• P7.5-B LRT penalties hit

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    A  militant group on Friday slammed the “unconscionable” payment by the government of P7.5 billion in penalties to the private consortium that won the Light Rail Transit (LRT) 1 extension contract last year, saying such a “sovereign guarantee” will be shouldered by taxpayers.

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    Bagong Alyansang Makabayan (Bayan) secretary general Renato Reyes Jr. released to the media what he said was a letter request made by Transportation Secretary Joseph Emilio Abaya on August 7, 2015 to Budget Secretary Florencio “Butch” Abad for the release of the amount to the Ayala-Metro Pacific consortium Light Rail Manila Corp. (LRMC).

    “The penalty payments are the result of an onerous contract entered into by the Aquino government and the winning bidders. This is a form of sovereign guarantee that will be borne by the taxpayers. The amount is scandalous and unconscionable,” Reyes said.
    But Malacañang quickly dismissed the allegation as “baseless” and “unfounded.”

    In separate text messages, Presidential Communications Secretary Herminio Coloma Jr. and Abad belied Reyes’ claims, noting that they lacked basis.

    “Bayan’s allegation has no concrete basis and is purely speculative,” Coloma said.
    Abad said Abaya was in the best position to speak on the matter.

    “Better to talk to Sec. Abaya. He should know,” he stressed.

    But Reyes said the penalties arose from the government’s failure to comply with some provisions and obligations contained in the agreement it entered into with LRMC relating to the operations and maintenance of the rail system, including restoration costs for structural defects.

    On October 2, 2014, the Aquino government and the LRMC signed a 32-year contract that will allow LRMC to take over the operations of LRT 1 and at the same time build the extension of the train lines to Bacoor, Cavite.

    LRMC is supposed to pay government a concession fee of P9.35 billion. However, under the contract, it only needs to pay 10 percent of the total concession fee, or P935 million, upon signing of the contract. The rest of the payment will be made starting the fifth year of the contract.

    Reyes explained that the government is obligated to settle penalty payments to the private concessionaire if government failed to meet certain terms in the contract. This includes penalties on the condition of the infrastructure of the train system that will be turned over to the LRMC, as well as penalties on the failure of government to meet the agreed upon train fares.

    “Government is set to pay LRMC a total of P7.519 billion in penalties and fees. In contrast, the LRMC has only paid government P935 million or 10% of its concession fees. Ginigisa tayo sa sariling mantika. The private concessionaire stands to get more from this than the government. It’s already as if government is the one financing the private investors,” Reyes said.

    In his letter to Abad, Abaya asked for the release of P5.04 billion due to the government’s failure to comply with obligations relating to the maintenance and operations of the existing train lines. This includes structural, seismic and fire defects in the system, as well as defects or shortfalls in the number of functioning LRV’s.

    Government may also have to pay LRMC P106 million as a form of “deficit payment” since the current minimum LRT fare of P11 is below the P12.13 minimum fare agreed upon in the contract. Under the agreement, if LRMC does not get its required fare hike, it is government who will shoulder the deficit.

    Abaya also asked for the release of P500 million for the government “blocked account” that will pay for future penalties to LRMC. The Transportation chief said government will pay LRMC P1.05 billion should it lose a possible dispute regarding certain items in the contract. He also asked for an additional P444 million for right-of-way acquisition that needs to be settled by the third quarter of 2015.

    The DOTC’s requested amount shall be drawn from the so-called P30 billion Risk Management Program Fund put up to cover government obligations to the private sector in relation to the Public Private Partnership programs and contracts. The lump-sum amount falls under the Special Purpose Funds in the national budget.

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    2 Comments

    1. victor m. hernandez on

      If the contract is valid, it will stand as is, unless recission of the contrct is warranted for some valid and legitimate reasons. It is unwarranted to complain about penalty provisions which have been agreed upon in the contract. In any case, penalty will only arise once ommission or commission of acts that result in breach of contract occurs. It is therefore the lookout of contracting parties tht such inimical acts will not occur. Moreover, there is the Risk Management Fund, which I suppose, will be able to cover whatever penalty will be incurred in case occurence of risk inimical to the train operation. I suppose such risk events will also be covered by insurance to ensure that Risk Management Fund will remain intact or at least will not be depleted. The contract is valid unless there is a showing that provisions of the contract put the government in a disadvantageous position.

    2. Had this contract been reviewed by an honest lawyer working in government he/she would have recommended against it as grossly disadvantageous to the government. It looks like it was finalized and signed nonetheless so I would now expect that abaya and all those who participated in the contract negotiation and finalization shall be charged very soon with graft for entering a contract grossly disadvantageous to the government. During my time as head of legal in a government agency none of this kind of contract would pass muster from my office and the top people in that agency were deathly afraid of ignoring my adverse recommendation. I retired from government service and by God’s grace nothing can be pinned on my record that would besmirch my clean service. I wonder how come such obviously lopsided contracts seem so easy nowadays to be entered into. Truly we need a complete and rapid overhaul of government and thank God it is not long in coming. Junk the LP wannabes all of them from Mar to the lowest harangue captain.