Narrative
Full Description
Project narrative
On August 30, 2003, China Eximbank and the Department of Finance of the Philippines (DOF) signed a Memorandum of Understanding (MOU), wherein China Eximbank agreed to extend a preferential buyer’s credit to the Philippine Government to finance the Northrail Project for an amount not to exceed $400,000,000. Then, on February 26, 2004, DOF and China Eximbank signed a $400 million preferential buyer’s credit loan agreement (No. BLA 04055) for Phase I, Section I of the Northrail Project. The loan reportedly carried the following terms: 20 year maturity, 8.25 year grace period, and 3% interest rate. 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 $421,050,000 commercial (turnkey) contract between Northrail and China National Machinery and Equipment Group (CNMEG), which was signed on December 30, 2003. The purpose of the project was to build an 80 km railway line from Caloocan in Metro Manila to the city of Malolos (within the province of Bulacan) to promote economic development north of Metro Manila. The railway line would have passed through Valenzuela, Marilao, Bocaue, and Guguinto. A formal groundbreaking ceremony took place on April 5, 2004. However, Northrail did not issue a ‘notice to proceed’ to CNMEG until February 26, 2007. On May 15, 2007, the Supreme Court of the Philippines ruled that the loan agreement was a commercial deal and not a government-to-government one and as such it should have undergone competitive bidding. On July 6, 2012, China Eximbank advised DOF that it was cancelling the undisbursed balance of the $400 million loan and it demanded immediate payment of $180.79 million drawn from the $400 million loan. DOF was able to negotiate with China Eximbank to pay $180.79 million of loan principal plus interest in four equal installments over two years (starting on September 21, 2012). As of January 21, 2014, DOF had repaid China Eximbank the full amount of $180.79 million plus interest.
Staff comments
1. 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. 2. The Government of Philippines loan identification number for the China Eximbank loan that supported Phase I, Section I of Northrail Project is BLA-04055. 3. The original commercial contract from December 30, 2003 was amended on September 29, 2009, increasing the contract cost from $421.05 million to $593.88 million. On August 22, 2012, CNMEG terminated the project after questions on the validity of the contract were raised and filed in court. CNMEG subsequently submitted claims for payment for work already done. On November 6, 2017, the Government of the Philippines and CNMEG reached an out-of-court settlement agreement over their contractual dispute. Under the agreement, both parties agreed to waive their claims against each other and declared that there would be no more payments between Northrail and CNMEG/Sinomach. The parties also agreed to share the remaining arbitration fees equally. 4. CNMEG was eventually renamed China National Machinery Industry Corporation (Sinomach). 5. Record ID#63805 captures the $180.79 million loan disbursement and Record ID#63576 captures the loan cancelation. Record ID#63583 captures a separate $500 million (cancelled) loan commitment for Phase I, Section II of the Northrail Project.