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FAVILA STATEMENT SEEN AS ACCESSION TO CNMEG

Gloria likely to OK doubling of Northrail price to $800M

By Angie M. Rosales

07/15/2008

Malacañang will likely approve the doubling of the cost of the anomalous Northrail project to a total of $800 million from its original price of $400 million after Trade and Industry Secretary Peter Favila confirmed Friday that the government is retaining the state-owned China and National Machinery Equipment Group (CNMEG) as its contractor for the project.

Lawyer Harry Roque said Favila’s announcement indicated that President Arroyo had likely “acceded” to the demand of CNMEG for the project cost to be jacked up by another $299.4 million.

President Arroyo earlier said the government is hiring a new contractor for the project after she supposedly declined

to give in to CNMEG’s demand for $200 million more for the project.

The government had advanced $150 million to CNMEG but the money was suspected used mostly to bribe officials.

Up to this time not a single steel rail has been installed for the project.

In 2004, when the project was launched, China agreed to provide $400 million in cheap financing for its funding.

The railway would initially link Caloocan City to Malolos in Bulacan and to eventually extend to the Diosdado Macapagal International Airport in Angeles City, Pampanga.

After a five-year delay, the cost of the project had already reached a total of $502 million.

The $800 million cost of the project will make the 32-kilometer railroad stretching from Caloocan to Malolos, Bulacan the most expensive railroad in the world at a cost of $25 million or P1 billion per kilometer, Roque said.

“If indeed the lutong macao deal has been signed, I promise those involved that they may not be prosecuted during the time of Mrs. Arroyo but I promise them that they will be spending the rest of their lives in jail,” Roque told The Tribune.

Favila told reporters last Friday that the government had retained the services of CNMEG for the project but declined to provide other details on the issue of alleged cancellation.

The Senate, meanwhile, moved yesterday to reopen the Senate’s probe on the alleged highly-overpriced railways.

Minority Leader Aquilino Pimentel Jr. said a probe on the Northrail project has become urgent following the latest development that The Tribune carried Monday which he said stinks of purported irregularities.

Pimentel is moving for the resumption of the proceedings “to ascertain what is really happening with it.”

CNMEG is asking the government an additional $299 million funding for the first phase of the NRP, the 32-kilometer stretch from Caloocan to Malolos, despite the fact that the actual construction of the railways has not yet started about four years after the project was started is very anomalous, according to Pimentel.

Pimentel frowned upon this twist on the case that he, along with Sen. Juan Ponce-Enrile also exposed in the upper chamber some three years ago, having discovered the alleged overpricing by some $200 million out of the $503 million contract cost.

Alongside Pimentel’s move, former Senate President Franklin Drilon is urging Pangasinan Rep. Jose de Venecia Jr. to testify now before the Senate and “finally spill the beans” on his knowledge on the alleged massive overpricing and kickbacks involved in the controversial $503-million Northrail project.

“The reason former Speaker De Venecia seems to be reluctant in testifying before the Senate on the NBN-ZTE scandal is reportedly the threat from Malacañang that he will be blamed for the massive corruption in the Northrail Project. My advice to Joe De Venecia: ‘tell the truth for the truth shall set you free,’” Drilon said.

He noted that Pimentel and Sen. Panfilo Lacson earlier warned De Venecia that Malacañang officials would attempt to link him to the alleged $150-million bribe involved in the Northrail Project if the former speaker testifies against the President and her allies in the Senate inquiry into the NBN-ZTE scandal.

Pimentel said De Venecia was the “principal broker” of the Northrail project with China.

But Drilon who moved to have the Northrail probe in the upper chamber to be conducted by the Committee of the Whole sometime in 2005, expressed belief that De Venecia’s testimony will also give him the opportunity to answer Malacañang’s insinuations on the alleged “kickbacks” in the project.

“Former Speaker De Venecia should not let his historic opportunity pass. He will serve as the conscience of the Arroyo administration, as he had promised when he was ousted as Speaker, if he rectifies the mischief in the Northrail deal,” Drilon said.

“This Northrail Project could be the cornerstone and the right track to take for his much-ballyhooed Moral Recovery Program,” he added.

Citing the poor implementation of the Northrail project, Drilon said the Arroyo administration has already spent P5.4 billion but “has nothing to show for it.”

“As a result of this graft-laden project, the Philippine government is paying P1 million in loan interests alone since September of 2004 or a total of P1 billion as of the present time. This Northrail project will go down in history as the world’s most expensive railway on a per kilometer basis,” he said.

Lacson, on the other hand, expressed reservation whether senators can prevail upon De Venecia on his appearance before them even on the issue of an equally controversial contract with another Chinese firm, ZTE Corp. on the botched national broadband network (NBN) project, in which the congressman promised to testify on.

“I will say it straight. I don’t believe he will testify until such time he submits himself before us and answer our questions. How many times has he said that?” he asked.

“I will only be convinced if I see him personally, standing before the three committees in the Senate (investigating the ZTE deal),” Lacson added.

Pimentel challenged Malacañang to inform Congress and the public about the real status of the project in view of conflicting statements emanating from the executive branch.

He noted that Edgardo Pamintuan, the newly-appointed president of the North Rail Corp. at first reported that the CNMEG had pulled out from the project. Later, he said Pamintuan issued a statement that the contractor had only suspended work on the project, with some 150 Chinese workers having returned to China.

“The executive branch seems confused about the status of the Northrail project. But one thing is sure, the fate of the railway project is now in limbo, with work at a standstill because the Chinese contractor is asking for additional funding. Will the Arroyo government grant this request?” the minority leader said.

He said the troubles hounding the NRP can be traced to the serious infirmities in the agreement on the project between the Philippines and China , which gave Eximbank the authority to choose and designate the contractor for the project without any public bidding.

Pimentel also assailed the administration for lack of transparency when it sought Chinese financing for the railway project. He recalled that after the loan agreement was signed on Feb. 26, 2004 in Beijing , the Senate expressed reservations over the project in view of the findings by the UP College of Law that the agreement suffered from serious infirmities and government officials who had a hand in the deal could be held liable for the mistakes.

Among the flaws in the NRP deal cited by the UP College of Law were the following: 1. The CNMEG was awarded the project without the benefit of public bidding in violation of the Government Procurement Law; 2. A provision in the contract which says that disputes over the project will be governed by Chinese courts instead of Philippine courts or courts of neutral countries; 3. The Philippine government relinquished effective control of the proceeds of the $400 million loans from China’s Export-Import Bank by allowing the bank to directly remit the payments to the Chinese contractor without the need of turning over the money to the government.

He said it would be difficult to justify the huge supplemental funding being asked by the CNMEG on top of the original $503 million funding for the project in the light allegations that the project was overpriced. The NRP was financed by a $400 million loan from China ’s Export-Import Bank and $103 million from the government as counterpart fund.

Pimentel decried the fact that when the Senate called on Malacañang to put the NRP project on hold unless these infirmities were corrected, the Palace insisted that the railways project was “aboveboard.”

He also pointed out that with the first phase of the North Rail Project on a standstill, the second phase (Malolos to Clark Special Economic Zone), remains indefinitely frozen despite the fact that is funded by another $500 million from China ’s Eximbank.

Earlier, Drilon urged the government to terminate the grossly-overpriced Northrail project and go after the people responsible for negotiating and implementing what he called “the greatest train robbery in history.”

Pamintuan said he will begin negotiations with Chinese officials this week to try to avert what could be an embarrassing international legal suit over the nonpayment of cost overruns and other “breaches of contract” in the multibillion-peso ($503 million) project.

CNMEG backed off the Northrail project in February and has reportedly threatened to take legal action against the government for its failure to pay a cost overrun of $299 million and rectify “significant variations” in the project.

Pamintuan said the Chinese government officials were still open to discussing the resumption of the project and that he NLRC was not immediately seeking a moratorium on the $400 million lent by China for the first 64.4-km segment of the railway from Caloocan City to the City of Malolos in Bulacan province.

The government drew $105 million of the loan in 2004. Since September 2004, it has reportedly been paying P1 Million in interest per day. The incomplete clearing of obstacles along the tracks and overspending was among the complaints of the Chinese contractors.

The National Housing Authority has reportedly spent about P6 billion to relocate around 20,000 families from the tracks. But the NHA has said it needs another P2 billion to finish the relocation of 19,000 more families in the Pampanga side of Northrail.

Drilon said he had inside information that the Chinese firm had warned that if Northrail failed to comply with the terms of the contract in 30 days and remedy the breaches in 60 days, it would be forced to terminate the contract.