EDSA MRT woes

No, this column is not about to take back its word. Last week, we said the EDSA MRT – that 16-plus-kilometer-long light rail transit along the former Highway 54 – has so far been successful in providing close to 450,000 passengers daily with efficient and comfortable transport mode.

We stick to that premise.

That was also the view of that mysterious "civic group" EDSA Para sa Masa. The group said the Department of Transportation and Communications (DOTC) has done a good job in running the EDSA MRT, and has so far prevented the system from early deterioration- the bane of the country’s transportation industry. The group is correct in so far as good operations and management is concerned. And the DOTC feat is being used as a platform for the clamor for additional train coaches and for the long-awaited extension of EDSA MRT from North Triangle to Monumento.

But it appears the rosy picture is just one side of the story. There is another angle to the issue. And it seems the EDSA Para sa Masa may have deliberately skipped the less-than-rosy part of the story.

Since we published that piece on the success of the EDSA MRT last week, readers and media colleagues have been pushing us to ask this question: Would the government have the kind of money required for the purchase of additional EDSA MRT trains and for the extension of the system to Monumento?

So, we did pop up the question to our sources in the transportation sector. At this point, the answer appears to be a resounding "No!". There is no money to fund the aspiration of the EDSA Para sa Masa. Sorry, guys. You dream expensive dreams.

The view that the government has no money for extension and expansion has been largely fueled by reports that it is actually unable to pay the monthly lease on the EDSA MRT system. And the arrears are rumored to be about a year old.

If the government can’t pay lease obligations, how can it aspire to extend the system?

The arrears are reportedly owed to that large private consortium which funded the construction of the system some 10 years ago. If our sources are correct, the government owes that group some $190 million which the group needs to recover over a 25-year period from the monthly lease payments that the government is supposed to remit.

That’s the one that has not been paid for about a year now.

The government has to pay those monthly lease obligations because the system was set up under the build-lease-transfer scheme. The consortium built it; the government is leasing it; and the consortium has to transfer ownership to the government after the 25-year lease period. That is, if the government is able to promptly comply with payment obligations.

So, that’s the challenge to the aspiration of the EDSA Para sa Masa. Government is struggling with monthly lease payments. How can it even dream of buying more coaches or extending the line for another six kilometers?

But the group should not despair (so should the other less "mysterious" commuters who do not belong to this group).

Our resource persons in the transportation and finance sectors say there is a way out of this stumbling block. They call it "refinancing".

Here’s how it could work. Our sources say the cost of the $190 million which the government owes the private consortium is something like 15 to 18 percent per annum. Those were the borrowing rates at the time the Ramos government was pushing the EDSA MRT project.

But wait. Things are different today. The government, our sources point out, can actually borrow money from the international financial sector at much, much, much lower rates – say, six to eight percent per annum.

The much, much lower rates are the happy result of the confluence of positive events, among them, the country’s good revenue generation record (take a bow, Secretary Gary Teves and BIR Commissioner Jose Mario Buñag); the strong peso; and the overall good reputation that the country is enjoying, thanks to the "bitter pill" we swallowed (otherwise called expanded value added tax).

So, one option is for the government to borrow at 10 percent less than the current cost of money at which it is leasing the EDSA MRT. Then, pre-pay its obligation to the private consortium. It will then need less money for the remainder of the 25-year lease period (15 years, more or less). The savings, our sources computed, would be enough to fund the extension of the line from North Triangle to Monumento.

We are no financial expert so we still need second opinions to determine the soundness of this approach. But we do hope our DOTC officials would consider such option. The government is on a prepayment binge; it would do no harm to include the EDSA MRT obligation in the prepayment bundle.

This way, EDSA commuters can continue to enjoy the efficiency and convenience of the EDSA MRT – from Taft Avenue to Monumento.

All EDSA commuters, for that matter. "Masa" or otherwise.

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