Why SM is after the MRT-LRT common station

MANILA, Philippines – As if the commuting public has not waited long enough, another promise to make a train ride around the capital convenient is facing further delays.

A legal battle has erupted between the government and SM, the country’s leading mall and retail group, over the P1.4-billion “common station” that will allow easy transfer of over a million passengers taking Metro Manila’s rail systems – the Light Rail Transit (LRT) and Metro Rail Transit (MRT) – every day.

What are they fighting about? The location of the station.

The government signed an agreement with SM years ago to build the station in front of SM City North EDSA in Quezon City, and in exchange for P200 million cash to be used for “civil works,” name the station after the mall.

Citing a change in plans, however, the Department of Transportation and Communications (DOTC) decided in 2013 to transfer the proposed station to Trinoma, an adjacent mall owned by the Ayala Group that’s connected to the north end of the MRT. The move seems to favor Ayala, which owns part of the consortium that bagged the P65-billion LRT 1 Cavite Extension Project, where the contract to build the common station was packaged into.

SM vows to fight tooth and nail to block the transfer. And one need not wonder why. The companies are after the foot traffic – the key factor that makes malls profitable.

High foot traffic

The rental rates that mall owners charge their tenants are ultimately based on what the tenants expect to sell. Higher foot traffic means higher sales.

What better way to catch foot traffic than locate near or at the stations of a major rail system in the capital? It's no surprise then that most of the stations of, say, the MRT 3, along the main thoroughfare EDSA, are near or connected to malls.

SM legal counsel Ryan San Juan told Rappler that, based on internal studies, when a train station is connected to a mall, “around 30% of passengers, more or less, enter that mall.”

This explains all the fuss over a mega station – one that will connect the LRT Line 1 (from Baclaran in Parañaque City to Monumento in Caloocan City), MRT Line 3 (North Avenue in Quezon City to Taft Avenue in Pasay City), and the proposed MRT 7 of San Miguel Corporation. MRT 7 will run from Caloocan and pass through Lagro and Fairview, Novaliches, Batasan, Diliman, Philcoa, before ending at EDSA.

The government doesn’t have an exact figure for the number of passengers that will use the common station daily, but go figure: LRT 1 carries 500,000 passengers a day; MRT, 600,000; and MRT 7 will have a capacity of at least around 450,000.

“It will be huge,” DOTC spokesman Michael Arthur Sagcal told Rappler in a phone interview.

Project details

The concept of the common station was born in 2006, when the government started to “court” stakeholders in the vicinity of North Avenue and EDSA to help fund the project, said San Juan.

The project “crystalized” in 2009 when the National Economic and Development Authority (NEDA) board approved it, he added.

The NEDA board, in a memorandum dated July 7, 2009, approved the “re-evaluation of the LRT 1 North Extension Project (closing the MRT-LRT Loop) owing to the proposed Metro Manila Integrated Rail Terminal (MMIRT).”

The MMIRT aimed to provide a common station for easy passenger transfer among LRT Line 1 and MRT Lines 3 and 7, the memorandum read. It further stated that the MMIRT was “proposed to be located in front of SM Annex.”

“This denotes extending the alignment of MRT 3, shortening of the LRT 1 North Extension to terminate at SM Annex instead of alongside the MRT 3 North Avenue station and modifying the design of the EDSA North Avenue station of MRT 7.”

Thus, on September 28, 2009, SM Prime Holdings president Hans Sy and then Light Rail Transit Authority (LRTA) administrator Melquiades Robles signed a memorandum of agreement formalizing the construction of the common station in front of the SM mall. LRTA was the lead agency tasked to implement the project at the time.

“In consideration of SM’s funding of a portion of the cost of civil works, the station will forever bear and include in its final name the phrase ‘SM North EDSA’ and the same of such other entities that may enter into similar agreements with LRTA,” the MOA read.

 The Ayala Group had also planned to extend the same amount and have “Trinoma” included in the station’s name, but did not push through with it, said San Juan.

“Since 2009, we’ve been coordinating with the government. We’ve had numerous technical meetings with them, there were exchange of engineering plans,” the lawyer noted.

Fast forward to 2013. San Juan said they were surprised to find out from media reports that the DOTC, which took over the implementation of the project, was eyeing to transfer the common station to Trinoma.

Then this year, he said the agency came out with bid bulletins announcing the integration of the common station into the LRT 1 Cavite Extension Project, also indicating Trinoma as location.

“As early as April 2013, we scheduled high-level management meetings with them. There was no categorical, official, formal, even informal confirmation they were transferring the station. Come the 4th quater, there was buzz again about the transfer. We wrote them a total of 5 letters since then, but got no reply,” said San Juan.

Although not a party to the case, Ayala has everything to gain and nothing to lose from the DOTC move.

Savings for gov’t

Under the new plan, LRT 1 will be extended and a station will be built beside the MRT 3 North Avenue station, while a walkway will connect the two rail lines to the proposed MRT 7.

DOTC’s Sagcal said the new plan was integrated into the LRT 1 Cavite Extension contract upon the request of prospective bidders at the time.

The extension project – which will lengthen LRT 1 by 11.7 kilometers to Bacoor, Cavite – was bid out twice: in August 2013 and May 2014. The lone group that bid for and won the LRT extension project was the consortium led by Ayala and Metro Pacific Investments Corporation.

Sagcal refused to categorically say that Ayala lobbied for the common station to be transferred in front of Trinoma. Instead, he defended the move, citing several reasons.

First, he said this was the more ideal location because a central business district was being developed on a 29-hectare property called the North Triangle right beside Trinoma. The CBD, Quezon City’s version of the Makati and Fort Bonifacio business districts, is a project of Ayala. Ayala is investing P65 billion in the development. “You will have a lot of commuters in that area,” he noted.

Second, he said it would be cheaper by up to P1 billion.

Third, he said it would take less time to build the station in front of Trinoma because “we don’t have to extend the MRT 3 all the way to the other side.”

“MRT is owned by a private company. We can’t even get them to agree to add trains, what makes you think they’d agree to extend the MRT line?” Sagcal said. (READ: Court stops DOTC purchase of MRT trains)

Lastly, he said the new location was duly approved by the NEDA board in 2013.

Ayala Land president Bobby Dy refused to give a comment on the issue.

Breach of contract

San Juan said the DOTC’s new proposal was cheaper because it would not really link all 3 rail lines. “They’re not comparing apples to apples.”

Most importantly, he stressed that the MOA SM signed with government was valid. He said SM had fulfilled its end of the deal when it paid the government P200 million for the naming rights. It is the turn of government to fulfill its obligation.

But Sagcal argued the MOA itself was contentious. “It says ‘forever.’ The government is supposed to name the common station after them ‘forever.’ It doesn’t have an expiration date.”

He also stressed that the NEDA board’s approval in 2013 supersedes the memorandum it issued in 2009.

“We’re ready to defend this. We just want the best infrastructure and transport system for our commuters.”

Rappler talked to an independent lawyer to get his insight on the case.

Reynaldo Geronimo, a partner at the Romulo Law Office, said: “The government, having accepted P200 million from SM, cannot renege on its commitment. The contract should be pacta sunt servanda. It must be followed.”

On the issue of the MOA having no expiration date, he said: “There is no need for a specific provision for a termination stipulation in a contract. The terms itself will determine whether or not those commitments will expire at a certain time. Once the obligation is fulfilled and the other party has a continuing obligation, that party must continue to respect the contract.”

The DOTC said it was willing to return SM’s money. But Geronimo said “that cannot be.”

More than the cash, SM laments it has invested a lot in the project. According to San Juan, aside from years of planning, the company also restricted a portion of its North EDSA mall where the station was supposed to be connected from lease, translating to losses for the company.

Here’s a comparison of the original and new plans for the common station.

– Rappler.com