Government reviews terms of ERAP bonds

After realizing a mismatch between the instrument and the projects it is intended to finance, government is going back to its creditors to reconsider the terms of the so-called ERAP bonds and possibly negotiate for a longer maturity.

Trade and Industry Secretary Manuel Roxas II said the government is reviewing the terms of the ERAP (Economic Recovery through Agriculture Production) bonds with the aim of harmonizing them with the projects they are intended to finance.

According to Roxas, there is a mismatch between the four-year maturity period of the bonds and most of the projects being applied for financing. "This fund is intended primarily for agricultural projects with long gestation periods," he said. "But government has to start making repayments for these bonds in three years, where is the money going to come from?"

Roxas said the government has renegotiate the exit mechanism for the bonds since the roll-over of funds from the projects financed by the instrument will not be possible for seven to 10 years, the average gestation period for most agricultural projects.

According to Roxas, there is also the problem of quality where the projects being applied for funding are concerned. 'I've seen some of these applications and most of them are people offering their lands as equity and asking the government to finance whatever project they had in mind. This won't do," he said.

Roxas also explained that although the proceeds from the Erap bonds are intended for big-ticket agro-industrial projects, government does not want a single company to corner the funds. So far, the biggest project applied for finanmcing is a P3-billion project packaged by Dole Philippines.

After almost one year, however, the government has not approved a single project under the P50-billion fund and its initial P5-billion tranche is still unutilized even as government continues to make interest payments on the bonds.

The National Development Co. (NDC) said there are 86 projects pending for government financing for agriculture, industry and services. These projects have an estimated total cost of P56.6 billion, of which 66 projects worth P35 billion are under the ERAP bonds.

Since the ERAP bonds are exclusively for agricultural projects, Lim said the fund will co-finance only about P10.6 billion of the P35 billion needed for the 66 agricultural projedcts.

However, he said only three of the agricultural projects have been approved by the NDC technical group. These will still have to be approved by the NDC board before qualifying for ERAP funding. --