MRTC threatens to declare gov’t in default

The Metro Rail Transit Corp. (MRTC) has threatened to declare the government in default for refusing to make regular equity rental payments representing the company’s guaranteed return from the operation of the MetroRail Transit Line 1.

Despite MRTC’s lobby, however, the Department of Finance (DOF) has refused to intervene until the Department of Transportation and Communications (DOTC) has resolved the conflict itself.

Well-placed sources disclosed over the weekend that MRTC has been having difficulties collecting its guaranteed returns from the government after its stand-by letter of credit lapsed sometime in January.

Banking industry sources said that the MRTC has been unable to persuade the DOTC to reinstate the special letter of credit with the Philippine National Bank (PNB) despite repeated requests to transportation officials and lobbying with the DOF.

MRT Line 1 was undertaken under the government’s build-lease-transfer (BLT) scheme, funded out of government-guaranteed foreign and domestic loans. The government, in effect, pays both debt rental and equity rental.

Government’s debt rental payments are covered by automatic appropriations in the national budget but the equity rental payment was more problematic and has caused unsettled conflict between the government and the Fil Estate-led company.

Under the controversial BLT contract, government has agreed to guarantee MRTC a 15 percent return on equity, a provision that has been harshly criticized for removing the pressure on MRTC to increase the usage of MRT Line 1 since its return was guaranteed by the government anyway.

Banking sources said the government has been paying the debt rental payments regularly with no problems but since the special LC lapsed, MRT kept drawing on the facility without government reimbursing PNB until the LC finally lapsed.

MRTC has since then been threatening to call the government in default, demanding the reinstatement of the stand-by LC.

Finance Secretary Jose Isidro Camacho confirmed reports that the MRT had made representations with the DOF about the reinstatement of the LC but he said the DOF sent them back to the DOTC.

"It’s not really our call, it‚s a decision that the DOTC has to make on behalf of the government," Camacho said. "We have been servicing the debt rental payment because that is automatic."

According to Camacho, it was MRTC’s legal right to draw on the letter of credit but it was up to the DOTC and the PNB to determine whether it should be reinstated after it lapsed.

"It is not up to us," Camacho said. "Even if the DOTC and the bank decide to reinstate the LC, it would still be subject to the appropriations under the national budget. If there is a budget appropriation, then that’s well and good. But if not, then it can’t happen."

Camacho, however, refused to comment on reports by banking sources that he had specifically refused to reinstate the LC, irked by the threats made by MRTC to call the government in default.

Camacho was quoted as saying that creditors would not give credence to MRTC’s tantrums over rental payments since the government was up to date with its debt rental obligations.

However, Camacho was only willing to admit that the DOF was approached by MRTC without success.