Tightening the screws

EDITORIAL

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07/15/2008

It used to be all lovey-dovey between Gloria Arroyo and China — at least as far as big time contracts go, to the point of Gloria going to China to meet with the Chinese president to cancel the ZTE-National Broadband project, which cancellation, Gloria then explained, Hu Jintao “understood” and gracefully accepted.

All too suddenly, news reports are out that the Chinese contractor of the equally controversial and overpriced $503 million Northrail project is said to be ready to pull out of the project over the non-payment of cost overruns amounting to some $300 million, along with other violations of the original agreement.

A letter to this effect, plus the summing up of several breaches in the contract has been made public.

What has brought about the change of attitude in the Chinese government?

No one can say for sure, but it also has been noted that for sometime, Gloria and her aides, who not too long ago hailed China as the country’s big brother which brought about negative vibes that reflected the thinking of the Republican-controlled US government, have not been praising China to high heavens and have again been focusing on “strong Philippine-American relations,” which probably does not please the Chinese government, especially since China, in a sense, has bent over backwards for Gloria in her “requests” to let go of big ticket contracts involving Chinese corporations, most projects of which are perceived to be highly overpriced and kickback-laden.

Strange that the Chinese contractor, the China National Machinery and Equipment Corp. (CNMEG), just this month, sent a demand letter to the North Luzon Railways Corp. (NLRC), stating that it would be terminating the contract in two months should Northrail fail to comply with the terms of the contract as well as provide remedies, as the Chinese firm claims the government is in breach of the contract.

And if the violations of the contract have been accurately summarized by the Chinese firm in its demand letter, then it can be said that the Arroyo administration has been reneging on its obligations in fulfillment of the contract, which means it hasn’t been pouring in the funds for, say, the removal of the squatters from where the railroad tracks would be built, even if the earlier propaganda had it that billions had been poured to clear the area of squatters who were then claimed to have been relocated.

One recalls that Vice President Noli de Castro in yet another propaganda play had claimed that his Housing department had successfully relocated the Northrail squatters, along with the billions spent for their removal, to get the project going. Apparently, all that was done for propaganda purposes.

What is even more strange is that alleged breach of contract stating that, apart from non-payment to the contractor, along with the Arroyo government’s failure to “compensate” contractor for extra costs, there is that allegation of government’s failure to “adjust the contract price.”

It will be recalled that the $503 million Northrail project cost would be funded by the Chinese government through a loan from China Eximbank and that the construction job was given to CNMEG.

Even at that contract price, the project was already deemed to be highly overpriced and was the subject of several privilege speeches, one of which pointed to the fact that disputes arising from the contract and the project would be settled in a Chinese municipal court, plus reneging on the loan would give China the right to seize Philippine properties.

From another letter sent by a CNMEG project manager sent in May to the then NLRC president, CNMEG demanded an increase in the project price of $299.4 million, which amount is expected to bloat the contract price to some $800 million for “extra-costs” plus “variations of scope of works” from the original price.

The question is, if as stated in the CNMEG that, among others, there was failure on the part of the Arroyo government to provide even the diagrams needed by the contractor, why should there be that demand from CNMEG to have the contract price adjusted at almost 50 percent of the original contract price?

That sounds much too fishy a contract agreement and can only point to the some officials in the Arroyo government having gotten yet again their share of kickbacks plus the usual overprice.

After all, if CNMEG pulls out, as it has threatened, why demand additional payment of some $300 million for a project that had not gotten off the ground?

The only answer can be that of getting those kickbacks earlier paid out by the Chinese to the officials returned.

The screws are now being tightened on the Arroyo government by the once acknowledged Chinese big brother.

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