COA: DOTr-Sumitomo deal on MRT3 rehab, maintenance should lift ban on using Dalian trains

The Commission on Audit (COA) urged the Department of Transportation (DOTr) to renegotiate its P17-billion contract with Sumitomo Corporation for the rehabilitation and maintenance of Metro Rail Transit 3 (MRT3) to allow the use of 48 Dalian Light Rail Vehicles (LRVs) for the MRT3.

In its annual audit report on the DOTr, state auditors said that Section 5.3 of the DOTR-Sumitomo deal bans the use of the Dalian trains and that their use will be subject to imposition of fees and penalties by Sumitomo.

“The Employer's Event of Default under Section 5.3 restricting the use of other rail vehicles are used without the consent of the contractor (Sumitomo) are contractual provisions that it is believed to be grossly disadvantageous to the government," COA said.

"If not lifted, it will pose a serious threat of increased government spending as the MRT3 is bound to obtain consent from the contractor every time there is a felt need to deploy the Dalian trains," COA added.

State auditors also lamented that the same DOTR-Sumitomo contract also limits train speed to 40 kilometers per hour (kph) or lower, if conditions do not allow 40 kph, until Sumitomo issues a Rehabilitation Completion Readiness Notice.

Given the restrictions of the DOTr-Sumitomo deal, COA said that the DOTr completed a 150-hour validation test and subsequently issued a Provisional Acceptance Certificate for only nine out of the 48 Dalian trains owned by the Philippine government and purchased during the preceding Aquino administration.

The remaining 39 Dalian LRVs (Light Rail Vehicles), on the other hand, have yet to complete dynamic tests and 1,000-kilometer test runs.

“Unless the aforementioned conditions that restrict the deployment of the Dalian LRVs and the rights and remedies of the contractor to collect a sum of money from DOTr if other rail vehicles are used in the mainline are waived or lifted, the nine provisionally accepted Dalian LRVs cannot be used for revenue operations and the conduct of dynamic tests and 1,000-kilometer test runs of the other 39 LRVs cannot be completed,” COA said.

“The riding public will still be deprived of a comfortable, safe and reliable transport system,” state auditors added.

DOTr, in response to COA’s findings, argued that the Dalian trains were excluded from the DOTr-Sumitomo MRT3 deal because the assessment whether the Dalian trains are compatible with the system was not yet done when the DOTr-Sumitomo maintenance agreement was inked in December 2018.

In addition, DOTr said that including Dalian in the project will require renegotiation with the Japan International Cooperation Agency (JICA) for the financing, translating to more delays.

DOTr, however, also said in its response to COA findings that the assessment of Dalian trains happened from January to October 2018, meaning such assessment was finished before the DOTr-Sumitomo deal was inked in December 2018.

Given COA’s findings, DOTr relented and said that it already proposed several amendments to DOTr-Sumitomo deal which would still maintain JICA as financier of the loan, subject to JICA concurrence.

COA, however, maintained that the DOTr should negotiate with Sumitomo for the lifting of the restrictive condition on the deployment of the Dalian rains and trains from other manufacturers “to ensure the eventual regular operational deployment of the Dalian trains.”

In addition, COA said the MRT3 management must take precautionary measures and conduct an impact assessment of the proposals made in terms of economy, financial viability, benefits and public interest, as well as resolve the issue on the increasing amount of liquidated damages on the delays of Dalian train deployment.

“Nonetheless, this Audit Team shall continue to monitor the progress of DOTr's negotiation with Sumitomo and the eventual revenue operations of the Dalian Trains,” COA said. — BM, GMA News