Fixing MRT: Japan vs Sobrepeña plan

Much has been written about the “Sobrepeña-MRTC option” for rehabilitating the ailing MetroRail Transit Line-3 on EDSA. For balance, we are running excerpts from a Department of Transportation briefer comparing that offer with the “Japan ODA option” that the government seems to favor.

The Sobrepeña-MRTC offer was made by businessman Robert John L. Sobrepeña through MRTH II and MRTC, which were involved in the earlier construction and maintenance of MRT-3. The DoTr rejected the offer twice, in August and October 2017, but the proponent persists.

The DoTr is pursuing the “Japan ODA option” under government-to-government Official Development Assistance from Japan, through the Japan International Cooperation Agency with the help of railway experts from the Asian Development Bank and Australia Aid.

The DoTr apparently banks on the track record of Japan in railways construction and management, as well as its favorable government-backed financial package.

The MRT-3 was built by MRTC at a total project cost of P35.6 billion. MRTC used P10 billion of its own money, and borrowed P25.6 billion from various lenders, payable over 10 years, at interest rates varying from 2.8 to 9 percent.

The DoTr said taxpayers have been paying, and will continue to pay, MRTC a 15-percent return on the P10 billion it has put in. Over 25 years, taxpayers will pay the firm a total of P126.4 billion for its P10 billion equity.

As of early-2018, taxpayers have already paid MRTC close to P73.7 billion, and will continue to pay it more than P52.7 billion until 2025, the DoTr said.

On top of paying MRTC P126.4 billion for its P10 billion equity, taxpayers already fully paid as of 2010 the P25.6 billion that MRTC borrowed, plus interest of P6.9 billion.

The DoTr said that although MRTC borrowed the P25.6 billion, taxpayers were the ones who paid P32.4 billion for its debts. It added that taxpayers will continue to pay P2.2 million per month for MRTC staffing and administration expenses.

For the past several years, the DoTr noted, MRTC’s only business activity has been to collect from taxpayers.

The DoTr said that after MRTC invested P35.6 billion to build MRT-3, it received P73.7 billion as return for its equity, P32.4 billion as payment for its debts, P463.5 million for staffing and administration, and P27.1 billion for tax payment – for a total of P133.7 billion.

By 2025, MRTC stands to receive close to P200 billion in return for its investment, according to the DoTr.

While MRTC has been enjoying a windfall, its affiliate, MRT DevCo, has refused to pay the department almost P2.3 billion as of mid-2015 for leasing out kiosks and advertisement spaces in the MRT-3 line.

There are disagreements between MRTC and DoTr in interpreting the Build-Lease-Transfer Agreement for MRT-3, as well as MRTC’s performance of its contractual obligations. More taxpayers’ money is being spent on cases being litigated in Singapore and Philippine courts.

• Advantages of Japan ODA cited

Comparing the two rehab plans, the DoTr said that the Japan ODA option is backed by the government of Japan, whereas the Sobrepeña-MRTC option is backed only by Sobrepeña and MRTC.

It pointed out that MRTC has only one railway project (MRT-3) and Sobrepeña’s project references include the failed College Assurance Plan scheme and the controversial Camp John Hay Development Corp. (it appears that CJHDC refuses to pay billions in debt, intended for the armed forces, through the Bases Conversion and Development Authority).

The Japan International Cooperation Agency has been the Philippines’ long-time development partner, having extended more than P1.4 trillion in ODA projects to the country, P250 billion of which have been for railway-related projects.

JICA is extending an additional P500 billion in ODA for the PNR Clark 1 (Tutuban-Malolos), PNR Clark 2 (Malolos-Clark), PNR South Commuter (Manila-Los Banos), the Metro Manila Subway, and the Philippine Railway Institute Projects.

The Japan ODA loan for the project has an interest rate of 0.1 percent per annum, repayment in 40 years, and grace period of 12 years. The MRTC loans, which taxpayers fully paid in 2010, had a repayment period of 10 years and interest rates of 2.8, 7.52, and 9 percent.

The JICA-appraised indicative base cost for rehabilitation is P11.6 billion, and P5.5 billion for maintenance. Rehabilitation includes restoring MRT-3 to its design operating condition within 26 months. This will “fix everything that needs to be fixed.”

Maintenance includes day-to-day maintenance, preventive maintenance, corrective maintenance, and the complete general overhaul of MRT-3’s 72 cars, which were supposed to have been done in 2014-2016.

The DoTr said that it is “borrowing from Japan to fix MRT-3 once and for all with a comprehensive, single point of responsibility solution, delivered by a highly-qualified and experienced provider, backed by the government of one of the leading railway powerhouse countries in the world.”

The Sobrepeña-MRTC proposal consists of five pages and a series of letters that essentially contain the same things. It is largely based on continuing and expanding what MRTC gets under the BLT Agreement.

For example, the option involves MRTC receiving MRT-3’s fare revenues of almost P3 billion per year up to 2040, without benefit of bidding or a Swiss Challenge.

It also involves an unclear schedule of fare increases that will raise fares from the current maximum of P28 to up to almost P40. That would give to MRTC up to more than P10 billion per year in fare revenues until 2040.

Under the Sobrepena-MRTC scheme, taxpayers will be paying the firm the equivalent of almost six MRT-3’s in exchange for building one MRT-3.

Putting a premium on Japan’s railway expertise, the DoTr cited that country’s having more than 27,000 rail kilometers carrying more than seven billion passengers per year, and its ranking among the safest and most reliable railway systems in the world.

It said Tokyo alone, which has almost the same area as Metro Manila, has 700 kilometers of railways with a ridership of 30 million per day.

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