MRT fare hike will be minimal, says DOTC official


Posted at Aug 05 2010 05:16 PM | Updated as of Aug 06 2010 05:14 AM

MANILA, Philippines - (UPDATE) The planned fare hike at the Metro Rail Transit (MRT) will be minimal, the Department of Transportation and Communication (DOTC) said on Thursday.

DOTC Undersecretary Dante Velasco said the government is still looking for ways to reduce the state's subsidy of MRT fares.

"The plan before was to raise fares as a means to reduce subsidy. But the tack right now is to (still) reduce the subsidy and there are many means to reduce subsidy," Velasco said in interview with ANC's "On the Scene," news program.

Velasco said that aside from hiking MRT fares, another possible source of funds would be to collect advertising income from the MRT.

He said however that advertising income is not yet accruing to the government because it is the private operator of the MRT, the MRT Corp. (MRTC)  that currently solely benefits from this revenue source.

"It is a long process, we cannot make definite answers to say how much the rates will be. But in the light of these new approaches (the government is considering), it is possible that the rate hike many not be as high as feared," said Velasco.

Velasco said the adjusted MRT fares will likely be announced in September.

The goverment is spending more than P5 billion yearly for MRT operations and maintenance.

The government said earlier it may hike the fares by as much as P25.

Transport authorities said the increase is needed to allow the MRT to recover losses.

The railway line only earns about P1.8 billion a year.

Buying back MRT

Velasco said the government is also revisiting a previous plan to buy back the railway system from the private sector.

"That is why the Land Bank of the Philippines and the Development Bank of the Philippines are going to help us get back the MRT so that it will be the government that will realize the revenues."
The government wants to acquire the assets and equity of MRT3 from MRTC to help it reduce the subsidy cost. Buying out MRTC would give the government about $500 million in savings for the remaining life of the 25-year contract that expires in 2025. The savings from the subsidy will be used to bankroll the operational expenses of the railway system.
Under the build-operate-transfer contract between the government and the MRTC, the latter is assured of a return on investment of 15% a year, but government wanted to bring it down to 9%..
The government must pay the MRTC $2.4 billion in 25 years, or about $3.3 million monthly to meet the 15% rate of return. It also spends $1.43 million for monthly maintenance costs to Japanese operator Tespi Corp., a subcontractor of Sumimoto Corp.
MRT cost $655-million to build, and of this, MRTC infused $190 million in equity.