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Wednesday, June 13, 2018

Got You! “Fixing MRT-3: Sobrepeña Option v. Japan ODA Option”


Wazzup Pilipinas!

Some news articles highlighted two options for rehabilitating MRT-3:

  1. An option proposed by Robert John "Bob" L. Sobrepeña through MRTH II and MRTC, which was twice denied by the DOTr in writing, first in August 2017 and again in October 2017 (the "Sobrepeña-MRTC Option"); and,
  2. The option currently being pursued by the DOTr under a Government-to-Government (G2G) Official Development Assistance (ODA) from the Government of Japan (GOP), through the Japan International Cooperation Agency (JICA), and with the assistance of railway experts from the Asian Development Bank (ADB) and Australia Aid (the "Japan ODA Option").

The Sobrepeña-MRTC Option

The Sobrepeña-MRTC Option was proposed by Mr. Sobrepeña through MRTH II and MRTC, private companies involved in the earlier construction and maintenance of MRT-3.

MRT-3 is the only railway project of MRTH II and MRTC, which are currently controlled by Mr. Sobrepeña through an elaborate scheme of legal arrangements.

Other companies controlled by Mr. Sobrepeña include the failed College Assurance Plan (CAP) scheme and the controversy-ridden Camp John Hay Development Corp. (it appears that CJHDC still refuses to pay billions in debt intended for the Armed Forces, through BCDA).

The Sobrepeña-MRTC Option is what some people appear to have been endorsing for years.

What MRTC Receives

*(US$1.00 : PhP52.66)

MRT-3 was built by MRTC with a total project cost of PhP35.6 billion.

To pay for MRT-3's construction, MRTC used PhP10 billion of its own money, and borrowed PhP25.6 billion from various lenders, payable over 10 years, at interest rates of 2.8%, 7.52%, and 9%.

Filipino taxpayers have been paying, and will continue to pay, MRTC a 15% return on the PhP10 billion that it used in MRT-3. Over 25 years, Filipino taxpayers will pay MRTC a total of PhP126.4 billion for its PhP10 billion equity.

As of early-2018, Filipino taxpayers have already paid MRTC close to PhP73.7 billion, and will continue to pay MRTC more than PhP52.7 billion up to 2025.

That's not all.

On top of paying MRTC PhP126.4 billion for its PhP10 billion equity in MRT-3, Filipino taxpayers have already fully paid as of 2010 the PhP25.6 billion that MRTC borrowed, plus interest of PhP6.9 billion.

In other words, MRTC borrowed PhP25.6 billion for MRT-3, but it was the Filipino taxpayers that paid for the total bill of PhP32.4 billion for MRTC's debts (principal and interest).

Still, that's not all.

On top of paying MRTC a 15% return on its equity and paying for all of MRTC's debts, Filipino taxpayers have also been paying, and will continue to pay, PhP2.2 million per month for MRTC's staffing and administration costs.

Yes, Filipino taxpayers pay for MRTC's staff, so they can charge Filipino taxpayers for other payments. Note that for the past several years, MRTC's only business activity has been to collect payments from Filipino taxpayers, and to claim for even more payments.

As of early-2018, Filipino taxpayers have paid PhP463.5 million for MRTC's staffing and administration costs, and will continue to do so up to 2025.

And, still, that's not all.

Filipino taxpayers also pay for MRTC's taxes. After MRTC pays for its taxes, Filipino taxpayers reimburse MRTC for the taxes that it paid.

As of early-2018, Filipino taxpayers have paid MRTC PhP27.1 billion as reimbursement for MRTC's taxes, and will continue to reimburse MRTC for its taxes up to 2025.

In total, after investing PhP35.6 billion to build MRT-3, MRTC already received:

PhP73.7 billion as return for its equity
+ PhP32.4 billion as payment for its debts
+ PhP463.5 million as payment for its staffing and administration costs
+ PhP27.1 billion as payment for its taxes
= PhP133.7 billion.
By 2025, MRTC stand to receive close to PhP200 billion in return for its PhP35.6 billion investment.

Nominally, Filipino taxpayers will be paying MRTC the equivalent of almost 6 MRT-3's in exchange for building one MRT-3.

What MRTC Does Not Give

Meanwhile, despite MRTC receiving all the above from Filipino taxpayers, MRTC's affiliate, MRT DevCo, has refused to pay DOTr almost PhP2.3 billion as of mid-2015 for leasing out kiosks and advertisement spaces in MRT-3.

MRTC's Fights with Government

There are a number of disagreements between MRTC and DOTr on the interpretation of the BLT Agreement for MRT-3, as well as MRTC's performance of its obligations therein.

There are ongoing cases between MRTC and DOTr, as well as between MRTC and various local governments, both in Singapore and in local courts.

Thus, in addition to all the above payments by Filipino taxpayers to MRTC, Filipino taxpayers additionally have to pay for legal expenses necessary to defend against MRTC's multiple cases and claims against the Republic.

Continuing and Expanding the BLT Agreement

The Sobrepeña-MRTC Option consists of a 5-page proposal and a series of 1-page to 3-page letters (the letters essentially contain the same thing).

The Sobrepeña-MRTC Option is largely based not just on continuing, but even expanding, what MRTC gets under the BLT Agreement (yes, apparently everything that MRTC has received and will continue to receive from Filipino taxpayers, as enumerated above, is still not enough).

For example, the Sobrepeña-MRTC Option involves MRTC receiving MRT-3's fare revenues of almost PhP3 billion per year up to 2040, without the benefit of any bidding, or even a Swiss Challenge.

The Sobrepeña-MRTC Option also involves an unspecified schedule of fare increases, which will increase MRT-3 fares from the current maximum of PhP28.00 to up to almost PhP40.00.

The Sobrepeña-MRTC Option therefore involves giving to MRTC up to more than PhP10 billion per year in fare revenues over a period extending to 2040, again, without the benefit of any bidding, or even a Swiss Challenge.

Notably, the Sobrepeña-MRTC Option also involves extending onerous terms of the BLT Agreement beyond 2025, and into 2040. For example, Sobrepeña-MRTC Option requires Filipino taxpayers to continue reimbursing MRTC for all its taxes.

The Sobrepeña-MRTC Option has thus been twice denied by the DOTr in writing, first in August 2017 and again in October 2017.

The Japan ODA Option and Japan's Railway Expertise

Japan has more than 27,000-km. of railways, which carries more than 7 billion passengers per year, and which ranks among the safest and most reliable railway systems in the world.

Tokyo alone, which has almost the same area as Metro Manila, has 700-km. of railways with a ridership of 30 million per day.

Comparison. The Japan ODA Option is backed by the Government of Japan, whereas the Sobrepeña-MRTC Option is backed by Mr. Sobrepeña and MRTC.

MRTC has only one railway project (MRT-3) and Mr. Sobrepeña's project references include the failed College Assurance Plan (CAP) scheme and the controversy-ridden Camp John Hay Development Corp. (it appears that CJHDC still refuses to pay billions in debt intended for the Armed Forces, through BCDA).

JICA Partnership

The Japan International Cooperation Agency (JICA) has been the Philippines' long-time and steadfast development partner, having extended more than PhP1.4 trillion in Official Development Assistance (ODA) projects to the Philippines, PhP250 billion of which have been for railway-related projects.

JICA is extending an additional PhP500 billion in ODA to the Philippines for the PNR Clark 1 (Tutuban-Malolos), PNR Clark 2 (Malolos-Clark), PNR South Commuter (Manila-Los Banos), Metro Manila Subway, and Philippine Railway Institute Projects.

Comparison. MRTC, who is the proponent of Sobrepeña-MRTC Option, has meanwhile spent PhP35.6 billion to build MRT-3, but will be receiving a total of close to PhP200 billion in return (as of early-2018, MRTC has already received PhP133.7 billion).

Again, Filipino taxpayers will be paying MRTC the equivalent of almost six (6) MRT-3's in exchange for building one MRT-3.

The JICA-financed MRT-3 Rehabilitation and Maintenance Project

Starting with an Exchange of Note Verbale between the Governments of the Philippines and Japan in early-January 2018, the JICA-financed MRT-3 Rehabilitation and Maintenance Project is part of the two Governments' cooperation in infrastructure development, and reflects the two Governments’ recognition of the pressing need to rehabilitate MRT-3.

Following the above diplomatic exchange, a JICA study team, free of charge, conducted a comprehensive system inspection of MRT-3 from February to March 2018. The JICA study team consisted of 150 Japanese and Filipino engineers.

Based on the JICA study team's comprehensive system inspection, JICA headquarters' railway, finance, and economic experts conducted a loan appraisal for the MRT-3 Rehabilitation and Maintenance Project from April to May 2018.

Comparison. The Sobrepeña-MRTC Option consists of a 5-page proposal and a series of 1-page to 3-page letters (the letters essentially contain the same thing).

Mr. Sobrepeña's and MRTC's proposal does not appear to have been based on any system inspection of MRT-3. It is a mystery how a proposal to rehabilitate a complex railway system could have been developed without a comprehensive system inspection.

Terms and Scope of the Japan ODA Project

The Japan ODA loan for the project has an interest rate of 0.1% per annum, repayment period of 40 years, and grace period of 12 years.

Comparison. MRTC's loans, which Filipino taxpayers fully paid in 2010, had a repayment period of 10 years and interest rates of 2.8%, 7.52%, and 9%.

The JICA-appraised indicative base cost for the rehabilitation component is PhP11.6 billion, and PhP5.5 billion for the maintenance component.

Rehabilitation includes restoring MRT-3 to its design operating condition, and will take 26 months. This will "fix everything that needs to be fixed" in MRT-3.

Maintenance, meanwhile, includes day-to-day maintenance, preventive maintenance, corrective maintenance, and the complete general overhaul of MRT-3's 72 cars, which were supposed to have been done in 2014-2016 (MRT-3's terminated maintenance contractor, BURI, failed to do the overhaul).

Due to MRT-3's limited depot space, the extent of work needed on each train, and the public service requirement of operating as many trains as possible while the rehabilitation is ongoing (yes, MRT-3 will continue operating while the rehabilitation is ongoing), the general overhaul of MRT-3's 72 cars will require 43 months.

Maintenance activities will continue after the 26-month rehabilitation, and for the remainder of the 43 months, during which the general overhaul of all of MRT-3’s 72 cars will be completed.

Diligence Employed by DOTr

As with all its projects, DOTr employs extensive diligence in developing projects, mindful that it has the obligation to responsibly utilize taxpayers’ money in delivering public service.

The indicative terms, scope, and cost for the JICA-financed MRT-3 Rehabilitation and Maintenance Project were developed after a comprehensive 2-month system inspection of MRT-3, conducted by a JICA study team comprising of 150 Japanese and Filipino engineers from February to March.

The output of the system inspection was then reviewed by JICA headquarters’ railway, finance, and economic experts in the course of a 2-month Fact Finding and Appraisal Missions in April to May.

The system inspection output was further reviewed by a team of railway experts from the Asian Development Bank and Australia Aid, who were mobilized by DOTr, free of charge, to further enhance its diligence process.

Comparison. The Sobrepeña-MRTC Option consists of a 5-page proposal and a series of 1-page to 3-page letters (the letters essentially contain the same thing).

Aside from being signed by Mr. Sobrepeña and MRTC President Frederick C. Parayno, and claiming to have been based on "discussions with Sumitomo Corporation," the Sobrepeña-MRTC Option does not appear to have been prepared by any railway expert.

Correcting Erroneous Claims

To correct some erroneous claims, the DOTr clarifies that the Sobrepeña-MRTC proposal is not an offer from Sumitomo.

The DOTr maintains that it is borrowing from Japan to finally, and once and for all, fix MRT-3 with a comprehensive, single point of responsibility solution, delivered by a highly-qualified and highly-experienced provider, backed by the government of one of the leading railway powerhouse countries in the world.

Second, Sumitomo Corp. has no offer to DOTr to do the work for PhP7.5 billion, contrary to some articles circulating online and on print media.

Again, the Sobrepeña-MRTC proposal consists merely of a 5-page proposal and a series of 1- to 3-page letters (the letters essentially contain the same thing).

The Sobrepeña-MRTC proposal does not refer to a PhP7.5 billion cost, and it does not refer to an offer from Sumitomo.

In its own letters to the DOTr, MRTC states that it is still "in discussions with Sumitomo Corporation."

To reiterate, there is no offer from Sumitomo Corporation to undertake the scope of the JICA-financed MRT-3 Rehabilitation and Maintenance Project, and much more, there is no offer from Sumitomo Corporation to do it for PhP7.5 billion.

MRTC's letter to DOTr dated 15 September 2017 stated:

"This is in reference to the letter of the DOTr dated 31 August 2017 conveying the DOTr's denial of the recent proposal of MRTC to rehabilitate and maintain the MRT-3 System [i.e., the Sobrepeña Option]."

Following DOTr's written denial of the Sobrepeña-MRTC proposal in its letter dated 31 August 2017, DOTr reiterated the denial in another letter dated 11 October 2017. 

The indicative terms, scope, and cost for the JICA-financed MRT-3 Rehabilitation and Maintenance Project is the product of several layers of diligence employed by DOTr.

Measures taken by DOTr to ensure that it is responsibly utilizing taxpayers money in fixing MRT-3 include the following:

- conduct of a comprehensive 2-month system inspection of MRT-3 by a 150-man JICA study team from February to March;

- review by JICA headquarter's railway, finance, and economic experts in the course of a 2-month Fact Finding and Appraisal Mission in April to May; and

- further review by a team of railway experts from the Asian Development Bank and Australia Aid.

Meanwhile, the Sobrepeña-MRTC Option appears to be based on nothing more than a 5-page proposal signed by Mr. Sobrepeña and MRTC President Mr. Parayno.

To Conclude: Got You!

It is a wonder why some appear to have been consistently selling the Sobrepeña-MRTC Option this past few years, and continue to do so now, despite advance efforts by the DOTr to finally and once and for all fix MRT-3 with a comprehensive, single point of responsibility solution, that will be delivered by a highly-qualified and highly-experienced provider, and that is backed by the government of one of the leading railway powerhouse countries in the world.

It is a wonder why some appear to have blind allegiance to the 5-page proposal underlying the Sobrepeña-MRTC Option, despite it appearing to be not based on any comprehensive inspection of MRT-3, unlike the Japan ODA Option.

It's a wonder why some appear to have unbending faith on the proponents behind the Sobrepeña-MRTC Option, despite MRTC having no other railway development experience other than MRT-3, and despite Mr. Sobrepeña's track record from his failed College Assurance Plan (CAP) scheme and controversy-ridden Camp John Hay Development. Corp. (it appears that CJHDC still refuses to pay billions in debt intended for the Armed Forces, through BCDA).

Perhaps MRTC and Mr. Sobrepeña have project references which inspire some to have more confidence asking them to fix MRT-3, instead of the Government of Japan.

Or perhaps... you be the judge.

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