MANILA, Philippines – Supreme Court Senior Associate Justice Antonio Carpio warned that the "expensive" Chico River Pump Irrigation project would allow China to take gas-rich Reed Bank (Recto Bank) should the Philippines default on its P3.69-billion loan for the project.
The Chico River project is estimated to cost P4.37 billion, of which about 85% (or P3.69 billion) will be funded by China under a loan deal. The loan has an interest rate of 2% and a "management fee" worth $186,260, as well as a "commitment fee" worth 0.3% per annum.
The Philippines has 20 years to pay for the loan, inclusive of a 7-year grace period. Philippine economic managers shrugged off the idea of a debt trap with China, saying it's "purely hypothetical."
Should the Philippines default on its loan, Carpio said an arbitration will be held, but that we won't stand a chance of winning.
Under the agreement, the arbitration will be held in Beijing and will be governed by the rules of the China International Economic and Trade Arbitration Commission (CIETAC). The tribunal will have 3 members, with the Philippines and China each choosing one arbiter.
A common choice from among the two countries' proposed arbiters' list will be the 3rd member. If no common name emerges, it will be the CIETAC chairman who will choose the 3rd member.
"Who is the chairman of CIETAC? A government official of China. So China will have two members and we will have one. For sure we will lose in all the arbitrations," Carpio said.
"If you are a national or a relative to one of the parties, you cannot appoint the 3rd member. It’s basic. But here, we allowed China to appoint the 3rd member. Lutong macau (Rigged in favor of China)," Carpio added.
Under CIETAC rules, the arbitration results will be final and binding. China can take any patrimonial assets or assets dedicated to commercial use, except diplomatic, military, and non-commercial assets.
Carpio pointed out that China can take anything, and that includes gas-rich Reed Bank, which it has an interest in.
"We waived sovereign immunity on the enforcement of any arbitral award, except for 3. All the rest are patrimonial assets and that includes the gas in the Reed Bank," Carpio said.
He also raised concerns over the "confidentiality" of the loan agreement.
"Even the agreement itself is strictly confidential. That’s against the Constitution. You cannot keep it confidential," Carpio said.
A 2013 report by the United States Energy Information Administration said Reed Bank could hold up to 5.4 billion barrels of oil and 55.1 trillion cubic feet of natural gas.