COA dismayed over Northrail’s failure to operate

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Thursday, July 24, 2014

THE North Luzon Railways Corp. (Northrail) failed to operate as a government-owned firm for almost two decades despite being funded with over P1.4 billion to run and put in place a railroad system that will serve Metro Manila, Central and Northern Luzon, state auditors said.

In its 2013 annual audit report, the Commission on Audit (COA) said that the Northrail remains in its "pre-operating" stage although it was created as a subsidiary of the Bases Conversion Development Authority (BCDA) in 1995.

Based on the report, Northrail's woes started in 1996 when it entered into an agreement with the Spanish Railway Group (SRG) for the construction of the railway system that was supposed to link Metro Manila to Northern Luzon provinces.


The deal failed to pick up after the SRG was unable to raise the needed funds for the project.

In 2003, the state-run firm and the China National Machinery Industry (SINOMACH) Corporation owned by the Chinese government, agreed to implement a Northrail railroad project connecting Caloocan City to Malolos.

"Whatever optimistic goals BCDA had in store for Northrail was short-lived with the passage of Executive Order 232 on August 19, 2003, directing the Secretary of the DOTC to exercise primary oversight functions over the Northrail Project, transferring from the BCDA under the umbrella of the Office of the President and to the DOTC," COA stated in their report.

The SINOMACH deal was terminated by then Transportation and Communication Secretary Manuel Roxas II.

Through his representative and Office of the Government Corporate Counsel, Roxas rejected the $593.88 million project, insisting that the deal suffered from "serious legal considerations and problems".

"No public bidding and absence of certificates of appropriation and availability of fund were among the legal problems why north rail project was terminated," COA said.

The legal controversy between Northrail and SINOMACH has been elevated for arbitration at the Hong Kong International Arbitration Center.

"Embroiled in the termination of its infrastructure contract with SINOMACH, Northrail has failed to jumpstart its potential to develop, construct, operate and manage a railroad system to serve Metro Manila, Central Luzon and Norhtern Luzon, and stalled in its pre-operating activities for a span of almost 20 years," state auditors said.

Seeing Northrail to be idle, COA said the sate-run firm should coordinate closely with the Department of Transportation and Communication (DOTC) to determine plans for Northrail.

The state audit firm recommended that Northrail should explore the possibility of working on the proposed 900-kilometer Integrated Luzon Railway and the 90-kilometer commuter railway or Airport Express Rail under the Public-Private Partnership Center.

"Otherwise, Northrail may no longer fulfil the purpose for which it was created and at such will lose its going concern value," said COA. (Sunnex)

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