republic of the philippines - dotr -...

Republic of the PhilippinesDEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS

56152

56153

LRT 1ConcessionAgreement

ConcessionAgreement:LRT 1-Schedules to CA- 11 Jan 2013

benefits, be made available in the Data Room? Further,considering that the Transferring Employees will beemployed by the Concessionaire on the Effective Date,kindly confirm that the names of certain TransferringEmployees may be included in a Bidder's proposedorganizational chart.

2. We note that the draft Concession Agreement does notprovide the transitional arrangements between theConcessionaire and the LRTA that will govern, upon theEffective Date, the transfer of all costs associated withutilities, security, taxes, insurance, etc. related to theExisting System. We note, further, that there is no provisionon the transitional arrangements pertaining to the handoverof the maintenance to the Concessionaire. Will theMaintenance Contractor be part of the O&M TransitionTeam as a party to LRTA and will there be such conditions?Kindly provide clarification on these matters.

3. The Key Performance Indicators embodied in theConcession Agreement are the quantifiable measures ofefficiency. May we request the DOTCILRTA to kindlyprovide the last 12 months' actual performance data of theexisting LRT1 system, quantified in the same parameters asembodied in the draft Concession Agreement? Further, wenote that, due to the mechanism for calculating KPI Chargesby reference to KPI Failure Notices for many of the KPlswhich do not relate to reliability and punctuality, a largerproportion of the Concessionaire's income is at risk forthese Secondary KPls than would often be the case onsimilar projects internationally. Given that reducederformance will in an event often lead to reduced

Please see Section 5.1, Part 1 and Part 2 of Schedule 6 andparagraph 3, Part 2 of Schedule 2 of the CA which clarify most ofthe concerns.

The Grantors do not intend to prescribe which contracts (aside fromthe Commercial Contracts, and a few others that will be confirmedsoon) the Concessionaire is to assume or how it is to operate theSystem. The intention of the CA is that the Parties will, in the periodthrough to Effective Date, work out, through the Handover Protocol,what contracts would be transferred and how.

It is the intention that LRTA would bear all operational costs up tothe Effective Date and the Concessionaire thereafter and aclarification will be made to the CA to reflect this.

For many people, LRT 1 represents the only affordable form oftransportation, and there is a need therefore to ensure a minimumlevel of performance by the Concessionaire through a robust KPIframework.

• LRTA does not currently record the KPls in the same way asenvisaged in the CA. However they track the system'sperformance against their own indicators (see monthlyOperational Reports) and have undertaken to provide onetypical recent month. Results will be made available as soon aspossible. In addition LRTA will implement measurement of the4 primary KPls going forward and the results will be made


patronage, in the context of this project where there is noavailability payment and the Concessionaire bears fulldemand risk, we query whether there is any scope to amendand simplify the KPls?

available. Bidders can go to the control center and observe theperformance as part of their due diligence.

• A cap on the aggregate of all KPI Charges will be introduced.This will be applied and reset every month. The value of thiscap will be set at 5%. The CA shall be amended to reflect this.

• For the period from the Bid Submission to the Effective date,LRTA will measure and report the 4 primary KPls. Should theKPI targets not be met for the average of 3 months before theED then the target will be reduced to the average performanceachieved in these three months. The original target shall be re-instated when it has been achieved for 3 consecutive months.

• The Secondary KPls are a reflection of what would be expectedfrom a good operator. There is ample opportunity for theoperator to rectify a deficiency before a Charge is raised. Forinstance, if a deficiency is found, the Concessionaire is issued anotice that includes a timeframe to remedy the deficiency. Acharge will only be assessed if the deficiency is not remediedwithin the prescribed timeframe.

• A change to the KPI measurement for overcrowding will bemade in the next version of the CA. this will now be not greaterthan 95% load factor during peak hours averaged over threemonths. To be applied after the delivery of 10 Grantor trains.The KPI will no longer apply when headway reaches theoperational minimum. In the event that the load factor exceeds95% for a continuous three month period, the Concessionaireshall present to the Grantor a time-bound Remediation Plan toaddress this. The Grantors will review and approve the plan, ifthe Concessionaire fails to implement the agreed plan, theGrantor will take any necessary action and charge the costs tothe Concessionaire through the Balancing Payments.

• KPls for safety (17, 18, 19 & 20) will remain as importantreportable targets but will not attract KPI Charges.


56154 Concession 4. Since paragraph 3 of Part 2 of Schedule 2 to the draftAgreement: Concession Agreement provides that the Concessionaire hasMaintenance the option to continue the existing Maintenance Contract,Contracts may we request the DOTCILRTA to kindly provide records

of the Performance Requirements of the MaintenanceContractor for the last 12 months and to confirm whetherany penalties have been claimed against the contractor inaccordance with the existing Maintenance Contract and, ifso, the amount and basis for such penalties?

5. Further, an Amendment Contract relating to theMaintenance Contract dated 26 March 2010 is available inthe Data Room which refers to an Amended Contract dated6 March 2009 which, however, is not provided in the DataRoom. May we request that a copy of this latter contract (ifstill effective) be provided in the Data Room?

6. Lastly, please provide us with the expiry date of theMaintenance Contract.

56155 LRTl 7. Kindly confirm who will be responsible for the cost andConcession operations of Level 0 and Level 1 hardware and softwareAgreement - 16 components of the AFCS: rail concessionaire or AFCSJanuary 2013 concessionaire. Corollarily, who will employ and assume

the cost of tellers selling tickets at stations? Please alsoadvise whether the Concessionaire will be required to paythe AFCS Concessionaire certain fees and if so, the natureand level of such fees.

56156 LRTl 8. One of the Grantors' responsibilities on the Satellite DepotConcession is the provision for building but it states "if required". CanAgreement - 16 the Grantors pursue the construction of said structure as theJanuary 2013 Satellite Depot will be utilized as stabling facilities for

trains and as such, will need building facilities foremergency maintenance and yardmaster cabin?

Contracts related to the amendment and extension of theMaintenance Contract has been provided in the data room.

The Grantors are currently refining the AFCS position andinformation related to the AFCS shall be provided soon.

Additional information on the AFCS Project shall be provided in thedata room including the Preliminary Information Memorandum forthe AFCS Project.

The phrase "if required" will be deleted.

An indicative sketch of the Satellite Depot, overlaid upon a satellitemap, has been uploaded to the data room, please refer to thisdocument.


56157 LRT 1-Schedules to CA- 11 Jan 2013

9. We note that the definition of "Existing Stations" providedin the draft Concession Agreement does not include the"Balintawak and Roosevelt" stations. Please clarify.Further, may we inquire as to the plans of the DOTCILRTAregarding the Common Station referred to in theintroduction to Part 1 of Schedule 2 to the draft ConcessionAgreement as well as the Malvar Station?

Balintawak and Roosevelt stations are included and the defmed termwill be corrected in the next issue of the CA.

Regarding Common Station, the Grantors plan to implement it andwill either construct themselves or request the Concessionaire at theGrantor's cost. At the moment, the Grantors are considering twopossible options for the location of the Common Station asdiscussed during the Pre-Bid Conference.

56158 ConcessionAgreement:LRT 1-Schedules to CA-11 Jan 2013

10. Schedule 3 has described the Cavite Extension to be 10.5kmelevated and 1.2 km at-grade. However, the conceptdrawings provided in the data room indicates that the wholeguideway vertical profile are to be constructed on elevatedcolumns? May we request clarification on such concept?

There is currently "at grade" section, at Zapote which is indicatedin the vertical alignment of the "old" route. Dr. Santos is nowelevated. The Concessionaire will do his own evaluation of this aswith the entire proposed route.

56159 These dates will be provided in the revised CA and Schedule 4 Part1.

LRTlConcessionAgreement - 16January 2013

11. May we request the DOTCILRTA to kindly complete themissing dates in the draft Concession Agreement i.e., BasicROW delivery, LRV delivery, etc. as it is vital in ourpreparation of the Construction Methodology and Scheduleof the Cavite Extension?

56160 Information on the LRT Stimulus Contracts shall be provided in thedata room.

LRT StimulusProjects

12. In connection with the LRT Stimulus Contracts, we wish toreiterate our request that the copies of the contracts for thefirst two projects (Rail Replacement and Gantry AnchorReplacement) that were awarded by the DOTC during thelast quarter of 20 12, as represented in the DOTC website, berovided in the Data Room.

56161 See response to query #56152.ConcessionAgreement:Non-Rail(commercial)Contracts

13. Paragraph 2 of Part 2 of Schedule 2 to the draft ConcessionAgreement refers to "commercial agreements" to betransferred to the Concessionaire. Kindly confirm if theseare the contracts in the Non-Rail (commercial) Contractsfolder in the data room and whether these comprise all thecommercial agreements to be transferred to theConcessionaire.


56162 ConcessionAgreement:Security ServiceContracts

14. Kindly confirm whether the Memorandum ofUnderstanding with the Philippine National Police referredto in paragraph 4 of Part 2 of Schedule 2 to the draftConcession Agreement will be transferred to theConcessionaire. Also, kindly confmn that the copy of aMemorandum of Agreement dated 2001 between LRTAand PNP provided in the Security Service Contracts folderin the Data Room is the same Memorandum ofUnderstanding as aforesaid.

Memorandum of Agreement between the PNP and LRTA is specificin nature and will not be transferred to the Concessionaire. TheConcessionaire shall be required to provide its own securityservices.

56163 This information will be provided after the loan agreement withJICA is signed (expected by mid-March 2013).

LRTlConcessionAgreement - 16January 2013

15. May we request the DOTC/LRTA to kindly provide thestatus of procurement, schedule of delivery and type offunding of the Grantors Procured Items listed in theConcession Agreement? Also, kindly confirm whether thefinancing arrangements of the Grantors for the funding ofthe Grantors Procured Items will allow an absoluteassignment and transfer of all of the Grantors' remainingrights and benefits under the Grantors ProcurementContracts to the Concessionaire, as contemplated underSections 13.3.a(2) and 13.3.b(2) of the draft ConcessionA reement.

56164 This will be provided in the revised CA Schedule 17.ConcessionAgreement:LRT 1-Schedules to CA- 11 Jan 2013

16. May we request the DOTC/LR TA to kindly provide therequirements for the Technical Services Agreement to beincluded in Schedule 17 to the Concession Agreement?

·.. . •.

56180


1rt line 1 extnsbb 08-2012

17. Section 16.3 (Lock-Up Rules) of the Instructions toProspective Bidders, as amended by Special Bid BulletinNo. 08-2012 dated 20 September 2012, provides that duringthe Qualification Period, no restrictions shall be imposed onthe ownership structure of a Bidder that is a corporation orpartnership; provided that, if such Bidder proposes anAffiliate to meet any of the Qualification Requirements, theproposed Affiliate must remain as such in accordance withthe criteria for Affiliates as provided in Section 22 of theInstructions to Prospective Bidders. With respect to aConsortium, the said Section 16.3 allows a Substitution of aConsortium Member during the Qualification Period,subject to the conditions set forth in Section 16.3(b). Insimilar fashion, we would like to request confirmation that aBidder that is a corporation (the "Pre-qualified Member")may apply for a change in the proposed equity structure ofthe Concessionaire by forming a Consortium with anothercorporation or corporations during the Qualification Period,subject to the following conditions: (i) A single applicationfor such change in the proposed equity structure of theConcessionaire, together with the relevant QualificationDocuments including those for a Consortium (Annexes QD-IB and QD-14B) to reflect the composition of theConsortium, must be submitted to the SBAC at least forty-five (45) days before the Bid Proposals Submission Date;(ii) The Affiliate (of the Pre-qualified Member) proposed tomeet any of the Qualification Requirements must remain assuch in accordance with the criteria for Affiliates asprovided in Section 22 of the Instructions to ProspectiveBidders; (iii) The substitute(s) should not be any of theentities identified in Annex QD-1B (Business Plan) ofanother Bidder (including those that failed to pre-qualify tobid for the Project); (iv) The Pre-qualified Member shall beconsidered as the Lead Member and must: (a) commit to

Yes, a Bidder that pre-qualified as a corporation or partnership willbe allowed to bid as a Consortium, subject to approval by the SBACupon compliance with the following conditions:

(i) A single application for such change in the proposed equitystructure of the Concessionaire, together with the relevantQualification Documents, must be submitted to the SBAC at leastforty-five (45) days before the Bid Proposals Submission Date;

(ii) The Affiliate (of the Pre-qualified Member) proposed to meetany of the Qualification Requirements must remain as such inaccordance with the criteria for Affiliates as provided in Section 22of the Instructions to Prospective Bidders;

(iii) The substitute(s) should not be any of the entities identified inAnnex QD-1 B (Business Plan) of another Bidder (including thosethat failed to pre-qualify to bid for the Project);

(iv) The pre-qualified corporate bidder shall be considered as theLead Member and must: (a) commit to own at least thirty-threepercent (33%) of the outstanding voting shares oftheConcessionaire and (b) always own the highest percentage ofoutstanding voting shares of the Concessionaire; and

(v) The proposed change in the shareholding structure of theConcessionaire shall be subject to the approval of the SBAC.

56181


ConcessionairePerformanceSecurities/ Acceptable ReserveLCs

own at least thirty-three percent (33%) of the outstandingvoting shares of the Concessionaire and (b) always own thehighest percentage of outstanding voting shares of theConcessionaire; and (v) The proposed change in theshareholding structure of the Concessionaire shall besubject to the approval of the SBAC. Further, in accordancewith the clarification provided in Special Bid Bulletin No.01-2012 dated 30 July 2012, kindly confmn ourunderstanding that, in case a proposed change in theshareholding structure of the Concessionaire referred toabove is approved by the SBAC, the Pre-qualified Member(also the Lead Member) and the other ConsortiumMember(s) (if declared the Winning Bidder) may form aholding company which will hold all of the shares of theConcessionaire; provided that the Lock-Up provisions in theConcession Agreement are complied with.

18. [Subject to review of missing Schedules] The ConcessionAgreement ("CA") imposes performance securityobligations (Sections 9 and 19.2) that are duplicative andtoo onerous for the Concessionaire to bear as a projectfmanced special purpose vehicle. Such package of securityrequired and related obligations render the projectunbankable and potentially expose the Concessionaire andits sponsors to a level of unacceptable liability. Constructionand Operation Security (a) No Top up. The obligation toreplenish the security after any drawing (Sections 9.2.g and9.3.c) effectively imposes an uncapped liability, which isoutside of market practice and will be unacceptable to boththe sponsors and lenders. Thus, such obligation should bedeleted. (b) Separate Securities. As contemplated under theBOT Law, for proper allocation of risk and liability, thereshould be a separate (i) Construction Bond to be given at

Comments from the bidders on the performance securityrequirements have been considered carefully by the Grantors andthey are prepared to amend the performance security requirementsto the following

• There will be an Operation Performance Security posted on theSigning Date and released on the Transfer Date, and aConstruction Performance Security posted on the ConstructionStart Date and released on the Extension Completion Date.

• The Operation Performance Security will be issued on thesigning date in an initial amount of PhP50 million. On theEffective Date it will be increased to PhP 75 million (Indexed)and will be increased to PhP 150 million (Indexed) on ExtensionCompletion Date and PhP300 million (Indexed) on the 10tharmiversary of the Extension Corn letion Date and maintained at


Construction Start Date and released on ExtensionCompletion Date; and (ii) Operation Bond to be given atEffective Date (and is a condition to the release of the BidSecurity) and released at Transfer Date. (c) Face Value. Theface value of the Construction Bond is more appropriatelyset at Php500 Million, which is 2% of the estimated projectcosts of the Concessionaire (php25 Billion) as requiredunder the BOT IRR. The face value of the Operation Bondis more appropriately set at Php50 Million, which is areasonable amount of security for the Concessionaire'soperational obligations and is more in line with OperationalSecurity required in other railway projects. HandbackSecurity/Warranty Security Given that the CA alreadyrequires that a comprehensive survey be undertaken by aleading international engineering consultancy selected bythe Grantors to determine whether the System complieswith the Handback Requirements and the Concessionaire isalready responsible for the Handback Rectification Worksto ensure that the System meets such requirements (Section33), the Concessionaire should be released from furtherliability following certification by the Handback Engineer.Thus, the bidder requests that the obligation to provide theWarranty Security be removed since (i) the liability underthe Warranty Security subsists for 3 years during which theConcessionaire no longer has any control over the operationand maintenance of the System, has no technical oversightregarding the activities of the Grantors or any otherconcessionaire and receives no revenues or benefits fromthe Grantors; and (ii) it is duplicative and imposes adisproportionate liability on the Concessionaire (particularlygiven the lack of warranties given by the Grantors in thehandover of the Existing System at the Effective Date).Acceptable Reserve LCs Apart from the foregoing

erformance securities, the Concessionaire is also re uired

• The Construction Performance Security will be posted on theConstruction Start Date in an amount of PhP600 million.

• There will be no obligation to reinstate the ConstructionPerformance Security following calls thereon

• The Concessionaire will be required to top up the level of theOperation Performance Security annually, and the Grantors areconsidering whether if the value falls below 50% of the requiredamount a top up to the full amount is required.

• The Construction Performance Security and OperationPerformance Security will remain in the form of a Letter ofCredit as per Schedule 13

• The requirement for a Warranty Security will remain but theGrantors are (a) prepared to reduce the amount to PhP 150million (Indexed), (b) reduce the time period for which it mustbe maintained to 12 months and (c) clarify that it need not bereinstated following calls.

The provision for the posting of Acceptable Reserve LCs address adifferent concern - that there is proper accrual of cash to carry outSystem Works and System Upgrades. The Grantors are not preparedto change these provisions.


56182 lrt line 1extn sbb 08-2012

to submit Acceptable Reserve LCs in the Required Amount(Section 19.2), which is 20% of the estimated majormaintenance costs and System Upgrades. The bidderexpects that the Concessionaire will be required to maintaina major maintenance reserve by the lenders at a leveldetermined by the lenders, in consultation with the lenders'independent engineer. Being required to provide both theAcceptable Reserve LC and maintain a major maintenancereserve is duplicative and unnecessarily exposes thesponsors to additional liability. Thus, the bidder requeststhat the requirement for an Acceptable Reserve LC bedeemed to be satisfied if the Concessionaire is required tomaintain a major maintenance reserve by the lenders.Certainly, the Concessionaire is already sufficientlyincentivized to ensure that the System is properly operatedand maintained given the rather stringent KPls requiredunder the CA and the punitive penalties imposed upon theConcessionaire for non-compliance (including termination)as well as the adverse impact of System breakdowns uponthe Concessionaire's revenues.

The substitution of a pre-qualified contractor will be allowedprovided such contractor is not the only entity who was pre-qualified to meet a particular Technical Qualification Requirement.Similar to the substitution of Consortium Members, the substitutionof a contractor will be subject to prior approval by the SBAC andthe Bidder's compliance with certain conditions which will beprovided in the revised Instructions to Bidders.

19. Section 16.3 (Lock-Up Rules) ofthe Instructions toProspective Bidders, as amended by Special Bid BulletinNo. 08-2012 dated 20 September 2012, allows (during theQualification Period) a Substitution of a ConsortiumMember that is the only entity which is proposed to meet aparticular Technical Qualification Requirement, providedthat, the substitute should meet the particular TechnicalQualification Requirement which such Consortium Memberwas proposed to meet and the Legal QualificationRequirements. In case the Bidder proposed to meet aparticular Technical Qualification Requirement through acontractor, kindly confirm that, similarly, a substitution ofsuch contractor may be allowed provided that: (i) thesubstitute contractor should meet the articular Technical


Qualification requirement which the original contractor wasproposed to meet and the Legal Qualification Requirements;and (ii) all other applicable requirements under Section16.3(b) of the Instructions to Prospective Bidders for aSubstitution of a Consortium Member must be compliedwith.

It is a fundamental requirement of the Grantors (and one that hasbeen accepted by developers and lenders on Philippine PPPtransport projects) that construction be commenced as soon aspossible and not wait for full ROW delivery.

56183 LandRightslProj ectLands

20. [Subject to review of missing Schedules] Delivery of landrights is a risk that the Grantors are best placed to manageand, therefore, should not be borne by the Concessionaire.Lenders will not allow drawdown without all necessary landrights being in place and sponsors cannot fund project costspending resolution of any land related issues. (a) NoStaggered Delivery. Staggered delivery of the Basic ROWPackages (Section ll.l.a) is not feasible as it presentsmultiple points of possible delay in the design andconstruction of the Cavite Extension, which may materiallyincrease the costs and construction period of the CaviteExtension and require expenditure of significant fundswithout certainty that the remaining Basic ROW will bedelivered. Thus, Grantors must ensure that all the BasicROW Packages are delivered to the Concessionaire as acondition to Construction Start Date. The Grantors mustalso ensure that any ROW needed for the Existing System isdelivered as a condition to Effective Date. (b) Completenessand Fitness of Basic ROW Packages. Grantors must ensurethat Basic ROW Packages cover all the land rightsnecessary for the completion of the Cavite Extension and, toensure effective possession by the Concessionaire, thedelivery of the Basic ROW Packages should only beconsidered satisfied when the Grantors have delivered suchri hts: (i) free from liens, encumbrances, similar charges

The Concessionaire is protected through the provisions of Sections17 (any delay in delivering any ROW is a Grantor Delay Evententitling the Concessionaire to relief and compensation) and 31 (a90 day delay is a Grantors Event of Default entitling theConcessionaire to terminate).

The Grantors are not prepared to provide any legal certifications asto ROW - in that all ROW is delivered to the Grantors. TheGrantors recognize the Bidder's concern however and will clarifythe CA to ensure that any defect in title to the ROW that interfereswith the Project will be treated as a MAGA under Section 29. Anappropriate amendment will be made to the CA.


56184 AFCS 21. [Subject to review of missing Schedules] There is clearly See response to query #56155potential conflict in the CA regarding critical AFCSoperation and commercial issues, especially how it relatesto the ongoing tender for the concession of the AFCS by theDOTC. These issues include, among others: (i) fulloperational control and responsibility of the LRT 1; (ii)responsibility for maintenance of AFCS equipment; (iii)allocation of integration risk; (iv) liability in case of delayor default in payment or any other act or omission by theAFCS Concessionaire or in case of revenue loss due to anybreakdown or service suspension of the AFCS; and (v) thelack of clarity relating to collection and payment ofFareboxRevenue, and the operations of the proposed AFCSClearing House, which are critical to the Concessionaire'sproject fmancing (Sections 12.6.g, 18.11.a, 20.2 and 26.3).Since the operation of the AFCS is key to the operation ofthe System and the revenues of the Concessionaire, it iscritical that the Concessionaire has control over theoperation and maintenance of the AFCS in res ect of the

and other third party rights; (ii) free from any utility pipes,cables or other media; and (iii) with proper documentation(by way of lease, easement agreements, titles in the name ofthe Grantors, etc.) and duly annotated on the relevant titlesor registered in the book of unregistered land of the relevantRegister of Deeds at the Grantors' cost. Any "deemeddelivery" on the basis of an lE certification (Section 11.1.d)is not appropriate as delivery of land rights involves legal aswell as technical considerations. In relation to the foregoingobligations and similar to other concessions that have beengranted under the PPP framework, the Grantors must ensurethat sufficient funding is available to cover the costs ofclearing the Basic ROW Packages and theannotation/registration of the land rights covering theseROW.


System, especially where there are no sufficient safeguardsin place to ensure that the Concessionaire has adequaterecourse against, or will receive sufficient compensationfrom, the AFCS Concessionaire or the Grantors. Proposal.The bidder proposes that, as part of the LRTl concession,the Concessionaire be the operator of the AFCS (Levels 0-3) ("LRTl AFCS") in respect of the System with acommitment to upgrade the existing fare collection systembased on specifications formulated to ensure compatibilitywith the LRTl Project and compatibility for integrationwith the broader AFCS Concession. When the Grantorsaward the AFCS Concession for Level 4 to the AFCSConcessionaire, the LRTl Concessionaire shall undertake tomake any changes to the LRTl AFCS necessary to interfacewith the integrated AFCS awarded by the Grantors.However, all costs and expenses for such changes madeshall be for the account of the Grantors and shall entitle theConcessionaire to compensation.


56185 22. [Subject to review of missing Schedules] TheConcessionaire is required to bear the risk of (i) the ExistingSystem; (ii) the LRTA Stimulus Contracts and other LRTAprojects; and (iii) the Grantors Procured Items followingtheir handover to the Concessionaire but is given verylimited assurance as to their conditions. The Concessionaireis also obligated to absorb Transferring Employees underonerous conditions. In general, the Grantors must providecomplete and accurate information in relation to all mattersthat are to be assumed by the Concessionaire and providerepresentation and warranty as regards usefulness, accuracy,completeness, validity or propriety of such information.Further, the bidder offers the following proposals, which itbelieves constitute an appropriate risk sharing mechanismbetween the Parties. Existing System (a) Operation Prior toEffective Date. There are presently no standards that theGrantors must comply with in operating the ExistingSystem between Bid Proposals Submission Date andEffective Date (Sections S.1.a and S.3.b). (b) ExistingSystem Requirements. The parameters constituting ExistingSystem Requirements are too limited and disproportionateto the level ofKPls that the Concessionaire must complywith upon taking over of the Existing System (SectionS.3.b). Thus, a more reasonable set of performanceindicators, which are more aligned with the KPls andhandback conditions provided under the CA, must beadopted as part of the Existing System Requirements toensure that the Existing System is capable of performing atthe KPI levels required by the Grantors. Should the ExistingSystem fail to meet such performance indicators, theConcessionaire should be given compensation by theGrantors. (c) Warranty. The Grantors should also provide awarranty regarding the (i) defects and latent defects of theExisting System; and (ii) an environmental issues (e.g.

With regards to the LRTA Stimulus Contracts comments from thebidders on the LRTA Stimulus Package have been consideredcarefully by the Grantors and they are prepared to amend the CA toreflect the following principles:

LRTA Stimulus Package contracts already entered into as of theSigning Date

• These contracts will remain contracts with LRTA where LRTAhas all payment responsibility.

• These contracts will not be transferred to the Concessionaire.

• The CA will provide that the LRTA Stimulus Contractors willbe required to work under the site directions of theConcessionaire following the Effective Date and that allwarranty rights of the Grantors thereunder will be transferred tothe Concessionaire upon the later of acceptance under therelevant contract and the Effective Date

• The CA will provide that all drawings, design and IP madeavailable to LRTA under the LRTA Stimulus Package Contractswill be transferred to the Concessionaire upon the later ofacceptance under the relevant contract and the Effective Datebut without warranty from LRTA

• Demonstrated delays to the Cavite Extension caused by one ofthe LRTA Stimulus Package contractors will be a Grantor DelayEvent.

• The Concessionaire may not make any claims against theGrantors in respect of any defects in the work of the LRTAStimulus Package contractors

In respect of emergency LRT A Stimulus Package Contracts not


issues arising from the use hazardous substances andpollutants) that may arise in respect of the Existing System.LRTA Stimulus Contracts and other LRTA projects (a)Awarded Stimulus Contracts. Since the Concessionaire hadno involvement in the procurement and acceptance of theproperties and assets covered by the LRTA StimulusContracts and other LRTA projects contracts, it would beunreasonable to impose upon the Concessionaire theresponsibility and liability for these properties and assets(Sections 6.l.c and 6.1.d). The LRTA Stimulus Contractsand other LRTA projects contracts, which have alreadybeen awarded by the Grantors, should remain theresponsibility of the Grantors until they have been acceptedby the Concessionaire pursuant to an agreed set ofminimum parameters to determine the acceptability andfitness of these properties and assets for integration to theSystem. If the Concessionaire suffers a cost/revenueconsequence or delay due to the properties and assetscovered by the LRTA Stimulus Contracts, theConcessionaire should be entitled to GrantorsCompensation and excused for any corresponding delay onits performance. The Grantors will remain as counterpartiesto the LRTA Stimulus Contracts and retain all benefits andobligations thereunder. (b) Stimulus Contracts underProcurement. As the Concessionaire is not in a position toaccept the risk ofLRTA Stimulus Contracts over which ithas had no involvement, the bidder requests that theGrantors do not proceed to award any LRTA StimulusContracts which have not yet been awarded. Instead, thework scope of such contracts should form part of the LRTlconcession to be awarded to the Concessionaire. GrantorsProcured Items (a) Acceptance Conditions. As theConcessionaire is required to ultimately bear responsibilityfor the Grantors Procured Items, reasonable involvement

already awarded (note that the Grantors have undertaken not toaward any such contracts after 30 April 2013 except in emergencycircumstances) :

• The CA will provide for the Grantors and the Concessionaire tomeet no later than 60 days after the Signing Date to discusswhether contracts under tender should be transferred to/assumedby the Concessionaire or whether the Grantors should continueto be responsible for them or whether any other solution shouldbe adopted.

• If the Parties have determined that the Concessionaire willassume those contracts, the tender process will be assumed bythe Concessionaire on the Effective Date. If the Grantorscontinue to manage the process, then (when the contracts areentered into) the regime set out above will apply. In either casethe Concessionaire will not be entitled to make any claimagainst the Grantors in respect of the works of the relevantLRTA Stimulus Package contractors.

The Transferring Employees are employees ofLRTA up to theEffective Date and hence LRTA is liable for all costs up to that date.Also, the CA will now provide that the total compensation (defme)for the Transferring Employees will not exceed the level 30 daysbefore the Bid Submission adjusted for Philippines CPI plus 2%. Toaddress Bidder concerns a provision will be added to the CArequiring the Grantors to indemnify the Concessionaire for claimsbrought by Transferring Employees relating to their period ofemployment with LRTA.


must be given to the Concessionaire in the tenderingprocess - e.g. inclusion in the tender documents of agreedminimum technical parameters for the Grantors ProcuredItems and contractual provisions required to ensuresuccessful integration into the System and adequaterecourse under the Grantors Procurement Contracts (Section13.1). The Grantors must ensure that such agreed minimumtechnical parameters and contractual provisions areincorporated in the Grantors Procurement Contracts. Anagreed acceptance regime will need to be set out in the CAand the Concessionaire should be involved in thecommissioning and testing of the Grantors Procured Itemsto ensure that the parameters are complied with.Responsibility and liability should only attach to theConcessionaire following acceptance under the agreedprotocol. Any failures of the Grantor Procured Items(including on integration) entitle the Concessionaire toGrantors Compensation. (b) Timing. The Grantors mustensure that all Grantors Procured Items are delivered ondates agreed within the Concession Agreement.Transferring Employees It should be made clear in the CAthat the Grantors have fully satisfied all claims, and shallremain liable for any unpaid claims, relating to theTransferring Employees up to Effective Date. The exerciseby the Concessionaire of its management prerogativesshould likewise only be subject to Philippine LegalRequirements and not to other onerous contractualrequirements.


56186 Lender Rights 23. [Subject to review of missing Schedules] Variousconditions under the CA undermine the ability of theConcessionaire to offer sufficient security to its lenders andgive rise to bankability concerns. (a) Share Escrow. Giventhat the Equity Interests are required to be held in escrowduring the Lock-Up Period (Section 8), the same sharescannot be delivered to the lenders' security agent and,therefore, a pledge over said shares (which would betypically required in project financing) cannot be validlyconstituted. The bidder requests that the requirement for theshare escrow arrangement be removed. The bidder does notconsider this arrangement to be market practice andconsiders that the interests of the Grantors are sufficientlyprotected by the transfer prohibitions and relatedtermination rights of the Grantors for breach thereof. Thebidder also notes that the sponsors' ability to transfer itsshares will be further restricted by the share pledge given infavor of the lenders and transfer restrictions under thefinancing documents, which also serves the Grantors'interest. (b) Step In Rights. While the CA provides for thelenders' right to introduce a Substitute Concessionaire(Section 31.3), the 90-day period provided under CA topropose a Substitute Concessionaire which has the requisitelegal, technical and financial capacity is too short. A periodof 18 months is more reasonable and in line with otherconcessions granted in railway projects. The lenders shouldalso have a direct step in right (in addition to the right tonovate the CA to a Substitute Concessionaire) so that thelenders can make use of the Concessionaire's staff,equipment, consents, supply contracts, etc. to rectify therelevant breaches. Lenders will need assurance that theirability to exercise either of these rights is unhindered - i.e.it should not be subject to Grantors' consent (other than asto a roval of the Substitute Concessionaire).

Ca) The Share escrow provisions simply reinforce therestrictions on shareholding. A transfer to or as required byLenders on an enforcement of security is a permittedtransfer under Section 8.2 (and Section 8.5) and the ShareEscrow Agent will thus be automatically obliged to releasephysical forms of the shares from escrow as directed byLenders on enforcement. Regarding the Bidder's secondpoint, no change will be made to the CA. Regarding theBidder's third point, please see Sections 8.2 and 8.5 oftheCA.

[b] The Grantors will extend the period to 6 months. Anappropriate amendment will be made to the CA. Regardingthe Bidder's request for lender's direct step-in, the Grantorsview Lender step-in to a regulated asset such as this asunrealistic and challenging the Grantors' rights underSection 32. No change will be made to the CA.


56187 TerminationIssues

24. [Subject to review of missing Schedules] It is imperative tothe sponsors and the lenders that the CA is not subject tohair triggers for termination and that the terminationpayment regime provides sufficient compensation ifterminated, in line with international infrastructure PPPpractices, as the sponsors and lenders are disbursingsignificant funds on the expectation that they will be able torecover their investment/loans over the life of theConcession Period. (a) Grounds for Termination. In general,the termination events are too easily triggered and need tobe revised to include only those that have a material adverseeffect on the Project or on the ability of the Concessionaireto perform its obligations under the CA (Section 31.1.a).Further, relative to termination prior to Effective Date, theGrantors' right to terminate must be exercised only wherethe Grantors have fulfilled their responsibilities under theCA. (b) Termination Payment. The CA should provide for atermination payment in all termination scenarios at a levelsufficient to repay debt and provide appropriatecompensation for the sponsors. Further comments will beprovided following release of Schedule 10. Sponsors andlenders will also require certainty that payment will bemade on a timely basis (Section 31.5.b). (c) Post-Termination Obligations. The Concessionaire's obligation(i) to continue operating the System must be subject to alongstop date and should yield the same margins that theConcessionaire would have obtained had the CA not beenterminated and (ii) to transfer its assets and propertiesshould only occur upon receipt of actual payment. Further,consistent with the deletion of the Warranty Security, theConcessionaire should not be obliged to repair or rectify atits own cost any defect after the Transfer Date and,therefore, the Warranty Period should be deleted.

[a] The Grantors view the termination events as reasonable andin line with Philippine PPP precedent but we haveconsidered Bidder's concerns and we will make someappropriate accommodations in the revised CA.

(b] Schedule 10 will be provided shortly.

Cc) The obligations are subject to a long stop date (see Section31.4.c) which provides for an equitable payment regime.Possession of the Project Assets should be transferred to theGrantors on Termination Date.This is an important publicasset and the Grantors cannot accept restrictions in theirability to take over following termination.

With regards to Warranty Security, this cannot be removed.

56188


Governmentcounterpartiesand obligations

25. Parties to the CA; 1.2.k The Draft CA states that theGovernment of the Philippines is the counterparty actingthrough the DOTC. There is a need to confirm that thefmancial obligations and contractual responsibilities ofDOTCILRTA under the CA are direct obligations of theNational Government. A confmnatory opinion from theDepartment of Justice concurred in by the Department ofFinance (DOF) should be provided to clearly establish thenature of the public obligations under the contract as a wayof credit enhancing the transaction. If this is not the case oris not made categorical to the satisfaction of Project lendersand investors, a government performance undertaking orguarantee from the DOF would be needed to backstop withnational government authorization the payment and othermaterial contractual obligations ofDOTC and LRTA. Thus,the Bidders will need to know if there is Department ofFinance guarantee for payment on termination or othergovernment liability. The Project lenders may require thatthe liability and compensation by the state be supported by agurantee of payment from the Department of Finance oranother entity that has the ability to make a direct payment.It is not clear if that is the government's intent. This is acritical item that will need to be addressed for the lenders toconsider the transaction bankable.

The Grantors' obligations are undertaken by the DOTC which as apart of central government carries full government credit. Noamendment will be made to the CA. A legal opinion regarding thefull faith and credit status of the DOTC as an executive departmentof GOP will be provided in the data room.


Payments inGeneral

26. [Subject to review of missing Schedules] While the CAprovides for compensation mechanisms for specified events,the potential delay in the payment of the compensation(Section 20.9) and the possibility that payment will not bereceived in cash (Section 30.3) frustrates the objectives ofpayment and undermines the bankability of the Project sinceit puts into question the financial capacity of theConcessionaire to fund the Project or requires theConcessionaire to provide for substantial cash reserves thatwould make the Project impossible to project fmance. Thus,Section 20.9 should be deleted and Section 30.3 should besubject to Concessionaire's election (and not the Grantor'sdetermination). Given that the Project is a solicited projectunder the BOT Law, there are no legal obstacles to theGrantors providing sufficient comfort to the Concessionaire,which may include performance undertakings to guaranteethe Grantors' obligations under the CA or governmentguarantees in favor of the Concessionaire's lenders, as theGrantors have done in other concessions involving railwayprojects. Further, given that the obligations of the LRTAunder the CA is akin to indebtedness (since the BOTarrangement allows the government to obtain fmancing forits infrastructure projects) and falls within the guarantee ofthe Republic of the Philippines under the law creating theLRTA (Section 6, EO 603; DO] Opinion No. 026, s. 2004;DOH Opinion No. 4, s.1992), the bidder requests that theDOTC and LRTA be jointly and solidarily liable forfinancial and non-financial obligations under the CA to givethe Concessionaire recourse against the sovereign guaranteeunder the LRTA charter and ensure timely payment ofobli ations under the CA.

Such provision for compensation to be deferred (whilst the amountkeeps the Concessionaire whole) are very common in such projects.No amendment will be made to the CA.


27. [Subject to review of missing Schedules] The obligationsimposed on the Concessionaire in case of a Force MajeureEvent are too onerous. (a) Obligations during FM. heaffected party is already required to mitigate against theadverse effects of the Force Majeure Event. TheConcessionaire should not, in addition, be subject to anabsolute obligation to repair or reconstruct the System assoon as possible. Similarly, the Concessionaire should notbe required to repair the System and raise funds for suchpurpose, where there is a shortfall in insurance proceeds,prior to any agreement between the parties regarding thecompensation due to the Concessionaire. The CA shouldlikewise provide that, if the System is beyond economicalrepair, the Concessionaire should not be subject to anyrepair obligations and should have termination rightsinstead (Sections 28.4 and 28.6). (b) Thresholds. Thethreshold of PhpI Billion and Php500 Million are too highand should be reduced (Section 28.5.c). The PhpI Billionthreshold (as reduced) needs to apply on an aggregatedbasis to cover the risk of multiple events.

[a] Section 28.5 provides the Concessionaire sufficient comfort.On the Bidder's second point on economic repair, this is acritical public asset, and with Section 28.5, for theConcessionaire to request a form of economic viability testbefore a decision to reinstate is not acceptable. Therefore, noamendment will be made to the CA.

Force Majeure

Cb) No amendment will be made to the CA.


28. [Subject to review of missing Schedules] The followingO&M-related issues pose significant concerns: (i) the KPIregime, which the bidder views as unreasonable given thecurrent state of the Existing System and the proposedExisting System Requirements; (ii) the penalties imposablefor non-compliance, which the bidder considers to be toopunitive and out of line with market practice; (iii) the needto apply for a supplemental Operating Franchise for theCavite Extension; and (iv) the requirements relating to theTSA and O&M Agreement. (a) KPIs/Abatements. Thebidder considers that the KPI regime is unworkable andpunitive. This type ofKPIs/abatements mechanism is usedin contracts where the Concessionaire receives anavailability payment and does not support any fareboxrevenue risk. In the CA, the Concessionaire is fully exposedto the farebox revenue risk and so is directly affected bypoor performances. A more reasonable and realistic set ofKPIs and abatements, especially as it relates to theGrantors' termination rights, should be used in the CA. (b)Operating Franchise. Both the sponsors and the lendersneed certainty upfront that the Operating Franchise will bein place as and when required - and not for instance, subjectto application in accordance with rules and proceduresapplicable at the time. The bidder proposes that the Grantorsissue as a CP to the Effective Date, one Operating Franchisethat covers the Extended System, with the effectiveness inrespect of the Cavite Extension subject to the issuance ofthe Final Acceptance Certificate. The form of the OperatingFranchise must be specified in the CA, and be consistentwith the terms of the CA, so that the Concessionaireoperates under a single governing document (the CA) and isnot subject to unknown future requirements specified underthe Operating Franchise. (c) TSA and/or O&M Agreement.The CA must be clear in that the TSA and/or O&M

(a) KPI regime: See response to query #56153.

(b) The Concession Agreement and its schedules will providefor all of the requirements and procedures necessary for theissuance of the Operating Franchise; there will be no otherrules and regulations on the matter. The SBAC will considerthe issuance of a single Operating Franchise which willinclude the authority to operate the Extended Systemsubject to compliance with certain conditions specifiedtherein. The template for the Operating Franchise will beadded as a Schedule to the Concession Agreement.

(c) This is the intention of the CA.


56192 GrantorObligations

Agreement must be consistent only with those Schedules ofthe CA that relate to operation and maintenance. In additionto termination for breach or insolvency, the TSA Providerand/or Facility Operator must also have the right to suspendthe performance of its obligations or terminate the contractif it is not paid its fees by the Concessionaire, or if theConcession Agreement is terminated by the Concessionaire.

(a) No change will be made to the CA. The Grantors consider thatthe limited consents that they are responsible for obtaining will allbe obtained prior to the Signing Date. An update will be provided atthe appropriate time.

29. [Subject to review of missing Schedules] There is asignificant imbalance in the CA with respect to theobligations of the Concessionaire and the Grantors in thatthe Concessionaire is made to bear the burden and risk evenin matters that are under the control of, or are manageableby, the Grantors. This clearly conflicts with the key PPPprinciple that risks should be taken by those best placed tomanage such risks to maximize the project's value formoney. (a) Relevant Consents. Under the CA, theConcessionaire is responsible for obtaining all RelevantConsents that may be required for the handover of theExisting System, the implementation ofthe Project and thehandback of the System (Sections 5.2.d, 26.3.a and 33.3).Those Relevant Consents that are to be issued, or may bemore easily obtained, by the Grantors should be obligationof the Grantors to issue or procure for the Concessionaire.(b) Taxes and Costs. Under the CA, the Grantors haveimposed u on the Concessionaire the burden of payin for

(b) & (c) The split of tax risk reflects the Government's approach asapplied in previous PPP projects. A change in general tax rates inthe Philippines is a risk of doing business in the Philippines(particularly for a Concession not relying on a payment fromGovernment) and will not be the subject ofMAGA compensation.In particular, the imposition of any new national tax or change inmaximum rate of any national tax, in either instance except VAT isa MAGA event. However, change in local taxation is not a MAGAevent. Appropriate changes will be made in the CA.

56193

Republic ofthe PhilippinesDEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS

Right of Way

taxes and costs relating to the implementation of the Project.However, some of these taxes and costs are properly theburden of the Grantors (e.g. taxes and costs relating to thehandover of the Existing System and any additional LRVsprocured by the Concessionaire) or should be assumed bythe Grantors to ensure that the Project is bankable (e.g. realproperty taxes and costs of annotation). As this Project is a'solicited project under the BOT Law, there are no legalobstacles to the Grantors providing direct governmentsubsidy by undertaking to defray or pay for such taxes,costs and expenses as the Grantors have done in otherconcessions. (c) MAGAlChange in Law. Change in Lawshould include change in any national or local tax given thatthe Project is to be undertaken based on certain taxassumptions and, therefore, any change that wouldmaterially and adversely affect the Concessionaire's profitassumptions should be considered MAGA and becompensable. Any delay or denial in the issuance of anyRelevant Consents or any change that would increase thecosts of procuring such Relevant Consents should alsoconstitute MAGA.

30. CA 1.1 Def, CA 4, CA 11.1, Schedule 4, Part 1, CA 11.2Schedule 4, Part 1: Information on Basic ROW is notthere.The ROW packages are to be delivered in 4 phases.We need to know if there is a clear and definitive scheduleon when the ROW packages will be delivered with cleantitle, with all environmental clearances, and withoutoccupants. We hope to receive the latest informationregarding Basic ROW to make sure that the currentschedule in the CA is deliverable. We trust that it will be inplace with environmental certification to make sure that theConcessionaire's schedule can be met without any delayrisk. We are sure that the government recognizes that anydelay in the delivery of ROW can increase the

It is a fundamental requirement of the Grantors (and one that hasbeen accepted by developers and lenders on Philippine PPPtransport projects) that construction be commenced as soon aspossible and not wait for full ROW delivery. The Grantor, however,shall exert its best effort to deliver the ROW as soon as possible. Itis also contemplated that existing ROW already acquired by theGrantor shall be delivered to the Concessionaire ahead of time evenbefore the scheduled delivery per package. The Concessionaire isprotected through the provisions of Section 17 (any delay indelivering any ROW is a Grantor Delay Event entitling theConcessionaire to relief and compensation) and Section 31 (a 90 daydelay is a Grantors Event of Default entitling the Concessionaire to


Concessionaire's risk in completing the milestones on time.This can create additional cost and potential penalties forthe Concessionaire. We also note that Additional Right ofWay is the responsibility of the Concessionaire. This hascost and delay risk. In terms of the Additional Right ofWay, if the concessionaire requires the additional ROW forconstruction and operation of the extension, we recommendthat the Grantors and the Concessionaire should cometogether to reach an agreement regarding this additionalrequirement. If both parties agree that it is required for theconstruction and operation of the new line then the Grantorshould provide additional ROW at their cost. This wouldensure that the risk of delay and fmancing is minimized.

terminate).

The Grantors are not prepared to provide any legal certifications asto ROW - in that all ROW is delivered to the Grantors. TheGrantors recognize the Bidder's concern however and will clarifythe CA to ensure that any defect in title to the ROW that interfereswith the Project will be treated as a MAGA under Section 29. Anappropriate amendment will be made to the CA.

Change in Law56194 31. CA 1.1Per Section 1.1 "Change in Law" it states that it doesnot include: 1. change in national or local taxation of generalapplication; and2. improvements in railway technology oroperational practices Any change in law that materiallyimpacts the Concessionaire's financial standing should beconsidered as a condition for change in law withcompensation as a remedy. Change in taxation thatdiscriminates against the Project or the Concessionaire, forexample, should not be excluded. Moreover, Item #2 is toobroad and can materially impact the Concessionaire'sfinancial position. This should also be part of Change inLaw since this has material financial implications. Wetherefore request the removal of these two items. To be fair,the specific code or guideline that meets current standardsshould be indicated in the contract so when the change inlaw does occur then we can reference it back to the standard

The split of tax risk reflects the Government's approach as appliedin previous PPP projects. A change in general tax rates in thePhilippines is a risk of doing business in the Philippines(particularly for a Concession not relying on a payment fromGovernment) and will not be the subject ofMAGA compensation.In particular, the imposition of any new national tax or change inmaximum rate of any national tax, in either instance except VAT isa MAGA event. However, change in local taxation is not a MAGAevent. Appropriate changes will be made in the CA. The Bidder'spoint on Item #2 regarding railway technology is noted.