Tuesday, 17 March 2009

Philippine Government to nationalize Edsa MRT line

By Eileen Mencias
Manila Standard
http://www.manilastandardtoday.com/?page=news1_mar16_2009

REVERSING its privatization policy, the government is taking majority control of Metro Rail Transit Corp. to give itself leeway in expanding the passenger capacity of the Metro Rail Transit 3 on Edsa, an official said yesterday.

“We’re trying to complete our purchase of majority of the shares, hopefully in the next few days or maybe in one week or two weeks,” Finance Secretary Margarito Teves said.

The takeover is to be done through state-owned LandBank and Development Bank of the Philippines, which would buy the shares of private stockholders, Teves said at the sidelines of the Chamber of Thrift Banks’ convention.

“This will only be temporary because eventually we’ll dispose of the shares,” Teves said.

“We don’t want to be involved in the business, and we will go back to privatizing it again.”

The government started buying the shares in the MRTC late last year following a deal signed in August 2007 between the Transportation and Finance Departments and the private consortium led by the Fil-Estate group. The deal called for a government buyout of the consortium’s build-lease-transfer contract for the rail transit system.

At the time, it was estimated that government would be paying $865 million for the remainder of the contract while realizing savings of up to $380 million, according to sources.

The government had initially planned to buy the MRT shares through the National Development Co., but the latter raised concerns on the impact of that purchase on its profits.

Teves said LandBank and Development Bank had been able to buy the MRT shares at a price lower than what the government had initially envisioned.

“The figures are different now. I think DBP and LandBank were able to purchase the shares lower than originally envisioned,” Teves said.

“As you know, it was not a complete process because there were kinks... but the direction is the same: to have control to enable us to expand.”

MRTC is majority owned by a holding company, MRT Holdings Inc., a consortium that originally consisted of Ayala Land Inc., Anglo Philippines Holding Corp., Fil-Estate Management Inc., Ramcar Inc., and Greenfield Development Corp.

Over the years, some of the original shareholders divested from the holding firm and sold their shares to fund managers.

The MRT 3 line is a 16.9-kilometer system running from North Triangle in Quezon City to Taft Avenue in Pasay City.

The government guaranteed MRT a return on equity of 15 percent a year to get the railway project started, which was a relatively high return when compared to those in other industries.

Sources said the government initially considered refinancing the loans to cut interest costs, but buying out the shares of MRTC appeared to be more feasible.

The government needed to expand the capacity of MRT 3 given the huge volume of passengers it was now servicing, said the same sources who refused to be identified because they are not authorized to talk about the subject.

At its peak during the Christmas holidays, MRT 3 was ferrying 27,000 passengers per hour in one direction.

But expanding the line’s capacity faces obstacles because there are many covenants in the build-lease-transfer agreement between the original shareholders and the group of hedge funds they had sold out to.

The refinancing of the MRT 3 debt was also hounded by tax issues that had to be resolved between the Transportation and Finance Departments.

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