Tit for tat with China?

When China suddenly made it extremely difficult for our bananas to enter the country and encouraged tourists with confirmed reservations to forego the trip to the Philippines, many felt helpless and quite mad about how we are being bullied by hitting us where it hurts… economically. As if that was not enough, China demanded the payment of the North Rail loan in the middle of the controversy over the Panatag Shoal.

China wants back all $500 million of the loan even if no more than $200 million was actually drawn from the Chinese Eximbank. Because the project never got rolling (about 10 percent accomplishment in four years vs 100 percent target), the bank issued a notice of termination and collection.

This tough stance being taken by China betrays their protestations of friendship. But two can play a game. We are not that helpless because China has a big and lucrative investment in the National Grid Corp. of the Philippines (NGCP) and their construction companies are regular bidders in our public works projects. The profits being remitted back to China are said to be quite enormous.

Someone should point out to China that our economic relationship is a two-way street… That’s exactly what Interior Secretary Mar Roxas did when he went to China on a special mission the other week.

 Secretary Roxas told a news conference that he transmitted the message to Chinese Foreign Affairs vice minister Fu Ying the Philippine government is “not comfortable” that the Chinese are in charge of our electric grid. Citing security issues, Roxas called on China to turn over control and transfer the promised technology in the country’s main power transmission company to Filipinos.

The State Grid of China (SGC) owns 40 percent of the privatized NGCP. SGC is however, responsible for the technical aspects of running this very vital “superhighway” that brings high-voltage electricity generated in various power plants in the country to Meralco and other power distributors.

Based on the contract, Roxas said the SGC is obliged to transfer its technology to the NGCP and train Filipinos on how to manage the technical aspects of “our national electric grid.” This is not happening or not happening fast enough. Actually, our engineers have what it takes to operate the grid. It shouldn’t be that difficult to take over immediately if needed. It is just that NGCP assigned the Chinese to be on top of the technical aspects.

On the North Rail case, the Chinese are demanding immediate payment on the basis of the agreement signed by the administration of Ate Glue which called for immediate repayment if terms were violated or not met. The Chinese could have handled the problem a lot more delicately.

Apparently, the present administration has taken the position that we can do nothing about it but pay. Finance Secretary Cesar Purisima has reportedly made arrangements with China Eximbank for the loan to be paid in tranches over two years, the best they think that could be done. But is it?

Many are wondering if we owe that much. Someone has to answer the question: What’s been done worth this much? Or is the bulk of the money borrowed just sitting in some government account?  

 What complicates the matter is that the Philippine Supreme Court has ruled that the deal is not an executive agreement as claimed by Ate Glue. As such it is subject to normal procurement rules of our government.

The High Court also ruled that the project’s Chinese contractor, the China National Machinery & Equipment Corp. (CNMEG), was not immune from suit. It remanded to the Makati regional trial court for further hearing the case questioning the validity of the contract, and the loan agreement between China Eximbank and the Department of Finance.

Secretary Roxas, who met with Chinese vice president Xi Jin Ping in China, said we welcome putting closure to the “anomalous” project of Ate Glue. He was also gracious enough to say China could still take part in a revived NorthRail project, this time in a process untainted by corruption.

But there are also those who are wondering if it was legal for DoF during Ate Glue’s watch to sign a sovereign loan agreement on behalf of a SEC-registered company, North Rail. Nearly all GOCCs with original charter have a proviso that sets a limit on what it can borrow with sovereign guarantee. Congress must authorize these GOCCs to borrow under certain conditions. If authority is non-existent, as in North Rail, can it be presumed there is no limit?

Another source familiar with the deal explains that it is his understanding the original North Rail loan was a government to government agreement between the Philippines and China. Loan proceeds are effectively being lent by our government to NorthRail. However, the Chinese Eximbank released the funds directly to various Chinese contractors and subcontractors China said were mandatory. We probably didn’t even see the shadow of the money.

“The $500 million seems to be the entire loan for Phase 1 of the project (Caloocan to Malolos), which China has decided to declare due and payable. The Phase 2 loan commitment (Malolos to Clark) to my knowledge was never formalized.

“Only a fraction of that amount has actually gone into bricks and mortar so far. Something like $100 million sounds like a reasonable estimate. The balance of say $400 million (assuming all of it was made available for disbursement) should still be sitting in project operating and escrow accounts as well as the loan account under CNMEG’s name, all of them maintained with a Chinese bank. That cash should be available for offset in order to reduce the net payable.”

The real mystery is why the project never got going from its inception in 2003. Some former leaders of the old ruling coalition like former Speaker Jose de Venecia should probably be able to shed light on what really happened.

An expert on transportation projects thinks incompetence doomed the project. Those on the Philippine side had little or no prior experience in infrastructure execution. On the other hand, the Chinese contractor China insisted on had no experience in building a railway system on turnkey (the NorthRail was its 1st, as claimed in their own website).

There was an attempt by Ate Glue’s team to renegotiate the bad contract but even here, the amendments did not address the defects in the contract. They just increased the price by reducing the scope of work, like reducing the number of trains from 22 to three!

A new team of Ate Glue under a former Angeles City mayor discreetly sounded out the Chinese government about replacing CNMEG. But when China insisted on keeping CNMEG, it was quietly accepted.

One official said the contract with the Chinese was so bad as to make implementation nearly impossible. Interestingly, the original contract and the revised increased costs were vetted thru the usual review process at NEDA sometime in 2007-08.

A June 6, 2006 PhilStar news report written by Marianne Go, current PhilStar assistant business editor, talks of visiting Chinese Trade Minister Bo Xilai, confirming at a press conference that China is committed to provide some $900 million in funding for the long-delayed North Rail project.

This is the same Bo Xilai who was recently disgraced with an expulsion from the Communist Party after his wife was found guilty of murdering a British businessman. The same PhilStar story talks of then Trade secretary Peter Favila and Economic Planning secretary Romulo Neri signing a memorandum of understanding (MOU) that sets the framework for enhanced economic cooperation between China and the Philippines.

Also in that PhilStar story is then speaker Jose de Venecia saying that China had agreed to provide $200 million in funding for the South Rail project as well as for tourism facilities to be presented by various local government units (LGUs). Apparently, nothing happened with this one, luckily for us.

I guess in the interest of complete transparency which the Aquino administration says is its hallmark, Finance secretary Cesar Purisima should reveal all the gory details of this deal. Are we really paying $500 million even if at most, $200 million was used?

We, the taxpayers, are entitled to know. One lawyer is saying P-Noy is impeachable if he authorizes payment. So, even P-Noy should be curious to find out the truth.

Phone Call

Jose Villaescusa sent this one.

The phone rings, and the lady of the house answers. A pervert, breathing heavily, says, “I bet you have a tight asshole with no hair!”

The woman replies, “Oh yes, he’s watching TV right now... who should I say is calling?”

Boo Chanco’s e-mail address is [email protected]. Follow him on Twitter @boochanco