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DPWH asks DOJ to reconsider opinion on right-of-way acquisitions for road projects

By Mary Ann LL. Reyes (The Philippine Star) Updated July 21, 2011 12:00 AM 

MANILA, Philippines - The Department of Public Works and Highways (DPWH) has asked the Department of Justice (DOJ) to reconsider its opinion on government’s right-of-way acquisitions for road projects as in the nature of subsidy, and therefore, not allowable, officials of the Metro Pacific group said.

Metro Pacific Investments Corp. (MPIC) chairman Manuel V. Pangilinan told The STAR that the DOJ opinion has put into uncertainty their group’s multi-billion peso connector road project that will link the North Luzon Expressway (NLEX) to the South Luzon Expressway (SLEX). The DPWH earlier approved MPIC-subsidiary Metro Pacific Tollways Corp.’s unsolicited proposal to undertake the connector road project.

“Right now, the future of our connector road project is uncertain,” Pangilinan admitted.

He explained that government’s right-of-way acquisitions for road projects undertaken by the private sector should not be considered a subsidy. “After all, it is not as if we are going to own the right-of-way or bring the roads to Hong kong,” Pangilinan, also managing director and CEO of Hong kong-based and MPIC parent First Pacific Corp., emphasized.

Pangilinan said that if eventually, government decides that the private sector should shoulder the expenses for right-of-way acquisition, then it should say so on early on. “If government says it does not have the funds and therefore it should be the private sector which should spend for it, then we have nothing against it. But they should give us flexibility in setting our toll rates in order to allow us to recover the additional expense,” he pointed out.

The DOJ, in a recent legal opinion, said that government’s assumption of the costs for securing the right-of-way for MPIC and MPTC is a form of subsidy to the private sector which should not be allowed.

Pangilinan said that the right-of-way cost for the connector road project from McArthur Highway in Valenzuela in the north to Buendia Avenue in the south is about P7 billion.

He noted that if MPTC will absorb the cost for securing the right-of-way, that would mean an increase in the project cost for Segments 9, 10 and 11 from P27 billion to P34 billion (of which P17 billion is for the connector road and P7 billion for the right-of-way).

The connector road is a 13.5-kilometer project that was granted original proponent status by the DPWH based on MPTC’s unsolicited bid. It will connect NLEX to SLEX via an elevated road over the tracks of the Philippine National Railways (PNR).

MPTC expects the Swiss auction for the connector road to be launched in the second half of the year.

Pangilinan noted that the DOJ opinion “puts a chill” on railway, tollway, bridges, and even airport projects in the country.

He noted that MPIC’s assumption when it submitted the proposal to the DPWH to undertake the connector road project, and that the typical Public-Private Partnership (PPP) approach, is that the government is the one who secures the right-of-way as its “equity” in the project since the private sector does not have expropriation rights.

“The project cost we offered to absorb is P27 billion which is bulk of the cost and therefore not a bad share,” Pangilinan said.

He emphasized that they just need clearer ground rules. “If the thrust of the DOJ ruling is that government cannot subsidize the right-of-way costs and that it is the private sector who should pay for it, then government should allow us to have more flexibility in the tariffs and to input that in the tariff calculation,” Pangilinan added.

The tariff rate adjustment flexibility will allow MPTC to structure its rates to reflect the added project cost and to recover it.

MPTC is also currently working with government for the acquisition of rights-of-way for Segment 9 or the Harbour Link (connecting Valenzuela to the Harbour area in Manila). MPTC has also signed a memorandum of understanding with PNR and North Luzon Railways Corp. (Northrail) to coordinate on the design of the second half (Segment 10) of the Harbour Link which is going to be elevated over their tracks.

MPTC president Ramoncito Fernandez said other projects they are looking at include toll road projects in the provinces, ongoing discussions with shareholders of both Skyway and SLEX and two of the PPP projects announced by government, namely CALA expressway and NAIA 2 Expressway.

He noted that for MPTC, this year’s results will be influenced by three things – the final resolution of VAT on toll fees, increase in fuel cost, and expiry of the Manila North Tollways Corp. (MNTC) tax holiday in 2010. “Core income should be relatively flat given the impact of income tax. While we cannot speculate on how the Supreme Court will rule on the VAT issue, the impact of a sustained increase in gas prices could be significant. Toll revenues should show double-digit growth but the effect of income taxes on our bottom line numbers will be significant,” he said.

MPTC also plans to spend about P300 million to integrate the Subic-Clark-Tarlac Expressway (SCTEX) to NLEX about 12 months from takeover, even as it expects the Bases Conversion Development Authority (BCDA) to turn over SCTEX soon following the signing of a revised concession agreement.

Meanwhile, aside from the company’s interest in the operation and maintenance (O&M) of Metro Rail Transit 3 (MRT3) system, they are also interested in existing and proposed international airports.

MPIC has acquired a controlling interest in the Metro Rail Transit Corp. (MRTC) and has proposed to acquire government’s stake in the company. It has likewise signified its intention to bid for the O&M of MRT3 and LRT1.

“Our portfolio will continue to grow in the next few years. We are not growing for growth’s sake. In five years’ time, we expect to be earning return on equity in the mid to high teens and starting to return capital to shareholders in a significant way through our dividends,” MPIC president Jose Ma. Lim said.

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