China Eximbank provides RMB 400 million government concessional loan for Phase 1 of Non-Intrusive Container Inspection System Project (Linked to Project ID#49078)

On May 11, 2006, China Eximbank and the Government of the Philippines signed an RMB 400 million ($58,509,874) government concessional loan (GCL) agreement [China Eximbank GCL No. (2006) 154-12] for Phase 1 of the Non-Intrusive Container Inspection System Project (NCISP). The GCL carried the following borrowing terms: 20 year maturity, 5 year grace period, 2% interest rate. The final maturity date of the loan is March 21, 2026. Then, on January 15, 2007, China Eximbank and the Government of the Philippines signed an RMB 800 million ($117,250,400) government concessional loan (GCL) agreement [China Eximbank GCL No. (2006) 29] for Phase 2 of the Non-Intrusive Container Inspection System Project (NCISP). The GCL carried the following borrowing terms: 20 year maturity, 5 year grace period, 2% interest rate, and 0.3% management fee. The final maturity date of the loan is September 21, 2026. The GCL that was signed on May 11, 2006 is captured in Project ID#49079. The GCL that was signed on January 15, 2007 is captured in Project ID#49078. The proceeds of both GCLs were to be used to be the borrower to finance a commercial contract between the Philippines' Bureau of Customs and Nuctech Company Limited. The purpose of the NCISP was to purchase and install x-ray scanners for use in the country’s major customs collection districts, including the Port of Manila, Manila International Container Port, Port of Subic, Port of Clark, Port of Batangas, Port of Cebu, Port of Davao, Port of Cagayan de Oro, Sub-Port of General Santos, Port of Zamboanga. Each of these scanners was capable of inspecting at least 20 forty-foot containers or 17 forty-foot containers per hour. The objectives of the project included improving accuracy and correctness of assessment and collection of duties and taxes; combatting smuggling and the illegal entry of drugs and hazardous materials; and improving the inflow and outflow of containers through the country’s ports. Phase 1 supported the acquisition and installation of 10 x-ray scanners for use in the country’s major customs collection districts. Phase 2 supported the acquisition and installation of 20 x-ray scanners. Under Phase 2, three scanners each were earmarked for use in the South Harbor Port and the Manila International Container Port; two scanners were earmarked for use at the NAIA airport; and one scanner each was earmarked for use in the Cebu City, Subic, Clark, Batangas, San Fernando, Legaspi, Iloilo, Tacloban, Surigao, Cagayan de Oro, Zamboanga and Davao Ports. Nuctech Company Limited was the contractor responsible for the implementation of both phases and its work was overseen by the Philippines' Bureau of Customs. After President Gloria Macapagal-Arroyo signed Executive Order No. 592 on December 16, 2006 and imposed the mandatory payment of a Container Security Fee to support the NCISP, Commissioner Morales issued Customs Memorandum Order No. 6-2007 on March 28, 2007 and created an x-ray committee to carry out effectively the mandate of the Project. CMO No. 6-2007 enumerated guidelines for the conduct of x-ray inspection on containerized shipments and established an X-Ray Inspection Project (XIP) as a specialized and technical unit that would oversee the administrative and operational control of all x-ray scanning equipment. This container inspection system was put into effect in July 2007 and it reportedly led to a reduction in the number of shipments subjected to actual physical inspection (due to the fact that the scanners clearly demonstrated which cargoes needed to be examined physically). However, this project was also plagued by controversy due to allegations of artificially inflated costs. In 2016, the Philippines’ Commission on Audit (COA) asked the Bureau of Customs (BOC) to review the 2006 commercial contract with Nuctech Company Limited and the China Eximbank loan agreements that were used to finance the commercial contract (after COA found that the mobile X-ray machines purchased in 2006 were exorbitantly overpriced’ (by PHP 4.215 billion). The Government of the Philippines paid PHP 7.953 billion to Nuctech Company Limited for 30 units of mobile X-ray equipment. But when COA asked for a quotation from another international supplier of non-intrusive container inspection scanners, it found that the Government of the Philippines could have purchased the X-ray machines at a lower price for even better performance. COA's quotation from the said supplier showed that an X-ray machine ‘with vastly superior performance’ would only cost PHP 124.6 million each, for a total of PHP 3.738 billion for thirty units. A special COA audit noted that these x-ray machines could ‘be utilized at sea ports that can scan trucks and containers five times the speed of the mobile X-rays that BOC have’. Aside from overpriced nature of the x-ray machines, the COA audit found that the maintenance cost of the X-ray machines from Nuctech Company Limited was substantially higher (by PHP 3.264 million) compared to other suppliers.

Additional details

1. The Government of Philippines loan identification number for the China Eximbank loan that supported Phase 1 of the Non-Intrusive Container Inspection System Project is CHI-3. Its loan identification number in the Debt Management and Financial Analysis System (DMFAS) is 29602000. 2. According to a Consolidated Audit Report on Official Development Assistance (ODA) Project published by the Government of the Philippines, the original loan commitment amount was $58,625,200, but then $115,326 of the loan was cancelled so the net loan commitment is $58,509,874. 3. During a November 7, 2007 budget hearing, Bureau of Customs Commissioner Napoleon Morales reported that each x-ray scanner from Nuctech Company Limited would cost $2.5 million. However, in the public biddings of the Los Angeles Harbor Department and the Iceland State Trading Centre, the average cost of an x-ray scanner from Nuctech Company Limited is identified as $1.9 million. 4. The China Eximbank loan that supported this project is not included in the the Overseas Development Finance Dataset that Boston University’s Global Development Policy Center published in December 2020.

Number of official sources

16

Number of total sources

22