MANILA, Philippines – The Philippine government finally resolved a 5-year row with a Chinese machinery conglomerate over a dropped rail deal, putting an end to international arbitration and sparing the country from a P5-billion obligation.
The Department of Transportation (DOTr) and the Bases Conversion and Development Authority (BCDA) said in a joint statement on Monday, November 6, that they, along with North Luzon Railways Corporation (Northrail), concluded an out-of-court settlement agreement with China National Machinery Industry Corporation (Sinomach).
Sinomach is the former contractor of the planned 80-kilometer rail line, which was to be implemented by Northrail, an agency under state-run BCDA.
The Northrail project was supposed to link the northern part of Metro Manila to the Clark International Airport in Pampanga.
But the rail deal was suspended in March 2010 pending review of the contract with Sinomach. In 2012, the contract was dropped after China called off the overseas development assistance fund for the project. (READ: 17 stations of Manila-Clark Railway announced)
In the same year, Sinomach initiated arbitration proceedings in Hong Kong, after it was notified by Northrail that it could no longer proceed with the implementation of the project due to serious legal issues in the contracts.
It was just this January when talks between the Philippine government and Sinomach started, the transportation department said. (READ: Isko Moreno resigns from Duterte government)
The DOTr said the out-of-court settlement agreement was approved by the Commission on Audit (COA), and also certified legal and enforceable by the Office of the Government Corporate Counsel (OGCC).
“[This] will save the Philippine government upwards of $100 million, or more than P5 billion in potential payment of claims to Sinomach, as well as hundreds of millions of pesos in legal fees and arbitration costs,” the joint statement reads.
Dodging more obligation fees
Back in February 2016, Northrail lost the 1st phase of the arbitration proceedings. It was then when the arbitral tribunal in Hong Kong published a partial award, upholding the validity of the contracts with Sinomach.
The tribunal also ordered Northrail to shoulder all costs relating to the 1st phase of arbitration. Sinomach was claiming almost $106 million from Northrail for costs it incurred under the contracts and for damages.
Without the settlement deal, Northrail would have spent an additional P500 million if the arbitration hearings originally scheduled this November had taken place.
As of March this year, the BCDA said Northrail has already spent P161 million for its participation in arbitration proceedings, including fees for its legal consultants.
Under the terms of the settlement deal, the DOTr and the BCDA said the parties have agreed to waive their claims against each other and declared that there will be no more payment by Northrail to Sinomach, and vice versa. The parties also agreed to share the remaining arbitration fees in equal proportions.
The transportation department added that the agreement ensures no contractual issues will hamper or compromise the development of the Philippine National Railways (PNR) Manila-Clark Railway project.
The PNR Manila-Clark Railway project was conceptualized as early as 1995 when Northrail was incorporated.
It is expected to help decongest Metro Manila and bring growth to Central Luzon, where an estimated 11.22 million Filipinos live. – Rappler.com