Chinese contractor threatens to pull out of Northrail project

A China-owned contractor working on the $503-million Northrail project has threatened to pull out of the project over the nonpayment of cost overruns worth $299 million and other breaches of the original agreement, according to documents obtained by ABS-CBN News Channel (ANC).

Last June 3, the China National Machinery and Equipment Corp. Group (CNMEG) sent a demand letter to North Luzon Railways Corporation (NLRC), saying that it would terminate the contract within 30 to 60 days if Northrail fails to take steps to comply with the terms of the contract and remedy several breaches of the original agreement.

Among the breaches of contract mentioned in the June 3 letter obtained by ANC were:

- failure to provide contractor access to the site and the necessary right of way;

- failure to remove all residents living along the right of way and to dismantle and remove all obstacles including trees, shelter and building facilities;

- failure to provide land to contractor for temporary use;

- failure to approve the design document and technical specifications;

- failure to make payments to the contractor;

- failure to provide the diagram of existing undergound networks pertaining to the electricity, gas, water and sewerage facilities in the working area;

- failure to compensate the contractor for extra costs;

- failure to adjust the contract price.

The letter was signed by Zhang Chun, director general for International Engineering Projects of CNMEG.

The Northrail project started in 2004 after the Arroyo administration entered into a deal with the Chinese government to build a railway connecting Manila to Northern Luzon. Phase 1 of the Northrail project would begin in Caloocan and stretch out to Clark, Pampanga.

The $503 million project cost would be funded by the Chinese government through a loan, with the provision that the project would be handled by a Chinese contractor.

Last May 13, CNMEG executive project manager Ren Junan wrote to then NLRC president Arsenio Bartolome III to ask for a $299.4 million increase in the original contract price. The price adjustment includes $210,770,635 in "contractor's extra costs" and $88,634,975 for "variations of scope of works from the original contract."

If approved, the price adjustment would inflate the project cost to more than $800 million. ABS-CBN News