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.

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.

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.

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