Arbitration for subway project

MANILA, Philippines – Barring a timely intervention by the government, the country’s first subway project is headed for arbitration at the Singapore International Arbitration Center.

Philippine Infradev Holdings Inc., the contractor in the P200-billion Makati City Subway project, had initiated arbitration proceedings against Makati because the project was “no longer economically and operationally feasible.”

On account of the Supreme Court ruling that redrew the territories of the cities of Makati and Taguig, which resulted in five of the planned subway stations falling under the jurisdiction of Taguig, and to which the latter had some issues, the financial viability of the project was adversely affected, prompting Infradev to withdraw from it.

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As of 2024, Infradev had reportedly booked impairment losses of P44 billion from the delay in the completion of the project, divided into P39 billion in intangible assets and P5 billion in construction costs.

According to Infradev, the arbitration is aimed at reaching an impartial resolution on its joint agreement with Makati. As the “aggrieved” party in the now aborted project, Infradev is expected to demand the reimbursement with interest of the expenses it had already incurred, plus damages for the cancellation of the project.

For now, the reasons behind the non-inclusion in the project of the stations located in Taguig are unclear, but it is common knowledge in political circles that the families that hold sway in the two cities are not in the best of terms, personally and politically.

Unless the parties agree on a panel of arbitrators (which can be expensive and time consuming), arbitration in Singapore usually consists of only one arbitrator who is chosen from a list of accredited arbitrators by the contending parties or, if they fail to come to an agreement, by the head of the arbitration center.

Although the project was initiated and entered into by Makati, it may, from the point of view of international construction companies, be considered as an undertaking of the national government.

The arbitration would put a stain on the reputation of the Philippines as a credible or reliable counterparty in international transactions. When foreign companies enter into contract with entities based in the Philippines, they expect its terms and conditions to be complied with in good faith.

And in case any unanticipated issues arise from its implementation, the party in the best position to resolve them should take all the necessary steps to maintain the integrity of the agreement.

In contractual disputes, going to arbitration is resorted to only after all efforts by the parties to agree to reach a mutually acceptable solution fail. The mere filing for arbitration would be like “burning the bridge” between the contending parties.

Their rift would be a thorn in their side that could adversely affect possible future commercial relations between them and their affiliate companies.

As things stand at present, the only way to avoid the reputational damage that would result from the arbitration is for the Department of the Interior and Local Government to mediate the differences of the two cities on the project.

Note that the families at the helm of those cities have a candidate each in the senatorial slate of the administration, which provides the President the opportunity to use moral suasion on the city mayors to come to an agreement on the location of the subway stations within their territories.

It would be a crowning glory for the administration if the project is made operational before the President’s term ends in 2028.

Aside from the adverse effects of the arbitration on the country’s image as a suitable investment site, there looms the possibility that Makati may be ordered to pay Infradev millions of pesos as reimbursement for the expenses it had already incurred, with interest, plus damages.

That prospect would not be good for Makati’s social welfare programs. INQ

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