Lopsided contract? COA pressures DOTr to justify P65 billion LRT-1 deal

MANILA, Philippines – The Department of Transportation (DOTr) is in a bind as the Commission on Audit (COA) increased pressure to obtain documents that would clarify years-old issues in the P65 billion privatization deal of the Light Rail Transit Line 1 or LRT-1.

The issues raised in COA’s compliance audit are similar to the points raised in the petition filed in 2015 by left-leaning groups, which asked the Supreme Court to invalidate what they called a "lopsided contract."

The 2017 audit report of the Light Rail Transit Authority (LRTA) revealed that the agency has made several requests to the DOTr to get the documents that COA wanted. DOTr has not responded. 

State auditors want LRTA to submit these documents otherwise they said they cannot complete a technical and legal review of the multi-billion deal.

The P65 billion LRT-1 deal involved private firm Light Rail Manila Corporation (LRMC). Under the deal, the LRMC assumed operations of LRT-1 and undertakes the extension project that would add more stations up to Cavite. 

It is a 32-year contract that has been in effect since September 2015, and the extension project is now underway.

Differential generation cost, deficit payments

For starters, state auditors said that the LRTA still has not given them copies of pertinent bid documents, project breakdown, contract review by the Department of Finance and other necessary documents.

The COA also said LRTA has not answered questions on whether the government and the private firm have both fulfilled their obligations as stated on the contract.

State auditors also want clarification on the issue of differential generation cost (DGC).

According to groups who oppose the project, when power rates increase, it is the government which will shoulder the diference. They said that the scheme can become the basis of fare hikes later on, because the cost would be passed on to passengers.

According to COA, the contract indeed stipulated that the grantors – or the government – shall be liable for the DGC “brought about by extreme fluctuations in power.”

COA wanted a clearer definition of “extreme fluctuations of power” to “avoid arbitrariness in the determination of what it constitutes.”

There is also the so-called deficit payment, a scheme wherein if the government-approved fare is lower than the fare that the private firm wants, the government shall pay the difference.

The scheme run counter to the Build-Operate-Transfer or BOT law, said COA.

Assuring the Concessionaire that any variance shall be paid may be construed as a government subsidy in the form of guarantee of revenue during the entire concession period which the BOT Law did not envision this,” said COA.


The responsibility to provide answers fall on the past administration’s Department of Transportation and Communications (DOTC). It was during their watch that the department and the LRTA entered into a concession agreement with LRMC under the public-private partnership (PPP) program.

But, it is the Duterte-era Department of Transportation (DOTr) which is now overseeing the project, and appears to be equally stringent on releasing documents.

“(LRTA) Management informed us that the documents pertaining to the Concession Agreement are with the Department of Transportation (DOTr) and they do not have the documents we have requested.  While they informed us that they have requested the DOTr to submit the documents, there was no submission as of to date,” said COA.

COA told LRTA that as the grantor, they should have copies of the documents too. But LRTA still deferred to the DOTr.

“(LRTA) Management during the exit conference explained that they have made several requests to DOTr to provide the documents pertaining the concession agreement but despite of said requests, there was no response from DOTr,” said COA.

The clearing operations for the extension project have started, as COA raised red flags over procurement lapses in the housing segment of the project which would provide homes for informal settlers who will be displaced by the construction. – Rappler.com

Lian Buan

Lian Buan covers justice and corruption for Rappler. She is interested in decisions, pleadings, audits, contracts, and other documents that establish a trail. If you have leads, email lian.buan@rappler.com or tweet @lianbuan.