Marcos abolishes Northrail 4 years after deactivation

DERAILED AND ABANDONED | An Inquirer photo taken on July 12, 2018, shows the abandoned concrete columns built for the Northrail project near MacArthur Highway in Malolos, Bulacan province. (File photo by NIÑO JESUS ORBETA / Philippine Daily Inquirer)

MANILA, Philippines — President Ferdinand Marcos Jr. has ordered the abolition of the state-run North Luzon Railways Corp. (Northrail) which was tasked with overseeing one of the Duterte administration’s “Build, Build, Build” transport projects that was supposed to be funded by China, Malacañang said on Saturday.

The abolition order came four years after the Governance Commission for Government-Owned or -Controlled Corporations (GCG) ordered the deactivation of Northrail.

Memorandum Order No. 17 (Memo 17) signed by Executive Secretary Lucas Bersamin on Oct. 19, said Northrail was no longer “cost-efficient, and does not generate the level of social, physical and economic return vis-a-vis the resource inputs.”

The order stated that Northrail was “not producing the desired outcomes” and was “no longer achieving the objectives and purposes for which it was designed and created.”

BCDA subsidiary

There was no immediate explanation from Malacañang on why the abolition order was issued four years after the company was deactivated in May 2019.

Northrail was established in July 1995 as a wholly owned subsidiary of the Bases Conversion and Development Authority (BCDA) to develop, construct, operate, and manage a railroad system to serve Metro Manila, Central and Northern Luzon.

The state-owned company was created to implement the Northrail project to link the northern flank of Metro Manila with Diosdado Macapagal International Airport in Clark, Pampanga.

The first phase of the 80-kilometer rail line was to connect Caloocan City to Malolos City in Bulacan province.

The Department of Transportation (DOTr) said the railway project had been delayed and subjected to many controversies since Northrail was established.

“However, the Duterte administration, through the DOTr, has expressed its full commitment to finally deliver this project before the end of the President’s term,” the BCDA said in a statement in November 2017.

According to a 2022 report by the Commission on Audit (COA), Northrail entered into an engineering, procurement, and construction contract with Spanish Railways Group (SRG) in 1996 under the Ramos administration for the construction of the railway system between Caloocan and Malolos.

READ: WHAT WENT BEFORE: The Northrail Project

Estrada years

But the project did not push through because it could not raise the necessary funds.

During the short-lived Estrada presidency from 1998 to 2001, Northrail and the BCDA tried getting funding for the Northrail project from Japan but the Japan Bank for International Cooperation financed the Subic-Clark-Tarlac Expressway instead.

The rail line became a flagship project of former President Gloria Macapagal-Arroyo in 2003.

Memo 17 designated the BCDA as the administrator and liquidator of Northrail.

The BCDA was also tasked with settling the company’s liabilities, including the payment of separation incentive pay to affected officials and personnel.

The COA report indicated that its “capital deficiency” (assets minus liabilities) amounted to a little over P11 billion in 2022. Northrail and China National Machinery and Equipment Corp. Group (CNMEG) signed the agreement to build the Caloocan-Malolos section of the railway in December 2003 for a contract price of $421 million.

According to a 2005 study by the University of the Philippines Law Center, the Northrail contract was improperly packaged as an executive agreement to evade public bidding.

The contract with CNMEG, which later changed its acronym to Sinomach, was amended in September 2009, increasing the contract cost to $593.88 million to address the problems encountered in the implementation of the original contract. However, these problems were not resolved.

The anomalous railway project has been hounded by allegations of overpricing, with its cost rising from an initial $503 million to about $2 billion.

‘Serious legal issues’

After taking office in 2010, President Benigno Aquino III ordered a review of the Northrail-CNMEG contract.

In February 2012, the Supreme Court ruled that the Northrail-CNMEG deal was not an executive agreement and that CNMEG was not immune from suit.

Northrail later notified Sinomach (formerly CNMEG) that it could no longer proceed with the project due to “serious legal issues” in the contracts.

In August 2012, Sinomach issued a notice of termination of the contracts with Northrail and filed an arbitral case seeking $161 million from the Philippine company for its expenses and for damages.

The government and Sinomach reached an out-of-court settlement in November 2017.

Sound decision

Infrawatch PH, a public policy think tank monitoring major infrastructure in the country, said that abolishing Northrail was a sound financial decision as it was no longer benefiting the commuting public.

“Continuing government funding for Northrail absent an actual ongoing project constitutes poor fiscal management particularly at this time of limited fiscal space,” Terry Ridon, the group’s convenor, told the Inquirer on Saturday.

Ridon notes that Northrail has been superseded by another rail project, the North-South Commuter Railway (NSCR) system.

The NSCR will have 35 stations and will pass through 28 towns and cities from Pampanga to Laguna. It is expected to serve over 1 million passengers daily once it is fully completed by 2028.

Another major railway project is the Metro Manila Subway, which is designed to have 17 stations linking Valenzuela and Pasay City. The project, which could serve 519,000 passengers daily, is targeted to be finished also by 2028.

Pending cases

In August, the DOTr, Japan International Cooperation Agency and Asian Development Bank inked an agreement to craft a 30-year rail master plan covering the National Capital Region, Central Luzon and Calabarzon. The goal is to increase rail passenger trips and equip facilities with new technologies and modern equipment.

Mr. Marcos also ordered the BCDA to conduct an inventory of Northrail’s current programs and projects “which are to be terminated or transferred to concerned government agencies, subject to existing laws, rules and regulations.” According to the memorandum, the BCDA must conduct an inventory of Northrail’s pending cases and formulate the actions needed for them to be resolved.

It said all affected Northrail personnel may avail of the following separation benefits, which are based on their years of service in the company:

• First 20 years: 1.00 x monthly basic salary (MBS) x number of years
• 20 years and 1 day to 30 years: 1.25 x MBS x no. of years
• 30 years and 1 day and above: 1.50 x MBS x no. of years

—WITH A REPORT FROM INQUIRER RESEARCH