The Philippine Star 06/27/2005
The country is finally inching closer to what could be the biggest foreign investment in recent years that will not only rid EDSA of its mammoth traffic jams but also decongest the metropolis.
The government and the private sector are in the final stretch of an agreement for the construction of Metro Railway Transit-7 (MRT-7) running from Quezon City to Bulacan, a multibillion-dollar project that badly needs the imprimatur of the investment community.
President Arroyo has directed the government agencies concerned to iron out remaining kinks that are delaying the final approval of MRT-7, a proposed inter-modal transport system whose concept is unmatched worldwide.
The directive was given during a courtesy call by the project proponents, which include European, Israeli and Japanese investors, all of whom have committed to support Philippine infrastructure development regardless of the political uncertainties.
Proponents of MRT-7, which will go all the way from SM City on North Avenue in Quezon City (the final destination of the existing EDSA MRT-3) to San Jose del Monte City in Bulacan, include the biggest names in the world transportation business such as Siemens of Germany, Alstom Corp. of France, CRCC/China Railway, as well as a powercast in the local business community that includes the SM Group, businessman George Go, to name a few, constituting Universal LRT Corp. (ULC).
ULC submitted its preliminary proposal for MRT-7 as early as August 2000 and has since then been in close collaboration with government. After several modifications, the project was given first pass approval on March 26, 2004. The project had evolved from a simple rail system to a complex transportation intermodal project with interchanges and convenient transfer stations to the other existing rail projects.
And at the suggestion of government, an urban center component was added that will see the creation of a new city in San Jose del Monte. Already, a 194-hectare property was acquired by the proponent and negotiations are in progress for the acquisition of an additional adjacent 313 hectares. Thus, in addition to the $1.2 billion investment in the transport system, another $1 billion will be invested for real estate development, making MRT 7 one of the biggest investments in the country to date. The Transportation Component
The MRT 7-SM Line will be undertaken under a built-gradual transfer-operate-and maintain (BGTOM) scheme over a 25-year period, which the Department of Justice said fully complies with the requirements of the BOT law.
Much ado has been made about the support that will be required of government during the first 11 years of the concession period as a credit enhancement facility. What is not being given much weight and consideration though is the fact that the government stands to earn as much as $2.5 billion from the project, not to mention the downstream and upstream benefits on the economy. Studies have also shown that the country will save as much as $2.4 billion over the life of the project in terms of fuel savings.
There is no doubt that the country needs a transportation project that would relieve Metro Manila?s roads and provide a fast and affordable transportation system that would enable commuters to work in the metropolis? commercial centers and still reside out-of-town where land and housing costs are low. Decongestion of the metropolis has become a must to make Metro Manila livable.
It is also a given that investment in infrastructure is vital to any country?s growth. Danny Leipziger, director for financial, private sector and infrastructure of the World Bank, noted that under-investment in infrastructure hampers long-term economic growth and competitiveness. Infrastructure investment is necessary to increase income levels and improve income equality in developing countries. Infrastructure development also tends to benefit the poor the most since they are the ones least able to afford alternatives. Deficit-Neutral Project
A rail transit system, without a doubt, is expensive. However, it is safe, efficient, provides a reliable and predictable transportation at great savings in terms of foreign exchange on fuel, not to mention traffic-less. It also safeguards the environment from pollution, which not only deteriorates quality of life but will also entail the taxpayers huge cost in terms of health services.
Thus, nowhere in the world does a rail system operate without some kind of support from government. In the case of MRT 7 though, the project is envisioned to be deficit-neutral from government?s perspective. Apart from a share in farebox revenues, government will be able to generate income from other sources which would not be otherwise available without the project like pre-completion tax earnings, tax generation throughout the 25-year concession period resulting from the economic activity generated from the $1.2 billion transportation and $1 billion real estate undertakings, government revenue from the sale or lease of its real estate rights, state?s share in commercial development and advertising revenues, and sale of land procured by the proponent and allocated to government (around 20 percent share for the state).
While the projected government fare support is estimated at $1.2 billion in the worse and next to impossible scenario of government zero revenues, project proponents estimate that government will receive as much as $3.7 billion over the concession period. Thus, unlike the other lines which are being supported and subsidized by government with no chance of recovery, in MRT 7, not only will the government be reimbursed for whatever support it may advance, it will also receive net profits amounting to $2.5 million.
And unlike the other lines, the investors of MRT 7 are taking all the risks upfront and will complete the project prior to any possible assistance by the government. According to the proponents, government will have no operating and maintenance risks, no ridership risks, no construction or completion risks. Whatever government support will be needed is clearly recoverable from the revenues that will accrue to the state from the project and other developments brought about by it.
To assure the doubting Thomases in government as to revenues, the draft agreement included a provision whereby government has the option of either taking 20 percent of the net profits after tax or 20 percent of the land acquired by the proponent for the project. And to ensure that real estate development will actually take place, the proponents have identified reputable partners and those which have strong track record in this field. The SM Group for instance has agreed to undertake the development of the San Jose del Monte, Bulacan property. Gov?t Final Ok Seen
As early as March 3, 2005, Socio-economic Planning Secretary Romulo Neri, in a letter to DOTC Secretary Leandro Mendoza, noted that government is ready to negotiate the MRT Line 7 unsolicited proposal provided that the private proponent categorically express in writing its concurrence to the following: first, that the project be deficit neutral on government?s perspective; second, that government shall not bear any commercial/ridership risk; and third, that the national government will not pay any of the private proponent?s taxes. All these, the proponents have already agreed to, according to Universal LRT Corp. managing director Eli Levin.
Following this development from government, the DOTC has informed Levin last March 16 that the ICC Cabinet Committee has given instructions to commence in-depth negotiations on the details of the concession agreement and to initiate preparations for the Swiss Challenge phase of the process, which is expected to commence in the next few months.
It is expected that a final contract with government will be arrived at before the end of the year with financial closing estimated end-of 2006. Construction thus will begin first quarter of 2007 and end three years later.
With all issues finally put to rest, decongesting EDSA of traffic caused by the ubiquitous bus terminals ?there are around 23 provincial bus stations along EDSA ?will no longer be an (exhaust) pipe dream.
