P15-B tag for LRT 1-MRT 3 O&M contract questioned

By Butch Fernandez, Business Mirror

Posted at May 09 2011 11:55 AM | Updated as of May 10 2011 12:09 AM

MANILA, Philippines - Saying that a P15-billion “payout” by the government to the winning bidder in the privatization of Metro Rail Transit-Light Rail Transit (MRT-LRT) cannot be compensated for by the P7 billion to P8 billion in annual state subsidies it will henceforth be spared from funding, Sen. Ralph Recto on Sunday asked the Executive to be up-front with taxpayers in the first major bidding under the administration’s flagship Public-Private Partnership (PPP) Program.

“The P15-billion pasalubong to the winning private bidder may be justified but the prospect of commuters eventually paying higher MRT-LRT fares negates such justification,” Recto said on Sunday.

He urged the government to be forthright to the Filipino people by disclosing that the P15-billion price tag for the privatization of MRT-LRT is actually a “payout” to the winning private bidder, and not the other way around.

The senator pointed out that if the MRT-LRT rates were to be raised just as soon as a private party took over the light-rail system, then there is no tradeoff—that is one-time payment of P15 billion versus P7 billion to P8 billion in subsidies as annual expense—for the government, and the P15-billion payout will simply be a virtual “bonus” to the winning bidder which, he said, cannot be justified.

Recto insisted that the PPP auction of the MRT-LRT lines should redound to cheaper fare rates since the PPP dictum should be “race to the bottom [lower fares], not race to the top [higher fares].”

“The people, before any translation is lost, should be informed that the P15-billion price tag for the bundled MRT-LRT privatization is the amount that government will pay to the winning bidder and not the amount that it would earn from the transaction,” Recto said.

He explained that the implication of this transaction, if it were allowed to go through without any changes, is crucial as it would mean that the first project under the PPP program would instantly cost the government some P15 billion, instead of deriving fresh revenues from its decision to let go of two vital mass-transport rail systems.

The government has scheduled the bidding for the MRT-LRT contract on July 11, with at least eight big groups landing on the shortlist of the Department of Transportation and Communications, out of the 44 companies that have expressed interest in the project.

Under the plan, the winning bidder will operate and manage the two rail lines—to be integrated eventually—for four years, with an option to extend by another year.

Recto, who chairs the Senate ways and means committee, noted that the P15 billion would be paid by the government to the winning bidder, which would operate and maintain the MRT-LRT lines.

“We will pay them P15 billion to operate the rail lines plus perhaps they would avail [themselves of] tax holidays, cheap loans from state banks and an almost sure option to jack up fare prices,” the Senator said.

On top of that, he added, the winning private operator is not obligated under the operate and maintain contract to pour in new money in terms of additional rolling stocks or coaches and rail infrastructure.

“If such is the case, this will give the PPP project a bad name. Later on, if this keeps up, people will start shunning the PPP and will get mad,” he pointed out.

Meanwhile, Recto noted that such imminent fare hikes in MRT-LRT under a privatized setup would be unfair to taxpaying commuters, while jeepney and tricycle drivers are getting direct subsidy through the government’s ‘Pantawid Pasada’ program.

The MRT line at Edsa stretches from Taft Avenue in Pasay City to North Avenue in Quezon City, while the LRT-1 line runs along Taft Avenue from Baclaran in Parañaque City to Roosevelt-Muñoz in Quezon City. - Business Mirror