the possibility, but we have yet to receive specific instructions. It has a lot of problems, the buyout. So we’re looking at our options,” Budget Secretary Benjamin E. Diokno said in a chance interview.
Batan agreed, saying that the government will work toward giving an appropriate solution to the mess in the MRT 3.
“Our position will be one with all other concerned government agencies, and we are working with those agencies toward a solution that will best serve the public’s interest,” he said.
Part of the options that the government is reviewing is acceptance of the unsolicited proposal of Metro Pacific Investments Corp. for the rehab and modernization of the railway line.
Metro Pacific submitted in 2017 an unsolicited proposal that involves the expansion of the capacity of the railway system by adding more coaches to each train, allowing it to carry more cars at faster intervals. It will double the capacity of the line to 700,000 passengers a day from the current 350,000 passengers daily.
The multimillion-dollar expansion is deemed as an all-encompassing deal, including the improvement of the reliability of rolling stock, the upgrading of power supply, the upgrading of stations and the replacement of rails, which will allow the company to operate the new trains purchased by the government from Chinese train manufacturer Dalian.
Swiss Challenge option
Unsolicited proposals are required, under the law, to be subjected to a Swiss Challenge, wherein other groups can offer a similar proposal, and the original proponent can present a counter offer.
The government awarded the original-proponent status to Metro Pacific last year.
Metro Pacific has nominated Light Rail Manila Corp. as its corporate vehicle for the MRT 3 deal. The said company, a partnership between Metro Pacific and Ayala Corp., operates the Light Rail Transit (LRT) Line 1.
Its proposal for the MRT mimicked the same provisions under its concession agreement for the LRT 1 operations and modernization deal, which it bagged in 2014 via the Public-Private Partnership Program.
It means that, instead of having a different operator and maintenance provider, the group will be the one to do both, something that Sobrepeña has been pushing for since the government forcibly took over the upkeep of the facility in 2012.
“We have performed extensive due diligence on the line. However, there is a parallel process running with government and help from Japan for the same thing. At this stage it’s hard to say whether or when terms will be agreed,” Metro Pacific Chief Financial Officer David J. Nicol said.
He was referring to the negotiated deal with the Japanese government.
From its initial talks with the Japan International Cooperation Agency, the Philippine government is seeking to be granted an official development assistance (ODA) financing package for the overhaul and maintenance of the MRT 3.
The Japan ODA-financed rehabilitation and maintenance project is intended to “fix everything that needs to be fixed” in the MRT 3 through a well-qualified, experienced and single-point-of-responsibility rehabilitation and maintenance service provider, Batan explained.
The government is currently directly engaging Sumitomo Corp. and its technical partner Mitsubishi Heavy Industries for the upkeep of the MRT 3.
The two companies designed, built and maintained the MRT 3 in its first 12 years of operations.
Sumitomo’s maintenance contract was terminated in 2012, after the previous government decided to take over the said component despite contrary provisions in the build-lease-transfer contract with MRTC.
The new rehabilitation and maintenance service provider will be mobilized after securing the loan agreement from Japan.
But for Nicol, what the government intends to do is still vague.
“A fair day’s pay for a fair day’s work, right? But the extent of either remains unclear. My sense is government is keen on the idea of the support from Japan but their dilemma is how long this might take to arrange. I think we could work well as an operator partner to, say, Sumitomo, or do it well ourselves as we have shown on LRT 1—but as I say there is no clarity on contract,” he said.
Currently, the MRT 3 operates with 16 working trains daily, serving roughly 350,000 passengers per day.
The P54-billion buyout plan for the Metro Rail Transit (MRT) Line 3—commonly seen as the most problematic of all three overhead railway systems in the Philippines—has yet to move an inch from the 2012 plan.
It has been a six-year roller-coaster ride for the program, as government agencies and branches could not align themselves on the manner of executing the plan, or just simply how to move forward with it.
Today, with the new administration on board, the plan is still in limbo, being discussed on different levels due to the complexity of the issue, which is marred by legal tussles and economic implications.
Transportation Undersecretary Timothy John R. Batan said the agency and the Department of Finance (DOF) are now reviewing the viability of the plan.
Restart of discussions
“Discussions are ongoing among the DOF, DOTr and other concerned government agencies on this subject,” Batan told the BusinessMirror. “The government is reviewing the best approach that will best serve the public’s interest.”
Under the buyout plan, the government aims to acquire MRT Corp., the owner of the train line, controlled by businessman Robert John L. Sobrepeña, through a holding company.
This will free the government up from the equity rentals that the State pays to operate the railway system.
To recall, the government entered into a build-lease-transfer agreement with MRT Corp. two decades ago for the construction of the train facility along Edsa to cater to the growing public transportation needs in Metro Manila.
Through the said contract, the private company was to own the said facility for 25 years, while the government is required to rent and operate the train system throughout the concession period.
Equity rental payments amount to P610 million per month, or about P7.3 billion annually. Revenues of the train system, however, are solely for the government.
Aside from freeing the government from paying billions of pesos to the private company, the State’s intention in acquiring the train line intends to put an end to the hellish rides commuters face on a daily basis.
Acquisition steps
The takeover is enshrined in Executive Order 126 issued by President Aquino in February 2013. The order mandates the Department of Transportation and Communications and the Department of Finance to execute an equity-value buyout of the private company that owns the MRT 3.
The takeover was seen as key to the modernization of the railway system that ferries more than 540,000 passengers daily.
Before the government can actually buy out the private partner, several steps must be taken to ensure the takeover will be smooth and consistent with global best practices and international law.
To take over the line, the government must purchase all the shares and bonds of the railway company. Another requirement for the buyout is for the government and the private partner to strike a compromise, end the ongoing arbitration case in Singapore lodged in 2008 due to the State’s failure as line operator to pay billions in equity rental to the owner of the rail system.
But six years into the issuance of the President’s order, the transportation and finance departments have not moved an inch in completing the buyout. The plan encountered roadblocks, including the rejection of the takeover budget by lawmakers during the 16th Congress.
Hindrances
“We have discussed the possibility, but we have yet to receive specific instructions. It has a lot of problems, the buyout. So we’re looking at our options,” Budget Secretary Benjamin E. Diokno said in a chance interview.
Batan agreed, saying that the government will work toward giving an appropriate solution to the mess in the MRT 3.
“Our position will be one with all other concerned government agencies, and we are working with those agencies toward a solution that will best serve the public’s interest,” he said.
Part of the options that the government is reviewing is acceptance of the unsolicited proposal of Metro Pacific Investments Corp. for the rehab and modernization of the railway line.
Metro Pacific submitted in 2017 an unsolicited proposal that involves the expansion of the capacity of the railway system by adding more coaches to each train, allowing it to carry more cars at faster intervals. It will double the capacity of the line to 700,000 passengers a day from the current 350,000 passengers daily.
The multimillion-dollar expansion is deemed as an all-encompassing deal, including the improvement of the reliability of rolling stock, the upgrading of power supply, the upgrading of stations and the replacement of rails, which will allow the company to operate the new trains purchased by the government from Chinese train manufacturer Dalian.
Swiss Challenge option
Unsolicited proposals are required, under the law, to be subjected to a Swiss Challenge, wherein other groups can offer a similar proposal, and the original proponent can present a counter offer.
The government awarded the original-proponent status to Metro Pacific last year.
Metro Pacific has nominated Light Rail Manila Corp. as its corporate vehicle for the MRT 3 deal. The said company, a partnership between Metro Pacific and Ayala Corp., operates the Light Rail Transit (LRT) Line 1.
Its proposal for the MRT mimicked the same provisions under its concession agreement for the LRT 1 operations and modernization deal, which it bagged in 2014 via the Public-Private Partnership Program.
It means that, instead of having a different operator and maintenance provider, the group will be the one to do both, something that Sobrepeña has been pushing for since the government forcibly took over the upkeep of the facility in 2012.
“We have performed extensive due diligence on the line. However, there is a parallel process running with government and help from Japan for the same thing. At this stage it’s hard to say whether or when terms will be agreed,” Metro Pacific Chief Financial Officer David J. Nicol said.
He was referring to the negotiated deal with the Japanese government.
From its initial talks with the Japan International Cooperation Agency, the Philippine government is seeking to be granted an official development assistance (ODA) financing package for the overhaul and maintenance of the MRT 3.
The Japan ODA-financed rehabilitation and maintenance project is intended to “fix everything that needs to be fixed” in the MRT 3 through a well-qualified, experienced and single-point-of-responsibility rehabilitation and maintenance service provider, Batan explained.
The government is currently directly engaging Sumitomo Corp. and its technical partner Mitsubishi Heavy Industries for the upkeep of the MRT 3.
The two companies designed, built and maintained the MRT 3 in its first 12 years of operations.
Sumitomo’s maintenance contract was terminated in 2012, after the previous government decided to take over the said component despite contrary provisions in the build-lease-transfer contract with MRTC.
The new rehabilitation and maintenance service provider will be mobilized after securing the loan agreement from Japan.
But for Nicol, what the government intends to do is still vague.
“A fair day’s pay for a fair day’s work, right? But the extent of either remains unclear. My sense is government is keen on the idea of the support from Japan but their dilemma is how long this might take to arrange. I think we could work well as an operator partner to, say, Sumitomo, or do it well ourselves as we have shown on LRT 1—but as I say there is no clarity on contract,” he said.
Currently, the MRT 3 operates with 16 working trains daily, serving roughly 350,000 passengers per day.
