Fare hike needed for LRT 1 deal to move
TOKYO—Rehabilitating the country’s first light rail system and extending its service to the south of Metro Manila will require a “significant” hike in ticket prices, since banks would only lend money for the project if it is financially viable.
At the same time, however, the chief financial officer of Metro Pacific Investments Corp.—one of two joint venture partners for the Light Rail Transit’s line 1 (LRT 1) extension deal—promised that the planned upgrade would result in a much improved experience for riders by reducing travel time and stress.
“To get to financial close requires a significant tariff increase,” MPIC’s CFO David Nicol said in a briefing over the weekend.
A “financial close” refers to the sealing of a final deal between a debtor (in this case MPIC and its joint venture partner for the LRT 1 extension, the Ayala group) and creditor banks.
“To put this in context—it’s pretty shocking—it’s the equivalent of a 27-percent overnight increase in the price [of commuter train fares] plus, by the time we’ve rolled out a year from now, it would be almost a 38-percent increase in the cost per line,” he said.
Failure to secure regulatory approval for such a fare increase for the LRT 1 system would, conversely, translate to a 38-percent shortfall in MPIC’s revenues from the project, the conglomerate’s CFO explained.
The P65-billion deal calls for the extension of the oldest LRT line from Baclaran in Parañaque City to Bacoor, Cavite—a total of 11.7 kilometers of new rails and the construction of 10 new stations.
The MPIC-Ayala tandem will have the right to operate the entire lengthened system for 32 years from the time of financial closing.
Nicol pointed out that, while the Philippine banks were generally “hugely enthusiastic” about lending funds for projects under the Public-Private Partnership program of President Aquino’s administration, there was “no universal support” from potential creditors for the LRT 1 deal.
“A number of banks had question marks about the ability of the grant holders to get through the initial tariff increases or to deliver the compensation mechanisms on time,” he said.
Indeed, previous attempts to raise fares for the two LRT lines and Metro Rail Transit system were heavily criticized by the commuting public, forcing the government to back down and continue absorbing billions of pesos in losses through the form of fare subsidies.
As such, potential creditor banks adopted a more cautious stance vis-à-vis the LRT 1 extension deal.
“Although we have enough banking support, it was by no means a situation where we had excess capacity in terms of banking interest,” Nicol said.
“It’s critical that we get to that point if financial is going to happen,” he explained. “And we clearly need to get to financial close before the first of October of next year. Otherwise, there’s a danger that the whole thing would slip.”
The MPIC CFO pointed out that, at present, commuting on the metropolis’ three rail systems is viewed by the riding public as a “last resort” due to the dilapidated condition of the trains and the poor levels of reliability that leads to frequent breakdowns.
“Our goal is to improve that, over time,” he said.