DADS terminate kaltimex contract


After numerous deliberations and through examination of documents, the Baguio City Council finally rescinded or terminated the Memorandum of Agreement (MOA) between the city government and Kaltimex Energy Philippines, Inc. (KEPI).

It can be recalled that, in 2018, the city government under the administration of then Mayor Mauricio Domogan, had sued Kaltimex due to the latter’s failure to fulfill its obligations as contained in the MOA.

However, a compromise agreement was signed in February 2020 between the city government under the current administration and Kaltimex.

As part of the agreement, Kaltimex paid the liquidated damages worth P13.6 million and reimbursed the city government’s filing fee of P605,000.00.

Upon the court’s approval of the compromise agreement, the city government issued Kaltimex a Notice to Proceed in February 2020.

However, the company once again failed to pursue the project. In the resolution approved by the city council last Monday, the Committee on Laws, Human Rights, and Justice cited the violations of KEPI on the provisions of the MOA and the Compromise Agreement.

KEPI failed to take possession and make operational the power plants which violated Item 5 of the Compromise Agreement. Likewise, the company failed to pay rentals and remit the share of the city government since 2017 pursuant to the 2015 MOA.

The committee’s report stated, “Even assuming but without conceding that KEPI entered the subject premises within the required period, it failed to pay the current monthly rentals to the city government every third week of each month without any extension, as stated under Item D.3. of the MOA.”

Based on the Financial Report of the Local Finance Committee, KEPI’s arrears have ballooned  up to P86,325,471.77.

Furthermore, Kaltimex failed to replace and update the performance bond secured from a bonding company which is acceptable to the city government, as contained in Item 4 of the Compromise agreement. Item 6 stipulates that KEPI shall faithfully comply with the provisions of the compromise agreement and abide by the terms and conditions of the 2015 MOA.

Under Item 7 of the compromise agreement failure or refusal of KEPI to fulfill its obligations shall entitle the city government to extrajudicially rescind or terminate the MOA without prejudice to further legal actions which the city government may take against KEPI.

The performance bond posted by KEPI shall likewise be forfeited in favor of the city. The committee stated that the city government has been incurring income losses due to the continued failure of KEPI to comply with its financial obligations.

According to the records, the operation of the Asin Mini-Hydro Power Plants I, II, and III generated revenue. The city government collected a total amount of P142,636,354.79 from the operation of the power plants from 2007 to 2012.

As per Commission on Audit AOM No. 17014 dated March 10, 2017, instead of generating income from the operation of the power plants, the city government has been incurring additional expenses in the maintenance of the facility and payment of salaries and wages of security guards assigned in the facility’s premises. The same observation is contained in COA’s reports in the succeeding years.

The committee also expressed doubt on the company’s financial capability as far as the rehabilitation and operation of the power plants are concerned.

A review on the documents related to the operation and rehabilitation of the power plants submitted by KEPI to the city council showed that the operation of the power plants will be mainly financed by the credit line of KEPI; but in its letter dated November 23, 2020, the company acknowledged that “the COVID-19 pandemic will affect the securing of a loan from the financing institutions.”

This uncertainty may affect the timetable for the implementation of the company’s program of works, the committee presumed.