The events that led to Al Vitangcol’s conviction

Last week, the Sandiganbayan convicted Al Vitangcol III, former general manager of the Metro Rail Transit (MRT) 3, of graft and for violating government procurement laws. Among the incorporators of PH Trams was Arturo Soriano, Vitangol’s uncle-in-law.

PH Trams was paid $1.15 million per month, for a six month term to maintain the train system. The contract was said to be extremely overpriced as it applied only to maintenances services and labor, not to spare parts.

Vitangcol and Soriano were both convicted and sentenced to six to eight years in prison. Vitangcol was also permanently disqualified from holding public office.

Back in 2017, I wrote a column that described in detail how MRT-3 became so problematic and the events upon which PH Trams was born.

Allow me to extensively quote my own column which was publish in this paper. It explains and provides context to Vitangcol’s conviction.

So where did it all go wrong for MRT 3?

“A lethal cocktail of bad engineering choices, politically driven decisions and mismanagement made MRT-3 the mass-moving hazard it is today.

“The series of errors started back in 1995. It was then that a consortium led by the Fil-Estate Group, along with Ayala Land, Ramcar and the Campos Groups — formed a company called the Metro Rail Transit Corporation (MRTC). The consortium was awarded the contract to Build-Lease & Transfer the MRT-3 line traversing EDSA.

“The contract called for MRTC to build the railway structure, construct 12 stations along its span, purchase the rolling stock (the trains) and install its signaling system. The deal also made MRTC responsible for maintaining the system and procuring its spare parts. Government, through the Department of Transportation and Communications (DOTC), was in charge of the daily operations of the system.

Government was to pay the MRTC a lease rate equivalent to the amortized cost of the train line, plus a 16% per annum return on capital. After a period of 25 year period (ending in 2025), the ownership of the line would revert back to government.

“While a 16% return on capital is unusually high for a standard Build-Lease & Transfer contract, it has no bearing on the maintenance woes of the system. The problem lay in the type of rolling stock selected by MRTC.

See, the Czech-made Tarta RT8D5M was not the appropriate choice for a high-volume line like MRT-3 in the first place. Its specifications are more akin to a tramway that runs on street level, rather than that of a metro rail. Trams are designed to run at varying speeds, often stopping to give way to traffic lights, intersections and pedestrian crossways. They are not designed to operate at maximum speed and at maximum capacity, all the time, like a metro system can. Pushed to the limit, the trams were bound to break-down given the stress of usage — and break-down they did.

“The correct choice of rolling stock would have been one using metro-technology, similar to LRT2, which can withstand higher operating strain. “In 2001, MRTC awarded the maintenance and the procurement of spare parts to Sumitomo under a ‘pass-through’ agreement. A ‘pass-through agreement’ is one where government paid the cost of maintenance and spare parts to MRTC, who, in turn, would forward payment to Sumitomo. The system worked well as it allowed Sumitomo to purchase the spare parts it needed to keep both the trains and rails in good condition. Under this arrangement, MRT-3 operated with relative reliability from 2001 to 2010.

“In 2010, newly elected President, Noynoy Aquino, appointed Ping de Jesus as the Secretary of the DOTC. It was the same year that the pass-on agreement with Sumitomo was to expire. Secretary De Jesus extended the Sumitomo contract for one more year to give him time to formulate an alternative plan for the maintenance of the trail line.

“In early 2011, the DOTC crafted a plan to integrate the operations of MRT-3 and LRT-1 in preparation for the eventual expansion of LRT-1 to Cavite. The plan would have unified the maintenance systems of both train lines, a move that would have resulted in massive savings on maintenance costs.

“Sumitomo was qualified to bid for the contract along with other international engineering groups. The bidding was to be held on July 2011.

“A few weeks before the bidding date, however, Secretary De Jesus resigned from his post due to health reasons. Mar Roxas was assigned as his replacement. Roxas’ first act as the new DOTC Secretary was to cancel the bidding exercise.

“Roxas’ move proved to be catastrophic. In one fell swoop, not only did Roxas trash a perfectly good long-term maintenance plan for both MRT3 and LRT 1, he also left MRT 3 with no maintenance contractor. Remember, by this time, the Sumitomo contract had expired.

“Realizing his mistake, Roxas scrambled to renew the Sumitomo contract on annual and six month terms. This was a bad decision since Sumitomo (or any other maintenance contractor, for that matter) would naturally not invest in long term preventive maintenance programs given the short term nature of its contract. The rolling stocks, rails and signaling systems began to deteriorate. This is when system failures began to occur.

“In October 2012, Roxas, through MRT General Manager Al Vitangcol, awarded the maintenance contract to a firm called PH Trams CB & T. Two of PH Trams’ six incorporators-directors were Arturo Soriano (Vitangcol’s uncle-in-law) and Wilson T. De Vera. Vitangcol concealed the fact that Soriano was the uncle of his wife.

“As for De Vera, it will be recalled that he was the man accused by the Czech Ambassador of attempting to extort $30 million from Czech train maker Inekon back in July 2012. Also among its directors were Marlo de la Cruz and Manolo M. Maralit.

“By this time, Roxas was moved to the DILG and Secretary Jun Abaya took over the helm of the DOTC. Abaya’s first act was to ratify the contract of PH Trams even if the bidding process was allegedly a fluke.

“The terms of PH Trams contract was problematic too. It called for PH Trams to provide the manpower for the maintenance of MRT-3, while government was to handle the procurement of spare parts. This proved to be a bad formula considering the tedious process of government procurement. In most cases, government could not provide the spare parts on time. This left PH Trams with no choice but to resort to remedial repair work or “band-aid solutions” to keep the trains running. This caused the entire system to deteriorate even more rapidly. This went on for three years.

“In 2015, the maintenance contract was awarded to SBI CB&T a Filipino-German partnership, and then, to Busan Universal Rail, Inc. in 2016. Given the short term contracts given to these firms, neither invested in long term solutions for MRT-3. The trains deteriorated to point where they became safety hazards. This was when derailments of trains and uncoupling of cars began to occur.

“With one error of judgment over the other, the MRT-3 line was left in a pitiful state. Most trains were out of commission due to damage and lack of spare parts. In fact, only 13 out of 73 trains were working as of February 2015. Too, the rails were in need of rehabilitation and the signaling system needed to be replaced.

“With its back against the wall, the DOTC purchased 48 new train cars from Dalian of China. The new trains were meant to augment the ageing and dilapidated Czech-made units. By this time, it was 2015 and the Presidential campaign was in full swing with Mar Roxas running as the administration’s candidate.

“Roxas was getting a lot of flack for the MRT-3 mess. He was desperate — he needed to show the public that relief was on the way.

“He had the trains delivered from Dilian even without their motor, couplers and signaling system just to have something to show.

“The public relations stunt was not enough to assuage the anger of the public over the MRT-3 mess. In many respects, it cost Roxas’ his presidential bid.”

The story of MRT-3 only proves that when political interest and greed collide, rationality flies out the window, corruption is committed and the public pays the price for it. May the Vitangcol’s experience serve as a lesson to all government bureaucrats.

 

Andrew J. Masigan is an economist.