Purisima warns vs non-payment of Northrail loan

MANILA, Philippines – The Philippines will pay a Chinese loan for a railway project in North Luzon because failure to do so would affect the country’s credit ratings, the finance chief said.

Finance Secretary Cesar Purisima said the Philippine government will honor its loan agreement with the Export-Import Bank of China (ChinaExim) for the Northrail project, which was dropped due to alleged irregularities.

Purisima said the Philippines will pay ChinaExim a little over $185 million in 4 tranches, every 6 months starting September 2012. The amount represents what was “disbursed” out of the total $500-million loan signed with the bank.

“We are committed to pay the disbursed amount of $185.15 million to the Eximbank of China including interest due under revised negotiated terms of 4 equal installments within 2012 and 2014. Currently, we have already paid the principal and interest due on September 21, 2012 amounting to $46.11 million representing first payment,” Purisima said.

Purisima said non-payment of the loan could have an “adverse impact” on the Philippines’ credit ratings.

The Philippines has so far received 7 rating upgrades from international agencies under the administration of President Benigno Aquino III. It is eyeing to attain its first investment grade before Aquino’s term ends in 2016.

Moody’s Investor Service rates the Philippines’ foreign and local currency bonds two notches below investment grade, the same as Standard & Poor’s rating. Another ratings agency, Fitch Ratings, rates the Philippines one notch below investment grade.

Northrail deal

China demanded payment of the loan because it was already “due,” former Transportation Secretary and now Interior Secretary Manuel Roxas earlier said. Roxas was also appointed special envoy to China by the President.

Roxas said the loan would be paid even if the contract with Chinese contractor, China National Machinery & Equipment Corp., for the Northrail project had been dropped.

The 80-kilometer Northrail project, which was supposed to link the northern part of Metro Manila with the Clark International Airport in Pampanga, was negotiated under the previous Arroyo administration. It was suspended in March 2010 pending review of the contract due to alleged anomalies, including bloated costs.

In February 2012, the Supreme Court ruled that the project was illegal because it did not go through bidding process.

Despite the controversy, Roxas said the government still intends to build a railway project in the north.

“Our plan for a high-speed rail connection in Clark will continue. Whether it will be on the PNR (Philippine National Railway) alignment or some other alignment, that’s another decision,” he was quoted as saying in a report. – Rappler.com