9 things you need to know about the LRT 1 privatization deal

Posted: October 2, 2014 in Uncategorized

Today marks a turning point in the history of the Light Rail Transit 1 or LRT 1. The train system is up for privatization. The Light Rail Manila Corp. consortium led by the Ayala group and Metro Pacific of Manny V. Pangilinan will operate the train system for 32 years. They will also be building the extension of the train line to Cavite.

But unlike the beleaguered MRT3 which so often makes the news due to technical glitches and major ccidents, the LRT 1 is doing not so bad under government control (at least before the privatization deal happened). It is not deep in debt. Its revenues even subsidize sister train line LRT2. Yet the Aquino government believes that the LRT 1 should be placed in the hands of private corporations. This, after the government supposedly spent P1.8 billion for the rehabilitation of the LRT 1 and LRT 2. (Update: The COA 2014 report says that the LRTA did not undertake the necessary upgrades, as move that would result in penalties for the government).

What happens when the train line is privatized. For starters, the LRT 1 will no longer be run like a public service. It will be run just like any other business operated by Ayala and MVP. It will be no different from Maynilad, Manila Water, Smart, Globe and Meralco.

Here are 8 things commuters and the public should know about this P65 billion privatization deal that will be in place for 32 years.

  1. The contract allows private operators a 10.25% fare increase every 2 years and a 5% increase upon the completion of the extension project.
  2. If the fares set by government are less than the fares demanded by the private operators, government will have to pay for the difference. This is called the Deficit Payment.
  3. Commuters or the government will pay for surges in electricity rates. Under the agreement, this is called the Differential Generation Cost. This lays the basis for another fare hike or another government payment.
  4. Fares will also be adjusted based on the prevailing inflation rates.
  5. Government pays for the real property taxes for the 32 year duration of the contract. This can reach up to P64 billion for the term of the contract.
  6. The concessionaire will only pay the government 10% of the Concession Fee of P9.3 billion up front after the signing of the contract. The rest of the concession fee will be paid starting on the 5th year of the contract. This means that the payments for the concession fee will be coming from the operations of the existing train lines. Ginisa tayo sa sariling mantika.
  7.  Around 964 employees of the LRTA are in danger of losing their jobs as they will only be absorbed by the private operator for 6 months.
  8. Government puts up a P500 million blocked account to ensure that it would be able to pay all of the profit guarantees it gave the private operators.
  9. The consortium of Ayala and Metro Pacific is now a train monopoly that controls the operations and maintenance of the LRT Line 1, the extension project, the automated fare collection system and even the common station in Trinoma. They will be in a unique position to dictate fares and everything else related to running the train system.

Government has not learned from the experience of MRT and many other privatization deals gone sour. In the end, it will be the public and the commuters who will shoulder the burden of Aquino’s folly. ###

UPDATE: The Aquino government has now admitted that there are ongoing talks regarding penalty and deficit payments owed by government to the private operators. In a letter obtained by Bayan, DOTC secretary Jun Abaya is asking the DBM to set aside P7.5 billion for government’s obligation to LRMC. While Abaya denied the letter, President Aquino and Finance Secretary Purisima admitted that sovereign guarantees were in place and that talks were ongoing.

  1. […] The fare hike for the LRT1, aside from covering debt payments, serves as a “sweetener” for the recent LRT1 privatization deal awarded to MVP-Ayala. The DOTC promised a fare hike bundled with the same unjust profit and debt guarantees which the commuters will burden. […]

  2. […] in his observation about the disadvantages of the contract. His observations have been shared by others who are critical of this project’s implementation. As I have written before, projects […]