Study on Economic Partnership Projects. in Developing Countries in FY2009. Study for Manila LRT Line 2 East and West Extension

Transcription

1 Study on Economic Partnership Projects in Developing Countries in FY2009 Study for Manila LRT Line 2 East and West Extension Project in Republic of the Philippines SUMMARY March 2010 Marubeni Corporation Oriental Consultants Co., Ltd Katahira & Engineers International Tonichi Engineering Consultants, Inc.

2 1. Background and Necessity of the Project As the capital of the Philippines, Metro Manila is the political, economic and commercial metropolis of the country. The population of Metro Manila was 11.6 million of The Philippine Government plans to expand the coverage of mass transit system of Metro Manila as a means to mitigate traffic congestion, minimize oil-based energy consumption, and reduce local air pollutants and greenhouse gas emissions. The current rail transport network in Metro Manila is composed of LRT lines 1 and 2 under the Light Rail Transit Authority (LRTA); MRT Line 3 or the EDSA LRT operated by DOTC; and a commuter rail line owned and operated by the Philippine National Railways (PNR). The LRT Line 2, also known as the Megatren or Purple Line, which runs 13.8 km from the Recto Station in Manila to the Santolan Station in Pasig, along the centerlines of Recto Avenue, Magsaysay Boulevard, Aurora Boulevard and Marcos Highway. The line, with 11 passenger stations, is elevated except for a short section under Katipunan Avenue. The Line 2 has a total of eleven (11) stations. These are Recto, Legarda, Pureza, V. Mapa, J. Ruiz, Gilmore, Betty Go, Cubao, Anonas, Katipunan and Santolan. Three of these stations are major Terminal / Transfer type stations, namely at Recto (west-end terminal and transfer to Line 1), Cubao (transfer to Line 3) and Santolan (east-end terminal). Ten (10) stations are elevated and one (1) station (Katipunan) is underground. Unlike LRT Line 1, LRT Line 2 runs full metro cars - 18 four-car trains which have a capacity of 1,628 passengers per train. The trains are fully air-conditioned and designed for automated train operation from an Operations Control Center (OCC) in Santolan. Closed-circuit televisions are installed in all train stations. Each train is 92.6 meters long and consists of four motorized cars. The original proposed LRT Line 2 extension project consisted of extending the elevated tracks of Line 2 by approximately 4 km from its current terminal station in Santolan to the Masinag market in Antipolo along Marcos Highway. A feasibility study for the east extension by 4-km to Masinag was prepared in March 2006 and has already been evaluated by the National Economic and Development Authority Investment Coordination Committee (NEDA-ICC). However, the absence of multi-year funding support prevented its implementation. The government has since decided to pursue the implementation of the east extension project under Public-Private Partnership

3 arrangement as discussed during NEDA Cabinet Group meeting held on 9 June The project has been included in the NEDA Comprehensive Integrated Infrastructure Program (CIIP), Under the above background and to resolve the increasingly serious traffic problems in the Manila Metropolitan Area, the Philippine Government plans to expand the coverage of mass transit system of Metro Manila as a means to mitigate traffic congestion, minimize oil-based energy consumption, and reduce local air pollutants and greenhouse gas emissions. This project will contribute to improve environmental conditions and alleviate the traffic condition of Manila Metropolitan Area. 2. Concept of the Project The objective of this project is to extend the original Line 2 MRT both westward and eastward. The design for the new transit facilities and systems will be compatible with those of the existing line. Essentially, the Project consists of extending the elevated tracks of Line 2 by approximately 4.14 kms from its current terminus in Santolan to the Masinag market in Antipolo along the centerline of Marcos Highway and another 3.82 kms to the west along Recto Avenue and then R-10 road up to North Port (see Figure 1). The concept of the project implementation includes the following; To provide reduction on road congestion The proposed Line 2 extension would expand its coverage and therefore, increase the ridership, shifting effectively a considerable amount of passengers from road based transport to the rail based LRT Line 2. To minimize social impact There are some informal settlers along a minimal portion of the proposed route alignment, but there are no major impacts on commercial buildings or legal residences. Viaduct and elevated stations will be designed to minimize the impact on private property along the proposed line. However, it is anticipated that resettlement of some informal settlers may occur at some locations. Proper compensation and assistance to the people who will be affected by the project will be necessary.

4 North Port East Extension West Extension Figure 1 Study Location Map

5 To minimize the construction site All structures will be designed to minimize the occupied space and land. Piers for standard sections will be located at center of the existing road. The number of existing lanes shall be maintained so as not to disturb the existing and projected traffic. To minimize traffic congestion during construction The project is located along the centerline of Marcos Highway and to the west along Recto Avenue and then R-10 road up to North Port, which are all main streets of Manila. Design of structure and construction planning will require due consideration of minimizing traffic congestion during construction. Safety and least time-consuming construction methodology shall be studied and considered. Under the above conditions, large-diameter bores pile foundation and pre-cast PC box girder are proposed. Pre-fabricated steel girder may be adopted at road intersections that required longer spans. During detailed design stage, further investigation and study for the future development plan shall be required. Selection of location and layout design of stations will require due consideration of the future development plan along the proposed route corridor. 3. Outline of the Project 3.1 Route Alignment West Extension 400-meter extension to the west of Recto Station crossing over Line 1 has already been built as part of the back tracks of the existing Line 2. The extension alignment of Line 2 extends westward and then gently turns southwest along C. M. Recto Avenue until Del Pan Street. After crossing Del Pan Street, it turns to the north and goes up north along R-10 Road until terminating at Pier 14 of Manila Port. At the curve crossing Del Pan Street, some right-of-way acquisition will be required. The west extension is approximately 3.82 kilometers long. East Extension The existing viaduct of Line 2 is extended 425 meters eastward beyond Santolan Station. The line will be extended eastward following Marcos Highway until terminating at the intersection with Sumulong Highway. The east extension is approximately 4.14 kilometers long.

6 3.2 Location of Stations Three stations to the west and two stations to the east have preliminary been identified. The station names are now tentative. West Extension Divisoria Station : in front of Divisioria Shopping Mall, approximately 1,620 meters from Recto Station. Pier 4 Station : near Pier 4 of the North Port, approximately 1,350 meters from Divisoria Station. North Port Station : in front of the North Port, approximately 840 meters from Pier 4 Station. This is also the west terminal station. East Extension Emerald : in front of Robinson s Mall, approximately 1,600 meters from Santolan Station. Masinag : on the western side of the intersection of Marcos Highway with Sumulong Highway, approximately 2,580 meters from Emerald Station. This is also the east terminal station. An extra station at Samsonville, between Emerald station and Masinag, was considered, but the result of possible ridership indicated its financial unfeasibility. This extra station was not further studied. 3.3 Study Cases Four (4) different cases for the proposed alignment mentioned above were considered for ridership estimation. The cost and revenue for each case were calculated, the most optimal case will be proposed as best option. The four cases are as follows, and are shown in the following figures: Case 1: Base Case: Full extend of East extension + West extension Case 2: East extension only Case 3: East extension + West extension up to Pier 4 Case 4: East extension + West extension up to Divisoria

7 Figure 2 LRT 2 Case 1 Station Locations Figure 3 LRT 2 Case 2 Station Locations Figure 4 LRT 2 Case 3 Station Locations

8 Figure 5 LRT 2 Case 4 Station Locations 3.4 Passenger Demand Forecast A comprehensive passenger demand forecast was carried out during this study. The results are summarized in this section. Case 0 indicates the results for the without Project scenario. The results show incremental ridership with respect to the Case 0. Year Table 1 Total Annual LRT 2 Ridership Total Annual LRT-2 Passengers per Case Case 0 Case 1 Case 2 Case 3 Case ,309, ,548, ,584, ,540, ,873, ,935, ,239, ,035, ,211, ,451, ,594, ,983, ,536, ,935, ,080, ,286, ,783, ,087, ,713, ,761, ,012, ,639, ,688, ,548, ,497, ,772, ,551, ,342, ,439, ,287, ,465, ,008, ,403, ,862, ,555, ,239, ,598, ,585, ,418, ,952, ,096, ,326, ,892, ,110, ,480, ,039, ,196, ,329, ,944, ,145, ,070, ,212, ,899, ,922, ,949, ,193, ,378, ,606, ,050, ,898, ,408, ,700, ,454, ,331, ,995, ,721, ,181, ,448, ,771, ,244, ,132, ,826, ,591, ,374, ,652, ,646, ,641, ,889, ,145, ,221, ,266, ,630, ,346, ,090, ,958, ,994, ,799, ,966, ,213, ,867, ,834, ,153, ,755, ,519, ,953, ,789, ,698, ,718, ,015, ,221, ,862, ,439, ,859, ,705, ,678,555

9 Year 3.5 Estimated Costs of the Project Table 2 Total Annual LRT 2 Revenue The total project cost for each case is shown in Tables 3 to 6. The cost is shown considering future disbursement for the purchase of rolling stock. Annual LRT-2 Incremental Revenue per Case (millions Pesos) Case 1 Case 2 Case 3 Case , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , Table 3 Total Cost for Case 1 All figures in PhP Millions Item / Case 1 Cost Total Civil Works Viaduct 4,618 4,618 Stations 4,256 4,256 Utility Relocation 1,192 1,192 E&M Subtotal Civil Works 10, ,066 Rolling Stock 2,400 1, ,800 Trackworks 1,180 1,180 Power Supply & OCS Signalling Telecommunication AFC OCC & MIS Subtotal E&M Sub Total Direct Cost 6,335 1, ,735 16,401 1, ,801 Consultancy ,128 Contingency 1, ,316 ROW Sub Total Indirect Cost 2, ,637 VAT 12% 2, ,573 Grand Total 20,974 1,822 1,215 24,011

10 Table 4 Total Cost for Case 2 All figures in PhP Millions Item / Case 2 Cost Total Civil Works Viaduct 2,190 2,190 Stations 1,742 1,742 Utility Relocation E&M Subtotal Civil Works 4, ,552 Rolling Stock 0 1,920 1,920 Trackworks Power Supply & OCS Signalling Telecommunication AFC OCC & MIS Subtotal E&M Sub Total Direct Cost 2,025 1, ,945 6,577 1, ,497 Consultancy Contingency ROW Sub Total Indirect Cost ,129 VAT 12% ,155 Grand Total 8,351 2, ,781 Table 5 Total Cost for Case 3 All figures in PhP Millions Item / Case 3 Cost Total Civil Works Viaduct 4,147 4,147 Stations 3,483 3,483 Utility Relocation 1,067 1,067 E&M Subtotal Civil Works 8, ,697 Rolling Stock 1,920 1, ,840 Trackworks 1,040 1,040 Power Supply & OCS Signalling Telecommunication AFC OCC & MIS Subtotal E&M Sub Total Direct Cost 5,350 1, ,270 14,047 1, ,967 Consultancy Contingency ,118 ROW Sub Total Indirect Cost 2, ,254 VAT 12% 1, ,187 Grand Total 17,978 2, ,408

11 Table 6 Total Cost for Case 4 All figures in PhP Millions Item / Case 4 Cost Total Civil Works Viaduct 3,140 3,140 Stations 2,711 2,711 Utility Relocation E&M Subtotal Civil Works 6, ,715 Rolling Stock 1,440 1, ,880 Trackworks Power Supply & OCS Signalling Telecommunication AFC OCC & MIS Subtotal E&M Sub Total Direct Cost 4,245 1, ,685 10,960 1, ,400 Consultancy Contingency ROW Sub Total Indirect Cost 1, ,636 VAT 12% 1, ,684 Grand Total 13,899 1, , Financial and Economical Evaluation The Financial Internal Rate of Return (FIRR) was estimated for all cases, considering the total project cost, Operation and Maintenance cost (refer to Table 7), revenue due to ridership (ref. Table 2), and other non-revenue income. The results are shown in Table Financial Analysis Table 7 Operation and Maintenance unit: Million pesos Case Without 1, , , , , , Case 1 1, , , , , Case 2 1, , , , , Case 3 1, , , , , Case 4 1, , , , , The main purpose of financial analysis is to examine the financial viability of the implementation of the LRT Line 2 East & West Extension Project from view point of project implementation body. Finance Plan The financial plan in case of the work sharing method will be discussed below. It is assumed that

12 necessary funds of this project will be provided by the yen loan. In case of Yen Loan, 85% of the total project cost is bone through the Yen Loan and the remaining 15% are bone by the Philippine side. As such, the WACC was calculated as 1.42% Cash Flow Analysis The results of the financial analysis are summarized in Table 8. Judging from this analysis only Cases 2 and 4 are financially viable. Table 8 FIRR for Line 2 E&W Extension Case FIRR Case % Case % Case % Case % Economic Analysis The main purpose of economical analysis is to show the effects of the implementation of the LRT Line 2 East & West Extension Project from viewpoint of national and regional economy. Effect of Introduction of the Project Effect of introduction of the Project consist of a) direct effect, b) indirect effect. Among these effects, the following tangible benefits are calculated: Saving in vehicle operation cost(voc) Saving in travel time Cost Benefit Analysis Based on the estimated economic benefits and costs, the cost benefit analysis is made and is shown in Table 9. The result of EIRR shows more than 12 %, social discounting rate, for both Case2 and Case4. In addition, both cases show that B/C is more than 1.0, and NPV is positive number. Therefore, it is considered that both cases are feasible from national economic viewpoints.

13 Table 9 Result of Cost Benefits Analysis Case 2 Case 4 EIRR 15.97% 12.06% B/C NPV (Mill. PhP) 1, Environmental and Social Impact Refer to Table 10 for a summary of the evaluation of the environmental and social impact of alternative plan. Case-1:Base Case: Full extend of East extension + West extension Case-2:East extension only Case-3:East extension + West extension up to Pier 4 Case-4:East extension + West extension up to Divisoria For the proposed east extension route the negative environmental impact will be limited to the relatively short construction phase. The impact to the environment will therefore not be significant as long as the project implementation is based on the standards required by law. The proposed west extension from Recto to Divisoria station is located in one of the most congested areas within Metro Manila. A large number of people from all walks of life come and go for shopping. Public utility jeepneys are the most popular mode of transportation. The existing demand on this street based public transportation system in this area is in excess of current capacity. Implementation of the proposed LRT Line 2 west extension is expected to improve the environment as well as reduce traffic congestion. The section of the west extension from Divisoria to Radial Road 10 (R10), including proposed stations adjacent to Pier 4 and Pier 14 at Manila North Harbor, will require the relocation of more than 200 families affected by the implementation of the proposed project. Given that Manila North Harbor is used by cargo vessels only, the LRT ridership demand will be limited for this section. Moreover, although the proposed LRT Line 2 extension along R10 is being considered on the assumption that the proposed project for widening of R10 shall have been implemented by the DPWH, the widening of R10 project is currently on hold and arrangements for the resettlement of squatters occupying R10 ROW have not yet been put in place. Consequently the west extension route from Divisoria Station to North Port (Pier 14) Station should not be recommended for implementation at this stage. Upon the finalization of the implementation schedule of the R10 widening project, the west extension route from Divisoria Station to North Port (Pier 14) Station should be reviewed. The Case 4 plan is therefore

14 recommended based upon environmental considerations. East Extension Land use West Extension Terminal point Present condition Table 10 Comparison of Alternative Route Case 1 Case 2 Case 3 Case 4 Pier 14 Radial road R10 Squatter area Proposed widening of R-10 project will involve a large-scale of resettlement Convenient location for residence, Commercial area East Extension Only Pier 4 Radial road R10 No west extension A lot of heavy truck are passing at the crossing point between the proposed LRT line and an over-pass of radial road R10. Divisoria area C.M. Recto Avenue The presence of market, tiangge, shopping malls in the area always cause traffic congestion; it is aggravated by lots of jeepneys operating thereat and lots of people who frequently come to shop. Length (km) Affected houses Comment The effect by the Project 218 families Land 3067 m2 The extension between Pier 4 and 14 is premised on the implementation of the widening of R10 project by DPWH. Todate, the schedule of the R-10 project is still pending. Since Pier 14 is mainly utilized by Cargo Vessels, demand for LRT by Public Commuters will be limited. 0 families Land 646 m2 Will have limited effect on the houses along east extension since Marcos highway has sufficient ROW for the LRT line. Since the Marcos highway is a main road, the promotion of regional economic activities and the decrease in motor vehicle traffic flow volume are expected. 218 families Land 2744 m2 During the construction of the crossing point with R10, traffic congestion at R10 is expected. Moreover, the, width of the road is narrow before the crossing of R10; therefore, many houses will be affected. Since pier 4 is mainly utilized by Cargo Vessels, demand for LRT by Public Commuters will be limited. 0 families Land 646 m2 Evaluation :Impact is limited :Extent of impact is unknown(examination is necessary) :Serious impact is expected In Divisoria area, there is a possibility of a lot of complaints from locals that belong to the present public transport groups. On the other hand, there is a possibility that the construction of the station will affect the existing drainage system. Presently, there is always traffic congestion along the Recto avenue by public buses or jeepneys and aggravated by lots of people who come to shop. The LRT Project in this area is expected to decrease motor vehicle traffic flow volume and will also cause the reduction of Greenhouse Gas.

15 3.8 Recommendation The Case 2 in this Study is essentially the same development plan as the one having been subjected to pending NEDA-ICC approval, specifically upon its Cabinet Board discussions, where it was suggested seeking for BOT or PPP options. Despite lower financial return in Case 4 evaluated in this FS, the advantages of Case 4 over Case 2 could be summarized as follows: Possibility of application for STEP Yen Loan from the Japanese Government, Potential indirect effects of the development covering the essentially important commercial complex in the western extension area, i.e., Divisoria and Recto Av. areas, and Better Environmental benefits Therefore, although Case 2 has higher economical and financial parameters, Case 4 is recommended by the Study Team for implementation and application for funding. 4. Project Implementation Schedule Figure 6 shows the Implementation Schedule of this project, assuming a funding scheme based on JICA STEP Loan.

16 Activity A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J Feasibility Study NEDA Approval Loan Preparation Selection of Consultant ROW Acquisition Engineering Selection of Contractor (ICB) Construction Viaduct Stations System Design Track Works, OCS, Power Signalling, Telecom System Testing Revenue Operation Start Defects Liability Period 2 years Figure 6 LRT Line 2 East & West Extension Project Implementation Schedule

17 5. Feasibility of the Project and Possibility of Yen Loan Requests 5.1 Position of the Executing Agency for Financing the Project Generally, rail mass transit project requires comparatively higher initial capital investment relative to other transport sector infrastructures, mainly due to substantial cost requirements for rolling stocks, E&M and signaling systems in addition to civil/structure works. Fare increase in urban mass transit system in order to warrant the revenue/cost balance is also not easily possible and acceptable to users, since it is a major public transport means for people residing and working in the city area. Hence, it is widely recognized that urban mass rail transit can hardly be self-sustainable in financial terms only relying upon its net operating revenue. LRTA, the executing agency of this proposed project, has recently exhibited negative cash-flows mainly due to the financial burden of expenses/repayment obligations for initial capital investments in several project implementations in the past. The financial assessment completed in this Study also reveals that the financial viability of the proposed project is not easily attained within the present autonomy of LRTA with regards to fare increase, levy on associated commercial developments, etc. In the course of this Study, the Study Team has exchanged discussions among the government officials, including those of NEDA, DOF, DBM, etc., and found that they have also shared the views on the above financial difficulties of LRTA, as well as a need of substantial subsidy by the national government for the initial capital investment. NEDA-ICC earlier reviewed and discussed the proposed east extension project of the LRT line 2 based on the initial feasibility study prepared and submitted by LRTA. However, considering urgent requirements and priority and on-going/pipe-lined project implementations by LRTA, the approval on the above was not granted upon the NEDA Cabinet meeting in 2009, while it also implied possible PPP initiative in the project implementation. On the other hand, the proposed project has been included in the NEDA CIP Program to be implemented sooner by any possible and appropriate funding resource. LRTA earlier promoted the North Extension Project for LRT Line 1, which links with MRT Line 3 and eventually constitutes a circumferential rail network enveloping a core of Metro Manila area. Construction of the Line 1 North Extension Project commenced in 2008 and is scheduled for its completion in late The Project mainly comprises civil/building structure, E&M system and signaling works and is financed by the Philippine government s own budget allotted to LRTA through a credit line.

18 In view of the above background, LRTA expressed their intention to prepare an amended feasibility study on the Line 2 Extension Project covering both east and west extensions, specifically on this JETRO/METI FS package. Upon confirmation of its implementation feasibility, LRTA will finalize the financial scheme to enable the earliest implementation for approval NEDA-ICC. In order to secure integrity of the facilities to be provided by the Project over its servicing period, it is essentially important to maintain positive cash-flow of the proposed project over the operation cycles of Line 2 as a whole. For this to be realized, substantial subsidy or underwrite by the national government for its initial capital investment could ease the financial burden of LRTA. Discussions on the possible restructuring have been on-going, if LRTA continues operation/maintenance/management of LRT lines as is, or any PPP scheme be sought for in private sectors. After the forthcoming presidential election in 2010, the definite direction will be formulated by the new administration. Notwithstanding the direction lead, it is apparently favorable to minimize the financial impact of the initial capital investment. In the Philippines, proceeds of Japanese Yen loan have been applied to a number of transport infrastructures, including road, railway, airport and port sectors. Earlier Special Japanese Yen Credit has been also proceeded to a few large scale projects, whereas STEP scheme has not yet been materialized. The Study Team has confirmed applicability of the STEP terms to this proposed Project and indentified positive opinions on the application from the government officials concerned. LRTA also received loan proceeds by the former Japan Bank for International Cooperation (JBIC) for the LRT Line 2 original construction and the Capacity Expansion Project for the Line 1 in the past years. In consideration of the required compatibility of the systems in the existing and extension of the Line 1 facilities, provision of the Japanese goods to be procured in STEP financing will be desirable for consistency in the specifications of the railway transport system. 5.2 Funding by Other Financing Agencies Since 2007, recent investments in the railway infrastructures in the Philippines have been identified as follows: LRT Line 1 Capacity Expansion Project (JBIC, Special Japanese Yen Credit), North Rail Construction Project (Chinese Loan), LRT Line 1 North Extension Project (Government Fund), PNR Commuter Line, Rolling Stock Procurement (Korean Grant).

19 Other than the above identified project implementations, there are the following initiatives on-going: Discussions with the World Bank for PPP scheme application to the proposed South Extension of LRT Line 1 (LRT South Rail Project), Government s capital increase in MRT Line 3 operation towards expiration of the concession and likely new framework for the MRT organization, Other potential private initiatives for LRT Line 8 and extension line to the NAIA airport terminals. All the above on-going projects have been not finalized yet and will be subject to further discussions likely to be concluded after the forthcoming election in June With respect to the proposed Line 2 Extension Project, no funding applications have been officially expressed/intended by LRTA, other than the earlier application to the government fund for the east extension project reviewed by NEDA from 2008 to 2009, but eventually not proceeded without acceptance by the Cabinet. 5.3 Expected Financing Scenarios and Status/Possibility of the Japanese Yen Credit Application Based on the feasibility evaluation completed in this Study, it is understood that finance to the proposed Project on the basis of STEP loan proceeds by the Japanese Yen credit is possible for eligible portion of the Project cost. Amongst others, the loan conditions provided as per STEP program are favorable in terms of its lower interest on the repayment and longer grace period, which substantially ease the financial burden arising from the loan debt over the period. The operational cash balance of LRT Lines 1 and 2 under the LRTA management reveals self-sustainable status resulting in fare/box ratios of more than unity. It means that revenue from the operation can well cover the O&M expenses. As a public transport means competing against cheaper buses/jeepneys, the fare level of LRT lines has been maintained fairly low acceptable to users of the lines. Drastic increase to attain higher profitability cannot be possible for the future operations. Hence, less burden from the initial capital investment can substantially improve soundness of the LRTA financial position, or ease the liability for the loan repayment subsidized/undertaken by the national government.

20 Towards the possible loan proceeds, the course of actions to be taken by LRTA is first of all to prepare the Implementation Program (IP) based on this FS and submit to NEDA-ICC for approval on the investment under the Japanese Yen Credit, specifically on STEP basis. Schedule of the implementation may be subjective to the forthcoming election in Status of the Arrangements for Japanese Yen Credit Originally LRTA had not explicitly intended the Project implementation by Japanese Yen credit for the Line 2 extension. However, Japanese Yen credit is recognized as one of the best options without any appropriate/approved funding scheme to the extension project, provided that the financing in line with STEP loan be confirmed feasible. Based on the feasibility recognition, LRTA will formalize its request and required actions towards the loan proceeds under the proposed scheme outlined in this Study. Based on this Feasibility Study, LRTA will prepare and develop an Implementation Program with any modification/addition for approvals/acceptances by the concerned governments of the Philippines. With the IP preparation/submission, LRTA, through the investment approval by the NEDA-ICC and other national governments, will need to officially request the Project finance from Japanese Yen credit. Since the Line 2 east extension project was earlier reviewed and evaluated by the NEDA-ICC, it is necessary to clarify the Project feasibility and its requirement for earlier implementation covering both the east and west extensions of the LRT Line 2 as proposed in this Study, specifically on terms of STEP financing from Japanese Yen credit. For approval by the NEDA-ICC, it is also required to comply with environmental guidelines mandated by the government upon development of the Project implementation. Based on the Environmental Impact Assessment (EIA) completed in this Feasibility Study, the corresponding approval by the Department of Environment and Natural Resources (DENR) is mandatory in accordance with respective laws in the Philippines. The Study Team has discussed with LRTA on the above arrangements needed for application to the Japanese Yen Credit and expected the soonest action by LRTA upon favorable acceptance of the Study outputs herein prepared. 5.5 Actions Required towards the Application to Japanese Yen Credit In the course of the on-site works for this Feasibility Study, the Study Team arranged a series of meetings with officials of the Japan Embassy, JICA, JETRO, including a Japanese expert in transport sector dispatched from JICA. Based on hearings and exchange of information upon the

21 meetings, it was confirmed that the recent financial status of LRTA will be a bottleneck towards the Project implementation by Japanese Yen credit for its accountability to the Japanese Government. Apparently, the same views on the financial soundness of LRTA have been shared among the officials of the relevant Philippine government agencies, i.e., NEDA, DOF, DBM, etc. From interviews with those agencies by the Study Team, possible options to improve the current status have been implied, such as i) fare increase, ii) increase of the LRTA capital, iii) restructuring of the LRT operations on PPP initiatives, etc. Of those, the options i) and ii) have been already discussed among the agencies and subjected to discussions at the cabinet level. Meanwhile, the concession expiry of the existing MRT line 3 by the MRTC invoked substantial changes in the capital share resulting in increase of the government capital to a share of more than 75%. It might be the possible scenario that LRTA would take over the government capital of MRT and proceed with management of the Line 3 operations. All the above possible options affecting the institutional basis of LRTA will be further discussed and shall be converging into one direction after the election in It is expected that these likely scenarios will result in the improvement of the financial basis of LRTA. Regardless of those possible discussions on the LRTA organization, the request for financing this Project by Japanese Yen credit shall be addressed through the official steps as outlined above. The accumulated financial debt of LRTA from the past capital investment needs to be acted upon through either scenario in the above or in other forms in the course of discussions by GOP and GOJ on this project finance. 5.6 Action Plans and Issues to be Resolved upon the Request for Japanese Yen Credit The Implementation Program shall clearly define the project cost eligible for loan proceeds by Japanese Yen credit and delineate non-eligible project cost items to be financed by the executing agency, such as taxation, land acquisition, administration expense of the executing agency, any cost for environmental compliance and compensation of the project implementation, etc. Based on this cost demarcation, the disbursement schedule, project cash-flow and overall project time frame shall be finalized. Issuance of the Environmental Compliance Certificate (ECC) shall be also secured towards the application of Japanese Yen credit. Based on the environmental impact assessment (EIA) completed in this FS, LRTA shall prepare the Environmental Impact Statement (EIS) and submit to the Environmental Management Bureau (EMB) of DENR for review/approval by the review committee. ECC shall be granted through the process, if no substantial negative impacts are identified.

22 Towards the NEDA-ICC approval, process of the loan application will be mainly arrangements between LRTA and concerned Philippine government agencies. After the approval by the national government for request of loan proceeds to the Project implementation by Japanese Yen credit, discussions/arrangements with JICA and other GOP agencies will take place over a period in order to consolidate and formulate a specific loan framework adequate for this Project. It is expected that the issue on the LRTA financial status will be already in a definite direction upon the loan appraisal. The Study Team understand that in order to facilitate smooth progress of the loan application, continuous support to LRTA is essential for discussions with other government agencies, i.e., NEDA, DOF, DBM, etc., specifically on possible resolution to clear the accumulated debt of LRTA in a longer perspective. 6. Superiority of Japanese Company s Technology 6.1 International Competitiveness of Japanese Companies Japan's urban railway transit system is told the world-class advanced technology for the rail service as safety and mass transit delivers. Japanese Railway operational length is 20,020 km and this length is less than 36,000 km of Germany, 32,000 km of French and longer than 16,000 km of England. But the Japanese passenger transport volume is 8.6 billion in 2002, and this value is much bigger than 6.4 billion of all EU countries. Furthermore, the density of passenger transport per day and per km, is over 30,000 passengers, and has much distance from 4,600 passengers of average value of EU countries. Railway system as advanced signaling equipment, communication equipment, fire-prevention equipment, rolling stocks maintenance management, etc. are listed. In addition, rapid and safety construction technology for reduce traffic congestion during construction the elevated structures on the road in the city is expected. Such an introduction of Japanese advanced technology was finished with LRT Line 2 partly in Manila city. This time of the extension plan is also high possibility to bringing in the Japanese technology. 6.2 Expected Materials, Equipments and Systems from Japan As mentioned, Japan's urban railway transit system is told the world-class advanced technology for the rail service as safety and mass transit delivers. Regarding to construction plan of extension of LRT Line 2, Import of related railway technologies was thought. 1) Passenger Guidance Display System / Enhancement of Safety Equipment Now, passenger information transmission services in each station of LRT Line 2 are minimum service such as only the indication panel was installed at the platform. Each station does not have

23 timetable of train operation. Expansion improvement of Passenger Guidance Display System in the station is effective from the aspect of the passenger service. This kind of service is substantial in Japanese Stations but introduction of minimum safety equipments as emergency train stop devices, and etc. are expected. 2) Environment Consideration Technologies (Heat Treatment Rail) Rails in Japan have increased in strength by heat treatment to the head rail. The curved of track is increased larger force; therefore "Heat Treatment Rail" have to be used on this part. LRT Line 2 has many curve sections. Rail deterioration by the friction with the wheels in these curve sections is remarkable. For improve driving, noise prevention / reduction, and extension the rail life and facilitate railway maintenance, cost will be reduced. Therefore, the introduction of the Japanese superior rail is thought. Recent year in Russia, Heat Treatment Rails were exported by Japan to use it for rapid transit railway between Moscow St. Petersburg. In fact, Russia Domestic makers cannot reach international standard to make high quality rail, therefore it had to be imported. In the Asian market, a lot of rails in China have been used till now, but China domestic rapid transit railway being developed, so it is difficult to export rail to the other countries. Therefore, to prevention and reduction of noise, to improve running of the trains, import of high quality Japanese rails will be aimed. 6.3 Necessary Measures to promote for the Project Because of the east & west extension project of current LRT Line 2, compatible and conformity technical resources shall be used for machinery and materials in soft and hard engineering. Current LRT Line 2 had been constructed by using JBIC loan, but adopted system has been intermixed many country s various kind of technologies. Considering connection to current LRT Line 2, it is impossible to change all the system to Japanese resources. But we have to propose for increasing of using Japanese railway system resources, by publicity campaign of long term safety railway operational management and supporting excellent Japanese machinery and materials. Subject as rolling stocks, signal & communication system, operation management, maintenance (rolling stock, railway, civil structure), and all the railway system are objects. 7. Possible Risks against Realization of the Project Although the possible risks against the implementation of the LRT Line 2 East & West Extension

24 project are minimal, their enumeration and further study to support efforts to avoid such risk, is necessary. Hence, the Study Team has recognized the following as the most probable impediments to implement this project under the STEP yen Credit Loan, to wit: The recent financial status of LRTA will be a bottleneck towards the Project implementation by Japanese Yen credit for its accountability to the Japanese Government. In order to secure integrity of the facilities to be provided by the Project over its servicing period, it is essentially important to maintain positive cash-flow of the proposed project over the operation cycles of Line 2 as a whole, and also to increase the capitalization of the LRTA. Non approval by the NEDA-ICC due to any changes in the investment and development program attributed to unforeseen economic downturn. Non approval by the NEDA-ICC due to any changes in the investment and development program in the nation project pipe-line by the new administration after June Delays in decision making process of current Government upon the forthcoming election in May Although no substantial negative impacts were identified in this Study, the issuance of the Environmental Compliance Certificate (ECC) shall be also secured towards the application of Japanese Yen credit. 8. Project Location Map Figure 7 Proposed Alignment for Line 2 East & West Extension Project (Base Case)