2011 april private public partnership model in integrating oda developed lrt1and bot developed mrt3...

8/7/2019 2011 April Private Public Partnership Model in Integrating ODA Developed LRT1and BOT Developed MRT3 Projects China Final2

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Philippine Macro-economic

and Project Financing Indicators


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Fiscal Policy, Public Debt and Lenders Security Requirements

WORLD ECONOMIC OUTLOOK: REBALANCING GROWTH

Benchmark Debt to GDP Ratio (1985-2002)

Industrial Countries: 75% of GDP Emerging Market: 25% of GDP Old Doctrine: 60%

Philippines: 57% in 2010 from 65% in 2001 Philippine Debt was PhP2.2trillion in 2002 and

now PhP4.5trillion in 2010 Decline in Debt to GDP ration is more a result of

the peso appreciation since the stock of debt hasincreased and not decreased from 2001

Source: Diokno, D.; How Deeply Indebted is Citizen Pinoy; BuinessWorld; June

16, 2010; Philippines

Public Sector Guarantee should be limited to1. Extreme Foreign exchange rate guarantee2. Extreme Inflation rate

3. Tariff rate setting

Fiscal Policy1. In the long run, developing Asia must

rebalance its export growth model.2. Carefully designed fiscal stimulus can help

restore stability and growth.3. Infrastructure provides the opportunity to raise

employment and growth quickly.

Source: Asian Development Bank, Global Economic CrisisChallenges for developing Asia and ADBs Responses, April2009


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Equity Effective Rates of Return

http://www.simplestockinvesting.com/SP500-historical-real-total-returns.htm

http://www.investorsfriend.com/return_versus_gdp.htm


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Debt Market and Project Financing Interest Rates

Total External Debt:http://data.worldbank.org/indicator/DT.DOD.DECT.CD/countries/PH-TH-MY-ID-4E-7E?display=graph


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Publicly and Privately Administered LRT Project

Background Information Philippine Experience


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Tranvia and LRT Development in the Philippines

Philippine Tram and LRT HistoricalDevelopment

1882 La Compaia de tranvias deFilipinas

1903 Manila Electric Railroad and LightCompany

1984 Light Rail Transit Authority(Government Owned and ControlledCorporation) independent of energy links

1998 MRT-3 build as a BT project withMetro Rail Transit Corporation with RealEstate Development Rights.

2009 DBP/LBP bought 23% of MRTCand 99.9% of MRT3 Equity RentalPayment receivable from DOTC


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Infrastructure Requirements of SE Asia and the PhilippinesTraffic Corridors of Metro Manila

NorthTriangle

CubaoEast Wood

Ortigas Ayala

FortBonifacio

Major traffic corridors in MetroManila based on MMUTIS Study

Metro Manila MassTransit System

As of 2010, World Bank recommended7% of GDP investment in infrastructurewhich is greater than the 2% of GDP

investment in infrastructure in thePhilippines

The LRT/MRT systems that were identified after the completion of theMMUTIS were determined to be market driven projects which are primecandidates for PPP undertaking with sovereign guarantees for tariff rate,

FX and Inflation.


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LRT1 and MRT3 Technical and Market-Driven ProjectComparison

LRT11980: Belgian ODA (PhP300million or US$16million) andcommercial (PhP700.0million or US$ 37.45million) 15 km, 18stations and 32 LRVs1996-1999: Japanese ODA Phase 1 11billion (7 4-car LRVs) andbalance of debt payment is approximately US$59million1999-2009 Japanese ODA Phase2 22billion (12 4-car LRVs andrefurbishment of civil/electro-mechanical systems) and balance ofdebt payment is approximately US$253.0million2004: Belgian ODA 12.3million (Refurbishment of 63 LRVs andspareparts) and balance of debt payment is approximatelyUS$17millionLRT1 ODA Debts are not tranferrable.

Ridership of LRT1 is 350,000 passengers a day

Maintenance agreement obligates the maintenance serviceprovider to ensure availability of maintenance personnel and

generate annual spare part procurement requirement for theLRTA to procure.

MRT3Phase1: US$675million 16 km, 13 stations and 73 LRVs andbalance of equity rental fees is US$1.9billionPhase2: US$15.0million to refurbish LRT1 North Extension Electro-Mechanical systemsProcure $300million 75 LRVs phase 1 capacity expansion andadditional US$300million 75 LRVs for MRT3 Phase2.Monumento to Caloocan Extension US$80million and US$US$50million satellite depot.

Ridership is 500,000 passengers a day with a potentialridership of 8880,000 passengers a day

Maintenance agreement obligates the maintenance provider toensure 80% availability of the MRt3 system.Asian Development Bank 2010 Key Indicators


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LRT1 and MRT3 Revenue and Remaining DebtSurplus/Deficit Comparison

Original 25-year (2000 to 2025) backended Equity Repayment Profile isnt ideal based revenue and expensematching and will result in a negative US$ 469million cashflow

Traditional 10-year (2000 to 2010) Equity Repayment Profile is the ideal and will result in positiveUS$366million cashflow.


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Models for Integration and Re-Privatization

of Operation and Maintenance of LRT1 and MRT3


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Hong Kong and German Transit ModelsPhilippine Experience (MRT3 and LRT1 projects)

Most German cities created a public worksconsortium combining utilities (gas, water, transit,etc.). Financial planning and transport planning aretherefore integrated across the full spectrum of publicservices.

Chislom, Gwen; International Transit Studies ProgramReport of the Spring 2000 Mission Germanys Track-Sharing Experience:Mixed Use of Rail Corridors; Transit Cooperative ResearchProgramRESEARCH RESULTS DIGEST March 2002Number 47

Source: Hong Kong and German Financing Models to Minimize Subsidies for Foreign Exchange and Tariff Rate Risk for Market Driven Transit Systems inthe Philippines Rommel Gavieta; 2008 Metro Rail Conference Rome Terrappinn

MTR Hong Kong 25% to 27% from TransitRevenue and 75% to73% from Non-TransitRevenue

Philippines 25% from TransitRevenue and 75% fromNational Government

Hong Kong MTR Model German Transit Model


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London Tube PPP Model andSwedish International Development Agency Water PPP Model

London Tube PPP Model

Minimum Subsidy Bidding (MSB) , potential serviceproviders compete with each other and the enterprise thatquotes the lowest amount of subsidy requirement becomeseligible for subsidy payments subject to fulfilment ofspecified level of performance (service provision)

obligations.


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DOTC and MRTC MRT3 Relationship Flowchart

T f MRT3 R l d A O d b h P i


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Types of MRT3 Related Assets Owned by the PrivateSector, and Pubic Sector

MRTC the corporation where the Private sector owns approximately 77% (Metro PacificInvestment Corporation owns 51% and other private sector partners owns 26%) and itsresidual rights that includes the right to extend existing line, buy more trains and develop otherlines.

Government Financial Institution owns 23% of MRTC and 77% of the ERPs thruDevelopment Bank of the Philippines (DBP) and Land Bank of the Philippines (LBP).

DOTC has paid 16% of the US$ 2.4 billion in Equity Rental Payments to MRTC whichrepresents DOTCs pro-rated ownership of the MRT3 Phase1 System as of yearend 2010 .(This can be validated by DOTC Comptrollership Service)


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Government Options for

the Re-privatization of the MRT3

O C O i d i S i k d


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MRTC Status Quo on Remaining Equity RentalPayment Scenario

DOTCs guarantee for payment of $2.01billion(NPV $836million) ERP will remain until 2025 (asstipulated in DOJ letter to DOF dated May 8, 2007).

MRTC Refinances Remaining Equity RentalPayment Scenario will save DOTCUS$318million

DOTC refinances $463million (NPV $192million)ERPs due to DBP and LBP with $192millionLeveraged Balance Sheet Arbitrage structurewill save DOTC $211million (NPV $66million)

DOTC refinances $1.55billion (NPV $644million)ERPs due to MRT3 Bonds due to DBP and LBPwith $644million off-balance sheet loan andsave DOTC $768million (NPV $252million)

The proposed concession fee should be used byDOTC to help defray payments for remaining

$2.01billion ERP obligation.

The proposed concession fee should be used byDOTC to help defray payment of the $836 million

refinancing of ERP obligation.

The concession fee that will be paid by PPP proponent will be used to payobligations of the DOTC which it guaranteed with the full faith and credit ofthe Republic following a modified MWSS Privatization Model.

DOTC Options to Reduce its Sovereign BackedEquity Rental Payment (ERP)s Obligations


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Re Privatization Strategies for the DOTC of the


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Re-Privatization Strategies for the DOTC of theOperation and Maintenance of the LRT1 and MRT3 Systems

Proposed Options for Public Private Partnership Modes to Reduce DOTCs subsidy for Maintenance

and Operating Expenses

Separately, DOTC should refinance the remaining US$ 2.0billion Equity Rental Payments (ERP)s dueto MRTC by triggering the conditions set under the Equity Value Buyout provisions of the Build,Lease and Transfer Agreement.


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Conclusion


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Conclusion

Based on the Immediate effect on providing a more efficient public service, therefinancing of MRTC Equity Rental Fees is the most advantageous to the DOTCbecause:

The integration and re-privatization of the MRT3 and LRT will save DOTC/LRTA a total of of US$3.5 billionin additional government guarantee to finance expansion and improvement plans of the LRT1 and MRT3Systems.

Option 1 and 4 strategies for privatizations appears to provide the most advantageous conditions to theDOTC legally, financially and technically.

Regardless of the what options the DOTC takes the refinancing of the ERPs is paramount to reducesubsidy to the MRT3 Phase System and enable the DOTC gain unencumbered and immediate ownershipof the MRT3 Phase1 System

The refinancing of rhe ERPs will save the DOTC at least $250 million in NPV by refinancing the remaining$1.8billion Equity Rental Payments

DOTC can immediately privatize without any legal obstacles the MRT3 Phase1 System

DOTC will be able to realize for the public a more efficient and safe public service to the combined 850,000

passengers a day ridership of LRT1 and MRT3.


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Thank you

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Project Financing after 2008 Global Financial Crisis

Investment in new PPI projects continues to recover, but the revival has been selective.Projects reaching financial or contractual closure face more difficult financial market conditions.Local state-owned banks as well as

multilateral and bilateral agencies continue to be key financiers, and infrastructure sponsors are looking for new sources of funding such as local financing .Projects continue to be delayed or, to a lesser extent, canceled .

The rate of project closure varies across sectors, with investment in the third quarter higher in energy, telecoms, transport and lower in water.The rate of project closure varies across developing regions, with investment in the third quarter higher in South Asia, stable in Latin America and East Asia and Pacific, and lower in the other three.Greenfield projects continue to show growth in investment (and debt raised), while concessions and divestitures show a decline .

Public Private Infrastructure Advisory Facility-World Bank, PPI data updatenote 35, Assessment of the impact of the crisis on new PPI projects Update5, New private infrastructure activity in developing countries recoveredselectively in the third quarter of 2009 , February 2010


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Privately and Publicly Project Administration Comparison

Average public sector project suffered50% to 70% time overruns and 10% to20% cost overruns in dollar terms.(Klien, So, Shin Transaction Costs inPrivate Infrastructure ProjectsAre TheyToo High?, 1996, WB

Non-PFI project suffered 37% timeoverrun and 46% cost overrun . Ofthose projects that were delivered late,two thirds also incurred price increases.(2008 National Accounting Office SurveyUK).

PFI Project suffered a 31% timeoverrun and 45% cost overrun (NAO2009 PFI Construction performanceReport)

MRT3 (PPP) and LRT2 (ODA)


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MRT3 (PPP) and LRT2 (ODA)Project Completion Cost (Philippine Experience)

NPV of PPP developed MRT3 is less than NPV of original ODA developed LRT2 project (with cost overruns.

NPV of normalized PPP developed MRT3 almost equal to NPV of ODA developed LRT2 NPV of normalized PPP developed MRT3 is less than NPV of ODA developed LRT2 (using MRT3 project cost) with

cost overruns

MRT3 Additional Ridership Capacities and Projections


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(2009 to 2025)

-

200,000.00

400,000.00

600,000.00

800,000.00

1,000,000.00

1,200,000.00

1,400,000.00

1,600,000.00

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

Phase 1 ridership

Phase 1 potential operatingcapacity

Phase1 and 1e ridership

Phase 1 and 1e potentialoperating capacity

Phase1, Phase1e and phase2ridership

Phase 1, Phase1e and Phase 2optential Operating Capacity

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Phase 1: 73 LRVs for 400,000 passengers a day capacity at 3-car train 3.5 minute headway

Phase1 with Capacity Expansion: with 75 additional LRVs for 850,000 passengers a day capacity at 4-car train 2.0minute headway

Phase1, Phase with Capacity Expansion and Phase2: with additional 75 LRVs for 1.25 million passengers a daycapacity at 4-car train 2.0 minute headway



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http://www.simplestockinvesting.com/SP500-historical-real-total-returns.htm

http://www.investorsfriend.com/return_versus_gdp.htm

Bosworth, Collin, Chodorow-Riech; Returns On Fdi: Does The U.S. Really DoBetter?; Working Paper 13313http://www.nber.org/papers/w13313

Potential Sources of MRT3 Phase1 Concern for the DOTC


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Potential Sources of MRT3 Phase1 Concern for the DOTC

2011 april private public partnership model in integrating oda developed lrt1and bot developed mrt3...

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