LRT sweet deals, public shortchanged

June 9, 2014

by superadmin

While government closed the bidding for the LRT extension last week, it is notable that the impact of the lopsided loans and deals of previous light rail systems is being felt by commuters and taxpayers up to this day

By Glenis Balangue

IBON Features—After much delay in the bidding process, the government scheduled a deadline on the submission of bids for the Light Rail Transit (LRT) 1 Cavite Extension and Operation and Maintenance (O and M). The Aquino government closed the bidding last May 28.

The bidding has been postponed three times since last year. The Department of Transportation and Communications (DOTC) said that there were not enough bid submissions and there were “several unsettled issues”. The new deadline was set on April 2014 after bidding was put on hold in August 2013 after a bidding failure. In order to fast-track the process, the DOTC also removed the prequalification stage and merely required corporations to submit their qualification documents together with their technical and financial bids. However, in April 2014, the DOTC again postponed the submission of bids to May 28 because bidders insisted to have more time to include the design of the common station in their bids.

Interested bidders have long been pressuring the government to include the design of the common station in the LRT 1 extension project. In November 2013, the government approved the Php1.4 billion construction of the LRT1 North Extension Project – Common Station. The common station will be for LRT 1, MRT 3 and MRT 7. In April, the Aquino government gave in to the wishes of the corporations and included the design (and eventually the right to construct) of the common station in the LRT 1 Cavite Extension Project. The winning bidder would be granted the right to submit an alternative preliminary design of the common station and design it at its own cost. The government and the winning bidder would then share the total bid cost of the common station 70%-30%, respectively. If not, the government will design and will get a contractor through public procurement. The common station would be located near Trinoma Mall of Ayala Corp., instead of SM North Edsa, which was the original plan.

This new concession is on top of a guarantee on profit that the government included in the LRT 1 Cavite Extension and O and M package in 2013. DOTC included a top-up provision in the concession agreement which means that the difference between pre-approved fares in the contract and the actual fares that will be implemented will be paid by the government to the winning bidder. This is the government’s promise of freedom from regulatory risks to the private sector.

At Php64.9 billion, the LRT 1 Cavite Extension is the biggest project bid out by the government so far. It entails the construction of a railway from the present terminal station in Baclaran to Niyog Station in Bacoor, Cavite. The project also includes the takeover of the winning bidder of the operation and maintenance of the entire LRT 1 from the DOTC-Light Rail Transit Authority (LRTA).

In the end, the Ayala-Pangilinan consortium (Light Rail Manila) emerged as the sole bidder of the LRT Line 1 Cavite Extension and O and M. Both corporations are already making it big in the infrastructure arena because of PPPs and privatization projects under previous administrations.

It can be recalled that erstwhile competitors in privatized public utilities (telecoms and water supply) and other infrastructure projects Metro Pacific and Ayala Corporation have teamed up forming the Light Rail Manila Consortium to bag PPP contracts for railways and airports. Metro Pacific also owns 20% of the economic interest in the Ayala-led Metro Rail Transit Corp., the operator of MRT 3.

Essence of mass transport

The essence of having a mass transport or transit system such as the railways for the Philippines is to transport people en masse to workplaces. The kind of mass transport system depends on the needs of the economy. Mass transport systems are also more efficient than other systems of transportation because of the scale of operations. Mass transport systems in developed countries are also called public transportation systems –owned and operated by the state.

Mass transport systems are not regular business activities because they do not exist for profit but have a big public interest.

There are nine PPP projects in mass transport under the Aquino administration. These include the mother of all mass transit projects, the Php271.2 billion Integrated Luzon Railway Project Phase 1 which previously was among the anomalous projects awarded to Chinese corporations under Pres. Arroyo. It also includes the first envisioned subway rail line, the Php135 billion Mass Transit Loop which would connect Bonifacio Global City, Makati Central Business District, and the Mall of Asia area in Pasay City.

Out of the nine PPP, only one has been awarded so far, the Php1.72 billion Contactless Automated Fare Collection system awarded to AF consortium led by Ayala Corp and Metro Pacific, which hold the majority shares of the Metro Rail Transit Corp. (MRTC), the MRT 3 concessionaire. This deal was questioned in the Office of the Ombudsman because of a pending case regarding the anomalous procurement of new trains and conflict of interest involving the MRTC.

Previous experiences

In the experience of the Philippines, the light rail systems were built through lopsided loan and contractual agreements. In the case of LRT 1 and 2 which were financed by official development assistance (ODA), 63% of the Php8.373 billion expenses in 2012 went to loan payments, interest expenses and depreciation. Fares of commuters were actually enough to cover direct operating expenses. Rail revenue was at Php3.44 billion while direct operating expenses was at Php3 billion.

On the other hand, MRT 3 was built using a PPP mode of build-lease transfer agreement between the government and Metro Rail Transit Corp., a consortium led by Ayala Land and Fil-Estate Management Inc. The government pays amortization for leasing the facility from the consortium, for operation and maintenance and for loan amortization. The government guaranteed the loans made by the consortium from banks that were also related to corporations involved in the project. Like in the case of LRT 1 and 2, fares of MRT 3 commuters have been covering for direct operating cost. In 2012, rail revenue was Php2.14 billion while direct operating expenses was only Php1.82 billion. In 2012, 58.5% of expenses of the MRT3 was for the equity rental payments which cover the cost of guaranteed loans and 15% return on investment that the government assured the consortium.

The impact of these lopsided deals is being felt by commuters up to this day. In April, MRT and LRT commuters had to endure very long queues so that they could get to their destinations. The MRTC claimed that this was because of the lack of revenues to operate the MRT due to technical malfunction. This was on top of perennial crammed trains during rush hours, non-functioning airconditioning units and increasing frequency of technical “glitches”. Accidents have also been recorded. When Malacanang was asked to react on commuter woes, Secretary Coloma told commuters to take other means of transportation instead.

Fare Hikes

The government has long been batting for fare hikes for all three rail lines supposedly to improve services. Behind this, the push for fare increases is a way to gain investor confidence for the bidding of its mass transport PPPs.

Commuters are being forced to swallow an entire package of fare hikes for all light rail lines. Commuters of LRT 1 and 2 would be shouldering a maximum of 50% and 66% increase respectively if the latest proposed fare hike will be implemented. For example, fare from Roosevelt to Baclaran would increase from Php20.00 to Php30.00 MRT 3 commuters would be absorbing a maximum of 87% fare hike or an average increase of Php15.84 per round trip.

The proposed fare hike has no basis because additional revenue will only be used to pay for the loans and unfair contract terms that the government entered into. The Aquino government has been serving big-ticket PPP contracts to big business with a host of incentives and guarantees. With the sweet concessions that the Aquino government has been giving to the prospective winning bidder of the LRT 1 Cavite Extension, commuters foresee a mass transit system that will be used for more profiteering instead of service.

Like what the recently concluded World Economic Forum for East Asia has shown, the Aquino government has the interest of big business in mind when it comes to its flagship development strategy. The way infrastructure projects have been tailored to fit the demands of big foreign and local corporations reveals the government’s bias towards business interests over ensuring people’s welfare. IBON Features