Monday, December 08, 2014

Can We Afford MRT Buyout

The Senate is effectively aborting the planned government takeover of the breakdown-prone Metro Rail Transit (MRT) 3 next year.Senators are insisting on their decision to take out the P53.9-billion appropriation in the proposed P2.606-trillion 2015 national budget for the buyout plan even if the House of Representatives would insist on retaining it.

At least the legislators came to their senses. That buyout will be riddled with anomalies. If not, why government officials would support buying out infrastructure when we are doing PPP to lessen infrastraucture spending because we don't have that much money? That's a complete irony.
DOTC is confused on what to do about MRT 3. Or worse Department of Transportation and Communications DOTC officials are purposely confusing the public for some ulterior motive we can only imagine.

Sec. Jun Abaya has been saying that buying out the owners of MRT3 to the tune of P54 billion is necessary to start the rehabilitation of the system. He called that process Equity Value Buyout or EVBO which is provided for in the contract.

Two things wrong with what Sec Jun is saying. First of all, the EVBO is a remedy available only to MRTC and would require DOTC to be in breach of agreements and go into default. A default on the part of government would affect the country’s credit rating and should not be resorted to lightly.
MRTC, the private owners, did file such a claim in an arbitration case in Singapore some years ago when DOTC had not been paying stipulated lease payments. But the case had been withdrawn since 2010 when representatives of GFIs joined the MRTC board and assured timely payments, likely because the GFIs get the bulk of the lease payments anyway.

Secondly, the P54 billion DOTC wants would not buy out the original private owners as DOTC officials are publicly claiming. That large sum of money will only redeem MRT bonds now being held by GFIs. In other words, they would just move money from one government pocket to the other, something they are already doing now with the lease payments.

There is a need to point out the difference between equity rights (which belongs to MRTH) and economic rights (that the GFIs hold through the bonds). The original owners sold their economic rights (the rights to the lease payments of government) when they floated their bonds. But they retain their equity or ownership rights over the MRT 3 rails, trains, etc.

I cannot believe that the DOTC does not include lawyers and accountants among its staff who would have told Abaya that his so-called buyout is unrealistic. So I can only assume that Abaya doesn't care whether we believe him or not, or, for that matter, whether he can buy out the MRT or not. This is all just a distraction from the real issue of accountability for the MRT's deterioration.

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