The Department of Finance has endorsed the planned P5.5 billion borrowing of the state-run Light Rail Transit Authority (LRTA) this year for the mass transit’s capacity expansion and maturing obligations.
In a memorandum, Finance Secretary Margarito Teves asked President Gloria Arroyo to issue a Special Authority to increase the omnibus credit line of LRTA with Land Bank of the Philippines to P5.5 billion from P1 billion.
Teves said the amount would be used to settle actual contractual obligation amounting to P820 million incurred from the implementation of the second phase of the capacity expansion project of the LRT line along Taft Ave. that runs from Baclaran in Pasay City to Monumento.
He added that the amount would also be used to make provision for funding of the projects future billings and other requirements.
According to documents from the Finance Department, LRTA intends to spend P3.5 billion on its capacity expansion project and about P1.85 billion for maintenance and rehabilitation.
Teves informed Mrs. Arroyo that the non-realization of LRTA's proposed borrowing could result to court litigation.
"Non-realization of the proposed borrowing may result to court litigation should LRTA is unable to pay contractual obligations with contractors and would not address the increasing passenger traffic due to delayed operation of down trains," he warned.
A portion of the proposed borrowing amounting to P460 million would be used to fund the acquisition of imported spare parts for damaged trains.
The finance chief added that the contingent liability of the national government would also increase if LRTA fails to service its financial obligations.
The government-owned and -controlled corporation relies heavily on subsidies extended by the national government to cover debt servicing as well as the local counterpart requirements of its capital expenditures.
The subsidy to be extended by the government to LRTA is expected to more than double to P6.59 billion this year from only P3 billion last year. Bulk of the amount would serve as the agency’s counterpart requirement and for the payment of advances.
Despite the fresh proceeds from the proposed borrowing this year, LRTA is expected to be in the red starting 2011 onwards and it would have to resort to more borrowings in the amount of P1.67 billion per year from 2013 to 2015 and budgetary support averaging P2.45 billion from 2011 to 2015.
In 2005, President Arroyo issued a special authority allowing LRTA to borrow P3.5 billion to finance the agency’s debt service requirements, capital and operating expenditures as well as other funding requirements.