MRT: Serial swindle

DIE HARD III
Herman Tiu Laurel
8/31/2012



Two weeks ago, in the midst of the Robredo plane crash frenzy, the Department of Transportation and Communications (DoTC) Secretary Mar Roxas announced, "Expect MRT fare increase in 2013," adding that, "It will be unfair for the areas in the provinces if we continue to subsidize Metro Manila as we have done so for the past 10 years," arguing, "It seems that there is a fairness issue here.  The money… can be redeployed to the countryside…" It rankles me whenever my intelligence is insulted by such ruling class ilk as Roxas who blames the people as "spoiled" for expecting low rates in public utilities, then pit metropolitan and rural Filipinos against each other to obfuscate.

From the time the BS Aquino III government debuted, it was clear that the party in power — courtesy of Hocus-PCOS — would be raising all public utility rates even if unnecessary and unjust.  Roxas' ilk, for one, has been broaching up to 200 percent fare increases since 2011. Only public indignation has kept the wolves at bay so far.

From three years of confirmed analyses, public statements of groups like the National Consumer Council of the Philippines (NCCP) that dialogued with the DoTC staff, and tracking of business news developments, it is clear that the MRT/LRT are not operationally losing propositions. What Roxas and his ilk claim as "losses" of these projects are not operational but financial costs. In all, Roxas and his cohorts in the oligarchy, in connivance with their captive politicians, particularly Fidel V. Ramos and Gloria Arroyo, are the culprits.  Thus, it is imperative to review the project histories to see through the lies.

We will focus on the MRT at this point, which is a project built by private "investor" groups  which proceeded to "securitize" the project based on the extremely "diabetic" sweetheart deal granted to them by FVR. First, the group obtained a very mind-blowing passenger load guarantee of hundreds of thousands daily based on up to P60 one-way fares signed by FVR in the mid-1990s. With this fantastically attractive contract and lucrative cash flow promised, the investor group then collateralized these to obtain funds for the project. The transnational banks and investment companies, in turn, took their pound of flesh from the fat terms the investor group got.

However, as things progressed, the time bombs in the contract began to show, as the original high fares of the MRT based on a passenger load of 20,000 daily could not even be attained, which guarantees meant that government still had to pay the investor group the exorbitant contract costs — including the horrendous financial burden from the deliberately unrealistic and one-sided terms in favor of the investors.

It then became clear that the so-called subsidy of government is going neither to the MRT operations nor to the commuters. And since the major cost of the MRT is due to the financial burdens foisted on the people from the serial swindle by the oligarchs and Ramos, the subsidy has always been going to the investor group or consortium (aka the oligarchs) and their financial brokers.

Erap partially solved the problem in 1998 ("Erap orders high fares for Edsa-MRT reduced"), which the Makati Business Club, et al., not surprisingly, frowned upon. But, too bad for them: As fares were cut from a high of P60 down to P20 for a round trip, passenger count rose from 20,000 to 200,000 and kept rising until today's high of up to 700,000 daily, cutting government subsidy to the consortium's financial exactions. The oligarchs, however, are not to be outdone.  Arnold Padilla in his Web site, "A Radical's Nut," cited DoTC and MRT officials' admission that 85 percent of the cost of the MRT today is the constantly growing financial burden by the wheeling and dealing of the oligarchs who sell and resell ownership of the projects, as well as the profits made at each stage.

The latest in the serial swindle is the MRT sale to Goldman Sachs and then to the another Group. The MRT investor-consortium had a 25-year Build-Lease-Transfer (BLT) agreement with the government, which would pay Equity Rental Payments (ERP) guaranteeing a 15-percent per annum return, as well as a maintenance fee and recovery of taxes.

In 2002, the MRT consortium members, securitized their share of the ERPs by issuing MRT III Funding Corp. (MRT3FC) bonds and shares sold to outside investors for an advance payment.  With the securitization, MRT3FC had a 77.7 percent share, Another investor, 19.9 percent, and minorities 2.4 percent. But as government had difficulty with a lease due to the financial burden, the private investor subsequently sold its interest to Goldman Sachs. Goldman Sachs and partners then sued government for $230 million, forcing the Arroyo administration to buy back bonds and shares through the Development Bank of the Philippines and Land Bank. These government financial institutions extended a $180-million loan to Global Air Services (GAS), an offshore company with $2 in capital and $400,000 in losses. GAS turned out to be a shell company which offsets the loan against the purchase price.

Then Department of Finance (DoF) Secretary Gary Teves, now director of Atok Big Wedge and Alphaland, said the deal saved the country $380 million on MRT ERPs against the cost of the buyout, when the money was actually used to buy out Goldman ($64.5 million), Presidio Capital ($26.5 million) and Ashmore ($87.6 million).

That was another layer of "transaction costs" ($3.6 million of "fees" and profits of Goldman et al.) that these parties added on the MRT, which financial burden Roxas and BS Aquino III now want to blame and impose on faultless MRT commuters.
If Roxas gets his way and raises the fares, it will be ready for the picking again by another oligarch, whose re-privatization takeover has been in the works since 2011 — a neat last chapter indeed to the serial swindle story!

(Watch Talk News TV with HTL, Saturdays, 8 to 9 p.m., with replay at 11:15 p.m. and Sundays, on GNN Destiny Cable Channel 8, also available on the Internet at http://www.gnntv-asia.com, this week on "MRT: Welfare for the Rich, Burden for the Poor;" visit http://newkatipunero.blogspot.com)