MRT and mishaps | Warning signs of privatization deals

SPECIAL REPORT: “We reject the suggestions that these problems (in MRT) would be magically solved by a fare hike. A fare hike would be like rewarding the grossly incompetent, taxpayer money-addicted private management of the MRT.” – James Relativo, spokesman of Train Riders Network


MANILA – How much more money must the Filipino people have to plunk into the railways to enjoy safe, faster and affordable mode of mass transportation? The Filipino people have been spending a lot for the building, maintenance and operation of the railways in Metro Manila, yet, particularly in the MRT (or MRT-3), they still become victims of mismanagement – resulting in “accidents waiting to happen” in the train system – and on top of that, the government has been pushing for a fare increase.

These are just some of the complaints of commuters’ groups from workers and students who held protest actions in train stations over the past few days. They demanded investigations; they lambasted profiteering, which, they said, resulted from privatization deals involving the train system, and corruption, which became possible due to the public-private partnership. They demanded a safe and efficient mass transport system without a hike in fares.

“We reject the suggestions that these problems (in MRT) would be magically solved by a fare hike. A fare hike would be like rewarding the grossly incompetent, taxpayer money-addicted private management of the MRT,” said James Relativo, spokesman of Train Riders Network (TREN), which held protest actions in train stations over the past few days.

Jampacked train ride (Bulatlat File Photo, 2010)
Jampacked train ride (Bulatlat File Photo, 2010)

“One deplorable depiction of the perils cause by the profit-oriented MRT is the fact that 600,000 passengers are being forced to jam inside train cars while the actual maximum capacity is only half of it,” said the League of Filipino Students (LFS) spokesperson Charlotte Velasco in another statement.

As early as 2006, the MRT’s service capacity of 350,000 a day had already been breached as government data itself revealed that more than twice that number are regularly riding the train. Yet, additional train coaches are to be delivered only next year. Worse, these coaches were ordered and paid for by the government, while the contract with private consortium MRTC stipulates that the obligation to provide capacity expansion lies with the private stakeholders, said Sammy Malunes, lead convenor of RILES Laan Para sa Sambayanan.

Malunes asked, “Why is it that the government has been taking on the private partner’s responsibilities, as stated in the build-operate-transfer contract? Where and how was the budget allotted from public funds for train maintenance, rehabilitation of the tracks, light rail vehicles, signaling system, communication system, among others, spent?”

Disadvantageous MRT deals

Public funds amounting to P4 billion to P7 billion ($90.9 million to $159 million) are being spent annually to subsidize the MRT (Metro Rail Transit), yet the public still suffers from poor and perilous train service, said Kabataan Partylist Rep. Terry Ridon as he filed this week in Congress a resolution calling for a probe not only into the August 13 MRT mishap but also into the possible criminal liabilities and “gross neglect of duty” of operators of the train system, including the Department of Transportation and Communications (DOTC), the MRT Corporation (MRTC), and private maintenance contractors.

The public has been paying for the train services and profits of its private operators and creditors via their tickets and, through their taxes, in the form of government subsidies and various other payments being shouldered by the government in building, running and maintaining the train system over the years.

MRT (or MRT-3) is a public-private partnership under a Build-Operate-Transfer contract first signed in 1991 with private consortium MRTC (Metro Rail Transit Corporation), then still named Edsa LRT Corp. Ltd.

MRT-3 came to being through equities worth $190 million from MRTC in 1996 and government-guaranteed loans amounting to $462.5 million in 1998 from local and international commercial banks. The projected cost was $655 million, but when it was completed in 2000, it reportedly cost $675.5 million. The shortfall was covered with additional loans. The loans were granted to MRTC, which it used to build the MRT-3. The MRTC also got a 15-percent guaranteed return on investment (ROI) by the government of the Philippines. After completion in July 15, 2000, private consortium MRTC started receiving lease payments from the DOTC. The DOTC operates the system, according to the contract, but the maintenance is with MRTC.

“The framework (of these deals) is to encourage private investors,” said Sonny Africa, executive director of think-tank Ibon Foundation. He added that the loan guarantees, the profit guarantees, the sort of participation reserved to the government in such deals, are all geared in a way that all the revenue streams flow to the private consortium holding the project.

The so-called build-operate-transfer contract has since been revised many times with the Philippine government putting in more public funds into the deal every time. The biggest happened in 2009, when the MRTC defaulted in loan payments purportedly due to the government’s failure to enforce agreed fare hikes.

The government assumed MRTC’s loan obligations, through state-owned Landbank and the Development Bank of the Philippines, and in the process acquired majority shares in MRT-3. In a report, the estimated amount the two banks paid were between $800 million to $900 million. The state-owned banks each paid $460 million, or a total of $920 million, Malunes of RILES told

With that amount, the government acquired 80-percent shares in MRTC, which should have been basis for it to gain effective ownership of MRT-3 since 2009. The remaining 20-percent in private hands were reportedly bonds, which private creditor-banks – including Philippine Bank of Communications, Bank of Commerce and United Coconut Planters Bank – chose to hold on to.

But despite owning 80-percent shares, the government, in practice, still does not control MRT. To this day it remains under the control of private stakeholders of MRTC.

When the state-owned banks (DBP and LBP) paid for 80-percent MRTC shares in 2009, something in the deal apparently still allowed the private holders of 20 percent equity to retain majority of voting and decision-making rights. Up to now, the DOTC and the Metro Rail Transit Corporation (MRTC) are locked in a legal arbitration case in Singapore over the effective ownership of the MRT.

If Filipino train riders had expected the Aquino administration to sort out the irregularity with a strong hand, they were met instead with a proposed buy-back scheme where the government proposes to buy the same 80-percent from its state-owned banks, and also the remaining number of shares it still does not nominally own, to get 100-percent of MRT shares.

To do this, the government has placed itself in a position where it requires the approval of the arbitration court in Singapore, and of the board of MRTC. As most of the board came from state-owned banks, DOTC Sec. Abaya is quoted in reports as optimistic that they would get approval. As for the arbitration court, they could only hope for a favourable decision.

If the government buys with more public funds what it had already bought (the 80-percent equity in MRT), how much more on top of that will the remaining 20-percent cost the public?

The MPIC (Metro Pacific Investments Corporation) led by Manuel V. Pangilinan is now claiming it has the right to operate, maintain and expand MRT-3, based on its claim that it holds a substantial stake in MRTC after buying shares since late 2009.

Pangilinan is also involved in other big-ticket public-private projects of the Aquino administration such as the LRT 1 expansion and privatization and corporate take-over of the Philippine Orthopedic Center. The DOTC has also awarded to a joint venture of Pangilinan and Ayala groups last January the single-ticketing contract for LRT and MRT.

In media reports, Pangilinan is claiming up to 46-percent share in MRTC. His group is also reportedly opposing the government’s plan to buy out all current private shareholders.

The buyback is being negotiated because the government claims it wants to gain power over MRT’s maintenance and operations. It claims also that with full ownership of MRT, it would be able to get rid of the requirement to pay rent. But eventually, it plans to privatize MRT again. Reports say the Aquino government wants the buyback done by the end of the year.

The funds for the buy-back have already been legislated into the 2014 national budget, and again proposed in the 2015 budget (see Ibon on Prezy’s unprogrammed funds).

As such, on top of potential spending for Aquino’s proposed buy-back, the people had already paid the private companies and creditors so many billions of funds from the train system’s construction phase to revenue (or operations) phase.

From 2000 to 2013, the government has paid MRTC a total of P35.2 billion ($ 779 million) in Equity Rental Payments (ERP) on top of other payments for maintenance, debt guarantee, insurance, and other charges, and on top of the $920 million paid in 2009 for majority shares and loan payments of MRTC.

Included in other payments to MRTC are amounts covering the shortfall in the company’s 15-percent government-guaranteed profit, among other charges, making the public-private collaboration in MRT costlier (for the public) to build, operate and maintain. Constructing MRT had cost a total of $675.5 million. For reasons still to be determined in congressional investigations, the DOTC seems to have been “lax” toward the many reported lapses in maintenance of its contracted companies, of which the longest had been Sumitomo.

For 2015, the DOTC has asked for a P52.9-billion ($1.2 billion) budget, of which P6.6 billion ($150 million) will be allotted for MRT 3. The proposed budgetary allocation for MRT 3 will disburse P1.92 billion ($43.6 million) for “operation and maintenance” and P4.66 billion ($105.9 million) for “state subsidy” for the MRT 3. In exchange, the DOTC promised fewer service disruptions and “passenger unloading incidents.”

Aside from the DOTC’s proposed budget, there are billions of pesos for which the MRT-3 private investors stand to benefit. Among the lump sum funds under the discretion of President Benigno “Noynoy” Aquino III is a P30-billion ($681.8 million) fund “to guarantee profits of investors participating in government’s centrepiece program Public-Private Partnership (PPP),” Ibon said in a statement. The fund is in the item called “Risk Management Program” under the P123.06-billion ($2.79 billion) Unprogrammed Appropriations for 2015. Among the president’s unprogrammed funds, it is second in amount to the P53.9-billion ($1.225 billion) “Equity Buy-out of the Metro Rail Transit Corp (MRTC).”

“We need to see and examine all the contracts involving the MRT because it seems that we are being duped and short-changed. It is always the commuters who are at the losing end of the poor services despite the billions from taxpayers’ money being paid under the MRT contracts,” Bayan Muna Neri Colmenares said in a statement last week.“ (

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