UNIVERSAL LRT Corp. (ULC), a consortium which proposes to undertake the $1.23-billion Metro Rail Transit project, known as MRT-7, has offered the government a compromise, instead of pressing them to provide a performance undertaking on the proposed real-estate and commercial component of the railway project.

ULC chief executive officer and managing director Eli Levin said if the government will insist with its latest demand, then the project proponent and its investors will have no recourse but to fold up.

“At this point in time, all the money was wasted for nothing. Either the government approved it now, or we fold up. Investors will have no interest to continue,” said Levin.

In addition to the ULC’s offered 10-percent performance undertaking bonds on the rail and real-estate component development, amounting to $100 million and $24 million, respectively, the Investment Coordination Committee (ICC)-Cabinet Committee (CC) recommended that ULC provide a performance undertaking on its proposed real-estate and commercial development.

“Failure of ULC to implement such development will result into the government’s nonpayment of the corresponding capacity fees, as well as ULC’s corresponding performance bonds in favor of the government,” said ICC-CC acting director general Augusto Santos.

The 23-kilomter railway project has a real-estate component. Private investors will develop 2-million-square-meter residential space and 900,000-sq-m commercial space, malls and community-development facilities throughout the concession period.

The real-estate developers are prominent and reputable companies that are willing to undertake construction as agreed upon with the ICC-technical working group to generate sufficient income for the government to offset its exposure by way of payment of capacity fees.

Some of them include Sy-led SM Prime Holdings Inc. and Andrew Tan’s Megaworld Corp.

Levin said such condition may jeopardize ULC’s ability to generate the necessary funds or loans to support the implementation of the project. He said all lenders and some investors for the railway project are separate from the real- estate component investors. Therefore, he added, that ULC would have no influence over the development of the real-estate component.

“We are concerned that the proposed linkage between the amortization payments due after completion of the LRT system and the performance undertaking on the real-estate development may unduly curtail, if not jeopardize, our ability to raise the loans and realize the pledges of equity for the rail project,” said Levin.

A possible compromise may be reached by limiting restrictions to equity returns of strategic investors who have stakes on real estate and commercial development.

Levin proposed to Transportation Secretary Leandro Mendoza in a letter that there could be two performance undertakings: One, for the debt and for minimal equity return corresponding to the portion for international and institutional equity; and another for the balance pertaining to the return on equity of strategic investors.

“The latter undertaking may impose limited conditions referring to the implementation of the undertaking of the real-estate company,” added Levin.

Under the proposed contract, the government will advance to ULC $130 million for 10 years—from the start of the railway construction—$15 million for the 11th until the 15th year, and $10 million for the 16th up to the 18th year. These advances will return to government coffers after MRT-7 begins operations.

Government revenue will come from development taxes on the railway’s 194-hectare real-estate component, lease of commercial spaces and fare earnings.

Levin added that a performance undertaking for the capacity fee or amortization payment was clearly ruled by the Department of Justice to be a mere payment for the gradual transfer of the assets and, therefore, cannot be construed as a direct subsidy.

The project consists of a 23-km rail- transit system with 14 stations that will be connected to the MRT-3 North Avenue station in Quezon City stretching all the way to Commonwealth Avenue, Regalado Avenue, Quirino Avenue extension up to San Jose del Monte, Bulacan, and a 22-km access road component.

ULC is a consortium comprising Alstom Transportation of France, which is described as the world’s second-largest transportation system provider; Alstom Signalling of the United States; Redfort Assets Ltd., representing SM Investment Corp. and PentaCapital Management Corp.; the Merlin Pacific Capital Inc. group; Earth Tech, a unit of the Tyco International Group of the US; and Engineering Equipment Inc. of the Yuchengo.

UNIVERSAL LRT Corp. (ULC), a consortium which proposes to undertake the $1.23-billion Metro Rail Transit project, known as MRT-7, has offered the government a compromise, instead of pressing them to provide a performance undertaking on the proposed real-estate and commercial component of the railway project.

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