NorthRail to require substantial subsidies

Published by rudy Date posted on March 31, 2009

The government is likely to cough up millions of dollars in subsidies for the operation of Chinese-funded North Luzon Railway until 2028, according to a government document.

“[NorthRail’s projected] cash flow analysis shows a negative outstanding cash balance until 2028 which is at its highest at around $368.5 million in 2016,” according to a projected cash-flow statement prepared by the National Economic and Development Authority (NEDA).

The document also showed that if the government failed to secure financing from external sources, the project would need an estimated annual average support from the national government worth $18.28 million every year until 2028.

“National government advances to NorthRail for debt servicing is around P1.063 billion as of end 2008,” it added.

Based on the financial viability estimate of the North Luzon Railways Corp. (NLRC), which showed that the NorthRail had financial internal rate of return of 5.179 percent versus a weighted average cost of capital of 4.619 percent.

But the Department of Finance said the project’s estimated financial internal rate of return is only at 4.31 percent versus a weighted average cost of capital of 4.39 percent. The department’s estimate included input taxes in investment cost and excluded private-sector investment in rolling stocks from investment cost, among other reasons.

The computations of the NLRC and the Finance department both indicate that the rail project will not even break even. They only differ in the amount of projected losses.

Justify plans

The National Economic and Development Authority has asked the National Luzon Railway Corp. to justify plans, to engage the private sector to deliver its portion of the civil works, and to deliver the trains before 2013. These are needed in order to prevent the project from requiring any more support from the national government.

The NorthRail is requesting $280 million in additional funds to finance cost overruns, as the rising prices of materials have caught up with the project, which has been stalled partly because of a design problem.

The NorthRail Project Phase 1 Section 1 is funded by the $421-million soft loan from the Export-Import Bank of China, while the government counterpart amounted to $82 million.

The China National Machinery and Equipment Group is the contractor of the project.

Project scope

The railway project from Caloocan to Malolos, Bulacan, will interconnect and improve access to major transportation facilities in the Manila-Clark-Subic economic triangle, particularly Fort Bonifacio, Clark Special Economic Zone, Subic Special Economic Zone and Poro Point in La Union. The project is expected to accelerate development in the region.

The NorthRail project will have stations in Caloocan and Valenzuela in Metro Manila and others in Bulacan province—Marilao, Bo-caue, Guiguinto and Malolos.

The National Housing Authority has so far relocated some 20,000 families residing within the Philippine National Railway’s right of way.

NorthRail has also undertaken the clearing of the debris left by the demolished structures of the relocated families.

The NorthRail Corp. expects the completion of civil works to be in August of 2009.

China EXIM Bank has allocated $500 million for the project’s second phase, while the NorthRail management is currently finalizing the $90-million loan with the Development Bank of the Philippines for the local counterpart and other miscellaneous cost. –Darwin G. Amojelar, Reporter, Manila Times

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