China Eximbank provides $62 million preferential buyer's credit for Chico River Pump Irrigation Project

Project narrative

The Chico River, covering the provinces of Mountain Province, Kalinga, and Cagayan, is known as the “river of life” by the indigenous Kalinga people. It is the most extensive river system in the Cordillera region of Luzon, the largest and most populous island in the Philippines. In the 1970s, the river rose to prominence in the Philippines national consciousness as a symbol of the struggles of indigenous peoples (IPs), notably the Kalinga and Bontoc tribes, regarding a proposed project to construct a dam on the river and its effect on their ancestral domains. During the Marcos administration, the Chico River was eyed as the location of a proposed electric power generation facility popularly known as the Chico River Dam Project. The project was conceived in 1965 as the Chico River Basin Development Project. Still, it was not until the 1973 oil crisis that the government set plans in motion. In 1974, it became known that indigenous people, who had not been consulted or informed about project plans, would be affected. Reports indicated that even if only one out of the four proposed dams were implemented, more than a thousand families would be displaced and rendered homeless, several barrios would be submerged, farmlands would be lost, and other areas flooded. The affected communities rejected the various financial relocation settlement packages offered by the Marcos government because of “the significance of the lands to their religious beliefs and to the legal system which shaped the relationship of their tribes and communities to one another.” Having secured a grant from the World Bank, the government was eager to proceed with the project. However, opposition was mounting from the indigenous people, who organized with the help of various non-governmental organizations. In response, President Marcos issued Presidential Decree No. 848 in 1975, creating a Kalinga Special Development Region (KSDR) to neutralize the opposition. With martial law still in place, it became easy to militarize the project areas and suppress opposition to the project. This resulted in several opposition leaders being rounded up. The conflict came to a head when Macli-ing Dulag, the official spokesperson of the organized opposition to the project, was murdered in his home by the military. With the outcry stemming from Dulag’s death, the World Bank and President Marcos shelved the project. The Chico River Dam Project has since been a symbol of the indigenous peoples’ struggles to protect their ancestral lands and their way of living. In 2016, the Chico River was once again catapulted to prominence with the announcement of the Chico River Pump Irrigation Project (CRPIP) as the first flagship project of the Duterte Administration’s “Build, Build, Build” (BBB) program, financed by the Chinese Government. For the affected communities, the project revived the bitter memories of the Marcos-era Chico River Dam Project. On October 20, 2016, China Eximbank and the Government of Philippines signed a Memorandum of Understanding (MoU) on financing cooperation. Then, on November 15, 2017, the two parties signed a financing cooperation agreement on the Chico River Pump Irrigation Project (CRPIP). The Government of Philippines’ National Economic and Development Authority (NEDA) approved the project on December 5, 2018. Approximately five months later, on September 21, 2018, the Government of Philippines submitted a loan application to China Eximbank. Then, on April 9, 2018, China Eximbank and the Government of the Philippines signed a USD 62,086,837.82 preferential buyer’s credit (PBC) agreement [No. 1420103052018210863 CHINA EXIMBANK PBC 2018 NO. 11 TOTAL NO. 468] for the Chico River Pump Irrigation Project (CRPIP). The Monetary Board of the Bangko Sentral approved the PBC agreement on May 17, 2018. 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 ($186,260.51). The loan effectiveness date was on June 5, 2018. The proceeds of the PBC were to be used by the borrower to finance 85% of the cost of a PHP 3,688,688,600 commercial (EPC) contract [ID#CRPIP-ICB-C-1] between the National Irrigation Administration (NIA) and China CAMC Engineering Co., which was signed on March 8, 2018. The purpose of the project is to provide a stable supply of water to around 8,700 hectares of agricultural land through the construction of new diversion and canal systems, increasing agricultural productivity and benefiting some 4,300 farmers in 21 barangays (districts) in the municipalities of Tuao and Piat in Cagayan Province and Pinukpuk in Kalinga Province. The project involves the construction of a pump house (located at the right bank facing downstream of the Chico River), sub-station, transmission line, diversion main canal, lateral canals, appurtenant structures, service/access road, and terminal facilities. The project also reportedly aims to contribute some 36,000 metric tons of milled rice to the country’s rice supply, generate about $16 million in savings from rice imports. and yield an incremental income of about P75,000 per hectare per year. China CAMC Engineering Co. is the general EPC contractor responsible for implementation. On June 8, 2018, a groundbreaking ceremony took place. The project was originally expected to reach completion within three years (June 8, 2021). However, it has encountered various problems and implementation delays. In 2018, the Cordillera Peoples Alliance (CPA), founded in 1984 as an independent federation of progressive people’s organizations in the Cordillera Region, expressed concerns about the project, saying: “Under the guise of advancing socio-economic agenda, the hand of foreign investors in the implementation of this project will result in the privatization of agricultural services and will force us to succumb to unfair conditions set by these corporations in exchange to access to our very own resources. This is one of the regime’s means to fast-track the entry of foreign corporations to make profit from our deprivation while exploiting our natural resources.” The CPA further contends that the CRPIP is not sustainable under the overall development plan for the Chico River and has no assurance that the project will work, especially in the long run. They are concerned that the CRPIP will deprive downstream communities of water supply and further aggravate the scarcity of water on the Chico River during the summer. The CRPIP comes with significant potential social costs, similar to those of the Chico River Dam Project. The Chico River and any project that involves it will always be tainted with the memory of the struggles of the indigenous people against the Marcos-era project. The social unrest that was created by the staged consultation process during the Marcos martial law years seems to be happening again. There is also a threat that the project will lead to environmental degradation, including widespread flooding, and consequently contribute to disturbing the rich biodiversity in the area. According to La Viña and Reyes, the CRPIP is “development aggression at its worst,” considering that it is “bad for nature and our people and will result in social conflict and fuel an already intensifying insurgency in both the Sierra Madre and the Cordillera.” Additionally, major governance issues—from a defective consultation process to a gross disregard for existing regulatory processes—have dogged the project. In view of these issues, a group of legislators from the House of Representatives known as the Makabayan (Patriotic Coalition of the People) bloc filed a petition before the Supreme Court on April 4, 2019, asking it to stop the loan agreement with China Eximbank. Reminiscent of the protests against the Chico River Dam Project during the Marcos years, the CRPIP has also experienced challenges from the local communities, leading to the “No to Karayan Movement.” According to Frank Cimatu, reporting for Rappler, the “Naneng, Dallak, and Minanga tribes have written a letter to the National Commission on Indigenous Peoples (NCIP) in the region about this project” and the parties invited to the consultations are those who would not be affected by the party. Republic Act No. 8371, also called the Indigenous Peoples’ Rights Act of 1997 (IPRA), recognizes the right of indigenous cultural communities (ICCs) and indigenous peoples to self-determination. The law also provides mechanisms for the protection of their ancestral domains and the resources present therein. One of the means to achieve this is through the concept of free and prior informed consent (FPIC), defined as the “consensus of all members of the ICCs/IPs to be determined in accordance with their respective customary laws and practices, free from any external manipulation, interference and coercion, and obtained after fully disclosing the intent and scope of the activity, in a language and process understandable to the community.” Moreover, a certification pre-condition (CP) is necessary before a project can proceed, as stated in the law. Official sources indicate that groundbreaking ceremonies for the project were held in Pinukpuk, Kalinga, as early as June 8, 2018. A groundbreaking event held in Barangay Pinococ in Pinukpuk, province of Kalinga, was documented, and a photo of it was posted on the official NIA-CAR website. However, it was not until May 23, 2019 that the CP was issued by NCIP en banc, according to NCIP Cordillera Director Roland Calde. While no official groundbreaking date was obtained, a statement from Roland Calde, Regional Director of the NCIP Cordillera, confirmed that construction began before the issuance of the CP, noting “the project had already commenced even before they could receive the report.” In fact, in a meeting on May 7, 2019, in response to the situation, the NCIP, NIA-Cagayan Valley, the Regional Development Council, and the Department of Environment and Natural Resources agreed to suspend project activities while the CP was processed. Eventually, construction resumed after the necessary documents were completed. Aside from the failure by the government to observe the requirement of having a CP before the implementation of the project, Frank Cimatu also noted the following issues concerning FPIC: (a) According to the Cordillera People’s Alliance and other IPs, the FPICs of the communities where the project is located (in Katabbogan and Pinococ in Pinukpuk, Kalinga) were not obtained; (b) There is a lack of full disclosure of information about the project prior to the supposed consultations for the FPIC, such as the provisions of the loan agreement, including the Chinese contractor and Chinese workers that will implement the project; and (c) In lieu of true FPIC, the consent came in the form of the Individual Right of Way Permit to Enter and Construct, signed by the individual landowners and NIA. These documents became the go-signal to begin construction. With construction in full swing, these issues appear to have been legally settled. However, it is not clear whether the genuine concerns have been resolved to the satisfaction of the indigenous peoples in the affected communities. As of March 2019, the CRPIP had achieved a physical completion rate of 22.37%. Then, after a June 25, 2019 site inspection, Administrator General Ricardo Visaya reported that the project was running ahead of schedule. As of December 2021, the project had achieved an 82.88% completion rate and it was still running ahead of schedule. In 2022, the project cost increased from P 4,372.90 million to P 4,497.07 million. The implementation duration extended from September 2021 to December 31, 2022. The change is to account for construction of canalization work, farm ditches and structures, drainage system and improvement of access roads; and service road improvement, construction of protection works, slope erosion control, additional steel gates, and tapping point for transmission line. Increase in cost is to account for the initial fund from NIA regular budget used in the ROW acquisition, construction of PMO Administrative Building, access road to pump site, and to fund additional works under the following cost items: civil works, pre-construction activities, construction survey, procurement of equipment and institutional development. 16-month implementation period extension was due to delays caused by COVID-19 pandemic and unfavorable weather condition, and implementation of additional local minor contracts. On March 15, Sinomach received the completion certificate from the Filipino government, and the project is completed.