Wednesday, 2 February 2011

MVP offers to buy MRT for $1.1B

Pledges $300M to expand train system

By Paolo Luis G. Montecillo
Philippine Daily Inquirer
http://business.inquirer.net/money/topstories/view/20110201-317850/MVP-offers-to-buy-MRT-for-11B

MANILA, Philippines—Local infrastructure giant Metro Pacific Investments Corp. (MPIC) has offered to buy the government’s stake in the Metro Rail Transit (MRT) 3 train line traversing Epifanio de los Santos Avenue for $1.1 billion.

The amount will be enough to settle the government’s outstanding debt to MRT Corp. bond holders, MPIC said.

The acquisition will give the group, chaired by businessman Manuel V. Pangilinan, 100-percent ownership of the company that holds the right to operate and manage the train line until 2025.

In a letter to Finance Secretary Cesar Purisima and Transportation Secretary Jose de Jesus, MPIC offered to buy shares in MRT Corp. currently held by state-owned lenders Land Bank of the Philippines and Development Bank of the Philippines.

MPIC was earlier given control over a 29-percent stake in MRT Corp. by the block’s owner, Fil-Estate Corp. of businessman Robert John Sobrepeña.

MPIC said it planned to spend $300 million to increase the MRT’s capacity to 700,000 passengers a day from the current 350,000 a day.

The capacity expansion would be completed in two to three years, according to the proposal letter, a copy of which was obtained by the Inquirer.

MPIC said it was willing to accept a lower rate of return on its investment if it would acquire the MRT stake from the government. It added that it would not seek any government guarantee for the project.

MPIC, however, urged the government to extend the build-operate-transfer contract by another 15 years to 2040 to make it financially viable.

The government stands to save $150 million in annual subsidies if it accepted the proposal, the letter said.

The proposal was offered as an alternative to the way the government wanted to privatize the MRT, which was to bundle it with the Light Rail Transit (LRT) line 1 that runs from Baclaran in Pasay City to Roosevelt, Quezon City.

The letter said any company that would be awarded the contract for the two train lines would have to assume responsibility of the lines’ debt obligations totaling about $2.6 billion.

Any company that wins the contract for both lines would have to spend a lot of money before even starting to improve the train line’s facilities. The letter said this expense would then be passed on to the riding public, raising train fares to as much as P100 a ticket.

In an interview, Transportation Undersecretary for rail transport Glicerio Sicat said the government was looking at two methods of privatizing the MRT line.

The first was for the government to take over the train system, improve its operations and facilities before finally bidding out a contract for the train’s operations to private parties.

“However, this method will take a long time and will be very expensive,” Sicat said.

The second method, Sicat said, was to look for a private company willing to acquire the government’s stake in MRT. The government would not have to spend a single peso and pass on the responsibility to the private investors.

MPIC controls Hong Kong-based First Pacific Co. Ltd.’s interest in the Philippines, including investments in telecommunications, infrastructure, healthcare and power generation and distribution.

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