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Contracts in General
What is a contract? A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service. (Art. 1305, Civil Code) The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.
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Contracts in General
Parties- two or more Understanding- Covenant To do (or not to do) Cause (why?) Object (what?)
DOTC (Sec. Enrile) awarded contract to MRTC Hong Kong (Sobrepena) Build, lease and transfer MRT System 23,000 passengers per hour per direction in EDSA
Contract Undertakings
Legal Basis : BOT Law Major Consideration: MRTC did not have a franchise to operate the system DOTC to hold the franchise to operate MRTC to own the system; DOTC to lease the system Relevance: Constitutional requirement on franchises on public utilities
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Main Covenants
MRTC build system maintain and guarantee availability of trains procure spare parts DOTC operate system collect fares pays MRTC monthly lease fees for number of years
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Financing of MRT
Equity : US$ 190 million Financing : US$ 465 million Japan Export Import Bank (JExIm) Bank of Tokyo-Mitsubishi Postal Bank of the Czech Republic Czech Export Credit Agency Other Commercial Banks
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Rental Payments
Rental Payments Cover:
Loan Amortization JExIm; Czech; Commercial Equity payment Fixed and guaranteed Economic Return (15%) ALL EXPENSES RELATED TO THE CONSTRUCTION, MAINTENANCE AND OPERATION OF THE SYSTEM Sovereign guarantee Appropriately increased or decreased to preserve Metro Rails Net Economic Return
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JExIm Bank
Czech Facility
Commercial Loans
Equity
Rental Fees
Under any and all circumstances Rental Fees are: UNCONDITIONAL IRREVOCABLE Shall in NO WAY be released, discharged or otherwise affected for ANY REASON
Fare Increases
Makati City, Dec. 6, 1999 The Metro Rail Transit (MRT) 3 has come up with a distance-related fare, which is competitive with other commuter vehicles plying the EDSA route. The Metro Star Express fares start at P17 for the shortest trips and P34 for the maximum distance, between North Avenue in Quezon City and Buendia Avenue in Makati.
No Fare Increase
Then President Joseph Estrada ordered a rollback of a 5 peso increase in MRT fares and there has not been any increase since then causing the MRT system to be heavily subsidized by the NG
Government Situation
At this point, the NG was beginning to fall behind in its lease and maintenance payments. 2004 : DOTC signs Restructuring, Repayment and Forbearance Agreement (RRFA) with Sumitomo Corporation for maintenance fees 2005: Interagency committee was formed to study the governments options for MRT III. 2005: Ayala Group sells equity to Goldman Sachs
COA Report
However, total figures per COA show PHP 32.08 Billion (USD 632million) for debt servicing on the basis of the Build-Lease-Transfer Agreement and the DOF Letter of Undertaking.
Land Bank
November 2008: Land Bank approved the purchase of MRTC interests in the form of: Unsecuretized Equity Rental Payments Preference Shares Notes As of December 31, 2009: LBP interest in MRTC was USD376.87 million.
DBP
DBPs outstanding investments in MRTC bonds on the other hand have a face value of US$676.25 million.
MRT Holdings II
MRTC
Goldman Sachs MRT Holdings III DIVIDENDS FOR 25 YEARS Elliot Holdings MRT Holdings II DBP/ LandBank
MRTC
Goldman Sachs MRT Holdings III DIVIDENDS FOR 25 YEARS Elliot Holdings MRT Holdings II DBP/ LandBank
MRTC
Operations Subsidies by NG
For the year 2012 : DBM has allotted the amount PhP 4.289 Billion To cover : Deficiency between the projected revenues P2,814,625,000 and obligations under the BLT agreement for MRT 3 P7,104,490,000
Moving forward.
AFCS
Legal Considerations : MRTC owns the current AFCS facilities. BLT contract provisions to be studied Financial Considerations: ERPs remain despite enhancement
AFCS Options
Financial: Force MRTC to replace the AFCS with working ones Legal: Judicial determination on the state of the facilities (leased? owned?) Consider maintenance contract between Sumitomo and DOTC (not MRTC) The future maintenance contract to be bid out by DOTC (not MRTC)
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THANK YOU!!!