The reasons why the MRT 3 is a mess will boggle your mind

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NOTE: This article was published on another web site last June 11, 2017, but that web site’s gone now, so I am reposting it here. Please note that some information might be outdated by now. I intend to write another one, but no promises. /note

Regular commuters of MRT3 will tell you – it’s a mess. Long queues, broken rails, ovenhot train interiors, stations with non-working elevators and escalators, toilets that stink, constant train breakdowns. The MRT was meant to alleviate traffic and provide commuters another option at convenience. Now, it’s more an inconvenience than a comfort.

What’s wrong with the MRT3?

I. The ownership structure limited the government’s ability to act on the problems of the MRT 3

The MRT 3 was designed as a build-lease-transfer project. The private sector
proponent was a convoluted confusing haze of corporate vehicles really, but let us reduce these to two – MRT Corporation (the signatory to the MRT Agreement), which in turn is owned by MRT Holdings. In this Sobrepeña propaganda site, it listed down the owners, but it’s ownership is unclear, so let’s assume it’s MRT Holdings. The BLT agreement calls for the private proponent to design, construct, and turn over the system to government, while the government will operate the system and pay MRTC rental fees.

When two of the major owners of the MRTC – the Agustines and the Sobrepeñas – suffered financial difficulties, they (together with other owners like the Ayalas) created another company, MRT III Funding Corporation (MRTFC). MRTFC basically issued asset backed bonds (assets meaning the guaranteed rental payments) and sold them to private companies.

Back in 2007, the government was behind in rental payments, and to avoid default it decided to buy these bonds through DBP and LBP. Despite owning these bonds, government did not acquire ownership of MRT3. Remember, these bonds only represent the income from rental payments, not the system itself. MRTC still owns the MRT3.

Do you know why the PPP framework was created? To avoid issuing sovereign guarantees, with government providing financial guarantee to private companies in case the project doesn’t earn as expected. The MRT Agreement provides for such a guarantee. Not only is there a sovereign guarantee, the Agreement also calls for “an after-tax, after-debt-service, after-expense return on their investments of 15 percent per year.”

Not only is the government paying MRTC rental fees, it is also subsidizing passenger fares – Php 5.7 billion back in 2009 alone. The subsidies basically cover the real fare passengers should be paying; since the passengers do not (thanks to former president Estrada’s populist decision to reduce the original MRT3 fare price).

Why is ownership an issue and a reason why the MRT3 is in this mess?

Again, the government, through DOTC (now DoTr) operates the system without owning the system. Government pays MRTC guaranteed monthly rental payments. So the problems with the MRT – maintenance, new trains – are the responsibility of MRTC, not the government. The problems that commuters are facing were already apparent back in 2007. MRT3 has been operating beyond capacity since 2004. It is not clear if MRTC was remiss in its responsibility; it claimed it sent 3 proposals to DOTC since 2006, but DOTC did not act on them, or so MRTC claims. It is also unclear if DOTC did receive such proposals, nor if it decided not to act on them, why. This dispute is something for another day. But this much is clear – the MRT3 is owned by the MRTC, and it has the responsibility for capacity expansion and maintenance, being the owner of the system. The hands of the government are tied by this little piece of paper called the MRT Agreement.

II. Poor maintenance and problems on maintenance provider and maintenance responsibility

It is quite obvious that maintenance has been poor. Sumitomo had been the maintenance provider since the MRT3 began operation, and in 2010 MRTC abdicated its maintenance responsibility, throwing the problem back to the government. The contract with Sumitomo does not contain provisions for “penalties for malfunctioning elevators and escalators, and setting a minimum requirement of 19 trains running during peak hours between 7 am and 9 am.” The government was paying Sumitomo US$ 1.4 million per month (when MRTC should have been paying them instead). There had been no improvement since the problems became apparent in 2007, and Sumitomo has been accused of cannibalizing parts.

As stated earlier, MRTC abdicated its responsibility regarding maintenance, and government took over the maintenance aspect of the system. This is the reason why the government, and not the MRTC, made decisions regarding selection of maintenance providers.

There had been much controversy and noise on the decision to replace the MRT3’s maintenance provider, even leading to the sacking (or, as he claimed, voluntary resignation) of MRT3 General Manager Al Vitangcol (who is facing charges for extortion). To be clear, he was axed for conflict of interest (his uncle was one of the incorporators of the maintenance provider PH Trams).

The current maintenance provider, Busan Universal Rail (BURI), has managed to restore the MRT3 to its maximum number of operational trains to 22 within a year after it got the maintenance contract. However, at the onset of the 2017 summer season, a series of breakdowns hampered operations and once again reduced the number of maximum operational trains to less than 20. This (and politics, see part III) lead to questions regarding BURI’s contract.

There’s only so much a maintenance provider can do. Not only is the system old, it is also operating beyond its design capacity, reducing the life span of the trains. Sometimes the only solution is to replace the old one with the new.

Operating beyond capacity with previous maintenance providers failing to maintain the system and not being held accountable for such failures, it is no surprise that the MRT 3 is in this confusing mess. It is actually quite surprising that it is still running despite these problems. All this has been worsened through politicking by politicians.

III. Politics and revenge messing things up

The previous administration made two crucial decisions based on MRTC’s inaction: first, to replace Sumitomo with another maintenance provider, and second, to acquire new trains. However, with the change in administration, there seems to be a rather suspicious, concentrated effort by a certain politician and a certain party list (see 1, 2, 3) to discredit such decisions.

For example, PBA party list representative Jericho Nograles claimed the Dalian manufactured trains are unusable, which led Senator Grace Poe to call for another hearing. In the Senate hearing, it was proven that Nograles was wrong – the only things remaining to be resolved are the feedback signal and response time issue.

And with the recent breakdowns plus Nograles’ rants that the contract is onerous, DoTr threatens to terminate the maintenance contract with BURI. It remains to be seen if they will replace the maintenance provider. To be fair to BURI, it was handed a system in such terrible shape it is near impossible to fix these numerous problems. It is quite obvious the reason is not due to breakdowns (it happens most during summer, look it up). Folks, politics is rearing its ugly head.

IV. TL;DR

  • The MRT3 is a build-lease-transfer project, owned by MRTC and operated by government through DoTr.
  • MRTC gets guaranteed rental payments with guaranteed annual return of 15%.
  • MRTC has capacity expansion and maintenance responsibility, but it is unclear if it has shirked its responsibility regarding capacity expansion.
  • MRTC turned over the maintenance responsibility to DoTr.
  • DoTr bought new trains despite this not being a responsibility.
  • DoTr wants to replace BURI with Sumitomo as maintenance provider.
  • Current administration and its allies are bent on derailing current solutions to the mess.