Four reasons why the Kaliwa Dam Project loan is onerous

October 11, 2020

by IBON Media & Communications

The loan agreement for the New Centennial Water Source-Kaliwa Low Dam Project (NCWS-Kaliwa Low Dam) is onerous and should be cancelled. President Duterte has reportedly ordered a review of loan agreements to determine if any are onerous and disadvantageous to the Filipino people. Yet the Kaliwa Dam project which has come under fire for its unfavorable Chinese loan agreement has already started.

The Php10.2 billion (US$211.2 million) loan agreement financing most of the Php12.2 billion NCWS-Kaliwa Low Dam has the following questionable provisions:

1. Costly to pay. The commercial loan agreement has a 2% annual interest rate, commitment fee of 0.3% annually, management fee of US$633,600, and a 20-year maturity with a 7-year grace period. The nominal interest rate is higher than other recent loan agreements with Japan or Korea which range from 0.08-0.26 percent. The loan is also not necessarily the cheapest loan even if US dollar equivalent interest rates are used.

2. Project is exclusive to Chinese contractors. While a Philippine project,only Chinese contractors are qualified to bid and Philippine corporations were excluded from the process. The China Energy Engineering Company, Inc. (CEEC) bagged the project. The contract is between the Metropolitan Waterworks Sewerage System (MWSS) and Chinese corporations.

3. Loan agreement is biased for Chinese laws. Article 8.4 of the loan agreement stipulates that Chinese Law will govern disputes pertaining to the agreement. Meanwhile, Article 8.5 says that disputes will be dealt with under the auspices of the Hong Kong International Arbitration Court.

4. Philippine patrimonial assets and property may be compromised in case of default on the loan. In the Article 8.1 Waiver of Immunity, the country “waives any immunity on the grounds of sovereignty or otherwise for itself or its property in connection with any arbitration proceeding”.

The loan agreement is financially disadvantageous, tied to Chinese contractors, and an affront to Philippine sovereignty. These issues are also on top of other issues raised by the Dumagats and Remontados, farmers and community folk, environmentalists, engineers, hydrologists, scientists, public servants, consumers, and many more. The dams projects will displace communities, inundate ancestral lands, and destroy the environment.

The Philippine government should not enter into loan agreements having such terms whether with China or any other sources of official development assistance (ODA). The Filipino people bear the burden of paying these onerous loans. This is even getting worse under the Duterte administration which is imposing new and higher consumption taxes while lowering taxes on the rich and on corporations.