Hong Kong and German Models for Market Driven MRT development in the Philippines (2008)

8/7/2019 Hong Kong and German Models for Market Driven MRT development in the Philippines (2008)

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Slide 1

Market Driven Mass Transit Systems:Market Driven Mass Transit Systems:Hong Kong and German Financing ModelsHong Kong and German Financing Models

for Adaptation in the Philippinesfor Adaptation in the Philippines

Rommel C.Rommel C. GavietaGavieta MA (URP)MA (URP) MScMSc (Eng)(Eng)

Vice President, Metro Rail Transit Corporation Professor,Vice President, Metro Rail Transit Corporation Professor,

Graduate School of Business, De La Salle UniversityGraduate School of Business, De La Salle UniversityResearch Associate York Centre for Asian ResearchResearch Associate York Centre for Asian Research


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Slide 2

METRO MANILA URBAN FORMMETRO MANILA URBAN FORM


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Slide 3

Urbanization Globally and Metro Manila as a Mega City

In 1800, only 2 per cent of the

worlds population was urbanized.

By the year 1900, out of a totalworld population of close to 1.5 to1.7 billion, only 15 percent of thepopulation, about 250 million, livedand worked in urban areas, anumber lower than the total urbanpopulation of India alone today.

By the year 1950 the proportion ofurban to total global populationhad risen to 30 per cent, withEurope, North America andOceania having the highest levelsof urbanization then.

By the year 2000, 2.8 billionpeople lived in urban areas

equaling approximately 49 percentof the world's population.


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Slide 4

Privatization of Urban Planning in Metro Manila

Metro Manila represents a rather extreme version of the privatization of planning. A defining characteristicof urban development of Metro Manila is the unprecedented privatization of urban and regional planning.

Localand national government: the public sectors capacity to plan has been fundamentallycompromised due to pressures for fiscal austerity, and governments have embraced theview that urban development is best left to the private sector.

Private developershad landholdings which were carry over from the plantation economy. This createdan oligopolistic

real estate agents of cutting edge

innovations in urban development. Large property

developers have assumed new planning powers and developed visions for metro-scale development inthe wake of the retreat of government from city-building and consequent deterioration of the urbanenvironment.

These developers are lured into the property sector by the profits to be realized from an emerging

consumer classof winners

in the globalization of these urban economies, and from multinational andlocal corporate investors.

Private developers naturally tapped foreign planners and architectsfor models of urbanism thatare attractive, efficient, consumer-oriented, and therefore profitable. Yet, while their designs areinfluenced by planning models from the United States and Europe,

their central purpose is to distinguish

urban mega-projects from the rest of the city in the quality and aesthetic character of the spaces created

in order to attract the consumer class and maximize profit. Hence their impact is less to Westernizeurban form than it is to commodify

the urban experience.


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Slide 5

Property Ownership Characteristics in Metro Manila

Philippines

Historically, ownership of private lands in thePhilippines has been concentrated in the handsof the traditional elite and the educated middleclass.

These families have the financial resources,

political connections and access to informationthat allowed them to amassed alienable anddisposable public lands through homesteadsand/or sale under both the Spanish andAmerican colonial governments.

A real estate census conducted in 1938showed that private individuals owned about92.2% of private lands in the country andassociations and religious organizations ownedabout 3.9% and 0.6%, respectively.

Those individuals who own land comprise only

about 18% of total Philippine population. The distribution of private lands is noted to be

more skewed in Metro Manila were an averageof 4% of the regions population owned land inthe city.

Hong Kong and SingaporeHong Kong and Singapore

The government is the largest owner of land inHong Kong and through land sales it hasinfluenced land prices to improve thecompetitiveness of manufacturers


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Slide 6 Metro Manila Land Use Map


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Slide 7Current (1996) & Future (2015) Traffic Corridors in Metro Manila


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Slide 8

Metro Manila Mass Transit System and Commercial Business Districts


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Slide 9

Funding Gaps for Urban Transit Systems

500,000 average dailyridership

Full operation since 2000

2003 B D f lt!Slid 10


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Slide 10

EDSA MRT3 Corridorand Metro Manila Commercial Business Districts

MRT3 SystemMRT3 System(services the EDSA Corridor)(services the EDSA Corridor) 16 kilometers16 kilometers 13 stations13 stations MRT3 serves 4 of the growth areasMRT3 serves 4 of the growth areas

in Metro Manilain Metro Manila Growth areas in Metro ManilaGrowth areas in Metro Manilaincludes North Triangle,includes North Triangle, AranetaAraneta,,OrtigasOrtigas, Shaw, Pioneer and Ayala, Shaw, Pioneer and Ayala

EDSA Corridor has a 1.5 millionEDSA Corridor has a 1.5 millioncommuter traffic a day and growingcommuter traffic a day and growing

at 2% per annumat 2% per annum

Growth Areas of MetroGrowth Areas of MetroManila with Private SectorManila with Private SectorLand BanksLand Banks1. MRT3 EDSA Corridor1. MRT3 EDSA Corridor North TriangleNorth Triangle AranetaAraneta OrtigasOrtigas ShawShaw PioneerPioneer Ayala (IncludingAyala (Including BuendiaBuendia &&

MagallanesMagallanes))

8 stations linking growth areas with8 stations linking growth areas witha predominantly Private Sectora predominantly Private SectorLand BankLand Bank

2. Non2. Non--EDSA CorridorEDSA Corridor

EastwoodEastwood FortFort BonifacioBonifacio AlabangAlabang LagunaLaguna BataanBataan



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Slide 11

PROPERTY MARKETPROPERTY MARKET

IN METRO MANILAIN METRO MANILA



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Slide 12

SE Asian Real Estate Development toEconomic Development

Real estate sector is an important production factor in generating economic output as measured by GDP. real estate represents about 45% of the GDP in mature developed countries. higher quality real estate tends to be less than 45% of GDP in developing countries. real estate loans represented 15% (RP) to 40% (MAL & THA) and represented 7% (IND) to 55% (MAL)

of GNP in SE Asia

In the Philippines the business indicators of the real estate sector includes: hurdle rate of return is between 16.4% to 22.8% Risk premium relative to US Real Estate market of the Philippines is between

8.9% to12.3%

Liang, Youguo Ph.D., CFA & Gordon, Nancy M.;A Birds Eye View of Global Real Estate Markets; Pramerica

Real Estate Investors; March 2003; USA


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Slide 16

GLOBAL LESSONS IN TRANSIT FINANCINGGLOBAL LESSONS IN TRANSIT FINANCING



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Slide 17

Traditional Sources of Financing for Transit Systems

National Regional/ State/

Local

Corporate Farebox/ Others

US Capital fund Operating fund partial farebox

Canada Capital/Operating funds Local Government Unit(LGU) revenue from real

estate taxes for cross-

subsidies

Germany/ Austria/

France

Capital fund Minimal Operating fund cross-subsidy by regional

ow ned public utilitycompanies for operating and

capital expansion

farebox minimal

UK Capital fund for London areaonly

Operating partial farebox

Hong Kong (2.5 million

passengers a day over

91 km)

Capital fund (recovered

partially by retaining

ow nership and generatingreal estate taxes)

Metro Transit Rail

Corporation for operating

and capital expansion

partial farebox and

commercial development

(250,000 sqm plus 125,000

sqm of GFA commercialdevelopmet)

HK Government gave a KH$

8.9 billion subsidy instead of

development to build a line in

w estern district

Singapore Capital fund Metro Transit Rail

Corporation for operatingand capital expansion

advertising rights

Malaysia Capital/Operating funds farebox minimal

Philippines (1.1 million

passengers a day over

45 km)

Capital/Operating funds partial farebox and partial

commercial development

payment f rom concession

holder



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Slide 18

Transit and NonTransit and Non--Transit DataTransit Data

Financial ratios

Operating profit from railway & relatedoperations before depreciation as a % ofturnover

49.3% 52.2%

Non-fare revenue as a % of turnover 27.7% 25.6%

Gross Debt/equity ratio** 55.9% 62.5%*

Interest cover (in times) 5.6 4.5

MTR data US Transit data

UK Transit data

Average Transit Revenue: 40% to 55%

Average Non-Transit Revenue: 25% to 30%

Average Subsidies: 40% to 20%



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Slide 19

Fare Subsidies

Classic Justification for Transit Fare

Subsidies in the Developed World scale economies imply that the marginal

social cost of supplying passenger milesis less than the average cost. Thesescale economies may arise from fixedcosts, such as track and station

maintenance; but more importantly theyarise from the Mohring effect, wherebyuser costs of waiting at transit stops oraccessing transit decline as servicefrequency or route density is increased(Mohring 1972). A related point is thathigher passenger density allows vehiclesto be operated with higher occupancy,thereby saving on agency costs.

lower transit fares discourage automobile

use, there by reducing external costs fromtraffic congestion, local and global airpollution, and traffic accidents.

Hong Kong Has Fare Autonomy

Regime MTRC has commercial autonomy to set

its own fares according to free marketforces.

Philippines Fare Setting adPhilippines Fare Setting ad

SubsidiesSubsidies Fare increases was politicized and a toolFare increases was politicized and a tool

by government to provide affordableby government to provide affordabletransportation to Metro Manila in thetransportation to Metro Manila in theface of US$ 100 per barrel oil prices.face of US$ 100 per barrel oil prices.

MRT3 average fare rate is 50% lessMRT3 average fare rate is 50% lesscompared to comparable aircompared to comparable air--conditionedconditionedaverage bus fare rateaverage bus fare rate

Should Urban Transit Subsidies Be Reduced? ; Parry, IanW.H. and Small, Kenneth A. Small; Department of EconomicsUniversity of California, Irvine, CA 92797-5100; May 2007



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Slide 20

PROPERTY DEVELOPMENTPROPERTY DEVELOPMENT

AND TRANSIT FINANCINGAND TRANSIT FINANCING(Philippine adaptation of MRT Hong Kong Model)(Philippine adaptation of MRT Hong Kong Model)


CC i f P H ldi f


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Slide 21Comparison of Property Holdings ofComparison of Property Holdings of

MTR Hong Kong and Properties along the MRT3 CorridorMTR Hong Kong and Properties along the MRT3 Corridor

Land Area GFA Current Valuation MRT3Corridor Valuation adjusted forproximity to MRT3 Line

MTR 2,115,400.00 12,864,771.60

MRT3 Corridor (privately held land) 2,790,000.00 6,998,921.15 341,775,000,000.00 427,218,750,000.00

MRT3 Corridor (publicly held land) 1,520,000.00 551,000.00 489,924,480,286.74 612,405,600,358.42

Notes:

1. MTR excludes plans for new Kowloon

development

2. MRT3 private dvelopment

only includes prime developments

Hong Kong PhilippinesHurdle rate: 13.4% 19.2%

Est of High Grade GDP Real Estate Value GDP Real Estate Value

Real Estate (2002) US$ 163 b US$ 147 b US$ 75 b US$ 12 b


L d B k Al MRT3 C id (Q Cit )


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Slide 22Land Banks Along MRT3 Corridor (Quezon City)

North Avenue StationNorth Avenue StationNorth Triangle 250 hectare CommercialNorth Triangle 250 hectare CommercialBusiness DistrictBusiness District

1.1. TrinomaTrinoma Mall (Ayala Family)Mall (Ayala Family) AyalaAyalas new commercial center is a 200,000s new commercial center is a 200,000

square meter lot is bigger thansquare meter lot is bigger than GloriettaGlorietta.. It is a 195,000It is a 195,000 sqmsqm leasableleasable areaarea 44--LevelLevel

Super Regional Shopping CenterSuper Regional Shopping Center with 550with 550retail, entertainment and food outlets, sevenretail, entertainment and food outlets, sevencinemas and 3,500cinemas and 3,500--slot parking area.slot parking area.

2. SM City (2. SM City (SySy Family)Family)

55thth largest mall in the worldlargest mall in the world 351,000351,000 sqmsqm leasableleasable areaarea

CubaoCubao StationStationAranetaAraneta

Center 35 hectare CBDCenter 35 hectare CBD

((AranetaAraneta

Family)Family)

2 million commuter and2 million commuter andshopper traffic a dayshopper traffic a day1. Gateway Mall1. Gateway Mall2. Farmers Market2. Farmers Market3. Ali Mall3. Ali Mall

OrtigasOrtigas StationStationOrtigasOrtigas Commercial Business CenterCommercial Business Centerat least 100 hectares (at least 100 hectares (OrtigasOrtigas family)family)

1.1. Robinsons Galleria (Robinsons Galleria (GokongweiGokongwei Family)Family) 216,00 sqm leasable 5-level shopping mall with 400

shops, dining outlets, entertainment facilities andservice centers.

mixed-use complex composed of two high-rise officetowers, the Holiday Inn Galleria Manila and CrowneGalleria Manila, the Galleria Regency and the historicEDSA Shrine



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Slide 23

Land Bank Along MRT3 Corridor (Pasig City & Mandaluyong City)

Shaw StationShaw StationOrtigasOrtigas Commercial Business CenterCommercial Business Center

(at least 100 hectares)(at least 100 hectares)1.1. SMSM MegamallMegamall ((SySy Family)Family) 8th largest mall in the world

332,00 sqm leasable area mall with 15 anchor

tenants, 600 shops, 200 restaurants, ten

cinemas and 5,000 slot parking area

2. EDSA Shangri2. EDSA Shangri--la Mall (la Mall (KuokKuok corporation)corporation)

175,000 sqm leasable area for high- end shoppingand linked to EDSA Shangrila Hotel

3. Greenfield District 24 hectare (Campos family)3. Greenfield District 24 hectare (Campos family)

EDSA Central Mall 16,000EDSA Central Mall 16,000 sqmsqm leasableleasable areaarea

Currently converting aCurrently converting a landbanklandbank from afrom apharmaceutical plant into a commercial businesspharmaceutical plant into a commercial businessdistrict.district.

Pioneer StationPioneer Station

RobinsonsRobinsons CyberGateCyberGate CenterCenter((GokongweiGokongwei family)family)

Robinsons Pioneer Mall 56,000 sqm

leasable

3-storey

shopping mall with over a hundred stores & outlets


L d B k Al MRT3 C id (M k ti Cit )


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Slide 24Land Banks Along MRT3 Corridor (Makati City)

BuendiaBuendia, Ayala and, Ayala and MagallanesMagallanesStationStation

Ayala Commercial Business Center is 900hectares which is more than half the land area ofMakati

City

GloriettaGlorietta Mall is a cluster of malls. Rising fromMall is a cluster of malls. Rising fromGloriettaGlorietta

4 is the4 is the AscottAscott

Tower, a luxurious hotelTower, a luxurious hotel--

apartment residence.apartment residence.

Along the periphery ofAlong the periphery ofGloriettaGlorietta are threeare threedepartment stores: SM Department Storedepartment stores: SM Department StoreMakatiMakati,, Rustan'sRustan's, and the Landmark., and the Landmark.

AcrossAcross GloriettaGlorietta mall is Greenbelt Mall ismall is Greenbelt Mall isone of the most sophisticated, modern,one of the most sophisticated, modern,and expensive malls in the country.and expensive malls in the country.

Other hotels in the vicinity of AyalaOther hotels in the vicinity of AyalaCenter are theCenter are the MakatiMakati

ShangriShangri--la Hotel,la Hotel,

the Manila Peninsula, thethe Manila Peninsula, the DusitDusit

HotelHotel

NikkNikk, Manila Garden, the Hotel, Manila Garden, the HotelIntercontinental Manila, and RenaissanceIntercontinental Manila, and RenaissanceMakatiMakati

City Hotel.City Hotel.

Central Business District (CBD) This is wheremany of the country's tallest skyscrapers are located.

Many of the country's wealthiest families live inMany of the country's wealthiest families live in

North and South Forbes Park, originallyNorth and South Forbes Park, originallydeveloped in 1948, anddeveloped in 1948, and DasmariDasmariasas

VillageVillage,,originally developed in the 1960's, on the otheroriginally developed in the 1960's, on the otherside of EDSA from the Central Businessside of EDSA from the Central BusinessDistrict. Other wellDistrict. Other well--toto--do people live in Sando people live in SanLorenzo Village,Lorenzo Village, UrdanetaUrdaneta

Village,Village, BelBel--AirAirVillage,Village, MagallanesMagallanes

Village, and San MiguelVillage, and San MiguelVillage.Village.



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Property Development and Transit FinancingProperty Development and Transit Financing(Philippine adaptation of MTR Model)(Philippine adaptation of MTR Model)

M a n i la M R T -3

P r iva t e S e c t o r In ve s t m e n t

R e p a y m e n t

8 , 8 8 8 ,8 8 8 .0 0 A d ve rt is in g in c o m e 3 ,5 7 1 ,4 2 8 . 5 7

M a in t e n a n c e F e e s 1 , 6 0 0 ,0 0 0 .0 0 S ta t io n re ta i l 1 4 2 ,8 5 7 . 1 4

S t a ffin g a n d A d m in s t ra t io n 4 5 , 0 0 0 .0 0 M all d e ve lo p m en t 1 5 ,0 8 9 ,2 8 5 . 7 1

P ro p e rt y In s u ra n c e 4 5 8 ,3 3 3 .3 3 S u b to t a l A d d itio n a l

A n n u a l In c o m e (U S $ )

1 8 , 8 0 3 , 5 7 1 . 4 3

D O TC o p e ra t in g e x pe n s es 1 9 8 ,4 1 2 .7 0

s u b t o ta l m o n th ly

e x p e n s e U S $

1 0 , 9 9 2 , 2 2 1 . 3 3

P u b l ic S e c to r M o n t h ly

T r a n si t a n d N o n -T r a n si t

m o n t h l y p a s s e n g e r re ve n u e

c o l l e c t i o n

3 , 2 2 6 , 1 9 0 . 4 8 m o n t h l y a d ve r ti s i n g i n c o m e 1 , 7 8 5 , 7 1 4 . 2 9

P r o p e rt y D e v e lo p m e n t R i g h t s

P a y m e n t

4 96 ,0 31 .7 5 m o n th ly s ta t io n re ta i l (P h P ) 7 1, 4 2 8. 5 7

s u b t o ta l m o n th ly

fa re b o x re v e n u e U S $

3 , 7 2 2 , 2 2 2 . 2 2 M a ll d e ve lo p m e n t (P hP ) 3 ,0 1 7 ,8 5 7 . 1 4

S u b to t a l A d d itio n a l

P u b lic S e c to r S h a r e o f

M o n th ly N o n -tra n s itR e v e n u e (U S $ )

4 , 8 7 5 , 0 0 0 . 0 0

A c tu a l M o n t h l y P u b l i c

S e c to r S u b si d y

( 7 , 2 6 9 , 9 9 9 . 1 1 ) P o te n ti a l M o n th l y P u b l ic

S e c to r S u b si d y

( 2 , 3 9 4 , 9 9 9 . 1 1 )

a ve ra g e fa re 1 2 .5 0

U S $ P h P e x c h a n g e ra t e 4 2 .0 0

P u b l ic S e c t o r M o n th l y S h a r e o f N o n -T r a n si t

R e v e n u e

P u b l ic S e c to r M o n th l y O b l i g a ti o n P r i v a te S e c to r S u p p l e m e n ta l M o n th ly N o n -T r a n s i t R e v e n u e


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POWER GENERATIONPOWER GENERATION

AND TRANSIT FINANCINGAND TRANSIT FINANCING(Philippine adaptation of German Utility(Philippine adaptation of German Utility--Transit Model)Transit Model)


German Model: Energy and Transit Corporate Linkages


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German Model: Energy and Transit Corporate Linkages

Transportation, fiscal, economic, and physicalTransportation, fiscal, economic, and physicalurban development planning are integrated aturban development planning are integrated atthe regional and metropolitan level.the regional and metropolitan level.

Quantifiable benefits of track sharing (capitalQuantifiable benefits of track sharing (capitalcosts and other savings) are compared andcosts and other savings) are compared andbalanced against the quantifiable safety risks ofbalanced against the quantifiable safety risks of

joint rail operation to determine feasibility of newjoint rail operation to determine feasibility of newrail services.rail services.

Transportation is used as one instrument inTransportation is used as one instrument inguiding and controlling development, combinedguiding and controlling development, combinedwith more stringent land use policies andwith more stringent land use policies andcontrols common in Europe.controls common in Europe.

All German and French cities hosting the studyAll German and French cities hosting the studymission had created a public works consortiummission had created a public works consortiumcombining utilities (gas, water, transit, etc.).combining utilities (gas, water, transit, etc.).Financial planning and transport planning areFinancial planning and transport planning aretherefore integrated across the full spectrum oftherefore integrated across the full spectrum of

public services.public services. Chislom, Gwen; International Transit Studies ProgramReport of the Spring 2000 Mission Germanys Track-Sharing Experience: Mixed Use of Rail Corridors; TransitCooperative Research ProgramRESEARCH RESULTSDIGEST March 2002Number 47


Early Links between Energy and Transit Development in the Philippines


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Early Links between Energy and Transit Development in the Philippines

1882 La1882 La

CompaCompa

iaia

dede

tranviastranvias

dede

FilipinasFilipinas

1903 Manila Electric Railroad and1903 Manila Electric Railroad andLight CompanyLight Company

1984 Light Rail Transit Authority1984 Light Rail Transit Authority(Government Owned and Controlled(Government Owned and ControlledCorporation)Corporation)

1998 MRT1998 MRT--3 build as a BT project with3 build as a BT project with

Metro Rail Transit Corporation withMetro Rail Transit Corporation withReal Estate Development RightsReal Estate Development Rights

2005 Initiatives by MRTC and DOTC2005 Initiatives by MRTC and DOTCto integrate power generation withto integrate power generation withtransit operation. (natural disasterstransit operation. (natural disasters

and security not yet as a means toand security not yet as a means tomitigate GHG or means for crossmitigate GHG or means for crosssubsidies)subsidies)


C ti C b E i i f Carbon credit for Use of Landfill Gas


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Comparative Carbon Emission ofMRT3 & Equivalent Number of DieselBuses

MRT consumes 113,000 kwh per day to transport450,000 passengers a day.

MRT3 consumes 2.4 million Kwh per month with theresulting carbon emission of 15,000 tons a month

Diesel fuel buses would need 4,980 liters per day tocarry the equivalent number of 450,000 passengers aday.

Diesel fueled buses would need 149,585 liters permonth with the resulting carbon emission of 95,000tons a month.

There is approximately a US$ 995,000 a year gain fromcarbon emission reduction from the shift from dieselbuses to MRT3. (US$ 7.50 per ton of CO2)

Carbon credit for Use of Landfill Gasfor Power Generation

Methane has a Global warming potential (GWP) 23times that of CO2; when combusted, each molecule of

methane is converted to one molecule of CO2, thusreducing the global warming effect by 96%. Methanecan also be processed using an anaerobic digesterwhich generates electricity or heat.

500 MT a day capcity MSW plant can produce landfillgas equivalent to 7.9 million cum of landfill gasannually

7.9 million cum of landfill gas will allow you to operate a2.5 MW landfill gas power plant

Monthly additional income

US$ 279,000 annual value of the landfill gas

US$ 118,000 annual carbon emission credit

PhP 4.65 average generation cost or PhP 15.6million amonthly expense

PhP 3.25 average generation cost (landfill gas) or PhP11.0 million monthly expense orresult in a PhP 4.0million monthly savings.

http://en.wikipedia.org/wiki/Anaerobic_digesterhttp://en.wikipedia.org/wiki/Anaerobic_digesterhttp://en.wikipedia.org/wiki/Anaerobic_digester


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Policy Options in thePolicy Options in theDevelopment of Financially Viable Transit SystemsDevelopment of Financially Viable Transit Systems

Financial Development and Operation Depends on the policy considFinancial Development and Operation Depends on the policy considerations:erations:

transit development is a balance between urban policy and urbantransit development is a balance between urban policy and urban demanddemand

transit systems should betransit systems should be at least market drivenat least market driven meaning public transportationmeaning public transportationusage is high and there is tangible and intangible sources of reusage is high and there is tangible and intangible sources of revenue for the publicvenue for the publicsector. (demand should not be overestimated to justify public osector. (demand should not be overestimated to justify public or publicr public--privateprivatepartnership development)partnership development)

transit systems development should be tied to maximizing nontransit systems development should be tied to maximizing non--transittransit

revenuesrevenues from commercial development or utility systems to ensure financfrom commercial development or utility systems to ensure financial liquidityial liquidityof the transit system.of the transit system. (additional source of revenue is ROW for Fiber Optic or Power tr(additional source of revenue is ROW for Fiber Optic or Power transmission lines)ansmission lines)

there should be a balance between between public sector fiscalthere should be a balance between between public sector fiscal discipline anddiscipline andprivate sector investment in the development transit system. traprivate sector investment in the development transit system. transit systems shouldnsit systems shouldnot be viewed as political prestige boosting projects.not be viewed as political prestige boosting projects.



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Documents

Hong Kong and German Models for Market Driven MRT development in the Philippines (2008)