By Joel R. San Juan & Butch Fernandez
JUSTICE Secretary Menardo I. Guevarra on Tuesday dispelled fears raised by various sectors over the possibility of China taking over the gas-rich Reed Bank in the West Philippine Sea in case the country defaulted on its P3.69-billion loan for the construction of the Chico River Pump Irrigation Project, which was signed in April 2018.
Senators, however, voiced misgivings over Malacañang’s move accepting China funding for the Chico River project with patrimonial assets as collateral. Presidential Spokesman and Chief Presidential Legal Counsel Salvador S. Panelo had asserted on Tuesday that the risk of Beijing seizing the Reed Bank is remote, since President Duterte will not declare Reed Bank as a patrimonial asset.
Senate President Pro Tempore Ralph G. Recto said “it may be standard for China loans but not with the others.”
Recto, a former chief of the National Economic and Development Authority (Neda), asserted that “there are many ways to finance our projects,” adding that he prefers the public-private partnership (PPP) arrangements that bankrolled previous government projects.
“My preferred method is PPP; if the government needs to borrow, then it may borrow with the Asian Development Bank and World Bank. Thereafter it may borrow from Jica [Japan International Cooperation Agency]. The last should be China. If at all,” Recto added.
Sen. Panfilo M. Lacson Sr. also aired apprehension over the terms for availing of loans from China.
“Unless Secretary Panelo was just making an educated guess, something seems wrong with his statement that it is alright to collateralize the nation’s patrimonial assets,” Lacson lamented.
“Nevertheless, he [Panelo] may have a point in saying that reneging on loans is unlikely to happen under our budgeting system because debt service is always one of the three regular features of the annual budget law which is found under Automatic Appropriations,” the senator said. He listed the other two as the Regular Budget and Special Purpose Fund.
For his part, Sen. Joel Villanueva cautioned Malacañang against “using patrimonial assets as collateral.”
“We have already seen the negative effects of this type of arrangement with China in a number of countries where China eventually ended up controlling the resources and critical assets of a country,” said Villanueva.
Moreover, he noted that “even the provision on the use of Chinese labor is unfair to us, unconstitutional to say the least. One of the main purposes of infrastructure spending is the creation of jobs for Filipinos. Other international financial institutions are also offering lower interest rates.”
He warned that “we are essentially putting the future generation in a bind when we enter into long-term agreements. Communities will also be displaced by these infra investments.” The senator suggested that the government instead “ensure that the provisions of these agreements are consistent with the Constitution and our existing laws. We have to guarantee that the Filipino people are not worse off with these loans.”
Sen. Paolo Benigno “Bam” Aquino said the Philippines is clearly disadvantaged in the China loan deal for the Chico River project. “The Philippines is getting such a raw deal here. I hope they won’t pawn even the country’s natural resources because that’s for the next generations,” Aquino said in Filipino.
Under paragraph 8.1 of the Loan Agreement, the Philippines expressly waived immunity over all its assets except those used properties of Philippine embassies and missions; those under Philippine military control; and those assets for “public or governmental use as distinguished from patrimonial assets and assets dedicated to commercial use.
However, Guevarra said such fear is unfounded considering that the Philippine government is unlikely to default on its obligation as the loan amount is too small.
“I think we’re just really jumping the gun. It seems we are too well ahead of what may happen. I think we really don’t have much to worry [about],” Guevarra said.
“I don’t think we even have to think about that problem in the future because the intention of the government is to honor all of its loan obligations,” he stressed.
The justice secretary pointed out that the Department of Finance has already given assurances that the country will not default on its loan obligations, and that there is nothing unusual about the loan contract entered into with Beijing.
“It’s something like a template that has been used in so many other loan agreements. So, I guess we are just really worrying too much,” he added.
Still, Supreme Court Senior Associate Justice Antonio Carpio said if the Chico River project is the template for all Chinese loans, then it will pose problems to the country.
“The total loan from China will be from P12 billion to P24 billion. If all loan agreements will follow the Chico River template, that will be a huge problem,” he said in a statement. He advised that future loan agreements do away with arbitration under Chinese arbitration body rules and use of patrimonial assets as collaterals, which are not standard in official development assistance (ODA) loans.
Under the loan agreement, the arbitration will be held in China and will be governed by the rules of the China International Economic and Trade Arbitration Commission or Cietac. “Also, there must be public bidding of the projects, not the present system where China preselects three Chinese contractors, and the Philippines can bid out project only among the three Chinese contractors,” he added.
Guevarra, however, said mechanisms are in place in the loan agreement such as the restructuring of the loan or going through arbitration.
He said even if China wins in the arbitration, enforcing it in the country is not immediate since it needs to be validated by a Philippine court.