GMA scraps China deal on Northrail

CLARK FREEPORT – President Arroyo has cancelled all contracts with China connected to the Northrail project, according to the government.

Edgardo Pamintuan, North Luzon Railways Corp. (Northrail) chairman and chief executive officer, said China has withdrawn its financial backing for the project and President Arroyo now wants him to look for new financiers.

“Three weeks ago, the technical staff of the Chinese contractor for the project left… they demobilized as early as last March,” he told reporters the other day after attending a meeting of the regional disaster coordinating council presided over by Mrs. Arroyo.

The President has removed Northrail from the Bases Conversion and Development Authority (BCDA) and placed it under the Subic-Clark Alliance Development Council (SCAD), which he also heads, Pamintuan said.

However, China belied yesterday claims that the Philippines has abandoned the Northrail project funded by the Chinese government.

Sources at the Chinese embassy in Manila said Chinese Ambassador Song Tao was surprised about reports that Mrs. Arroyo has cancelled the Northrail project of state-owned China National Machinery and Equipment Group (CNMEG).

“It’s not true,” a diplomat told The STAR. “It’s completely not true.” 

Another source said CNMEG is still working on the Northrail project.

“They’re still there,” the source said.

On the other hand, Transportation and Communications Undersecretary for Rail Transport Guiling Mamondiong said the the Northrail project was

still being funded by the China Export-Import Bank, and that CNMEG was still its contractor.

“As far as we’re concerned, the Northrail project is still a go,” he told The STAR.

“We have not received any communication that the China Eximbank is not funding the project anymore. We have an agreement with them on this.”

Mamondiong said the government is still talking to CNMEG as the contractor for the project.

“We’re now discussing with them on how to best implement the project,” he said.

Mamondiong said Northrail is working with CNMEG on the design of the railway as the clearing of the railway’s right-of-way was already done.

“As soon the railway’s design is completed, we will start the actual construction,” he said.

Northrail is now headed by officer-in-charge Gina Hota after the resignation of Arsenio Bartolome, Mamondiong said.

Meanwhile, Vice President Noli De Castro, Housing and Urban Development Coordinating Council chairman, said he is not aware that the railway project has been discontinued.

De Castro led the relocation of families affected by the Northrail construction.

The national railway improvement project officially started in Caloocan in October 2007.

On Aug. 20, 2003, a Memorandum of Understanding was signed between the Department of Finance and the Export-Import Bank of China for the use of $400 million for the construction of the Northrail project Phase 1, stretching 32 kilometers from Caloocan City to Malolos, Bulacan.

On Feb. 26,2004, the Chinese and Philippine governments signed in Manila the  $400-million loan agreement.

Then Finance Secretary Juanita Amatong signed the loan agreement with Yang Zilin, chairman and president of the Export-Import Bank of China.

The administration has identified Northrail as a priority project under its eight-point agenda.

In 2000, thousands of families along the old railways in Caloocan were been relocated, and thousands more were later removed from Malolos.

Pamintuan said with funding from China gone, he is considering a suggestion from Clark International Airport Corp. chairman Nestor Mangio to consider an investor from Kuwait who is reportedly interested in the railway project.

Nueva Ecija Gov. Aureli Umali also brought to his attention the interest of investors from India, he added.

Last November, Senate Minority Leader Aquilino Pimentel Jr. sought a Senate inquiry, in aid of legislation, into the alleged “onerous terms and conditions imposed on the Philippine government in the contract to build the railways project funded by China.”

Pimentel cited reports that the amount of $125.75 million had already been advanced out of the $400-million funding for the project, which remains delayed. He also reported that the loan was allegedly contracted without the approval of the Monetary Board as required by the Constitution.

“The contract for the project is not only overpriced, but is also ridden with onerous conditions especially in case of default in the payment of the loan,” he said.

Pimentel cited a provision of the loan agreement that the Philippine government will waive its immunity from suit over its sovereign and patrimonial assets, placing under China’s laws and jurisdiction any suit or judgment that might arise from the contract and granted Eximbank unilateral authority to determine payment schedules and the right to impose penalties for any delay in the project.

Pimentel also questioned the awarding of the project to CNMEG without bidding, contrary to the provisions of Republic Act 9184, the Government Procurement Reform Act.

Last year, the government canceled the $329-million national broadband network (NBN) project with Chinese telecommunications firm ZTE Corp.

A Filipino diplomat said the action may not damage bilateral ties between China and the Philippines, but the Chinese will be more cautious in dealing with the Philippines in future projects.

“It was merely a structural problem but will not strain the bilateral relations,” the diplomat said.

“China has to protect its interests in the Philippines and we see the Philippines as a major strategic partner in Asia.”

The diplomat said despite the controversial deal, China is optimistic that its investments in the Philippines will increase.

“But China does not want another ZTE,” the diplomat said.

“And we know the system here is really different. That’s why next time, China will scrutinize all transactions and contracts closely and make sure that they will not encounter the same problem.”

China was disappointed with the stand of the Senate in the NBN deal with ZTE since the attacks by some senators had allegedly gone too far and may be damaging to its international image.

Diplomatic sources said China’s envoy expressed his disappointment during a dinner with a ranking Foreign Affairs official.

The envoy singled out opposition Sen. Jamby Madrigal, who has been hostile towards Chinese diplomats and threatened to declare China’s former ambassador to Manila Li Jinjun “persona non grata.”

Madrigal hinted at collusion between the embassy and First Gentleman Jose Miguel Arroyo on the NBN deal.

The ambassador thanked the Department of Foreign Affairs for making clear its position that summoning foreign diplomats could not be done by the Senate because of their immunity under the Vienna Convention on Diplomatic Relations.

Song also expressed concern over the relations between the Philippines and China because of public opinion created by the investigation and allegations against ZTE officials and Chinese diplomats.

The Chinese embassy in Manila said that the remarks made by Madrigal during a Senate hearing where she hinted at collusion between the First Gentleman and the Chinese Embassy were extremely “irresponsible.”

China might be forced to file a diplomatic protest if the Senate insisted on summoning Chinese diplomats to appear in the Senate hearing on the scrapped ZTE deal, ignoring diplomatic immunity.

DFA officials explained that diplomats are exempted from jurisdiction of the receiving state under the Vienna Convention on Diplomatic Relations.

Diplomatic immunity is a form of legal immunity and a policy held between governments, which ensures that diplomats are given safe passage and are considered not susceptible to lawsuit or prosecution under the host country’s laws. — With Pia Lee-Brago, RainerAllan Ronda