Saturday, May 3, 2008

“Hu wo tse eu choi lai la” (Here come the trains again)

The “hu wo tse” (trains) are back.

But if it sounds Chinese, that’s because the “chi yen” (money) to finance the Manila-Clark Rapid Railway System; the “chi tzi” (equipment) to build it; the “kong chen she” (engineers) now doing site surveys and the diesel engine“hu wo tse” themselves all come from China.

The People’s Republic of China has lent the Philippines $421 million (P22.7 billion) to finance 95% of Phase 1 of the Philippines’ first major attempt to re-link Metro Manila with northern Luzon by rail in 25 years.

The Manila-Clark Rapid Railway System, better known as NorthRail, is China’s largest project in Southeast Asia. According to the Chinese, the NorthRail loan is the first 20-year concessionary loan ever extended by China to any government at 3% interest with a five-year grace period.

That China finds itself in the unique position of being lead player in resurrecting the decrepit but strategically vital North Luzon railroad system occurred because no other country wanted to take on this job.

NorthRail’s genesis goes back to 1994 when the Spaniards signaled their intent to develop North Luzon’s railways. After this proposal went belly up in 1998 because of a financing impasse, the Philippines turned to Japan in 1999. Problems with relocating squatters from the project site in Caloocan City derailed Japanese participation, however.

Enter the dragon
Enter the Chinese. In September 2002, a Memorandum of Understanding (MoU) was signed between the North Luzon Railways Corporation (NorthRail), and China National Machinery and Equipment Group (CNMEG) on a railroad project from Caloocan City to Malolos, Bulacan.

NorthRail, a wholly owned subsidiary of the Bases Conversion Development Authority (BCDA), was established to develop, construct, operate and manage a railroad system serving Metro Manila, Central and Northern Luzon. Incorporated in August 1995, it is also to develop, construct, manage, own, lease, sublease and operate establishments and facilities of all kinds related to the railroad system.

In 2003, the government approved NorthRail’s Phase 1 Section 1 from Caloocan City to Malolos, a distance of 32 kilometers. In August, an MoU for US$400 million was signed between the Philippines and the Export-Import Bank of China for the construction of Phase 1 Section 1.

Phase I covers the 80 kilometer rail line between Caloocan City to the Diosdado Macapagal International Airport (DMIA) at the Clark Special Economic Zone in Pampanga province north of Manila. Section 1 is the stretch of railway from Caloocan City to Malolos, Bulacan. Section 2 extends from Malolos to DMIA and covers 45 kilometers. The budget for Section 2 is $500 million.

The Caloocan to DMIA line is the first of a four-phase railroad construction plan that will eventually make almost high-speed train travel a reality in North Luzon from Caloocan to San Fernando, La Union.

NorthRail President Jose Cortez, Jr. said NorthRail really began rolling with the help of President Gloria Macapagal-Arroyo and Jose de Venecia, Speaker of the House of Representatives.

Cortez said it was de Venecia who suggested the Chinese as project partners. As for the President, Cortez credits her with finally getting the project to see the light of day, and for cutting the project loan interest rate by half following a telephone call to Chinese President Hu Jintao.

“She’s been very helpful to the project,” said Cortez, a veteran trainman who was once chairman of Philippine National Railway (PNR). He has been NorthRail president since 2002.

Construction begins September
With NorthRail clear of its prolonged birth pains, Cortez looks forward to this September when work on the railway really begins. His next milestone will be 2008 when Section 1 will be up and running.

Work on Section 2 will then start. Completion of Phase 1 is set for 2010. The complete NorthRail system will consist of Phase 1, Phase 2 (San Fernando, Pampanga to Subic, Zambales), Phase 3 (Caloocan to Fort Bonifacio) and Phase 4 (Clark to San Fernando, La Union).

If Section 1 goes as planned, commuters by 2008 will zip from Caloocan to Malolos in just 37 minutes at an average speed of 50 km/h, saving close to two hours in road travel on public utility vehicles. NorthRail’s Chinese-built DMUs (diesel multiple units) have a maximum speed of 120 km/h but Cortez says they won’t need that much speed since passenger safety is the paramount concern.

NorthRail trains, however, are in no way comparable in performance to high-speed trains such as China’s German-built magnetic levitation or “maglev” trains in Shanghai (the world’s fastest), Japan’s Shinkansen (the famous Bullet Train) and France’s TGV (Europe’s fastest) that can reach speeds in excess of 500 km/h.

Fare savings for NorthRail commuters will be considerable. NorthRail initially estimated its fare for the entire 32-kilometer length of Section 1 at P42 (compared to P70 for public buses) based on a P10.00 boarding fee and an additional P1.00 charge per kilometer.

Cortez, however, revealed that NorthRail is currently preparing documentation amending the initial fare matrix submitted to the government. This new fare matrix, which Cortez said reflects an optimized fare structure, uses an P8.00 boarding fee plus P1.35 per additional kilometer traveled for a total fare of P51.20 for 32 kilometers.

Cortez said making NorthRail a going concern from the get go was essential, hence his push for an optimized fare structure and diesel fed trains.

“I told the President I need fares that will allow NorthRail to survive and pay its debts,” Cortez pointed out.

Because of this insistence on revenues, profitability is not a mirage in the desert for NorthRail.

“We expect to break even on the eighth year of our operation using the P10.00 + P1.00 fare structure. With an optimized fare structure, the breakeven year would be earlier.”

Cargo will be the lifesaver
For companies and businesspersons, however, the payoff will come after 2010 when NorthRail begins running freight trains carrying goods and produce.

“We will definitely have cargo,” Cortez said. “Cargo will be the lifesaver of this rail system. Once the entire system is operational, we will decide on what kind of cars we need for cargo.”

Cortez estimates that freight should eventually account for at least half of NorthRail’s revenues. Freight will be run at night and during off-peak hours. Hauling freight, however, will require a different rolling stock configuration and design.

“We will determine the freight rates and details of service at a later time, when NorthRail has already bidded out and selected an operations and maintenance contractor.”

In making the decision to transport cargo, NorthRail learned from the experience of both the Light Rail Transit (LRT) and the Metro Rail Transit (MRT). These heavily subsidized operations are in no position to run cargo, and will continue relying on government support for survival.

Opting for diesel-run instead of electric-run trains such as those used by the LRT and MRT cuts operating expenses considerably since the cost of electricity in the Philippines is quite high.

Cortez believes there are “no real savings” if NorthRail were to go electric, unless the trains are in Mindanao where electricity is cheaper. NorthRail DMUs, however, can be upgraded to run on electricity should this option prove more economical in the future.

“We hope fuel prices do not fluctuate too much,” said Cortez. The assumptions used in the ridership and revenue projections used constant inflation rates to reflect public transport fare increases.

“However, it should be noted that the projections are still conservative in its other assumptions, such as no connection with MRT 3 nor LRT 1, and revenues are purely from commuter service, with a small percentage from commercial advertising.”

A new revenue stream being pushed by NorthRail is having large corporations build the six railway stations in Section 1 in return for building shopping complexes at the stations.

Cortez said he has verbal agreements with the giant SM Shoemart department store chain in which SM Shoemart has agreed to build two of the six stations in Phase 1. He acknowledges that money is in building commercial centers at the stations.

“If you have people who are interested, they can build our railway stations and we will let them operate commercial centers at the station,” he pointed out.

Concrete fences
At least 30 four-car DMU train sets will be bought from China within the next three years for the four phases of NorthRail. The existing PNR single track will be converted into a double track, the first of its kind in the Philippines.

The tracks will be narrow gauge (1.067 meters) to allow interconnection with SouthRail, which is to be built by the South Koreans. SouthRail’s first phase will see the rehabilitation of PNR tracks from Caloocan City to Alabang. Thus, Caloocan will be the hub of two extensive rail systems that will enable seamless travel from La Union in North Luzon to Sorsogon in Bicol probably by the next decade.

Travel time along NorthRail’s Section 1 will take about 37 minutes with an expected load of close to 42,000 passengers daily. Some 150,000 passengers are expected to commute via NorthRail everyday in the first year of the project. Cortez expects this number to balloon to 350,000 riders daily in 10 years’ time.

There won’t be much of the scenic Philippine countryside for commuters and foreign tourists to see, however, since the NorthRail tracks will be enclosed on both sides by a 10-foot tall concrete wall. Cortez said this 32-kilometer long wall, plus roving security guards and an electronic security system, are necessary to keep out vandals and protect expensive property.

Cortez admits that staring at a gray concrete fence kilometer after kilometer for over 30 minutes is bound to be an ordeal, but said NorthRail was working on ways to overcome the boredom problem.

For now, CNMEG has begun preparatory work on the Caloocan to Malolos stretch. Some 7,400 squatters have been relocated from Caloocan up to the boundary of Valenzuela and Meycauayan, Bulacan. About 12,800 squatters will have to be relocated before September.

Cortez noted that Vice President Noli de Castro played a key role in the peaceful relocation of squatters. Cortez said the Vice President, who is Chairman of the Housing and Urban Development Coordinating Council (HUDCC), remains very much involved in relocating the remaining squatter families.

The 30 Chinese engineers in country are undertaking site surveys using GPS and preliminary soil investigation with Chinese borehole equipment.

Phase 1 financing is assured. During last April’s state visit by Chinese President Hu Jintao, China Eximbank committed to providing a preferential buyer’s credit facility of $500 million with priority for Section 2. NorthRail also hopes the Chinese government will extend a credit facility for the housing and relocation component of Section 2.

Once all four phases are completed, Cortez sees NorthRail as a catalyst in developing Central and North Luzon. In essence, he expects NorthRail to play the role the railroad system did in the U.S.’ rapid industrial growth in the early 20th century.

Cortez believes NorthRail will bring development to the region by providing fast and reliable transport service.

“This will entice investors to locate businesses outside Metro Manila, thereby decongesting the metropolis. Considering the relatively lower land values of land and real estate in the region, investors will most likely establish businesses along the project alignment. This will give rise to more economic activities, more job opportunities and better businesses.”

Rebuilding Philippine railways
House Speaker de Venecia said NorthRail is the opening phase of a well-planned effort to rebuild the country’s railway system in North and South Luzon; on Panay in the Visayas and build Mindanao’s first railroad system in over a century.

An international consortium supported by the governments of France, Germany, Austria, Thailand and India is conducting the feasibility study for Mindanao rail.

The Americans built Panay’s first railroad in 1907. Interestingly, the most modern pre-War railroad system was built on Corregidor Island (or Fort Mills) off Manila Bay. This 14,700 foot long electric railway transported troops and supplies and snaked across the island, starting at the North Mine Wharf and connecting junctions to Lorcha Dock. It was destroyed during the war.

The Philippines currently has less than 900 kilometers of railroads. Most of the 378 kilometers in operation are located in Luzon, specifically in southern Luzon and the Bicol region.

The southern Luzon line is used by PNR, which from 2001 to April 2003 transported some 11 million passengers. About 675,000 of this total were long-distance passengers to and from Bicol and 10 million commuters in and around Metro Manila.