DBCC says MRT-7 must have no impact on budget deficit

The $1.4-billion Mass Rail Transit Line 7 (MRT-7) will not be approved unless it was packaged to be deficit-neutral and the proponents ensured that contingent liabilities would be minimized.

The Development Budget Coordination Committee (DBCC) took up the proposal in its recent meeting to discuss the recommendations made by the committee’s executive technical board.

The DBCC-ETB had proposed that the MRT-7 project should have no impact on the government’s deficit reduction program and its contingent liabilities be reduced to the absolute minimum.

However, the DBCC itself only "noted" the proposal and the approval of the project was still up to the Investment Coordination Committee (ICC).

The DBCC pre-requisite, however, would have an impact on the decision of the ICC which has to approve it’s inclusion in the Investment Priority Program (IPP).

When approved, the project would extend the Mass Rail Transit line all the way to Bulacan. It will be undertaken by the consortium Universal LRT Corp.

Sources said the DBCC was being careful to avoid the pitfalls of the MRT Line 1 project which was undertaken under the government’s build-lease-transfer (BLT) scheme, funded out of government-guaranteed foreign and domestic loans. The government, in effect, pays both debt rental and equity rental.

Government’s debt rental payments are covered by automatic appropriations in the national budget but the equity rental payment was more problematic and has caused conflict between the government and the Fil Estate-led company.

Under the controversial BLT contract for MRT1, government has agreed to guarantee MRTC a 15-percent return on equity, a provision that has been harshly criticized for removing the pressure on MRTC to increase the usage of MRT Line 1 since its return was guaranteed by the government anyway.

The DBCC directive meant that MRT-7 would not be able to count on huge sovereign guarantees from the government when it goes to the market to raise funds for the project.

Universal LRT Corp. said 75 percent of the project cost would have to be financed with loans and the remaining 25 percent would come from shareholders’ equity. Funding would commence within the next 12 months and the proponents planned to start construction within the next two years.

Universal LRT is composed of Alstom Transportation of France, the world’s second largest transportation system provider; Alstom Signalling of the US; Redfort Assets Ltd, representing SM Investment Corp. and PentaCapital Management Corp., the Merlin Pacific Capital Inc. Group; Earth Tech, a member of Tyco International Group of the US; Engineering Equipment Inc. (EEI) , a member of the Yuchengo Group; TCGI Engineers and E.L. International Holdings Group and a group of Israeli investors.

After being approved by the ICC, MRT-7 would undergo the mandatory Swiss challenge, a bidding mechanism allowing other interested entities to submit offers challenging the original proponent.

When completed, MRT would run along Commonwealth Avenue in Quezon City up to Tala in Caloocan City, and the adjoining municipality of San Jose del Monte in Bulacan.

The consortium would initially bring in capital worth $350 million once the government approves the project.

The project would also involve a housing component that would construct several towers with units of 36-50 square meters each.

MRT 7 would likewise involve the construction of a bus-rail transfer hub to be located at the Tala Caloocan-North, connecting the line to the North Luzon Expressway by a private highway that the consortium would build. It would also connect to Light Railway Transit Line 1 and 2 through the MRT 7’s elevated railway transit system.