Creating the MRT Mess

“Attracting fly-by-night operators, the short-term contract changed hands several times.”

In reference to the continuing Manila Metro Rail Transport System (MRT) scandal, the decision by the Ombudsman to indict only former Department of Transportation and Communications (DoTC) Sec. Joseph Emilio Abaya and various subordinates under Republic Act 3019 has to do with the difference between ineptitude and gross incompetence versus graft and corruption.

Several questions arose. Allow us to answer one. Why was the act of effectively creating the MRT mess not considered in the recent indictment?

The Ombudsman had effectively uncoupled some of the most influential operators of the Liberal Party from a virtual trainload of controversy. Rushed at the eleventh hour before a critical changing of the guards at the Office of the Ombudsman, to many it was a disappointing decision that licenses gross incompetence.

While ineptitude can set the stage for corruption as it often does in our bureaucracy, so can corruption produce gross incompetence. The Ombudsman’s decision reflects both.

The Metrostar Express (MRT-3) scandal inflicted by the worst presidential appointees we could ever have is a case in point. The controversy is a cyclical continuum spawned by ineptitude that creates opportunities for corruption – corruption which in turn cycled back to inefficiencies.

Let’s draw a three-step skinny. An Aquino appointee causes a contract rebidding along ludicrous terms. The subsequent awarding, albeit highly questionable, is ratified anyway. These produced the ill-maintained MRT-3.

To flesh these out, allow us to review the relevant timeline to show why the public is profoundly disgusted that the Ombudsman failed to view the MRT controversy comprehensively, focusing instead on relative quantum minutiae and ignoring its origins.

In 2001, the private consortium operating the MRT-3 awarded its maintenance and parts procurement operations to Sumitomo Corp., one of five of the largest Sogo Soshas. In the agreement, government shoulders maintenance costs and spare parts procurement by initially forwarding payments to the consortium, which later forwards this to Sumitomo.

For a train system whose engineering was continuously being challenged by the high volume of commuters and sustained speeds it was not designed for, the arrangement was perfect.

Until Benigno Aquino III was elected president.

As Sumitomo’s contract was set to expire in 2012, DoTC Secretary Jose de Jesus extended it and prepared to integrate MRT-3’s maintenance operations with the Light Rail Transit’s to create economies of scale, cost efficiencies and huge savings.

As Sumitomo was preparing to bid for the unified system, the DoTC portfolio was taken over by Aquino’s losing running-mate, Manuel A. Roxas Jr.

Roxas immediately junked the rebidding and with it an excellent cost-effective long-term maintenance program for both train lines. Suddenly without a maintenance contractor, the MRT-3 deteriorated quickly.

Roxas then dangled short term one-year and six-month renewable contracts for MRT-3’s maintenance. This created MRT-3’s fatal flaw.

Railway maintenance hinges on parts availability, economic order quantities and CAPEX inventory which in turn require long term capitalized investments beyond Roxas’s abbreviated terms. Computing for net present value (NPV) using the consortium’s original 16 percent as a hurdle rate yields a negative NPV. No reputable maintenance provider would take on short term contract risks that negate returns on assets. It forces contractors to forego critical maintenance investments in lieu of cheap patch-up jobs.

Ironically, a maintenance contract sans parts procurement was suddenly awarded to a three-month old, severely undercapitalized start-up whose incorporators included an individual later accused of extortion.

Attracting fly-by-night operators, the short-term contract changed hands several times before the circumstances which are the subjects of the Ombudsman’s recent indictment.

Unfortunately, the Ombudsman prosecutes only for graft and corruption. It does not indict for spawning a mess or birthing bungling buffoonery.