Palace set to issue EO on $1-B MRT equity buyout

The Philippine Star

Posted at Jan 16 2013 08:39 AM | Updated as of Jan 16 2013 04:39 PM

MANILA, Philippines - Malacañang is expected to issue an executive order within the month that would detail the proposed $1 billion transaction that would pave the way for the complete government takeover of the Metro Rail Transit (MRT) line 3 along EDSA.

In a press conference, Transportation Secretary Joseph Emilio Abaya said the Department of Transportation and Communications (DOTC) is awaiting the EO to be issued by President Aquino on the proposed equity buyout involving the proponents of the MRT3.

“There is an EO required to execute this. Hopefully within the month,” Abaya said.

He pointed out that the Department of Finance (DOF) headed by Secretary Cesar Purisima is finalizing the details of the proposed equity buyout including the source of funds to be used.

“The EO will spell out the buyout terms,” he added.

Last month, Malacañang gave the DOTC the green light to pursue the complete government takeover of the operator of MRT3 – Metro Rail Transit Corp. (MRTC).

The proposed takeover would help state-owned government financial institutions (GFIs) unload their interest in MRT3 after receiving several warnings from the Bangko Sentral ng Pilipinas (BSP) regarding its investments in the mass transport system.

The plan to buy out the private sector’s stake in the MRT-3 would mean the government would no longer need to pay MRTC huge fees every year. The DOTC annually pays the MRTC for equity rental payments, maintenance cost, debt guaranteed payment, insurance expenses, and others.

The proposed government takeover would result in billions of pesos in savings for taxpayers, who provide subsidies mainly to cover the 15 percent return on investment guaranteed to MRTC. The government shells out about P7 billion worth of subsidy for the MRT 3 operations.

In 2003, the MRT line’s private concessionaire MRTC then owned by the Sobrepeña family, decided to cash in on its investment in the train line by issuing asset-backed bonds for future equity rental payments.

In 2008, the government, through Landbank and DBP, bought into MRTC by acquiring the MRT bonds issued by MRT III Funding Corp. issued by then owned Sobrepena’s Fil-Estate Group.

As a result, the government now owns close to 80 percent of the economic interests in MRTC. However, its presence in the board is not felt because it does not have voting rights for the shares while First Pacific’s Metro Pacific Investments Corp. (MPIC) has economic interest equivalent to 20 percent.

The acquisition of the stake in MRTC was completed during the term of President Arroyo wherein the finance department was headed by former secretary Margarito Teves.

Aside from the huge savings, Abaya explained that the operation and maintenance of MRT3 would be easier after the complete takeover as the government need not get the consent of other private entities.

“We are dependent on that because the playground will completely change. We can bid out the O&M (operation and maintenance) for the entire MRT 3,” he added.

MPIC has proposed to take over the MRT 3 by buying out the stake of the government while diversified conglomerate San Miguel Corp. (SMC) has offered to provide additional trains for the mass transport system along EDSA.

In 2011, MPIC has also submitted a $300-million proposal to the government, meant to expand the capacity of the MRT-3.