Philippines Cancels Loans After China ‘Backed Out’ of Railway Deals

Then Philippine President Rodrigo Duterte speaks at Villamor Air Base in Pasay, Metro Manila, Philippines, on Feb. 28, 2021. (Eloisa Lopez/Reuters)

Three major railway projects in the Philippines have been stalled after China “backed out” of agreements it struck with former President Rodrigo Duterte, a Philppine government official said on Friday.

Transportation Undersecretary Cesar Chavez said that China did not respond to Manila’s loan applications for the three railway projects submitted last year, so they are now considered “withdrawn.”

The Philippine Transport Department informed China Eximbank in May that the loan applications would be automatically withdrawn if no approval was received from the bank by May 31, he said.

“Former Finance Secretary Sonny Dominguez said that he canceled the application instead of keeping it in suspended animation,” Chavez told reporters, according to the state-run Philippine News Agency.

“In his text message to me this morning, former Finance Secretary Sonny Dominguez said that he ‘cancelled the application instead of keeping it in suspended animation,” Chavez said. “DOTr understands that this [the cancelation] is in light of the upcoming transition of government, and in deference to the incoming administration.”

The projects include the Philippine National Railway Bicol Project (PNR Bicol) worth 142 billion pesos (about $2.5 billion), the 83 billion peso (about $1.47 billion) Mindanao Railway, and the 51 billion peso (about $906 million) Subic-Clark Railway.

The National Economic and Development Authority had initially approved the three projects to be funded by China’s loans under Duterte’s administration following negotiations with the Chinese regime in 2018.

Charvez said that Beijing has also failed to submit a shortlist of contractors for the Mindanao Railway Project, a requirement for the loan arrangement to move forward.

“In short, China backed out,” he remarked.

China Wants 3 Percent Interest

Duterte’s successor, Ferdinand Marcos Jr, has directed his administration to renegotiate the loan deals with China to resume the projects. Marcos was sworn in as the Philippine President on June 30 after Duterte ended his presidency.

Newly-elected Philippines President Ferdinand "Bongbong" Marcos Jr., the son and namesake of the late dictator Ferdinand Marcos, delivers a speech during the inauguration ceremony at the National Museum in Manila, Philippines, on June 30, 2022. (Eloisa Lopez/Reuters)

“The new administration can revisit the projects,” Finance Secretary Benjamin Diacono told reporters on Friday. “If found worthwhile, it may choose to reinstate the loan application, if funding is still available,” reported Inquirer.net.

However,  former Finance Secretary Carlos Dominguez III told Chavez that China would demand up to 3 percent in interest for loans to finance the railway projects, which is much higher than the less than one percent rate charged by Japan.

“If you wish to pursue this [the loans], I understand that the Chinese financing agency will be asking for interest rates in excess of 3 percent,” Dominguez wrote in a text message to Chavez, local news outlet Philstar reported.

Chavez said the Marcos administration would also consider pursuing a public-private partnership scheme to fund the projects, particularly for the Subic-Clark Railway and the Mindanao Railway projects.

The projects were part of Duterte’s “Build, Build, Build” infrastructure program, the centerpiece of his economic strategy, involving 75 flagship projects, of which about half were earmarked for Chinese loans, grants, or investments.

When Duterte visited Beijing in 2016, he signed agreements for $24 billion in Chinese loans and investment pledges for his infrastructure overhaul, but only a fraction of China’s pledged support has materialized.

Reuters contributed to this report.