Government to pay contractor P1.8B for unmet obligations

Chrisee Dela Paz
Government to pay contractor P1.8B for unmet obligations
(UPDATED) But the PPP Center says the amount is not yet finalized

(UPDATED) MANILA, Philippines — The Philippine government is paying the winning concessionaire of the Light Rail Transit Line 1 (LRT1) Cavite Extension deal P1.8 billion ($37.66 million) to compensate for the delays and failure to meet contractual obligations, an official of the private concessionaire said.

“For now, our primary purpose is to serve the public and get reasonable returns. Based on this, if we stuck, because we inherited a system that is below the base line that were promised in the concession agreement, then we need to be compensated for part of that,” Ayala Corporation managing director John Eric Francia said in a media roundtable in Makati City Friday, January 15.

Ayala is part of the Light Rail Manila Corporation – the group that bagged the the P64.9-billion ($1.36-billion) deal to extend LRT1 from Baclaran, Pasay City, to Bacoor, Cavite.

Metro Pacific Investments Corporation (MPIC) and Macquarie Infrastructure Holdings (Philippines) Private Limited are also part of the Light Rail Manila group.

The LRT1 Cavite Extension deal has been subject to repeated feasibility studies, bid out twice, and is now stalled because of a legal tussle.

The first bidding in August 2013 failed due to misallocation of risk and the insufficiency of allowed subsidy. 

It was put on the auction block again in May 2014 with the lone bidder, the group of Ayala and MPIC, winning the project.

The construction of the project has not even started yet due to an ongoing legal tussle involving the location of a “common station” shared with another rail line.

The cost of these issues on LRT1 Cavite extension project? A year’s delay and foregone revenue.

“If they gave all the boxes in the concession agreement, we wouldn’t charge the government anything,” Francia, who is also the president and CEO of AC Infrastructure Holdings Corporation, told reporters.

“Of course, there is foregone revenue. But that’s a sensitive topic,” Francia replied when asked how much it has been losing because of the construction delays. (READ: PH’s PPP thrust: Work in progress)

The Ayala executive said that the transportation department and his consortium on Friday discussed how they will move forward with the LRT1 Cavite Extension deal.

But according to the PPP Center, “the government is still engaged in ongoing talks with Light Rail Manila on the execution of contractual obligations for the LRT Line 1 PPP project.”

“Both parties have not come up with any figure at this point. If there are such claims for unmet obligations, the contract provides for a process by which claims or disputes are to be resolved,” PPP Center clarified a week after this article was published. 

Ayala says its consortium is spending as much as $200 million for the rehabilitation of the existing LRT1 line. Photo from Chrisee Dela Paz/Rappler

Rehabilitate existing LRT1

“What we’re doing now is rehabilitate the existing system. We are expecting to increase it some more, to more than 30% within the next 12 months or so,” Francia said.

But according to him, his group will be unable to start the construction of the Cavite extension without the compromise agreement of the common station.

“We are really talking about major overhaul already, which is where we think the system needs today,” Francia said.

For the total rehabilitation of the existing LRT1 system, Light Rail Manila group is spending around $150 million to $200 million, Francia said.

“We are looking at what the existing system needs, regardless of the concession agreement. Then we identify. We have to work on the rolling stock, rail tracks, rehab the stations, and we have to upgrade the signaling system,” the Ayala executive said.

Other than the LRT1 deal, Ayala has also bagged the Automatic Fare Collection System and Integrated Transport System South Terminal PPP deals.

Ayala’s Francia said his firm is also interested to bid for LRT Line 6, Ninoy Aquino International Airport (NAIA) Development, and North-South Railway South Line projects. –

 $1 = P47.79

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