From pAbaya to TuGrabe

By Boo Chanco (The Philippine Star), Nov 27, 2017

No, I didn’t think up that headline. I saw it as a hashtag on social media. Filipino humor can be devastating during difficult times. Unfortunately for whoever is the transport secretary, they are only as good as the performance of the MRT3.

MRT 3 had long been falling apart, but lately, it seems things are getting intolerably worse. The past and present transport secretaries have been nibbling at the periphery of the problem…as if rearranging deck chairs on the Titanic.

Both of them, pAbaya and TuGrabe are lawyers so they should know it all starts with the Original Sin: the MRT 3 BLT contract entered into by the FVR administration. It had been revised by succeeding administrations. After all the financial gymnastics, the Sobrepena-led MRTC still owns the system.

What has been sold to the financial market are MRT bonds representing 77 percent of the securitized future monthly rental payments for Phase 1 of the MRT 3 project and excludes any economic interest in other aspects of the MRT3. This was what government bought through DBP and LandBank.

The GFIs bought their MRT bonds at a big discount to face value. Market perception of the credit worthiness of the bonds may have been tarnished by the delayed lease payments.

Around 2007-2009, there were periods when the then DOTC was almost one year in arrears. DOTC also neglected to set up the standby L/C in PNB which was supposed to be the cure for late payments. The last tranche of the bonds will mature on 2025, or the end of the lease period.

Since government banks hold 80 percent of total outstanding bonds, it is like paying from one government pocket to another to some extent. But Sobrepena’s MRTC retains ownership. As owner of the system, it is the responsibility of MRTC to maintain MRT 3 and make capital investments such as new trains.

But as it happened, Mar Roxas and his successor, pAbaya unilaterally took over the maintenance responsibility and awarded a contract to replace Sumitomo. Then pAbaya went on to award the P3.8 billion contract for new trains to a Chinese supplier.

MRTC claims the transportation department did all those in violation of their contract. MRTC also claims they tried to talk to both pAbaya and TuGrabe, but both refused.

I can understand why a government official will try to avoid having to deal with Sobrepena. I would too. The guy has a terrible track record in business, from the College Assurance Plan fiasco, Fil-Estate and Camp John Hay.

Perhaps the reason Mar Roxas ruled against Sobrepena is because MRTC has not kept their side of the bargain. I am told that maintenance, even under Sumitomo, had deteriorated just before the contract was cancelled.

But, as I said, there is no escaping the need to deal with MRTC. Ignoring MRTC means they will be indefinitely tied up in litigation while commuters suffer.

The MRT 3 contract has provisions for international arbitration of disputes. Indeed, there is a pending arbitration case in Singapore that needs to be cleared.

The only other thing government can probably do is to expropriate the system in the public interest. They can argue forever about the just compensation, but in the meantime, government can ask another group to invest and fix the system.

But such a drastic move will unnerve investors who will now worry about the sanctity of contracts with government. Doubts will likely affect investor attitude on everything else having to do with risking capital here.

We lost an opportunity to amicably fix the problem during the watch of Mar Roxas. At that time, Sobrepena had an agreement with Manny Pangilinan to make a joint proposal. Manny will pour in the needed investments, fix the dilapidated system and charge a fare competitive with aircon buses running at-grade. P-Noy reportedly commented that MVP may get too rich and that was the end of it.

Now, I understand the deal between Sobrepena and MVP is no longer operative. MVP made an independent unsolicited bid together with Ayala (part of the original MRT 3 consortium) and the transport department gave it original proponent status.

The proposal involves an investment of P12 billion to rehabilitate the train system without any fare increase for at least two years, as well as the handling of operations for a period of 30 to 32 years. It also includes resolving issues on the MRT-3 including the buyout of the government’s stake held by LandBank and DBP, as well as other shareholders in MRTC or the private owner of the train system.

But MRTC, as the owners of the MRT-3, now wants to reassert their rights. They claim they can rehire Sumitomo and fix the MRT-3 system without stopping operations, if DOTr would allow them.

MRTC claims they have submitted several letters to Transportation Sec. Art Tugade and President Duterte as early as February. But they got no response.

The rehabilitation plan of MRTC will include a full inspection of the MRT to be completed within 30 days by 100 engineers, the purchase of $50 million worth of spare parts, replacement of broken rails, the complete overhaul of all 73 MRT cars.

MRTC has, likewise, expressed willingness to advance the $150 million for the rehabilitation of the trains, to recover later only through fares, even without increasing MRT fares beyond the rates of air-conditioned buses.

Trusting Sobrepena to perform or even have the financial capacity to carry out his proposal is another thing altogether. It may be cheaper for President Duterte to talk to him, appeal to his sense of patriotism and when everything fails, to threaten him with Tokhang.
As unpalatable as dealing with Sobrepena can be, he has to be dealt with or no lasting solution is possible and MRT 3’s problems will just worsen. That will be TuGrabe.

Boo Chanco’s e-mail address is bchanco@gmail.com. Follow him on Twitter @boochanco.