MAR INHERITS BURDEN OF MESSY DOTC PROJECTS
[PHOTO - The Seven Deadly Deals: Can Aquino Fix Arroyo's Legacy of Costly and Messy Projects?]
MANILA, JUNE 13, 2011 (NEWSBREAK) By ROEL LANDINGIN - To make a difference, the new department chief will need political skills more than management ability
Just 11 days after former senator Manuel "Mar" Roxas II assumes the post of secretary of transportation and communication on June 30, his department will open the bids for the combined operation and maintenance contract for Lines 1 and 3 of the state-run light train system in Metro Manila.
President Aquino with Roxas during the announcement of Roxas as the new DOTC secretary (Photo by Gil Nartea/Robert Viñas/Malacanang Photo Bureau)
Valued at maximum of P15 billion, the contract is the first public-private partnership (PPP) project to be tendered by the almost one year-old administration of President Benigno Aquino III, who said PPPs are a cornerstone of his government's strategy to build badly needed infrastructures.
It's just another sign of the big responsibility facing Roxas. The Department of Transportation and Communication is handling eight of 10 PPP projects that the administration wants rolled out this year. The outcome of the July 11 tender will determine if the President will be able or not to report an early accomplishment for his much-hyped PPP program when he delivers his second state of the nation on July 25.
(Many people do not consider the privatization of the operations and maintenance of the two light rail lines as a genuine PPP because the investors won't be building new facilities or structures; it's more akin to outsourcing functions such as janitorial or security services which don't require a huge upfront investments. But the DOTC argues it is a PPP variant: bid winners will have to invest heavily to meet the performance standards set out in the contract)
Yet, launching the department's new PPP projects may prove to be the easy part of Roxas' new job.
The administration's early decision to allocate funds for feasibility studies and engineering designs meant the departments can solicit proposals and subject the selection of proponents to transparent and competitive bidding. Under the previous Arroyo administration, such preliminary groundwork was left to proponents who submitted unsolicited proposals that were subject to opaque negotiations between the agency and the proponents.
Though the Aquino administration's emphasis on "quality at entry" has led to considerable delays—PPP is often referred to jokingly as "Puro Power Point"— investors still appreciate the government's earnest efforts to improve projects preparation, competition and transparency. The big number of groups that bought half-a-million peso bidding documents for the July 11 tender for Line 1 and 3 operations and maintenance contract—16 as of the latest count—could portend a high degree of investor interest in the PPP program.
What could prove more challenging for Roxas are a number of slow-moving or suspended projects, mostly inherited from the Arroyo administration, that were caught up in a complex web of allegations of corruption and irregularities. These include Northrail, NAIA Terminal 3, the radar control system, GMA ports, and LTO-Stradcom row, among others.
The Seven Deadly Deals: Can Aquino Fix Arroyo's Legacy of Costly and Messy Projects?
Newsbreak wrote about some of these projects in a book, The Seven Deadly Deals: Can Aquino Fix Arroyo's Legacy of Costly and Messy Projects?, released late last year. (See: Newsbreak launches book on Arroyo's scandal-ridden projects)
Disagreements with Ping
Outgoing DOTC secretary Jose "Ping" de Jesus and his team reviewed the controversial projects and have come up with proposals on what to do with them. The implementation of the decisions and recommendation, especially those that require the approval of the Office of the President, had not been smooth-sailing, however.
Other department officials, auditors and possibly even some people in Malacañang apparently do not agree with some of de Jesus' decisions on the controversial projects.
There are also signs that Aquino himself disagreed with de Jesus over some issues, particularly the row over LTO chief Virginia Torres and Stradcom payments. How serious were these apparent differences, and whether they finally drove the DOTC secretary to resign, are questions that only de Jesus can answer.
It is now up to Roxas to resolve any impasse that has emerged and to forge a consensus within the administration to move things forward. But first, he must make up his mind where he stands on some of the complex and difficult issues that de Jesus and his team grappled with. Mostly, these have to do with questionable and possibly disadvantageous provisions in contracts that are difficult to revoke for legal and diplomatic reasons. In some cases, de Jesus found the deals to be in order. In others, he recommended renegotiating or scrapping the deals but in consultation with the lenders and suppliers.
The following is a summary of the decisions and recommendations of the DOTC on some of the projects that went through a review in the past year. They are mostly based on public comments of the department's officials in press conferences and media interviews in the last two weeks.
North Luzon Rail. The 80-kilometer rail link between Manila and Pampanga, which is being funded by a US$900-million loan from China, is less than 20 percent complete even though it is now on its seventh year of construction. The DOTC has determined that both the original and amended contract with the supplier, China National Machinery and Engineering Group (CNMEG, now renamed Sinomach) was so ambiguous to be workable. In addition, the amended contract approved in 2009, which effectively increased the cost of the project from $1.18 billion to $1.8 billion while simultaneously reducing CNMEG's scope of work, was deemed invalid because it lacked forward budget cover.
The DOTC recommended that the Philippines should substantially renegotiate the contract and ask China for supplemental funding to cover the additional costs needed to complete the project, according to DOTC officials. If renegotiation with CNMEG is not possible, the Philippines will move for the selection of another Chinese supplier. Unilaterally rescinding the contract or the loan agreement is not being considered because of the possible repercussions on diplomatic relations with China. The recommendations are pending with the Office of the President. (Read: Northrail mess: Contract jacks up cost for few trains)
NAIA Terminal 3. The facility, which can accommodate as many as 13 million passengers a year, is operating at less than its full capacity and is only using about half the available floor space. This has hampered the terminal's potential in helping relieve congestion in Manila's first international passenger terminal. More than seven years since the facility was expropriated from the Philippine International Air Terminal Co. (Piatco) in 2004, the government is still having a hard time completing repairs and upgrade works to boost the structural integrity of the building. Piatco's contract to build and operate the facility was revoked by the government in 2002 and by the Supreme Court in 2003 because it was allegedly unlawful and disadvantageous to the government.
The government partially opened the terminal in 2008 at just half the capacity because of concerns about the building's ability to withstand a major earthquake. Last year, consultants engaged by the Manila International Airport Authority (MIAA) had already completed a comprehensive structural analysis of the building and had identified a list of repair and retrofit works to be carried out. De Jesus had wanted a competitive bidding to select the contractor to do the repair works.
However, the department already failed twice to hold a bidding because no contractor is willing to issue guarantees that the repair and retrofitting works are adequate against a possible collapse of the building, according to DOTC officials. That forced MIAA to open negotiations with Takenaka Corp., the original contractor that built the facility for Piatco, according to DOTC officials. However, that option does not seem to sit well with Aquino who continues to insist, based on his statements during his June 7 press conference, that the contract to repair NAIA Terminal 3 should be bidded out. (Read: Past haunts Aquino in NAIA-3 arbitration case)
Radar Control System. The P7.3 billion Communication, Navigation Surveillance/Air Traffic Management (CNS/ATM) system project was put up for bidding by the Arroyo administration but de Jesus deferred the awarding of the contract to the winning bidder, the Sumitomo-Thales consortium. In consultation with the Japan International Cooperation Agency (JICA), which provided the loan, the DOTC conducted a review to check if the tender complied with the government and the lender's rules and policies. The Commission on Audit had objected to the award, pointing out that the consortium should have been disqualified because its members had abandoned an earlier maritime distress signal project in the Philippines. It also alleged the project duplicated existing radar system, the Manila Air Traffic Control Center (MACC).
DOTC said it had supplied consultants' technical reports showing otherwise but the COA auditor continues to insist on his opinion that the project is redundant. The DOTC proceeded to finalize the award and moved to pay the consortium an initial mobilization fee, which was disallowed by the COA. DOTC officials argued that the government will end up paying more because of penalty clauses for late payments in the agreements.
RORO Ports. Like the radar project, supplier for the Greater Maritime Access (GMA) ports project, which aims to build 72 roll on, roll off (RORO) ports all over the country, was selected during the previous administration. The P11-billion project, which is on hold while undergoing review by the DOTC, is financed by French bank BNP Paribas. The supplier is a French firm Eiffel Matiere. After completing its review, the DOTC concluded that most of the target ports of the project, except for perhaps couple, were already built by the Philippine Ports Authority (PPA).
However, the DOTC also recommended that the Philippine government stand by its obligations under the supply and loan agreements. The Philippines will likely end up making partial payments especially for materials already delivered. The recommendations, which include holding talks with the French government, the lender and the supplier to mutually cancel the contract, are also pending with the Office of the President.
The LTO-Stradcom row. Stradcom has a 10-year build-operate-own agreement to provide information technology services to the Land Transportation Office that began in 2003 and is set to expire by 2013. Beginning September last year, however, LTO chief Virginia Torres suspended payments to Stradcom because of a brewing battle for control of the company among two rival factions of shareholders. The obligation now amounts to about P1 billion.
De Jesus and other DOTC officials wrote to Torres thrice to order her to pay Stradcom in fulfillment of the LTO's contractual obligations. The DOTC said the payments won't go to any of the factions within Stradcom but to an escrow account administered by the Lank Bank of the Philippines, which will release the money only to duly recognized Stradcom representatives. She refused.
In addition, she also took legal action that effectively prevented the agency from making the payment. Torres' actions may look like a case of insubordination but Aquino appears to agree with her position that Stradcom should not be paid. A senior DOTC official recounted that in a meeting over the matter, Aquino himself seemed predisposed to the idea of not paying Stradcom. This seems fairly consistent with some of Aquino's public comments. In his June 7 press conference, Aquino said it's not clear what benefits the LTO gains from Stradcom.
In December, the conflict between the shareholders of Stradcom escalated after one group tried to seize control of the Stradcom's offices inside the LTO compound. Torres got entangled in the conflict when she was caught by video cameras seemingly participating in the takeover and taking the side of one group of shareholders against the other.
The Department of Justice recommended that she should go on leave and face further investigation. She went on a 60-day leave that will end sometime in the third week of June. However, the investigation on the legality or propriety of her actions has yet to be carried out, according to DOTC officials. They said Malacañang had promised to send two lawyers to help the department conduct an impartial probe but has not yet done so until now.
However, Aquino said on June 7, when he announced that Torres will return to her post later this month, that she had already been investigated. "She has gone through an investigation and the penalty prescribed has already been meted out," he said.
Political skills
When he accepted the DOTC assignment, Roxas said he relished becoming a technocrat again after stints in politics as a senator and vice presidential candidate.
But given that the resolution of many of the issues surrounding the DOTC's most difficult projects ultimately depend on Aquino and his trusted advisers in Malacañang, Roxas may find he will need to hone his political skills more sharply than his management talents.
As a friend and close ally of Aquino, he is in a better position to practice the delicate art of getting the President to listen to contrary opinion. If Roxas succeeds, that may yet be his most valued contribution to the government and the country.—Newsbreak
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Chief News Editor: Sol Jose Vanzi
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