China Eximbank provides $257.9 million preferential buyer’s credit for Phase 1 of Safe City Project

On October 20, 2016, China Eximbank and the Government of Philippines signed a Memorandum of Understanding (MoU) on financing cooperation. Then, on January 26, 2018, the Government of Philippines’ National Economic and Development Authority (NEDA) Investment Coordination Committee (ICC) approved Phase 1 of the Safe City Project. The Government of the Philippines submitted an application to China Eximbank for a preferential buyer’s credit (PBC) worth $337,287,207.15 on July 23, 2019. At that time, Government of the Philippines envisaged that the geographical scope of Phase 1 of the Safe City Project would include 18 local government units (LGUs). Then, on July 16, 2019, the ICC-Technical Board noted the compliance status of the Philippines' Department of the Interior and Local Government (DILG) with the conditions of the NEDA Board and instructed DILG to submit the following to facilitate the processing of the project loan from China Eximbank: (1) documentation on the approval by the National Telecommunication Commission (NTC) of DILG's frequency spectrum bandwidth application, and information on the corresponding cost requirement for the same; (2) signed Memoranda of Agreement (MOAs) with the participating LGUs; and (3) information and updates on the DILG's efforts to ensure the interconnectivity of the project with all transportation projects with security features. The ICC-Cabinet Committee (ICC-CC) instructed DILG on March 6, 2020 to proceed with the project with the LGUs that had signed MOAs (as project beneficiaries). On August 26, 2020, NEDA issued a Certification to DILG indicating the Department's compliance with the abovementioned conditions of the ICC and NEDA Board for the approval and confirmation of the project. The Certification likewise covers DILG's compliance with the instruction to prove information on the measures to address project risks such as the approval by NTC of DILG's frequency spectrum bandwidth application, following the DILG's submission of a copy of the permit issued by NTC on said application. Nevertheless, DILG decided to proceed with the implementation of the project with the 16 LGUs with signed MOAs as project beneficiaries, as instructed by the ICC-CC. Then, on June 17, 2021, China Eximbank and the Government of the Philippines signed a $275,942,177 PBC agreement [No.PBC20210080513] for Phase 1 of the Safe City Project. The borrowing terms of the PBC are as follows: a 20-year maturity period, a 7-year grace period, an interest rate of 2%, a default (penalty) interest rate of 0%, a 0.3% commitment fee, and a 0.3% management fee ($827,826.53). The proceeds of the PBC are to be used by the borrower to partially finance a $396,808,479 commercial contract between DILG and the China International Telecommunication Construction Corporation, which was signed on November 19, 2018. Under the terms of the PBC agreement, the borrower can also request that the lender increase the face value of the PBC by $61,345.030.15 (to $337,287,207.15) if it decides to expand the scope of the project (from 16 LGUs to 18 LGUs in order to include Davao City and Makati City as project beneficiaries). Any such modification would need to be codified in a supplemental agreement to the PBC agreement [No.PBC20210080513]. The purpose of this project is to utilize high-definition and advanced closed-circuit television (CCTV cameras) to curb crime and improve emergency response time. According to the DILG, the project will enable more efficient management of public order, safety, and security. Around 12,000 cameras will be installed, with 234 of them installed in Marikina. These cameras will be strategically located in areas where crime, traffic, floods, and fires are prevalent. Through the project, an integrated or converged Intelligent Command, Control, and Communication Center (IC4) will be constructed, in a bid to link the National 911 Public Safety Answering Point, the DILG, the Philippine National Police, the Bureau of Fire Protection, and Bureau of Jail Management and Penology. City-level command centers will also be established. The first phase of the project will also utilize advanced information and communication technology that will involve video monitoring, multimedia critical communication, information management (big data analytics), and command center systems. Upon completion, the project is expected to reduce the crime rate by 15% and increase the response rate of law enforcement officials and first responders by 25%. These include police and fire personnel that act during natural and human-induced emergencies. China International Telecommunication Construction Corporation is the EPC contractor responsible for implementation. Huawei Technologies Co., Ltd. is also involved in the project as an equipment supplier. A formal project commencement ceremony took place on November 22, 2019. However, the project is a source of local debate and controversy in the Philippines and efforts were made to prevent the project from ever entering implementation. In January 2018, Senate President Pro Tempore Ralph Recto filed a resolution to probe the project, citing hacking and espionage allegations against Huawei, the project’s equipment supplier. Then, in January 2019, Recto said one provision in the unprogrammed fund section of the 2019 budget bill would disallow the use of funds for “any project intended for public video surveillance and communication system with suppliers or service providers that are considered serious risks to national security or interest or are involved in cases regarding information leakage, computer or network hacking, and other forms of cyberespionage, whether in the Philippines or in other countries.” Another provision lists the foreign-assisted projects that could draw from authorized appropriations for 2019, and the Safe City (or Safe Philippines) project was not among them. On November 22, 2019 Interior Secretary Eduardo Año gave assurances the project will be handled by Filipinos. He said that “they provide the equipment, and after providing the equipment, we’ll take care of this. There will be no adviser, there will be no Chinese technician, all Filipino." In May 2022, DILG Undersecretary Epimaco Densing III announced that the project had been halted indefinitely due to lack of access to funds.

Additional details

1. This project is also known as Phase 1 of the Safe Philippines Project. 2. The China Eximbank loan agreement can be accessed in its entirety via https://www.dropbox.com/s/689gbbwlanfvubw/China%20Eximbank%20PBC%20Agreement%20for%20Phase%201%20of%20Safe%20Philippines%20Project.pdf?dl=0 3. It is unclear if the China Eximbank loan agreement was suspended or cancelled after the project was 'halted.' As such, for the time being, AidData has status coded Project ID#63248 as in "Implementation" (rather than "Suspended" or "Cancelled"). However, this issue warrants further investigation.

Number of official sources

13

Number of total sources

23