Completed Mixed AidData Chinese Aid

China Eximbank disburses $180.79 million via preferential buyer's credit for Phase I, Section I of Northrail Project (Linked with Record ID#63583 and #63576)

$180.79M USD

Funder	Export-Import Bank of China (China Eximbank)
Recipient Organization	Government of the Philippines
Country	Philippines
Start Date	Feb 26, 2004
End Date	Feb 02, 2027
Duration	8,377 days
Number of Grantees	1
Roles	Recipient
Data Source	AidData Chinese Aid
Grant ID	`63805`

Grant Description

China Eximbank disburses $180.79 million via preferential buyer's credit for Phase I, Section I of Northrail Project On August 30, 2003, China Eximbank and the Department of Finance of the Philippines (DOF) signed a Memorandum of Understanding (MOU), wherein China Eximbank agreed to extend a preferential buyer’s credit to the Philippine Government to finance the Northrail Project for an amount not to exceed $400,000,000.

Then, on February 26, 2004, DOF and China Eximbank signed a $400 million preferential buyer’s credit loan agreement (No. BLA 04055) for Phase I, Section I of the Northrail Project.

📋 Loan / Grant Terms

💰 Loan Amountreportedly carried the following terms: 20 year maturity

📅 Maturity20 years

⏳ Grace Period8.25 years

💹 Interest Rate3%

DOF, in turn, on-lent the proceeds of the loan to North Luzon Railways Corporation (NLRC or Northrail).

The proceeds of the loan were to be used by the ultimate borrower (Northrail) to partially finance a $421,050,000 commercial (turnkey) contract between Northrail and China National Machinery and Equipment Group (CNMEG), which was signed on December 30, 2003.

The purpose of the project was to build an 80 km railway line from Caloocan in Metro Manila to the city of Malolos (within the province of Bulacan) to promote economic development north of Metro Manila. The railway line would have passed through Valenzuela, Marilao, Bocaue, and Guguinto. A formal groundbreaking ceremony took place on April 5, 2004.

However, Northrail did not issue a ‘notice to proceed’ to CNMEG until February 26, 2007.

On May 15, 2007, the Supreme Court of the Philippines ruled that the loan agreement was a commercial deal and not a government-to-government one and as such it should have undergone competitive bidding.

On July 6, 2012, China Eximbank advised DOF that it was cancelling the undisbursed balance of the $400 million loan and it demanded immediate payment of $180.79 million drawn from the $400 million loan.

DOF was able to negotiate with China Eximbank to pay $180.79 million of loan principal plus interest in four equal installments over two years (starting on September 21, 2012). As of January 21, 2014, DOF had repaid China Eximbank the full amount of $180.79 million plus interest.

📋 Staff Comments

The China Eximbank loan that supported this project is not included in the the Overseas Development Finance Dataset that Boston University’s Global Development Policy Center published in December 2020.
The Government of Philippines loan identification number for the China Eximbank loan that supported Phase I, Section I of Northrail Project is BLA-04055.
The original commercial contract from December 30, 2003 was amended on September 29, 2009, increasing the contract cost from $421.05 million to $593.88 million. On August 22, 2012, CNMEG terminated the project after questions on the validity of the contract were raised and filed in court. CNMEG subsequently submitted claims for payment for work already done. On November 6, 2017, the Government of the Philippines and CNMEG reached an out-of-court settlement agreement over their contractual dispute. Under the agreement, both parties agreed to waive their claims against each other and declared that there would be no more payments between Northrail and CNMEG/Sinomach. The parties also agreed to share the remaining arbitration fees equally.  4. CNMEG was eventually renamed China National Machinery Industry Corporation (Sinomach).
Record ID#63805 captures the $180.79 million loan disbursement and Record ID#63576 captures the loan cancelation. Record ID#63583 captures a separate $500 million (cancelled) loan commitment for Phase I, Section II of the Northrail Project.

📚 Sources & References

CY 2008 ODA Portfolio Review Annex 1-B List of Active Programs
Projects CY 2008
Bridging the Infrastructure Investment Gap through Foreign Aid: A Briefer on Chinese ODA, 2010 ODA Portfolio Review Annex 3-A List of Active ODA Loans
CY 2009 ODA Portfolio Review Annex 1-B List of Active Programs and Projects
CY 2007 ODA Portfolio Review Annex 1-B List of Active Projects Reviewed
CY 2004 ODA Portfolio Review Table 1 New ODA Loans
By Funding Source
EXECUTIVE SUMMARY
China National Machinery & Equipment Corp. v. Hon. Cesar D. Santamaria
RP-China Ink US$395.2-M Loan Agreement for Northrail Project
NORTH LUZON RAILWAYS CORPORATION 2015 YEAR-END REPOR
CY 2012 ODA Portfolio Review (List of Active Loans)
Consolidated Audit Report on Official Development Assistance Projects
En Banc
North–South Commuter Railway
Northrail contractor got paid $129M more
Gov’t settles dispute with Chinese firm over Northrail project
RP
China break ground for Manila-Ilocos railway
Expanded Audit of the Northrail Project
Phase 1
Section 1 covering Right-of-Way (ROW) Expenses and Public Utilities Diversion (PUD), 2015 Annual Report, 2016 Annual Report Loan applications and disbursements are still being received and processed as the projects continue to evolve. Ongoing monitoring and evaluation are in place to ensure project continuity.