China Eximbank provides $211.2 million preferential buyer's credit for New Centennial Water Source-Kaliwa 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 New Centennial Water Source-Kaliwa Dam Project. The Government of Philippines’ National Economic and Development Authority (NEDA) Investment Coordination Committee approved the project on April 25, 2018. Approximately five months later, on September 21, 2018, the Government of Philippines submitted a loan application to China Eximbank. Then, on November 20, 2018, China Eximbank and the Metropolitan Waterworks and Sewerage System (MWSS) — a government agency in the Philippines that is in charge of water privatization in Metro Manila — signed a $211,214,646.54 preferential buyer’s credit (PBC) agreement [No.I420I0300202018213220 and CHINA EXIMBANK PBC 2018 NO.25 TOTAL NO.48] for the New Centennial Water Source-Kaliwa Dam 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 ($633,643.94). The loan effectiveness date was on November 1, 2019, and MWSS paid the entire management fee ($633,643.94) to China Eximbank on November 26, 2019. The proceeds of the PBC were to be used by the borrower to finance 85% of the cost of a PHP 12,189,893,798.70 commercial (EPC) contract [No.NCWS-KDP 001-2018] between MWSS and China Energy Engineering Corporation Limited (CEEC). The purpose of the project is to construct the Kaliwa Dam, including intake facilities and other facilities, and a 57 million cubic meter reservoir. The project involves the construction of a water conveyance tunnel that is expected to supply 2,400 million liters per day of raw water for Metro Manila, thereby reducing dependence on the Angat Dam reservoir. Upon completion, the project is also expected to benefit some 17.46 million people or about 3.49 million households of Metro Manila, Rizal, and Quezon. The Kaliwa dam is located in the municipalities of General Nakar and Infanta in Quezon Province and the municipality of Teresa in Rizal Province. CEEC is the general EPC contractor responsible for implementation. EDCOP, PRIMEX, and SMEC are also involved in the project as subcontractors. An environmental compliance certificate (ECC) [No. ECC-CO-1907-0017] for the project was issued by the Government of the Philippines’ Department of Environment and Natural Resources (DENR) on October 11, 2019. But DENR Undersecretary Benny Antiporda was quoted as saying that “the ECC was issued because it was a priority project of the government and the agency had no recourse but to approve it.” A notice to proceed was issued to the EPC contractor on November 13, 2019. By May 2020, there were only a few more kilometers of access road (to the planned reservoir in General Nakar town in Quezon) left to construct to reach the main dam site. As of December 31, 2020, the project had achieved a 2.48% completion rate. As of March 2021, it had achieved a 9.44% completion rate. Then, on June 29, 2021, a formal groundbreaking ceremony took place. A June 2021 report quoted MWSS as saying that tunnel excavation for the Kaliwa Dam would be ready to begin in December 2021, with the planned arrival of the tunnel boring machine to the Port of Manila slated for July 2021. Construction continued throughout 2021, despite the fact that the project did not have permits from the appropriate government agencies, opened up the possibility that the ECC issued for the project would be revoked. According to the Commission on Audit (COA), MWSS and CEEC must first comply with the requirements of the National Integrated Protected Areas Systems Act and have a certification issued by the National Commission on Indigenous Peoples. It must also identify disposal sites of excavated materials, among others. If these requirements are not met, the COA has warned that the ECC may be cancelled, which would jeopardize the loan agreement with China Eximbank and the commercial contract with CEEC. The project has generated a great deal of local criticism, with some people warning that the dam could destroy the ecosystems and habitats of indigenous people in several Quezon province towns. After granting the project’s ECC, the Government of the Philippines downplayed the threat of a sizable flood occurring in the case of structural damage to the dam caused by an earthquake. Public officials claimed that there are no active faults near the dam. The New Centennial Water Source-Kaliwa Dam Project also threatens to displace up to 10,000 members of the Dumagat-Remontado indigenous people group who live in the project area. These Dumagat communities depend on farming for a majority of their income as well as working for Sierra Madre hikers. The loss of their farmland leaves their economic future uncertain. The project site is also the location of sites sacred to the Dumagat people. The Government of the Philippines claims that only 46 families stand to be affected by the project. In March 2019, Marcelino Tena, President of Samahan ng mga Katutubong Agta-Dumagat-Remontado na Binabaka at Ipinagtatanggol ang Lupaing Ninuno (SAGIBIN-LN), alleged that MWSS “did not follow the right process to secure the Free, Prior and Informed Consent (FPIC),” adding that the engineering design had not been shown to them. In contrast, then-MWSS administrator Reynaldo Velasco claimed that only about 46 families would be affected, that several consultations with those who would be affected had been made, and that the project design had yet to be finalized. The controversy led to the creation of the “STOP Kaliwa Dam” (SKD) organization. Also known as Sectors and Peoples Totally Opposed to Kaliwa Dam, the organization claims representation from indigenous peoples, local communities, church leaders, academics, environmentalists, and social movements. The group has started a signature campaign from all over the Philippines to petition Duterte to stop the project. By September 2019, the official MWSS website reported that three successful public hearings initiated by DENR-EMB and the MWSS had been conducted, as follows: at General Nakar, Quezon on August 23, 2019, at Teresa, Rizal on August 27, 2019; and at Infanta, Quezon on August 28, 2019. In connection with the free, prior, and informed consent, the site has this to say: “With regard to MWSS’ compliance with Republic Act No. 8173 or the Indigenous People’s Rights Acts, the MWSS through the National Commission of Indigenous Peoples has successfully completed the community assemblies on the six (6) clusters of IP communities in Quezon Province as part of the Free Prior and Informed Consent (FPIC) process (emphasis supplied).” However, according to Mavic Conde, five out of six cluster communities in General Nakar—one of the two municipalities in Quezon province where the NCWS-KDP will be located (the other one is Infanta)— voted overwhelmingly no, effectively rejecting the project. The five clusters consist of those in Lumutan, Baybay, Pasanghan, Umiray, and Cablao. Also, Aaron Pedrosa, attorney for the progressive political party Sanlakas, alleged that MWSS failed to provide proof of compliance with the procedural requirement of posting a public notice and a copy of the scoping report as proof that public scoping was conducted in the area as part of the environmental impact study. These allegations and counter-allegations have given rise to serious legal questions relating to the issuance of the ECC in the absence of a valid consultation process.

Additional details

1. This project is also known as the NCWS Project, the NCWS-KDP Project and the Kaliwa Dam Project. The Chinese project title is 卡利瓦大坝 or 卡利瓦大坝项目. 2. The commitment fee is to be paid semi-annually during the availability period, and the management fee is to be paid as a lump-sum within 30 days of the PBC agreement becoming effective. 3. The Metropolitan Waterworks and Sewerage System was previously known as the National Waterworks and Sewerage System Authority. 4. In the China’s Overseas Development Finance Dataset that Boston University's Global Development Policy Center published in December 2020, it identifies the loan commitment year as 2017 (rather than 2018) and the face value of the loan as $231 million (rather than $211,214,646,54). AidData relies upon the loan commitment year and face value of the loan that is reported in the loan agreement itself. 5. NEDA’s assessment of the project in 2013 found that the standalone Kaliwa Dam would be barely viable based on its estimated economic internal rate of return (and that the integrated Laiban and Kaliwa Dam system would not be viable without water treatment plants). On the other hand, a 2012 World Bank assessment, which considered probable leakage rates as well as environmental assessment and watershed maintenance costs, singled out the Kaliwa Dam project as offering the lowest financial internal rate of return out of ten potential Metro Manila water projects. A 2021 scholarly assessment of the economic viability of the dam suggest it may become a “white elephant” project, economically burdensome to the host country. 6. The New Centennial Water Source-Kaliwa Dam Project (NCWS-KDP) has been on and off the government’s major infrastructure list since the 1970s. Its development stalled primarily because of environmental and socio-cultural issues relating to the planned construction. The project was first conceptualized under then-President Ferdinand Marcos but was overtaken by events with his departure in February 1986. However, the MWSS Board of Trustees decided to temporarily defer the Laiban Dam Project in December 1989 to accommodate equally important water supply projects which were determined to be urgent at that time. Technical studies about the construction of a dam in Laiban continued under the administration of President Fidel Ramos starting in 1992. By 2007, the administration of President Gloria Macapagal-Arroyo had secured a loan from China to fund the project. However, a political scandal involving a Chinese firm marred the administration and caused the project to be shelved. In 2009, San Miguel Corporation, a private company, submitted an unsolicited proposal for the construction of a massive Laiban Dam with a correspondingly large reservoir slated to flood some 28,000 hectares of forest. The proposal was eventually set aside with growing public concerns that the project would increase water rates and displace indigenous people; MWSS subsequently terminated the joint-venture talks for the project. Some years later, the project was resuscitated as the New Centennial Water Source project (NCWS) with a proposal for two dams in the Kaliwa watershed: a main Laiban Dam and a regulating Kaliwa Low Dam. Concerns about the duration and construction costs led officials to consider building them in stages under different financial schemes. Choosing this option, NEDA approved the implementation of the Kaliwa Low Dam as the first stage in 2014. Discussions about the Kaliwa Dam resurfaced in March 2019 when parts of Metro Manila experienced significant water service interruptions lasting up to 19 hours per day. 7. The Kaliwa River watershed is part of the Sierra Madre Biodiversity Corridor (SMBC). The dam is to be built within the Kaliwa River area declared as a forest reserve under Proclamation No. 573 issued in 1969. Furthermore, Proclamation No. 1636 issued in 1977 demarcated other areas to be affected by the construction as a national park, wildlife sanctuary, and a game preserve. The project’s location in protected and ecological important areas is the main driver of concerns about its impact on biodiversity. According to the 2018 report of the Haribon Foundation—an organization founded in 1972 committed to “nature conservation through community empowerment and scientific excellence”— the construction of the multi-billion-peso Kaliwa Dam Project will not only have devastating effects on people’s lives, but it will also ravage the homes of thousands of threatened wildlife species in the Sierra Madre mountain forests. The same report states that the dam area declared as a wildlife sanctuary is a “key habitat to 15 species of amphibians, 334 bird species, 1476 fish species, 963 invertebrate species, 81 mammal species, 50 plant species, and 60 reptile species,” according to the Integrated Biodiversity Assessment Tool curated by BirdLife International, the International Union for Conservation of Nature (IUCN), and the United Nations Environment Programme World Conservation Monitoring Centre. Of the species, a significant number are considered globally threatened by the IUCN, including the critically-endangered Philippine Eagle and the Hawksbill Turtle. 8. The China Eximbank loan agreement can be accessed in its entirety via https://www.documentcloud.org/documents/20488747-phl_2018_422 and https://web.archive.org/web/20210403092046/https://www.dof.gov.ph/?wpdmdl=23678

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