[Analytics] Duterte’s dream train still stuck at the station

Over halfway into Philippine President Rodrigo Duterte’s six-year term, the train he promised to build across the southern island of Mindanao has yet to break ground. Duterte, the first Filipino president to hail from the nation’s south, touted the Mindanao Railway Project (MRP) as among his government’s priority infrastructure projects during his first State of the Nation Address in July 2016. Bong S Sarmiento specially for the Asia Times.

Duterte has promised but yet to deliver a “golden age” of infrastructure development. The National Economic and Development Authority board, chaired by Duterte, approved the MRP’s first phase at a cost of 35.9 billion pesos (US$689 million) in 2017.

The failure to set the train in motion speaks as much to the Philippines complicated relationship with China, the train’s financial backer, as the government’s inability to push through expensive and complicated infrastructure projects.

In 2016, China offered to provide the Philippines as much as $24 billion in development and investment funds, in line with its ambitious $1 trillion Belt and Road Initiative and in recognition of Duterte’s diplomatic pivot towards Beijing.

To date, though, little of that largesse has been distributed for somewhat unclear reasons as Duterte sustains his diplomatic dalliance with his Chinese counterpart Xi Jinping.

That includes Beijing’s commitment to the MRT, widely referred to as Duterte’s “dream train”, with financing agreements, masterplans and project designs still not finalized.

For Mindanao, the railroad has been a long-time aspiration for linking people, goods and services across the archipelagic nation’s second largest but still largely underdeveloped island.

China has committed to fund the project’s Tagum-Davao-Digos (MRP-TDD) segment, a 102 kilometer first stretch of track that was supposed to start ground-breaking last year but was delayed apparently due to design changes. The MRP-TDD is the first phase of the longer 2,000-kilometer railroad that the government plans to build across Mindanao.

The train is designed to reduce travel time from the cities of Tagum to Digos, passing though Duterte’s hometown of Davao City, from 3.5 to 1.3 hours, DOTr data estimates. The agency expects MRP-TDD to accommodate at least 134,000 daily riders.

Disagreement over costs and design are slowing progress. In July, the Interagency Coordinating Committee-Cabinet Committee (ICC-Cabcom) approved a proposal to more than double the MRP-TDD’s cost to 82.9 billion pesos ($1.6 billion) to accommodate design changes.

The Department of Transportation (DOTr) now predicts that construction could commence within the first quarter of 2020 and that the line could be partially opened by February 2022, depending on bidding processes and financing negotiations.

“It is very likely that the design and build contract can be awarded around the end of January 2020,” Eymard Eje, DOTr assistant secretary for project implementation of the Mindanao cluster, told Asia Times.

He says his department expects to receive from Beijing a list of potential Chinese developers by the end of October. Eje also said he expects the loan agreement with China to be signed by March or April 2020.

The terms of those loans, including interest rate and payback period, are still unclear.

The Philippine Department of Finance (DoF) recently revealed that Chinese loans given for the Kaliwa dam and Chico River irrigation projects, both in northern Luzon island, carry 2% nominal interest rates with a 20-year maturity and seven-year grace period.

Eje said the winning MRP-TDD contractor will be required to partially operate (PO) the segment within 24 months of closing the contract. “This should enable the operation of the PO section before the end of the Duterte administration in June 2022,” Eje projected.

An original feasibility study, which the NEDA commissioned to a group of local consultants, has the MRP-TDD segment being built as a non-electrical single-rail track with provisions to allow eventual upgrades into an electrified double-rail line.

An Asian Development Bank study conducted in 2018 estimated the MRP-TDD segment’s cost at 80 billion pesos ($1.5 billion) which took into account previous unforeseen needs for additional structures such as viaducts and bridges, Eji said.

A further evaluation conducted by Arup Ove & Partners Hongkong Ltd, a global design and construction firm with projects in 33 countries, assessed the line’s cost at about 83 billion pesos ($1.6 billion), an estimate which the ICC-Cabcom approved, Eji said.

The higher project cost was due to further changes in civil and structural work needed to accommodate slopes and embankments along the track, and the incremental cost of fixed items such as engineering and project management, he explained.

Eje said that China, as the project’s main funder, is expected to nominate at least three of its state-run contractors to participate in the MRP-TDD’s bidding. He also said land acquisition for the line would affect some 1,900 landowners, representing a potential political risk to the project.

Eje identified potentially interested state-owned Chinese firms as China Railway International Group (CRIG) and China Civil Engineering Construction Corporation (CCECC).

CRIG is a subsidiary of the China Railway Group Ltd, a Fortune 500 global company, according to its website. China Railway’s core business is the construction of railway infrastructure, both at home and abroad.

CCECC has expanded from an international railway contractor to project contracting, civil engineering design and consulting, labor services cooperation, real estate and trading. It has projects underway in over 50 countries in Asia, Africa, America and Oceania.

Li Lin, China’s consul general in Mindanao’s Davao City, tipped China State Construction Engineering Corp (CSCEC) and China Communications Construction Company (CCCC) as also potentially interested in bidding on the project.

CSCEC constructed drug rehabilitation centers built and financed by the Chinese government in the Mindanao provinces of Sarangani and Agusan del Sur, Li said.

CCCC, which also specializes in building highways and railways, is conducting the feasibility studies for a bridge and expressway in Davao City, both donations of the Chinese government, Li noted.

CSCEC, which bid for but was not awarded the rehabilitation contract for war-torn Marawi City, and CCCC have already established representative offices in Davao City, the Chinese diplomat said.

Li said looking to Chinese firms as potential developers for the MRP-TDD is part of the “package of agreement” that comes with China’s loans and donations for infrastructure projects.

He was quick to add, however, that the Philippine government “could choose non-Chinese firms if it thinks they are better than Chinese companies.”

Li described the Mindanao railway “as one of the major cooperation projects between China and the Philippines” following President Xi’s state visit to Manila last November, an occasion that upgraded bilateral ties to “comprehensive, strategic cooperative relations,” according to Li.

Duterte visited China for the fifth time last month, at which he raised the two sides’ escalating South China Sea row with Xi. It was the eighth time that the two leaders have met since Duterte’s rise to power in mid-2016.

Duterte’s latest visit to China in August appeared to pay off financially, judging by the $219.7 million railway loan he secured for the Philippine National Railways’ long-haul project on the main island of Luzon.

In the Asia Times interview, Li reiterated China’s commitment to fund the MRP-TDD, of which Beijing has said it is prepared to cover at least 80% of the project’s total cost.

The Chinese consul rejected speculation that China is luring the Philippines into a “debt trap” through big infrastructure project loans, not just in Mindanao but across the country.

“The Philippine government has the competence to pay back its debt…It is not an issue to worry about,” Li said, adding that granted “soft loans” will carry “low interest rates.”