[Cancelled] China Eximbank provides $500 million preferential buyer’s credit for Phase I, Section II of the Northrail Project (Linked to Record ID#63576 and #63805)

Project narrative

On April 27, 2006, China Eximbank and the Government of the Philippines signed a Memorandum of Understanding (MoU), wherein China Eximbank agreed to extend a preferential buyer’s credit to the Philippine Government to finance Phase I, Section II of the Northrail Project. On January 15, 2007, the Department of Finance (DOF) of the Government of the Philippines and China Eximbank signed a $500 million preferential buyer’s credit loan agreement for Phase I, Section II of the Northrail Project. DOF, in turn, on-lent the proceeds of the loan to North Luzon Railways Corporation (NLRC or Northrail). The proceeds of the loan were to be used by the ultimate borrower (Northrail) to partially finance a $586.91 million commercial (turnkey) contract between Northrail and China National Machinery and Equipment Group (CNMEG), which was signed on November 15, 2006. Terms of the loan are unknown. The purpose of this project was to build a railway line from the city of Malolos (within the province of Bulacan) to Clark Freeport and Special Economic Zone (CFEZ) — also known as Clark — within Pampanga Province. The Northrail Project Section I, Phases I-II were terminated prior to loan closing after the Supreme Court ruled on May 15, 2007 that the agreement was a commercial deal and not a government-to-government one; thus, it should have undergone competitive bidding. On July 6, 2012, China Eximbank cancelled the loan for this project. The cancellation appears to have resulted from a contractual dispute between CNMEG and Northrail related to Phase I, Section I of the Northrail Project (see Record ID#63576 and #63805). On November 6, 2017, the government of the Philippines reached an out-of-court settlement agreement over its dispute with China National Machinery & Equipment Corp. Group (currently China National Machinery Industry Corporation or Sinomach), the former contractor of the 80-kilometer Caloocan to Malolos segment of the Northrail project. Under the agreement, both parties will waive their claims against each other and declared that there will be no more payment by Northrail to Sinomach, vice versa, and share the remaining arbitration fees equally. This project is linked to Record ID#63576, a $400 million loan signed in 2004 for the construction of the Northrail Project's Section I - which was ultimately canceled, and Record ID#63805, the $180.79 million dispersed from the $400 million loan.