Private investors may be invited to acquire government stake in MRTC

MANILA, Philippines - The Aquino administration is looking at offering to private investors the government’s controlling stake in Metro Rail Transit Corp. (MRTC) held jointly by two state-owned financial institutions, Finance Secretary Cesar Purisima said yesterday.

Purisima said the Department of Finance (DOF) is now reviewing the transaction which transpired during the Arroyo administration and which has been criticized by no less than President Aquino during his first State of the Nation Address on Monday.

President Aquino has said the Land Bank of the Philippines (Landbank) and the Development Bank of the Philippines (DBP) should not have been forced into buying the government’s controlling stake in MRTC, the consortium that runs the 17-kilometer MRT-3 along EDSA.

In early 2009, Landbank and DBP acquired a 75-percent controlling stake in MRT at an estimated shared cost of $800 to $900 million but they are required by the Bangko Sentral ng Pilipinas (BSP) to sell their holdings eventually.

The previous government wanted the National Development Co. (NDC), the state-owned investment arm, to take over the stake of the two financial institutions.

Previous estimates showed that NDC would need roughly $300 million for the first phase of the “take-out.” The $300 million would serve as initial payment for a portion of the preferred shares held by the two banks in MRT-3.

However, Purisima said Trade and Industry Secretary Gregory Domingo is not “too keen” on this.

“He is not very keen on doing this. He doesn’t believe this is the job of the NDC,” said Purisima, who already had initial discussions with Domingo on the matter.

The Finance chief believes the right track is to privatize thegovernment’s stake in MRTC.

However, he said, the government needs to come up first with a structure that would be attractive to private investors and at the same time, free the government from extending subsidies to MRT-3. “If it’s properly structure, I am sure it will be attractive,” Purisima said.

During the previous administration, at least five investor groups were vying for the combined controlling stake of the two banks in MRTC, sources have said.

The government is spending $130 million per year for equity rental payments, maintenance rental payments, and operating and administrative costs for the elevated railway, compared to annual revenues of only $39.56 million.

Based on a government study presented by the DBP, fares should be increased from an average rate of P12.50 to P60.50 to remain profitable.