Press Release
December 11, 2006


Senate Minority Leader Aquilino Q. Pimentel, Jr. (PDP-Laban) today sought an explanation from the Arroyo administration about a blatant irregularity in the handling of public funds earmarked for the North Rail Project in Luzon.

Noting that the rail project is funded by a loan from the Chinese government, Pimentel said government agencies and contractor of the project should faithfully comply with disbursement, accounting and auditing rules prescribed by the government.

The first phase of the NRP, the 32-kilometer segment from Caloocan City to Malolos, Bulacan, has a funding of $503 million of which $400 million is in the form of a loan from Chinas Export-Import Bank and $100 million will be shouldered by the Bases Conversion and Development Authority.

Pimentel was upset by a report that the contractor of the rail project, Chinas National Machinery and Equipment Group (CNMEG) is being paid directly from the proceeds of the loan without the need of turning over the money to the Philippine government.

He branded this practice as a gross violation of government laws and regulations and therefore should be immediately discontinued.

It is only now that I heard about proceeds of a foreign loan not being entrusted to the government but are instead paid directly by the foreign lending institution to the contractor, Pimentel said.

The CNMEG was chosen by the Chinese government without the benefit of a public bidding in accordance with the project loan agreement which was signed in October, 2003 during President Gloria Macapagal-Arroyos state visit to China.

Pimentel had earlier denounced the term of the agreement authorizing the Chinese government to choose the contractor and doing away with the standard public bidding. He pointed out that it is the Philippine government which should award the project in the exercise of its sovereign rights.

I think we should not tolerate a situation wherein the loan proceeds are not placed anymore in government coffers but are instead directly paid to the contractor chosen by the lending country that smacks of a travesty of our laws, he said.

I call on the governments of China and the Philippines to explain such arrangement considering that the burden of repaying the loan will eventually be passed on to the people.

Pimentel also requested the Senate committees concerned to conduct an inquiry into this scandalous deal.

The Arroyo government has claimed that the funding agreement for the North Rail Project is advantageous to the Philippines since it will carry a 3 percent interest payable in 20 years. But Pimentel pointed out that the government could tap other foreign sources of financing with more concessional terms like the overseas development assistance from Japan which has an interest rate of only .75 to 1 percent payable in 30 to 40 years.

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