Told you so, DOTC!

For an infrastructure agency dominated by lawyers, it is amazing how DOTC is now faced by legal hurdles in almost all of their major projects. They tried to make us believe they are taking a long time getting projects started to make sure their contracts are totally in order. Those hotshot lawyers pretended to be engineers and failed. But how can they fail being lawyers?

I had been warning in this column that DOTC should first fix the legal problems related to MRT-3 before holding that bidding for the MRT-3 trains participated in by only one bidder.

First of all, MRT-3 is still legally owned by a private company, MRT Corporation or MRTC. Government cannot legally spend for capex that will benefit a private entity.

Secondly, the Build, Lease, Transfer or BLT agreement with DOTC for MRT-3 signed in 1999, assigned to MRTC the preferential right to supply the Light Rail Vehicles or LRVs. MRTC can only lose this right in either one of two instances: if the MRTC is in breach of its obligation under the BLT or if the MRTC consents to DOTC’s use of LRVs not provided by MRTC.

But DOTC decided to bid out the contract for the procurement of new MRT-3 trains without first seeking the consent of MRTC. That’s why MRTC sued DOTC and secured a 20-day “temporary order of protection” against DOTC from the Makati City Regional Trial Court.

The order stops DOTC from awarding the purchase of light rail vehicles (LRVs) from Chinese firm CNR Dalian Locomotive & Rolling Stock Company. Dalian Locomotive, the only bidder qualified by DOTC, supposedly won the P3.77-billion contract for MRT 3’s expansion. Dalian Locomotive is undergoing post-qualification, according to DOTC Secretary Joseph Emilio Abaya who also said initial results showed the company is “fit to do the project.”

But the story gets murkier. There is also a published story that DOTC “is moving towards a rebidding of the controversial P3.8-billion Metro Rail Transit (MRT) Line-3 project.” According to The Tribune, DOTC is supposedly firming up findings in a review of the capability of Chinese railway contractor CNR Dalian.

Tribune’s story is based on information from an unnamed DOTC official who doubts the lone bidder CNR Dalian’s capability to successfully deliver. It apparently does not have experience in making light rail vehicles with articulated bogies. An articulated bogie joins each railway car and allows a train to safely turn sharp corners, while reducing or eliminating the “screeching” normally associated with metal wheels rounding a bend in the rails.

A train expert, Tribune identified as Lee Shengli, a retiree from the Chinese Ministry of Railways, told the newspaper the functional failure of the articulated bogie may cause serious accidents, like derailment. Lee also supposedly said CNR Dalian is known for its work on diesel locomotives, which are their main products.

“They don’t have experience in the production of light rail vehicles with articulated bogies, and they have not delivered any metro vehicles or light rail vehicles out of China. It is very important that the reliability and safety of the technology and the key components are operationally proven.”

The Chinese expert, according to Tribune, explained the train manufacturer could only collect sufficient manufacturing experience by doing (the job over time). A train designer and manufacturer like CNR Dalian “can only know the problem of the trains after these trains are put into commercial operation…”

 So what happened here?  Secretary Abaya said earlier that DOTC has deployed a team to conduct ocular inspection of Dalian’s manufacturing facilities in China and found the firm “fit” to do the project for having “adequate, if not impressive, manufacturing facilities.” Maybe the DOTC team is not fit to make that assessment. But why were they sent?

Tribune’s expert, Lee, pointed out that “for all railway tendering projects worldwide, the operators require the bidder to have sufficient experience in designing and manufacturing the trains used for these projects.” CNR Dalian’s lack of overseas project experience was also cited.

The MRT-3 Capacity Expansion Project has two parts. Under the first phase, DOTC will acquire 48 light rail vehicles using four-car trains that will shorten waiting time in MRT stations. The second phase involves electro-mechanical works to link the new LRVs with the existing communication and signaling system of the MRT-3.

This project was also in the limelight recently when the Czech Ambassador accused some DOTC officials of seeking favors in exchange for the contract. The MRT-3 general manager was forced to go on leave while under investigation, but was quietly reinstalled in office with no explanation or release of investigation findings.

When I asked a Filipino transport expert what he thought was going on, this was his reply: “I am not comfortable from the very beginning about the procurement process of DOTC when it comes to MRT-3 projects. They pre-qualified only one bidder (Dalian) which is already suspicious from the outset. They did the same thing to the maintenance contract. The GM for MRT3 was quietly reinstated. What happened to the investigation on the charges of the Czech Ambassador?”

The legal hurdle DOTC is now facing on MRT-3 at the Makati RTC is not surprising. In fact, I have been warning about it for the longest time. All these problems could have been avoided and the rehab of MRT-3 started three years ago if government accepted the proposal of Manny Pangilinan.

If I remember right, MVP made a proposal to take over the rehab of MRT 3, save the government tax money to finance it, avoid the legal headaches with the equity owners in MRTC because he is now allied with them and even give a substantial annual royalty to the government. And the fare increase is around the level DOTC is asking now.

But the bureaucrats at DOTC are afraid to lose their jobs I guess and shooed MVP away. It didn’t help that P-Noy was supposed to have commented that it might make MVP too rich. It was Mar Roxas, at that time DOTC Secretary, who declared government would do the rehab itself.

I remember Mar even proudly announced that P-Noy released some P8 billion for the project, something that raised problems of its own. They parked that money at the LRTA so it won’t have to revert to the National Treasury due to disuse at the end of the fiscal year. There are questions if that’s even legal.

And as I have also been pointing out, the plan to use government funds to buy trains for MRT-3, a private company is illegal. This could even be technical malversation, and I recall there was a COA opinion that this transaction is highly irregular and that these funds must be returned immediately to the Treasury.

Indeed I was wondering why DOTC chose to ignore MVP’s proposal to upgrade the MRT-3 at no cost to the taxpayers. MVP can be expected to modernize the MRT-3 system in a way that would provide safety and comfort to commuters. Right now, it is an accident waiting to happen. I am told that DOTC did not even bother to officially respond to MVP’s proposal.

During the Arroyo administration, DOTC was always chronically delinquent in paying the monthly lease rentals, the reason why MRTC filed an arbitration case in 2008 vs DOTC in Singapore. But ever since the GFIs bought MRT-3 bonds, DOTC has been paying on time, and thus the cause for action in the arbitration case of 2008 has been cured.

DOTC had been banking heavily on DBP and Land Bank which now owning large chunks of MRT-3 bonds. These bonds only cover economic and not equity rights. The MRT bonds also correspond to the monthly lease rentals of a portion only of MRTC’s rights and interest which the original owners securitized.

MRTC claims the MRT bonds only covers the rental rights to Phase 1 of the project, that is, from North Ave, QC to Taft Ave, Pasay.  Other rights of MRTC, such as capacity expansion, or the right to add additional trains, or LRV’S, still belong exclusively to the MRTC shareholders.

That’s why a second arbitration case was filed against DOTC last Jan 28, 2014 by MRTC. This new arbitration case will be heard in Singapore and will determine who really has the rights to capacity expansion for the MRT-3.

Bottom line? The lawyers will have a grand time and make a lot of money arguing as commuters continue to suffer the crowded and unsafe MRT-3.

It is ironic that this and other big ticket projects of DOTC are suffering from legal questions given that a platoon of lawyers brought in by Mar Roxas are in control of the agency. I thought these are de campanilla lawyers. But from what we see today, they are probably no better than the notary publics doing business in a city hall corridor.

Ay naku, DOTC. I told you so!

Boo Chanco’s e-mail address is [email protected]. Follow him on Twitter @boochanco