Ironic twist seen in MRTC plan to declare gov’t in default

The row over the equity rental payments to the Metro Rail Transit Corp (MRTC) escalated further as officials dared the company to call the government in default and go into arbitration that could lead to a government take-over.

This developed as officials said that MRTC still has about P300 million worth of unpaid development rights payments on top of other undelivered commitments, making it even less likely that the company could collect equity rental payments from the government.

A top official privy to the on-going row disclosed that under the build-lease-transfer (BLT) contract between the government and the MRTC, a default call would be settled through an arbitration since it did not involve foreign lenders.

Although the project was foreign-funded, the actual loan was an obligation of the sovereign and to date, the government has made regular and up-to-date payment of its obligations with foreign creditors.

According to the official, MRTC’s threat to call the government in default would merely trigger the process of domestic arbitration which could be more advantageous to the government.

"Such a default, when actually called, will be more beneficial to the country because it will lead to a government buy-out," the official said. "In such a scenario, the add-on costs being incurred by MRTC will be minimized if not altogether avoided."

If this happens, the Metro Rail Transit Project will be the next in the expanding list of big-ticket projects that the government would have to take over due to disagreements with private proponents.

At least two other major projects have met the same fate: the airport passenger terminal 3 of the Ninoy Aquino International Airport (NAIA) and the East Service Zone of the Metropolitan Water and Sewerage System (MWSS).

The official said the MRTC did not have the "moral high ground" to threaten the government with a call of default or demand payment of equity rentals until it has settled its own obligations.

The official said that aside from the development rental payments to the DOTC, MRTC had also committed to deliver an agreed-upon office space and the signaling system that would allow a two-minute headway between train runs along the MRT line.

MRT has been threatening to call 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.

Well-placed sources revealed 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.