COA seeks probe of Dinagat mining

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The Commission on Audit (COA) is seeking a probe in connection with a permit to mine in two areas in Dinagat Island 10 years ago given to a contractor which it said was not eligible.

State auditors stated this in a 2014 COA audit report on the Philippine Mining Development Corporation (PMDC), a firm wholly-owned by the government.

“The contractor awarded with the right to explore, develop and utilize the mineral resources under the Dinagat Nickel-Chromite Project [DNCP] in Surigao Mineral Reservation [SMR], consisting of Parcel 1 [Lot III] and Parcel 2B [Lot II], was non-eligible due to the laxity of the CY 2005 Bids and Awards Committee [BAC] in evaluating the eligibility requirements on legal, technical and financial matters required under the Eligibility Data Sheet, thus had compromised the interest of the government,” COA said.

Auditors recommended the PMDC to “conduct an in-depth investigation and render a report to determine the appropriateness of the awarding of the contract to the winning bidder, and anybody determined to have been remiss of their duties and responsibilities shall be dealt with accordingly.”

On review of the documents relative to the bidding conducted and awarding of deal to the winning bidder, they found that there were lacking legal, technical and financial documents listed in the Eligibility Data Sheet “which cast doubt on the capability of the contractor to undertake the contract.”

Among the lacking documents were valid and current Bureau of Internal Revenue (BIR) tax clearance, valid and current Mayor’s Permit or latest Business Tax Return, statement of ongoing and completed exploration/assessment work similar to the contract to be bid covering 10 years, latest income and business tax returns, and audited financial statements of the prospective partner.

PMDC remarked that the documents were not available at the time of the bidding and that the contractor submitted a statement but only covered ongoing work because the contractor was incorporated only on October 6, 2004 or had been operating for barely 11 months.

“Undoubtedly, as shown in the foregoing, the members of the BAC were so permissive so as to declare the contractor as the winning bidder despite submission of incomplete documents and not having passed the eligibility requirements. Management did not comment with regard to our query why the Notice of Award and Notice to Proceed was issued to the contractor despite incomplete submission of eligibility requirements,” state auditors said.

“Considering the above observations, the contractor has no track record to prove its capability to perform the contract. But even from the start, it has no intention to perform the contract, since only after 15 days from the Notice of Award it has already assigned all its rights, interest and obligations in and to the award to another contractor. Hence, the award made to the contractor on the right to explore, develop and utilize the mineral resources in SMR had compromised the interest of the government,” state auditors added.

The rights cover 25 years, renewable for another 25 years.

The audit team then recommended an in-depth probe and told PMDC to require the BAC in later biddings “to strictly apply the defined procedures in conducting and awarding of bids to ensure that contracts are awarded only to eligible bidders.”

PMDC commented that the observation of the BAC’s supposed laxity in determining the eligibility of its bidder/s for the DNCP was “legally and factually baseless.”

Based on requirements
The checklist used by the audit team in determining winning bidder’s eligibility was based on the requirements for the procurement of infrastructure projects, it said.

It, however, assured that “An investigation will be conducted as recommended.”

COA also noted that the contractor to whom the first awardee ceded its rights was registered with the Securities and Exchange Commission (SEC) only on April 26, 2005 with authorized capitalization of P300 million, subscribed capital stock of P75 million and paid-up capital of P18.75 million.

“PDMC management cannot show proof bearing the approval …of the DOA [deed of assignment]executed by and between the assignor and the assignee. Therefore, the exploration activities undertaken by the assignee is deemed void and ineffective,” state auditors said.

PMDC said COA’s observations on the two firms, which were not named in the audit report, was “beside the point” because the latter contractor already remitted P365.385 million in royalty fees to the government as of 2014 aside from other dues.

It added that its Board of Directors approved the DOA on October 13, 2008.

But auditors stood firm in its recommendation of an investigation, and noted that the latter contractor’s 2013 disclosure showed incurred cumulative losses of P227.22 million as of December 2012 and P169.81 million as of year-end 2013.

“From the foregoing, it is evident that the assignee has financial difficulties and its ability to continue exploring, developing and utilizing mineral resources is doubtful,” state auditors said.

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