Gov’t settles dispute with Chinese firm over Northrail project

The government has struck an out of court settlement agreement over its dispute with China National Machinery & Equipment Corp. Group (currently China National Machinery Industry Corporation or Sinomach), the former contractor of the 80-kilometer Caloocan to Malolos segment of the Northrail project.

 (Photo: Department of Transportation – Philippines/Facebook)

MANILA — The government has struck an out of court settlement agreement over its dispute with China National Machinery & Equipment Corp. Group (currently China National Machinery Industry Corporation or Sinomach), the former contractor of the 80-kilometer Caloocan to Malolos segment of the Northrail project.

The deal will save the government more than USD100 million or PHP5 billion in payment of claims to Sinomach and other legal fees and arbitration costs.

Under the agreement, both parties will waive their claims against each other and declared that there will be no more payment by Northrail to Sinomach, vice versa, and share the remaining arbitration fees equally.

The settlement agreement was signed by Northrail ex officio chairman Department of Transportation (DOTr) Secretary Arthur Tugade and Bases Conversion Development Authority (BCDA) President Vivencio Dizon.

The signing was witnessed by Department of Foreign Affairs (DFA) Secretary Alan Peter Cayetano, Chinese Ambassador to the Philippines Zhao Jianhua, Executive Secretary Salvador Medialdea and Department of Budget and Management (DBM) Secretary Benjamin Diokno.

It was approved by the Commission on Audit (COA) and was certified legal and enforceable under Philippine law by the Office of the Government Corporate Counsel (OGC).

As of March 2017, Northrail, a fully-owned subsidiary of BCDA, has already spent PHP161 million for its participation in arbitration proceedings, including fees for its legal consultants.

Without the agreement, it expects to spend an additional PHP500 million if the arbitration hearings originally scheduled in November 2017 would take place.

The settlement was a result of series of negotiations that were conducted since January 2017.

“Besides avoiding the potential USD 106 million liability and more than PHP 500 million additional legal expenses, the Settlement Agreement will ensure that there will be no more contractual issues that may hamper or compromise the development of the DOTr-Philippine National Railways (PNR) Manila to Clark Railway project, which is one of the top priorities under the Duterte Administration’s Build, Build, Build program,” the DOTr said in a statement Monday.

The PNR Manila to Clark Railway Project is expected to further decongest traffic in Metro Manila and bring economic development to the regions north of the capital particularly the Central Luzon region where an estimated 11.22 million Filipinos reside and earn their living.

The settlement will put to an end the arbitration proceedings initiated by Sinomach in 2012 after it was notified by Northrail that it can no longer proceed with the implementation of the project due to serious legal issues in the contracts.

In February 2016, Northrail lost the first phase of the arbitration proceedings. The Arbitral Tribunal in Hong Kong published a Partial Award, which upheld the validity of the contracts with Sinomach.

The Tribunal likewise ordered Northrail to bear all costs relating to the first phase of arbitration.

It thereafter directed the parties to proceed with the next phase, which is the determination of liability and extent of liability.

Sinomach is claiming almost USD106 million from Northrail for costs it incurred under the contracts and for damages.