MPIC seeks flexibility in tariff for NLEX-SLEX connector road

Manila, Philippines - Metro Pacific Investments Corp. (MPIC) has asked government for “flexibility” in the determination of tariff rates for the multi-billion peso connector road project that will connect the North and South Luzon Expressways.

This developed after Department of Justice (DOJ), in a recent legal opinion, said that government’s assumption of the costs for securing the right-of-way for MPIC and wholly-owned subsidiary Metro Pacific Tollways Corp. (MPTC) is a form of subsidy to the private sector which should not be allowed.

MPIC chairman Manuel V. Pangilinan said the right-of-way cost for the connector road project from McArthur Highway in Valenzuela in the north to Buendia in Makati in the south is about P7 billion.

Pangilinan also revealed that MPIC subsidiary Maynilad will be spending about P10 billion every year for capital expenditure. Maynilad is also investing around P2 billion to expand Pututan’s capacity from 100 million liters per day to 300 MLD to provide an alternative source of water to Angat. “We are also conducting water demand studies and identifying new sources of bulk water,” he added. The Pututan water treatment facility draws raw water from Laguna Lake and is the first large-scale alternative water source to Angat for Metro Manila.

Maynilad president Victorico Vargas said Pututan’s expansion to 300 MLD will be completed in 2013.

Meanwhile, Pangilinan said if MPTC were to absorb the cost for securing the right-of-way, that would mean an increase in the project cost for Segments 9, 10 and 11 from P27 billion to P34 billion (of which P17 billion is for the connector road and P7 billion for the right-of-way).

The connector road is a 13.5-kilometer project that was granted original proponent status by the DPWH based on MPTC’s unsolicited bid. It will connect NLEX to SLEX via an elevated road over the tracks of the Philippine National Railways (PNR).

MPTC expects the auction for the connector road to be launched in the second half of the year.

He noted that the DOJ opinion “puts a chill” on railway, tollway, bridges, and even airport projects.

Pangilinan noted that MPIC’s assumption when it submitted the proposal to the Department of Works and Highways (DPWH) to undertake the connector road project, and that the typical public-private partnership (PPP) approach, is that the government is the one who secures the right-of-way as its “equity” in the project since the private sector does not have expropriation rights.

“The project cost we offered to absorb is P27 billion which is bulk of the cost and therefore not a bad share,” Pangilinan said.

He emphasized that they just need clearer ground rules. “If the thrust of the DOJ ruling is that government cannot subsidize the right-of-way costs and that it is the private sector who should pay for it, then government should allow us to have more flexibility in the tariffs and to input that in the tariff calculation,” Pangilinan added.

“If government believes it is a subsidy to the private sector and that we should shoulder it, then that is ok with us. But we have to be flexible with the tariff,” Pangilinan, who is also managing director and CEO of Hong Kong-based First Pacific Co., emphasized.

The tariff rate adjustment flexibility will allow MPTC to structure its rates to reflect the added project cost and to recover it.

Also yesterday, MPIC president Jose Ma. Lim said they have already submitted a proposal with their Japanese partners who will try to raise additional foreign investments for the connector road project.

MPTC president Ramoncito Fernandez said they are currently working with government for the acquisition of rights-of-way for Segment 9 or the Harbour Link (connecting Valenzuela to the Harbour area in Manila). MPTC has also signed a memorandum of understanding with PNR and North Luzon Railways Corp. (Northrail) to coordinate on the design of the second half (Segment 10) of the Harbour Link which is going to be elevated over their tracks.

Fernandez added that other projects they are looking at include tollroad projects in the provinces, ongoing discussions with shareholders of both Skyway and SLEX, and two of the PPP projects announced by government, namely CALA Expressway and NAIA 2 Expressway.

He noted that for MPTC, this year’s results will be influenced by three things - the final resolution of VAT on toll fees, increase in fuel cost, and expiry of the Manila North Tollways Corp. (MNTC) tax holiday in 2010.

“Core income should be relatively flat given the impact of income tax. While we cannot speculate on how the Supreme Court will rule on the VAT issue, the impact of a sustained increase in gas prices could be significant. Toll revenues should show double digit growth but the effect of income taxes on our bottomline numbers will be significant,” he said.

MPTC also plans to spend about P300 million to integrate the Subic-Clark-Tarlac Expressway (SCTEX) to NLEX about 12 months from takeover, but turnover by the Bases Conversion Development Authority (BCDA) has been delayed because the latter’s new management wants a renegotiation of the already signed and approved SCTEX concession agreement with MNTC.

Pangilinan said they have 60 days or until June 30 to conduct the renegotiations.