Japan lending to MRT-3 smacks of ZTE scam

In the news now: State auditors discover in warehouses unused, rotting, defective equipment for transport security and disaster response. In the news sometime soon: State auditors discover in MRT-3 depot unused, rotting, defective train coaches.

The Dept. of Transportation can’t explain why it’s still keeping the 48 inoperative coaches from China. Japanese evaluators have advised to return the units for repair to Dalian Co. Serious design and weight flaws obstruct proper upkeep, in breach of contract specs. Fifteen critical tests, covering 94 components, had been left undone in-factory and post-delivery. The trains are un-certifiable for safety, reliability, or durability. German engineers hired for P53 million had found the same faults, and told DOTr to act fast.

DOTr officials must heed the techs, better sooner than later. None of them wish to sign for product acceptance and satisfaction – and risk imprisonment for graft. Of Dalian’s P3.8-billion price, 15 percent or P565 million was paid upon order in 2013. The trains arrived late and lacking in 2016-2017. Now the Chinese firm and embassy are pressing for the balance. MRT-3 ex-general manager Al Vitangcol has exposed a five-percent or P190-million kickback in the purchase.

The idle trains are taking up precious little space at the MRT-3 depot-repair yard. That facility and power supplies along the 17-km tracks are on P827-million upgrade, for four-coach train sets from the present three. Without 48 working coaches, that project of Sec. Arthur Tugade would end up a white elephant.

DOTr can’t explain too why it’s borrowing P17 billion from Japan to rehabilitate MRT-3 – when giant Sumitomo Corp. long has offered to do it for only P7.5 billion. Why the staggering P9.5-billion extra?

U-Sec. for Railways Timothy John Batan has finished preliminaries with Japan International Cooperation Agency (JICA). To be overhauled and maintained over 31 months are the original 73 coaches, tracks, catenaries, signaling, and stations, including elevators and escalators, the depot-repair yard and equipment. JICA and Batan separately are talking with Sumitomo to take on the work. Sumitomo was MRT-3’s constructor in 1998-1999 and maintenance servicer in 2000-2012.

Yet twice already, in 2016 and 2017, MRT-3’s private owner-builder Metro Rail Transit Corp. had conveyed Sumitomo’s P7.5-billion offer. Work scope practically is the same, yet the Japanese firm promises to finish faster in 26 months. One-year warranty is standard. As build-lease-transfer franchisee, MRTC can serve as pass-through, or DOTr can pay Sumitomo directly.

The nearly P10-billion excess smacks of the ZTE scam, exposed in this column in 2007. The China Exim Bank loan was the same: P17 billion. Chinese telecom ZTE was to build a national broadband network for P7 billion. But as whistleblowers attested in the ensuing Senate inquiry, there was a P10-billion “tong-pats” or overprice. Implicated were the then-First Couple, the Comelec chief, transport-communications officials, and the ruling party. Efforts by the then-National Economic & Development Authority (NEDA) secretary to “moderate their greed” were futile. ZTE allegedly paid off brokers $10 million to make then-President Gloria Arroyo sign the contract around midnight at the Boao airport, Hainan. So odious was the stink that Arroyo had to rescind it. Filipinos would have repaid the P10-billion kickback. Criminal indictments and court trials followed. (A chapter dwells on it in my book, Exposés: Investigative Reporting for Clean Government). The US House intelligence committee too investigated the Chinese firm for shady activities.

Made public last week were court testimonies in Texas of ZTE’s institutionalized corruption. ZTE was set up partly as a front for military espionage. Bribes routinely were handed out to leaders in 18 African, Latin American, and Asian countries, including the Philippines, to bag deals. (Details in https://www.smh.com.au/business/companies/china-s-zte-was-built-to-spy-and-bribe-court-documents-allege-20180531-p4ziqd.html) In April the White House forbade federal agencies, the military, and their contractors from purchasing from or supplying to ZTE, for breach of trade sanctions against Iran and North Korea. Britain and Australia are to follow suit.

Batan, JICA, and Sumitomo had better learn from that scandal. Transparency is best, lest they be immortalized in congressional annals for wrongdoing. DOTr has yet to submit the P17-billion JICA loan for NEDA scrutiny. JICA must justify to the Japanese Diet why it is lending to a project where the ultimate beneficiary is a private firm, MRTC, which will hold the MRT-3 franchise till 2025 and possibly beyond. The Japanese do not look kindly on misusers of their taxes.

Sumitomo is in a bind. MRT-3 is its world showcase of superb rail construction and maintenance. Six years of slipshod upkeep by influence peddlers, starting 2012 in the past DOTr up to remnants today, had dilapidated the system. Its P7.5-billion rehab can reverse the slide. But in Singapore is a DOTr arbitration case against MRTC allegedly for poor maintenance in 2000-2012. That’s the same period when Sumitomo was in charge. Filed in May 2016, a month before the past DOTr secretary stepped down, the suit obviously is to cover up the deterioration that began in 2012. Tugade for more unexplained reasons is continuing the suit, paying tens of millions of pesos in foreign attorneys fees. If Sumitomo accepts JICA and Batan’s invitation to do the overpriced rehab, it would ruin its reputation. If it does not contest the Singapore case, it would be on record as a bad contractor.

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