Public-Private Partnership Stories Philippines: Manila LRT-1 Cavite Extension Manila’s Light Rail Transit Line 1 (LRT-1) started commercial operations in 1984. It was the first LRT line built in the Philippines. Thirty years later, it continues to be an integral part of the urban transport system, carrying about half a million passengers daily along one of the densest traffic corridors in Metro Manila. But years of under spending on maintenance had taken a toll on the system with infrastructure fast deteriorating, the available train fleet significantly shrinking, and safety becoming an urgent concern. As part of a major public-private partnership (PPP) program, the government, through the Development Bank of the Philippines, hired IFC as the lead advisor on a PPP for the operation and maintenance of the existing Line 1 as well as the design, financing, construction, and operation and maintenance of a 12-kilometer extension to the southern district of Cavite. The Light Rail Manila Consortium (LRMC), comprised of local and international com- panies, won the bid for a 32-year concession to build and operate the Manila LRT-1 Cavite Extension project. The concession agreement was signed in October 2014. The winning proposal included USD 200 million in upfront concession fees and a commit- ment to invest $925 million in the construction of the Cavite extension. Once com- plete, the project is expected to benefit more than one million daily passengers. This series provides an overview of public-private partnership stories in various infrastructure sectors, The advisory work was supported by AusAID, part of Australia’s Department of Foreign Affairs and Trade. where IFC was the lead advisor. AusAID is responsible for managing Australia’s overseas aid program and provides guidance and support on IFC Advisory Services in development policy and poverty reduction activities in partnership with developing countries, including the Public-Private Partnerships Philippines. 2121 Pennsylvania Ave. NW Washington D.C. 20433 ifc.org/ppp BACKGROUND The Government of the Philippines (GoP), under its Medium- BIDDING Term Philippine Development Plan for 2011-2016, has sought to Light Rail Manila Consortium (LRMC) formed by major local mobilize additional resources and expertise from the private sector to conglomerates, Metro Pacific Investments Corp, Ayala Corp, with the overcome limited fiscal resources and accelerate the development of Macquarie Group, won the bid for Manila LRT1 Cavite Extension the country’s transport infrastructure. GoP has also sought to separate project. LRMC, in turn, has engaged the services of Paris Metro ownership, operations, and regulatory functions in the transport operator RATP to operate the line. The winning proposal included sector to better address institutional weaknesses, such as overlapping the payment of $200 million in a concession fee to the government, functions that may give rise to conflicts of interests and unclear lines foregoing a maximum subsidy of $112 million that was offered by the of accountabilities that ultimately hinder the delivery of good public government, as well as a commitment to invest over $900 million to transport services. design and build the Cavite Extension. To operationalize this policy, the GoP mounted an ambitious PPP The concession agreement was signed in October 2014. Program to attract private sector participation in the financing, development, operations and management of Metro Manila’s mass/ light rail transit (M/LRT) system, while retaining ownership and regulation of the public sector. The PPP Program for the LRT EXPECTED POST-TENDER RESULTS system, under the leadership of the Department of Transportation • Yield $312 million in fiscal impact. and Communications (DOTC), is expected to deliver much needed • Leverage $925 million in private investments. investments required to integrate the LRT network, expand its reach, • Improve access to transportation services to over and increase service capacities and efficiencies through enhanced 1,000,000 passengers daily. performance and accountability. • Reduce Green House Gas emissions by 40,000 tones CO2 per year. IFC’S ROLE • Enhance Metro Manila and Cavite regions’ competi- tiveness and quality of life, fostering sustainable, mass The DOTC, with its attached agency, the Light Rail Transit Authority transit-oriented development in Metro Manila and the (LRTA), engaged IFC in partnership with the Development Bank of surrounding provinces. the Philippines (DBP) to structure the PPP and assist in conducting an international competitive tender for the Cavite Extension project. IFC’s mandate included formulating the PPP transaction structure, 03/2015 preparing the concession agreement, and helping select a private conces- sionaire through a competitive and transparent process to operate the existing system and to develop and operate the Cavite extension. IFC provided GoP recommendations on financing mechanisms, risk alloca- tion, and the design of the tender process. TRANSACTION STRUCTURE IFC proposed a transaction structure based on a 32-year concession agreement. The concession specified a completion date for the Cavite extension of 48 months after the signing of the concession agreement. The concessionaire will have the rights to all revenues derived from LRT fares and commercial developments. The DOTC and the LRTA will undertake complementary projects, via traditional public procurement, intended to promote the Project’s viability and sustainability. This will include the design and procurement of new rolling stock required for the Project and depot development, which covers the construction of a new satellite depot and expansion of the current depot. This public component of the Project will be funded through Official Development Assistance (ODA) from the Japan International Cooperation Agency (JICA). The agreement was structured to balance risk, protect the rights of all parties and the riding public, and provide measurable investment and performance objectives.