BLGF okays in principle city’s prepayment plan for SRP loan

CEBU, Philippines - The Bureau of Local Government Finance has agreed in principle to Cebu City’s proposed debt prepayment to the Japan International Cooperation Agency (JICA) for the South Road Properties.

The concurrence, however, will be subject to security measures, one of which, as BLGF has cited, is for the city to enact an ordinance or pass a resolution for Mayor Michael Rama to negotiate the prepayment with JICA and an ordinance that would authorize the annual or supplemental appropriations for the prepayment, subject to review by the Department of Budget and Management.

BLGF Executive Director Salvador Castillo made his recommendation in a three-page letter dated September 26.

In its previous regular session, the City Council passed a resolution allowing Rama to negotiate with the Land Bank of the Philippines for the prepayment. The body also included the P2.3 billion prepayment in the P2.8 billion Supplemental Budget 1 for this year.

However, the council itself has put on hold the approval of Supplemental Budget until the court resolves a civil case filed against them.

Romulo Torres, a taxpayer from Basak San Nicolas, sued Vice Mayor Edgardo Labella and all councilors to stop the city government from using the proceeds from the sale of 45.2-hectare lot at SRP, which the city collected over P8.5 billion from the developers.

The deferment of the P2.8 billion additional budget for this year would stall the P2.3 billion prepayment of the SRP loan and other certain items.

The executive department has proposed a P3.32-billion SB1 but the council’s committee on budget and finance slashed the budget down to P2.8 billion.

Castillo said further that the procedure will also include the review of the existing loan agreement with JICA to ensure that the prepayment of loan, including any associated costs, is allowed by the agreement.

There is also a need to review other clearances, if there is any, issued by the national government to the city during the time the JICA loan was negotiated 19 years ago.

The city contracted the loan worth 12.315 billion yen sometime in 1996 but its outstanding loan is equivalent to P2.3 billion.

The source of funding for the proposed prepayment of the P2.3 billion is the city’s aggregate receipt of P8.3 billion, which represents 50 percent of the sale of SRP lots to two giant property developers.

“At the outset, we view your (Rama) thrust to exit the amortization obligations ahead of schedule as a good and prudent fund management approach in maximizing the use of the city’s resources and revenues, as it will generate savings by effectively reducing the city’s annual debt servicing costs and, therefore, enable the city to use such savings to fund other basic services or programs for the local constituency,” Castillo’s letter reads.

On August 19, Rama expressed to the Department of Finance the city’s plan to prepay the loan.

“As it stands, the Cebu City Government earmarks more than half a billion pesos every year for the payment of the outstanding loan balance and its interest,” reads the two-page letter addressed to Department of Finance Secretary Cesar Purisima.

Further, the city government wants to lift the debt servicing limitation imposed by DOF.

Castillo advised the city to discuss the matter with DBM in the course of its review and approval of the city ordinance on the prepayment.

“It is our humble view that it will be desultory to re-compute the debt servicing capacity of the city given such limitations and the purpose of the request,” he said.

He cited Section 324-B of the Local Government Code, which provides that 20 percent debt servicing limitation pertains only to the regular income, saying the city government is not using the regular income source to fund the prepayment. — (FREEMAN)