Chinese financing for Build, Build, Build: Bidding first before loan deal

Loans from China for the financing of "Build, Build, Build" programs can only be secured if the project involved is bid out first to Chinese contractors, it was learned on Tuesday.

This was revealed by officials from the Department of Finance (BOF), the National Economic and Development Authority (NEDA) and the Bases Conversion and Development Authority (BCDA) during the Senate Committee on Economic Affairs' hearing on the status, sustainability and risks of projects of the infrastructure program.

"For the Japanese ODA [Official Development Assistance] loan, the loan agreement is signed first before the bidding process [starts]. But with China, the bidding process comes before the loan agreement is signed," BCDA president and CEO Vivencio Dizon told the Senate Economic Affairs panel chaired by Senator Sherwin Gatchalian.

"For example, after the Subic project has been approved by the NEDA board, the Chinese government will give the list of accredited contractors, then the Philippine government will give back the project with our own rules and choose the contractors," he added.

"The project is bidded out using the budget for the project approved by NEDA and goes to [the] typical bidding process. After the project has been awarded [to the bidder], then that amount is what will be negotiated by DOF in terms of payment, gaano kahaba 'yung term ng loan, etc."

Assistant Secretary Edita Tan of the DOF’s International Finance Group unit and NEDA Assistant Secretary Jonathan Uy confirmed that such a process is unique to China because Japan and South Korea, among others, use a different system—one in which the loan agreement is signed first before the project is bid out to contractors accredited by the Asian Development bank.

Dizon claimed that China is not getting preferential treatment with a different scheme.

"The bidding process is very transparent and very competitive. The Chinese government provides a list of accredited contractors, and that list is vetted by implementing agencies. Hindi porket nagsubmit ang China ng listahan, automatic na tatanggapin na ‘yan ng Philippine side," he said.

"Kung may blacklisted [sa listahan ng China] sa international agencies, including World Bank, then that contractor would not be qualified and we will ask China to have it replaced also in compliance with our domestic [procurement] law," Dizon added.

The Philippines has secured loans from China for two projects under the Build, Build, Build program thus far: the P4-billion Chico River Pump Irrigation project in Kalinga and Cagayan provinces, and the P18-billion New Centennial Water Source Kaliwa dam project in Quezon province.

Dizon also said that choosing the country from whom to borrow is not a matter of favoring China but has to do with several considerations, such as willingness of the lenders; the compatibility of the lending country’s technology to the project requirements;and the interest rate ,which could differ depending on denomination.

“Example, if Japan said it is going to lend us $10 billion, I would say it is our best interest to borrow budget for subway from Japan because they are knowledgeable on that. Also, the Philippine government cannot allocate all projects to just one country kasi hindi nila ipa-fund ‘yun,” Dizon said.

Gatchalian also did not think that China’s two- to three-percent interest rate is exorbitant, since the ADB and World Bank’s interest rate is at three to four percent.

“[The interest rate imposed by] China is still within range,” Gatchalian said.

Based on NEDA records, there are at least 74 Build, Build, Build projects worth P2.1 trillion. Of this number, 56 are funded with foreign loans, seven are funded via Public Private Partnership and 11 are funded by the national budget. — BM, GMA News