The Market Monitor Minding the Nation's Business
By Luis Leoncio
The sad state of the Metro Rail Transit Line 3 (MRT-3) system is due mainly the failure of the government to fully implement the provisions of its concession agreement with the Metro Rail Transit Corp. (MRTC), the Commission on Audit (COA) said in a report.
The audit commission said the Department of Transportation and Communications (DOTC) had failed to protect government interest by not running after the private contractor MRTC after it failed to fulfill its commitments under a build-lease-transfer (BLT) contract with the government.
The MRTC is a consortium led by the Fil-Estate Management Inc. of the Sobrepena group.
The COA said the transport department, under Sec. Joseph Emilio Abaya, failed to file legal action against the MRTC.
In its 2014 audit of the DOTC, the COA said the transport department assumed in October 2012 the responsibility for securing the maintenance-service provider for the MRT-3 by acting as the contracting party and signatory to the maintenance-service agreement.
The report said the DOTC assumed the responsibility without any amendment to the BLT agreement with the MRTC, “nor did it file any legal action or impose any sanction against the MRTC for not complying with its obligation” to provide technical maintenance services to the MRT 3, subject to the payment by the DOTC of rental and other fees.
“Under these circumstances, it would appear that the contract with the existing provider is of doubtful validity and, as compared to the recorded performance of the MRTC’s contracted service provider, various service interruptions and breakdowns were noted caused by inefficient maintenance operations of the system,” the COA said.
On August 8, 1999, the DOTC entered into a BLT agreement with the MRTC for the construction of a mass rail-transport system along Edsa, now known as the MRT 3. The agreement covers 25 years and would lapse in 2025.
The COA said Sections 3 and 5 of the BLT agreement provided that “in relation with Annex F (maintenance agreement), the MRTC shall provide the technical maintenance of the MRT 3 subject to the payment by DOTC of rental and other relevant fees.”
In accordance with this provision, the COA said on December 10, 1999, a maintenance agreement was entered into between the MRTC, owner of the MRT 3 and Sumitomo Corp. (Sumitomo), as maintenance provider.
The agreement expired on June 21, 2010, but underwent four extensions from June 21, 2010, to October 19, 2012.
An MRTC proposal to extend the maintenance contract for yet another year was rejected by Sumitomo, which wanted the term renegotiated.
The COA said that based on documents it gathered, a meeting was held wherein MRTC Chairman Robert Sobrepena, MRT 3 General Manager Al Vitangcol III and Sumitomo officials agreed not to renew or extend the maintenance agreement.
On October 19, 2012, according to the same COA documents, Abaya approved a negotiated contract between the MRT 3, represented by Transportation Undersecretary Jose Perpetuo Lotilla and Vitangcol, and PH Trams-CB&T Joint Venture (JV), represented by Roehl Bacar in the amount of P347.8 million per month.
The interim contract with PH Trams was extended three times, for a total duration 11 months and 15 days, earning for the joint venture P4 billion in government fees.
Subsequently, on September 3, 2013, a new contract was entered into between the DOTC and the Global-APT JV to provide a one-year maintenance service for the MRT 3 system from September 5, 2013, to September 4, 2014, with a contract price of P685,041,298.95, this time through public bidding.
The COA said that instead of compelling the MRTC to abide with the BLT agreement, the DOTC continued to be the procuring entity for the maintenance provider of MRT 3.
“In fact, after the expiration on September 5, 2014, of the original contract with Global-APT JV, the joint venture remained as the service provider by renewing its contract on a monthly basis until July 4, 2015,” the audit commission noted.
The COA said the failure of the MRTC to take responsibility for the procurement of a maintenance provider for the MRT 3 system after the expiration of the Sumitomo contract was a violation of Sections 3 and 5 of the BLT agreement “inasmuch as the provision of a maintenance provider is inherent to the agreement, which is yet to expire in 2025 or 25 years from its inception in 1999.”
The COA said a review of the performance efficiency of the maintenance-service provider procured by the DOTC disclosed that it failed to carry out the maintenance activities and its objectives.
“The occurrence of the frequent breakdowns of the MRT 3 System and the incident that happened on August 13, 2014, where a train overshot the rails near the Taft Avenue station were found to have been be caused by poor maintenance of the system,” the audit commission said. “Further, it was also observed that most of the elevators and escalators of the 13 stations are not working. The non-availability of these conveyances greatly affects the wellbeing of passengers, especially the elderly, pregnant women and persons with disability.”
The commission asked the transport department to provide it with the legal basis for undertaking the responsibility of procuring the maintenance-service provider for the MRT 3 system instead of the MRTC, pursuant to the BLT Agreement.
It also required the DOTC to submit an action plan to address its failure to sanction MRTC’s non-compliance with the BLT agreement.
The DOTC was also told to submit corrective measures and proposals to ensure the safety of the riding public and provide a fast, reliable and comfortable mode of public transport facility.
In its rejoinder, the DOTC said no legal action was taken against the MRTC after the Land Bank of the Philippines (LBP) and the Development Bank of the Philippines (DBP) acquired MRTC shares and securities (including notes and preference shares), which represented approximately 84.4 percent of the total economic interest in the equity rental payment (ERP) of the government, through the DOTC, to the MRTC.
“As such, any legal action or s anction against MRT is improper, considering that the financial interest of LBP and DBP may be legally affected or compromised,” the DOTC said.
It added it was impractical for the government to sue the MRTC since there is already a pending arbitration case filed by the MRTC in Singapore against the government for the DOTC’s failure to pay the ERP on time, pursuant to the BLT agreement.
The DOTC also said the government was pursuing the implementation of an “equity value buyout” of the MRTC, in accordance with Executive Order 126 dated February 28, 2013.
Under the scheme, the government would acquire either all outstanding shares of stock and other securities issued by the MRTC and/or entities owning the MRT Line 3 Project (equity purchase) or all rights, title and interest of the MRTC in the MRT Line 3 Project (asset purchase pursuant to the BLT Agreement).
The scheme also required the execution of a compromise agreement between the government and the MRTC and its submission to the Arbitration Committee in Singapore.
It likewise provided for the settlement of local tax liabilities of the MRTC, which under the BLT agreement shall be shouldered by the government.
Lastly, the scheme required the termination of the BLT agreement.
The COA said that in the absence of an amendment to the BLT Agreement, the DOTC should have demanded an enforcement of the obligation of the MRTC under the agreement.
“As it is, there appears to be no legal basis for undertaking the procurement of maintenance provider,” the COA said.