2012 Market, FX, Nationalization and Fiscal Lessons Public Private Partnerships in Urban Rail Transit Projects in the Philippines and Malaysia

8/2/2019 2012 Market, FX, Nationalization and Fiscal Lessons Public Private Partnerships in Urban Rail Transit Projects in the Philippines and Malaysia

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Rommel C. Gavieta MA (URP), MSc (Eng)

Advisor Metro Rail Transit CorporationResearch Associate, York Center for Asian ResearchSpecial Lecturer IV, Far Eastern University (MBA Program)


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MRT 3 PROJECT

US$675million, 16 km, 13 stations

and 450,000 passengers a daydesign capacity

Underestimation of market demandfor Urban Rail Transit Services

Incomplete integration of Rail and

Non-rail business models

PUTRA and STAR Projects

Putra: US$1.5billion, 29km, 24stations and 500,000 passengers aday design capacity

STAR: US$700milion, 27km, 25stations and 500,00 passengers a dday design capacity

Transparency issues related tointernational solicitation ofproposals

Overestimation issues of marketdemand for Urban Rail Transit

ServicesIntegration issues related to urbanrail transit alignment and existingcommuter corridors

Integration issues of Rail and Non-rail business models


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MRT3 ProjectDesign capacity was reached evenafter the Asian Crisis

Mismatch between Pesodenominated fare and FXdenominated loans

No linkage between Rail and Non-rail revenues for the Public Sector

Putra and STAR ProjectsDesign capacity was not reachedafter the Asian Crisis

Mismatch between Ringgitdenominated fare and FXdenominated loans

Rail and Non-rail revenues for thePublic Sector was an afterthoughtafter completion date.


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MRT3 Project

Indonesia, Korea, thePhilippines, and Thailand havepreserved their immediatepost-crisis regimes in whichexchange rate movements are

.at least in principle.unrestricted.

PUTRA and STAR Project

Malaysia has made an officialcommitment to a fixedexchange rate, supported byextensive capital controls.

Hernandez, L (IMF) and Montiel, P.J. (Williams College); Post Crisis

Foreign Exchange Rate Policy in 5 Asian Countries Filling in the Hollow

Middle; High Level Seminar Exchange Rate regime Hard Peg or Free

Floating ; IMF Seminar; Marcvh 19 and 20, 2001


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PUTRA and Star after 1998 Asian Crisis

STAR and Putra LRTs bailed out in 2001, nationalized in 2002

Takeovers by government owned Syarrikat PrasaranaNegarra Berhad (National Infrastructure Company) (Yong,P.S.;Rail Transit PPPs: Strategies and Pitfalls, Plenary sessionon Transforming Public Transport World Urban TransportLeaders Summit; LTA Academy, Singapore 5 Nov 2008MRT3 after 2008 Global Financial Crisis


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Diokno, B. E.; Philippine Fiscal behavior in Recent History;

Philippine Review of Economics, XLVII No1 June 2010 p 39 to 87

Khoon, G.S and Mah-Hui, M.l.; The Impact of the Global

Financial Crisis: The Case of Malaysia; TWN Global EconomySeries; 2010


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Singapore and Malaysia are probably the most vulnerable. Trade and Export

tend to be concentrated in highly vulnerable segments.

Bhaskaran, M.; Challenging Time for South East Asian Economies; Global Asia

Vol 4 Number 4;


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Business Models for Urban Rail TransitProjects


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Hong Kong, German Transit Models and Swedish WaterModel Philippine Experience (MRT3 and LRT1 projects)

Most German cities created a public works consortium combining utilities (gas,water, transit, etc.). Financial planning and transport planning are thereforeintegrated across the full spectrum of public services.

Source: Chislom, Gwen; International Transit Studies Program Report of the

Spring 2000 Mission Germanys Track-Sharing Experience: Mixed Use of

Rail Corridors; Transit Cooperative Research Program RESEARCH RESULTS DIGEST

March 2002Number 47

MTR HongKong

25% to 27% from TransitRevenue and 75% to 73% fromNon-Transit Revenue

Philippines 25% from Transit Revenue and75% from National Government

Hong Kong MTR Model

German Transit 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.

Swedish International Development Agency

Water PPP Model


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Her Majestys Treasury provided detailed guidance on refinancing of PrivateFinance Initiative (PFI otherwise referred to as PPP) Contracts (HM Treasury

2007). Specifically, the October 2008 Amended Refinancing Provisions states that

the Public Sector Agency (Authority) is entitled to between 50% to70% of

financing gains, depending on the amount and kind of gains generated and

subject to the Authoritys approval and value for money analysis. Refinancing

transactions may be warranted when there is:

Reduction in interest margins

Reduction in release of reserve accounts

Release of contingent junior capitalExtension of the maturity of debt

Increase in the amount of debt

Refinancing undertaken without the direct involvement of the Private SectorPartner.


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Public Sector

Maximize domestic debt and minimize international debt

Maximize long tenor debt

Minimize consumptive debt versus productive debt

Adopt the policy of Refinancing Public Private Partnership Projects from HMTreasury Model when nationalizing Public Private Projects


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Project Development Private Sector assumes financing risks for Electro-Mechanical Works and

Rolling

Public sector ciassumes vil works and financed locally.

Project Financing: Public Sector assumes Material Adverse Conditions that moves FX and

inflation rate risks

Project Business Model

Public Sector should look at blending Rail and Non-rail Revenues tominimize subsidies

Private sector should assume operations and maintenance risks to publicservice maximize efficiency.


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2012 Market, FX, Nationalization and Fiscal Lessons Public Private Partnerships in Urban Rail Transit Projects in the Philippines and Malaysia