Phl, China drop North Rail

Aurea Calica - The Philippine Star

September 26, 2012 | 12:00am
https://www.philstar.com/headlines/2012/09/26/852997/phl-china-drop-north-rail

MANILA, Philippines - The Philippines and China have decided to cut clean and
“disengage” from the North Rail contract, Interior Secretary Manuel Roxas II said yesterday.

Roxas, who was sent by President Aquino as special envoy to China, said Manila would just
have to pay the loan for the project to Beijing over the next two years.

Roxas said he was able to clear this issue with Chinese Foreign Affairs Vice Minister Fu Ying on
Friday after a meeting with Chinese Vice President Xi Jinping.

“There was a discussion as well regarding the process of disengagement in the North Rail
contract, and we also talked a little bit about the investment by the Chinese State Grid Corp.
(SGCC) in our National Grid Corp. (NGCP) and, well, some of the conflicts that exist therein,”
Roxas said.

Roxas conveyed the wishes of the Philippine government for China to transfer operations of
NGCP to Filipinos since it is important for the country to have control over its own electricity
supply.

Based on the contract, Roxas said the SGCC should transfer its technology to the NGCP and
train Filipinos on how to control “our national electric grid.”

The NGCP, which operates and maintains the National Transmission Corp.’s transmission
business, is 40-percent owned by SGCC and has a 40-percent representation in the board of
directors but the managers are Filipinos.

“It’s not comfortable that foreigners are the one handling the (electric grid,” Roxas said.

Among other issues, Roxas also discussed the perceived economic sanctions imposed by the
Chinese government against Philippine exports during the territorial disputes with China over
Panatag Shoal.

He said China had explained it did not intend to sanction the Philippines by imposing stricter
rules on banana exports due to the Panatag Shoal dispute.

“I brought that up as an indicator of why we feel aggrieved. They said that this was part of their
SPS or sanitary-phytosanitary protections for their domestic industry. Nonetheless, there was
some mention of their continuing to be open to importing Philippine bananas. There was no talk
at all about volumes, timetables, or such,” Roxas said.

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On the North Rail project, Roxas pointed out China could still participate in the rebidding or
continuance of the project if it wanted as long it would go through the country’s Procurement
Law.

Roxas explained that when Aquino made a state visit to China last year, the North Rail project
was discussed and it was agreed there would be a reconfiguration.

“In short, both sides were trying to push through with the anomalous project by reconfiguring
some of the elements so it would pass our Procurement Law. But since then and until now, there
was really no progress that transpired,” he said.

In fact, the Philippines was asked for a final position by Sinomach Corp., the Chinese company
engaged in the North Rail project and that the Supreme Court had decided that it was anomalous
and did not follow the Procurement Law, Roxas said.

In the middle of the territorial disputes over the Scarborough (Panatag) Shoal, China decided to
“call” the official development assistance that it lent the Philippines for the North Rail project, he
said.

“It was ‘called’ – meaning it became due and demandable. So it was discussed how we would
pay for it and since we got the money, we would settle it. According to Secretary (Cesar)
Purisima of (the Department of) Finance, the negotiations have started and we will pay it in
installments over the next two years. But this was a multi-year long-term loan that was suddenly
called,” Roxas said.

Roxas however said it was the Philippines that had informed China and Sinomach that they
could not push through with the project because it was anomalous and the SC declared it so.

“There is no such thing as an executive agreement. All procurement by government must comply
with the Procurement Law. So the contract was really no longer effective. Meanwhile, included
in this contract is the disengagement process, the arbitration process, and this process will prevail
in disentangling or undoing of the North Rail contract,” he said.

Roxas said the North Rail Corp. would have to reassess and see what they would need.

He stressed though the high-speed rail connection to Clark in Pampanga would still push
through.

“Whether it will be on the PNR (Philippine National Railways) alignment or some other
alignment, that will be a different decision already,” he said.
Roxas said this development was not necessarily a setback.

“We cannot continue with the current terms and conditions. So it might be better to cut clean in
North Rail contract,” he said.

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Returning the money

The Department of Finance (DOF) earlier said it had successfully renegotiated with the Chinese
government the payment terms of a portion of a $500-million loan to be used supposedly to
finance the North Rail project.

The Philippine government was due to pay the Export-Import Bank of China (ChinaExim Bank)
this year a lump sum of $184 million, but DOF officials were able to lengthen the payment
period to two years or up to 2014.

Data from the DOF showed that instead of a lump sum payment of $184 million, the government
will pay ChinaExim four equal payments of $46 million over two years starting this month.

The amount represents preparation costs for the project such as right-of-way and other land
acquisition expenses.

Roxas earlier said the government might replace China as the main financier of the controversial
North Rail project, which aimed to link Metro Manila to provinces like Pampanga through a train
system.

He said discussions with Chinese government officials were on hold in deference to the
upcoming leadership change in Beijing.

Once negotiations for the project resume, Roxas said the government’s main demand would be
to replace the current contractor, Sinomach Corp., which “has very little to no experience in
building train lines.”

He said they would seek better contract terms for the Philippines. If China would not agree, then
the Philippines might look to other “friendly governments” or even multilateral lenders willing to
fund the rail line’s construction.

Despite starting construction in 2004, less than a kilometer of the supposedly 80-kilometer,
Overseas Development Assistance (ODA) loan-funded train line was built by Sinomach at a
highly inflated cost.

The train tracks built were also designed for low-speed trains that were not strong enough to
handle the high-speed train system the government wanted.

The project, derailed for many years now, has four phases. The first involves the reconstruction
of the existing 32.2-kilometer single-track line into a double track using the PNR line from
Caloocan City to Bulacan, according to the plans obtained from the National Economic and
Development Authority (NEDA).

The controversial project was planned during the administration of former President Gloria
Macapagal- Arroyo but it was ordered shelved by the Aquino administration because of
irregularities.

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Last year, the Office of the President said the government would revise the project but this would
carry some elements of the original North Rail design.

Roxas said what happened was arbitration and not really a buyout because the Chinese asked that
the money should be returned, as the project would not push through.

“That’s the sequence that happened,” Roxas said.

Direct payment

Angeles City Mayor Edgardo Pamintuan, the former president of North Rail during the Arroyo
administration, said the funds for the suspended railways project from Caloocan City to Clark
never passed the hands of the Philippine government.

“The Chinese bank directly paid the Chinese contractor for the project,” he said.
Pamintuan was appointed to the North Rail firm in the latter part of 2008, although then
President Arroyo signed the agreement for the project way back in 2004.

Pamintuan said that even when he was head of North Rail, he had already been renegotiating
with Chinese officials on the restructuring of the project following delays even before he
assumed the post.

“It’s a pity that everything was just suspended or scrapped later on just because some projects
were done under the Arroyo administration,” he said.

Pamintuan stressed all his dealings as North Rail project chief were aboveboard. “I am willing to
face any probe,” he said. – Ding Cervantes, Christina Mendez