Press Release
November 21, 2010

Recto: Use savings on MRT subsidy to buy more coaches

Sen. Ralph G. Recto today said that any savings coming from the government subsidy to the Metro Rail Transit (MRT 3) next year should be used to buy more coaches and improve its services for the benefit of hundreds of thousands of commuters.

Recto, chair of the Senate ways and means committee, said increasing the number of the MRT's rolling stock is just one of the ways of easing the worsening traffic situation in Metro Manila, particularly along EDSA.

"The MRT 3 was envisioned to accommodate more passengers. Why not use any savings on its subsidy to buy more coaches and ferry more commuters on a daily basis. It would not only decongest the traffic in EDSA, but it would also increase its revenues and slash government subsidy in the future," he said.

The senator explained that the mass rail transit system was envisioned to have a ridership of about 600,000 to 650,000 passengers a day, but is only able to accommodate between 400,000 to 450,000.

Recto issued the statement in light of the possibility that the financial assistance extended to MRT 3 may be bloated by as much as P1.5 billion due to a "very conservative" forecast of the exchange rate between the dollar and the peso next year.

"The subsidy to MRT 3 next year will be paid in dollars and surprisingly, the exchange rate forecast for next year had been pegged at $1:P50 by those who prepared the budgetary requirements for the rail system. This goes against an emerging consensus among financial institutions that the peso will strengthen in 2011," he said.

"By my calculations, if forecasts that the peso will strengthen to P42 against the dollar next year, then the subsidy to MRT 3 is bloated by about P1.5 billion."

Total subsidy to the mass transit system had been pegged at P9.25 billion. Less the projected revenues, total assistance to MRT 3 operations reaches P7.293 billion.

The bulk of this subsidy goes to the payment of Equity Rental Payments (ERPs), which amounts to $150,416,664 or about P7.52 billion at an assumed exchange rate of $1:P50 for next year.

The ERP, according to the Build-Lease-Transfer agreement between the government and the Metro Rail Transit Corp. (MRTC), is computed based on an agreed 15-percent return on equity for 25 years.

Recto said that an emerging consensus among banks is that the peso will strengthen next year to as high as P42 to the dollar, according to Goldman Sachs.

Other international financial institutions such as Standard Chartered forecast the peso to reach P43 against the US dollar by end of 2011 while HSBC predicted the peso to surge to P42.50.

Another subsidy provided by the government to MRT 3 is payment for "Unpaid Rental for Maintenance," which amounts to $17.2 million or P860 million at P50 to the dollar.

"Again, this is inflated by about P138 million, if we go by an exchange rate of P42 against the greenback," Recto said.

The senator said that if the peso does appreciate next year and there are savings in the subsidy given to MRT3, then it should go to the improvement of its services to commuters.

"They should buy more coaches. Any centavo saved on this much-debated subsidy should work to provide the passengers of the rail system more convenience," he said.

"The important thing here is that the savings from this subsidy should not go anywhere else but back to those who use the MRT 3."

The 17-kilometer MRT 3 stretches from Taft Avenue in Pasay City to North Avenue in Quezon City.

In 2009, the Development Bank of the Philippines (DBP) and the Landbank of the Philippines (LBP) purchased shares of stock, notes and securities representing the MRTC equity and wrested control of the MRTC board in 2009.

DBP and LBP's combined holdings in MRTC are placed at 75 percent of MRTC, which translates to 13 seats in the 15-man board of the company.

Since then, the DOTC has been operating the MRT3.

Presently, the government is studying how to take ownership of the MRT3 and re-privatize its operations.

Aside from increasing the number of MRT coaches and reducing the number of buses plying the EDSA route, Recto also said that building a "New EDSA" that would connect the north and south Luzon expressways is also one of the ways of easing the traffic situation in the metropolis.

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