Blessing in disguise

The failure of the Duterte administration to cash in on the promised Chinese ODA funding for three rail projects is a blessing in disguise. Two of those rail projects, Subic-Clark and Mindanao Railway, have little economic benefit to justify the large capital expense.

The Calamba to Bicol rail project is a different story. It makes sense and should be part of President Junior’s transport infra program.

Rehabilitation of the Bicol line of PNR could be feasible, a transport expert told me, but the China deals were for a complete replacement (tracks, railcars, etc) system. As such, the benefit-cost is dubious.

It would mean closure of the line for several years, disposal of existing PNR rolling stocks, including newly acquired train sets and the San Pablo-Lucena line that Tugade-Duterte inaugurated last month. Those new trains are narrow gauge, consistent with existing tracks and assets of PNR. The Bicol project for the China loan is standard gauge.

The expert also pointed out that the 417-km Bicol expressway hurriedly signed (June 3) by former DOTr Secretary Art Tugade undermines the Bicol railway’s viability. Then again, because the expressway is privately driven, it will be operational long before the railway line is done.

The 380-kilometer PNR connection from Banlic, Calamba to Daraga, Albay with a price tag of P142 billion was the largest contract among railway projects in the pipeline.

On Jan. 18 this year, the DOTr awarded the contract for the PNR Bicol Package 1 to the Chinese joint venture China Railway Group Ltd, China Railway No. 3 Engineering Group Co. Ltd., and China Railway Engineering Consulting Group Co. Ltd.

The DOTr said PNR Bicol Package 1 construction was expected to be completed by 2024, and would start operations by the third quarter of 2025.

According to DOTr Undersecretary Cesar Chavez, the contract for the construction of the P51-billion Subic-Clark railway was awarded in December 2020 to China Harbour Engineering Co.

The Subic-Clark Railway had been criticized from the start as a white elephant in the making. The short distance is already served by a private tollway and the Gapan-Olongapo highway, which had been expanded and  is able to serve whatever cargo truck traffic must be moved between Subic and Clark.

Experts pointed out that the Subic-Clark Railway is being constructed on the wrong premise that Subic will be a major seaport. But it has been pointed out that Subic has less than 30 hectares available for an international class port. It will not keep the railway service busy enough to justify its cost.

If Subic had any promise to be a major seaport, Ricky Razon’s ICTSI would have developed it a long time ago. Razon would have also invested on a rail line to Clark if it made business sense. Obviously, it didn’t.

It probably made more sense to have a rail line from the Manila port to an inland port somewhere in Laguna to help alleviate traffic jams caused by cargo trucks in Manila streets.

“Ang gusto nating malaman ng tao, walang pondo. Para sa Calamba to Bicol, iyong P142 billion na pinag-usapan, walang pondo iyan. Iyong Clark to Subic, walang pondo yan. Iyong Tagum-Digos, yung 110 kilometers, walang pondo yan,” said Chavez.

Under our procurement law, no contract can be awarded without funding. With no signed loan, there is no funding. Probably, the Duterte administration awarded the projects anyway to Chinese contractors to give the impression the projects are finally moving… and to tie the hands of the next administration.

Chavez said that then Finance Secretary Carlos Dominguez III tried following up on the Philippines’ loan application with China in February this year. Dominguez said he terminated the applications for financing because Beijing failed to act on the documents filed by the Philippines.

Dominguez III told reporters via Viber chat last Friday that China Eximbank (CEXIM) wanted to charge around three percent interest rate for the loans, way above the rate offered by alternative financiers like Japan.

“At present, as US dollar benchmark interest rates have increased to around three percent, CEXIM will push to recover this funding rate at the very least,” he said.

“I canceled the application instead of keeping it in suspended animation. If you wish to pursue this, I understand that the Chinese financing agency will be asking for interest rates in excess of three percent,” Dominguez said in a text message to Chavez shown to reporters.

Chavez said Japan’s offer of a loan with an interest of as low as 0.1 percent has prompted the government to ask China to lower its rate to a competitive level.

Indeed, it seems everything about the much publicized assistance from China was to keep Duterte in line. Pina-asa, as we would say in Tagalog to make sure he supports China on the West Philippine Sea issues.

In 2020, Duterte’s own Socioeconomic Planning Secretary Ernesto Pernia said China was “slow” in providing funding for the country’s infrastructure projects.  China’s unfunded railway projects were in contrast to the projects funded by Japan and the Asian Development Bank. The Metro Manila Subway, South Commuter Railway, and Malolos-Clark Railway have all broken ground with construction ongoing.

Chavez said President Marcos instructed them to reopen the loan application and renegotiate with the Chinese government.

Chavez said they were also instructed to look into the option of soliciting proposals from the private sector, especially for the P50-billion Subic-Clark Railway Project and the P83-billion Mindanao Railway Phase 1. Since both projects were apparently considered unbankable even by China, there is little chance the private sector will be interested.

Proceeding with the two projects would be wrong. Junior should thank his lucky stars the Chinese refused to fund them. Sec. Arsi Balisacan should now seriously subject those stalled projects to a proper evaluation. Duterte apparently railroaded the projects, specially Davao rail, and Tugade allowed those to proceed without the tough screening that even private sector funded PPP projects go through.

Given the state of the government’s fiscal space, the country can’t afford to spend on potential white elephants. China’s failure to fund is a blessing in disguise so that Junior now has the opportunity to do it right.

Boo Chanco’s email address is [email protected]. Follow him on Twitter@boochanco