Senators question conditions of Chinese loans in hearing on Build, Build, Build program

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Metro Manila (CNN Philippines, March 5) — Lawmakers on Tuesday questioned officials from several government agencies over what they feel could be the country's potentially detrimental loan deals with China.

Senator Sherwin Gatchalian, chairman of the Senate Committee on Economic Affairs, headed the hearing Tuesday.

Gatchalian and Senator Nancy Binay took special interest in loan agreements with China, wanting assurance from government agencies that the deals made did not disadvantage the Philippines.

"Personally as a taxpayer, I want to see those contracts para malaman natin mabuti kung ano ba pinapasok kasi tayo rin magbabayad niyan (so that we would know better what we're entering, because we will be the ones paying) in the end. I don't agree with the confidentiality argument," Gatchalian said during the hearing.

The Department of Finance (DOF) said of foreign-funded loan agreements executed — meaning they have been signed and are being implemented — at least four were with Japan, two with Korea, and two with China.

These are the Chico River pump irrigation project and New Centennial Water Source project with China; the Pasig-Marikina River Channel Improvement project, the Cavite Industrial Area Flood Management project, Metro Manila Subway project,and the North-South Railway project with Japan; the Panguil Bay Bridge project, and the new Cebu International Container Port project with Korea.

Maria Edita Tan, assistant secretary of the DOF, said a fifth project with Japan, the Road Network Development Project in Conflict Affected Areas, has only been negotiated. It will be implemented once the 2019 General Appropriations Act has been passed, she said.

Officials admitted the country's deals with China come with a heftier interest rate of 2 to 3 percent — compared to Japan's 0.10 percent interest rate.

Both lawmakers asked why the government is taking out loans from China instead of the near zero interest loans from Japan.

The loan agreement Chico River project, for instance, caught the eye of senatorial candidate Neri Colmenares who said the deal was "onerous" and a "disaster for the Philippines."

The DOF said it also takes into consideration the need to diversify loan sources and the currency risks involved. The DOF explained while the interest rate on Japanese loans are low, the Yen is more volatile, depreciating and appreciating at a much quicker rate.

Gatchalian also pointed out a difference between the agreement with China and Japan.

Bases Conversion and Development Authority (BCDA) President Vivencio Dizon said the senator was correct in pointing out that Japanese Official Development Assistance (ODA) loan agreements are first signed before the bidding process takes place.

The agreement with China is different, Dizon added, because "the bidding process comes before the loan agreement is actually negotiated and signed." 

Tan confirmed the arrangement was unique to China.

Dizon also said, "In the bidding process, the terms of the loan are not part of the terms of reference of the bid. It is only the budget of the project that is approved by the NEDA Board. That is the parameter used in the bidding."

Despite the differences, Dizon said, both processes go through a "very transparent" tendering and bidding process.

"There is no direct negotiation in the process, in the selection of the Chinese contractor," he clarified.

Binay, however, remained unconvinced, saying it would still be better for the country to partner with Japanese or Korean contractors.

Both senators also questioned the employment of Chinese constructions workers instead of Filipinos for the China-funded projects.

The Department of Public Works and Highways said only 20 to 30 percent of workers in these projects are Chinese. A labor official also said the foreign workers all need to get an alien employment certificate and preference is given to Filipinos.

BCDA's Dizon also assured there is always preference for use of Filipino labor in foreign-funded projects.

"When we negotiated the loan, we said there's no preferential (treatment) for China as far as sourcing is concerned," Tan of DOF also said. "It's there in the loan agreement. It's all a matter of what's in the contract, in the supply contract."

However, as the agreement specifies a Chinese contractor, most of the foremen in the projects are Chinese, she added.

Think tank IBON Foundation also noted Chinese loans are disadvantageous for the country because any disagreement with the two countries must be resolved in Beijing. This is in line with the rules of the China International Economic and Trade Arbitration Commission.

CNN Philippines correspondent Joyce Ilas, and senior digital producer Pia Garcia contributed to this report.