Loan with China unconstitutional

Loan agreement did not have prior approval by the Monetary Board and several provisions of
the loan agreement violate the 1987 Constitution such as the confidentiality clause, the choice of
Chinese law as governing law, the selection of an arbitration tribunal in Hong Kong, and the waiver
of sovereign immunity over assets of MWSS as borrower and the Philippine government as
guarantor.

The condition in the loan agreement awarding contracts to Chinese contractors goes against
the policy preferring Filipinos stated under Section 10 of Article XII of the Constitution which
provides that the state shall always “give preference to qualified Filipinos” in the grant of rights,
privileges, and concessions covering the national economy and patrimony and also a violation under
the Procurement Reform Act which requires public bidding. While Philippine laws require
contractors to undergo a procurement or bidding process however in this case, China simply imposed
its own contractor.

The deal provides that any delay or default in payment should be settled under Chinese law in
a tribunal in China. It also prevents the Philippines from making any move that in China's opinion,
would affect the country's performance of its obligations under the contract.

What is the project about? Located in Quezon province, the Kaliwa Dam is
expected to supply some 600 million liters of water per day to Metro Manila.
(READ: Manila Water on the hunt for new water sources)

The dam will be constructed by Beijing-run China Energy Engineering Corporation.

Several news reports stated that construction is targeted to start during the 3rd quarter
of the year, and is expected to be completed by 2023.

How much is the loan? Export-Import Bank of China agreed to lend the Philippine
government $211,214,646.54 for the project.

The amount is 85% of the total needed funds for the project, where the remaining 15%
will be shouldered by the Philippines.

It bears an interest rate of 2%, as well as a management fee of 0.3% and commitment
fee of 0.3% per annum.

It is payable in 20 years, including a grace period of 7 years.

The Philippine government will pay up by 26 equal installments within the repayment
period.
In case of a default or when the Philippine government cannot pay off the debt, China
can suspend or terminate any further disbursements. All delinquencies are also deemed
to be due immediately without any need for legal formalities.

The CRPIP comes with a price tag of Php4.3 billion, with Php3.6 billion to be
loaned from the state-owned China Export-Import Bank as an Official development
assistance (ODA). This is the source of much of the controversy, that the loan
agreement signed between the Philippines and the PRC is “onerous” or unusually
highly-advantageous to the latter.

(READ: PREFERENTIAL CREDIT BUYER’S CREDIT LOAN AGREEMENT between

Philippines-China)

At first glance, nothing seems amiss about the loan: the full amount is US$62 million,
with an interest rate of 2% p.a. and a maturity period of 20 years, including a 7-year
grace period. The debate is spurred by Article 8.1 in the loan agreement, referred to as
the “Waiver of Immunity” which reads:

SOURCE: Preferential Credit Buyer’s Loan Agreement on the Chico River Pump Irrigation
Project
The clause states that the Philippines (“the Borrower”) waives its sovereign immunity on
its “patrimonial assets” and also “assets dedicated to commercial use”, should it be
enforced in an arbitration award. This means that in the event of a default or a dispute in
the loan agreement that will be subjected to an arbitration process, these “patrimonial
assets” could be expended to satisfy “the Lender” – the PRC.

To make matters more complicated, Article 8.4 of the loan agreement mandates that
any arbitration process should be conducted in Beijing, under Chinese laws. Even
though the project is situated in the Philippines, the loan will be paid for by the
Philippines and the pump irrigation will affect only Filipinos, the PRC will have the final
say in the arbitration process – should one be needed.
More interestingly, Article 8.8 – or the “Confidentiality” clause – mandates “the
Borrower” to keep all terms, conditions, and the standard of fees of the loan agreement
secret. This means that the Philippine Government is required not to disclose the fine
details of the deal to any party, not even to its own Filipino people – who are ultimately
the ones who will pay back the loan.

Former congressman and current Senatorial candidate Neri Colmenares. (Photo from
philstar.com)
These caveats are what prompted lawyer and former congressman Neri
Colmenares to speak out against the Chico River Pump Irrigation Project, calling the
terms of the CRPIP’s loan agreement “onerous” or “one-sided” in China’s favour. He
also condemned the Duterte Government for pitting the Philippines’ natural resources
as a “collateral” in this transaction with the PRC, a country that has long had desire to
dominate the West Philippine Sea.

In a Facebook post (see below), Colmenares argued that several articles of the loan
agreement were “unconstitutional” and should therefore be dismissed as null and void
by the Supreme Court. The Bayan Muna party-list chairman likened the provision
regarding “patrimonial assets” as tantamount to using Philippine sovereign rights and
natural resources as a loan collateral, but this was disputed by the Department of
Finance (DOF) who insist there is no collateral in the said loan.

Finance chief Carlos Dominguez declared as early as May 2018 that our loans from
China do not entail any collateral, in response to fears that the Philippines could face
a “debt trap” as have Sri Lanka. Presidential Spokesperson Salvador Panelo, on the
other hand, contradicted him by saying that the system of using natural resources as
collateral is “a standard in such contracts”.

This same fear was allayed by Supreme Court Senior Associate Justice Antonio
Carpio who said that in the event of a default, China could seize oil & gas resources
in Recto Bank (also known as Reed Bank) in the West Philippine Sea. This is
because of Article 8.1 which waives the sovereign immunity of the Philippines’ over its
“patrimonial assets”.

Given the PRC and the Philippines’ long-running territorial dispute in the area, for the
Duterte Government to agree to such a clause that could undermine our claims on
these assets is a slap in the face.

Spokesperson Panelo made a massive gaffe in the process by stating that Carpio is
wrong in his analysis because “patrimonial assets” have to be declared as such by law,
and that there was no law designating Recto Bank as one. Carpio immediately
disproved that statement by pointing out that a 1972 law did declare Recto Bank as a
patrimonial asset.

Admitting his mistake, Panelo then shifted his defense of his Government’s loan
agreements by insisting that the Philippines “would never default” on its US$62 million
loan. While it is true that the size of our external debt relative to our GDP is at a healthy
level, this does not make it acceptable that natural resources were put at stake to a
hegemonic power which has a desire over our country’s territory.

The spokesperson also defended the seemingly one-sided loan agreement, likening it to
an ordinary bank which dictates the loan conditions on potential debtors. “When you
[take a] loan from the bank, it’s always the terms of the bank,” Panelo argued.

While that may be true, a rational consumer would walk away from loans that have
conditions which are blatantly unfavourable or unfair to them. They do so in order to
protect their best interests, which tells us either that the Duterte Government is not
acting in the best interests of our nation, or that they acted irrationally.

Rational consumers who seek financing would decline unfair lenders and instead find
another lender with more favourable loan conditions. In the Philippines’ situation, there
are other lenders who offer better loan terms than China – a salient example is Japan,
our largest source of ODA loans which pegs its interest rate at 0.1% p.a. as it did when
with the Manila Subway project.

So why wasn’t Japan tapped for the CRPIP also? According to the Philippines’ chief
economist Ernesto Pernia, the Government chose to borrow money from China in order
to win “more friends”.
 Environmental Law Moot Court Exercise
FEU Institute of Law
Dr. Antonio G. M. La Viña

BEFORE THE HONORABLE SUPREME COURT OF THE PHILIPPINES

In the Matter of the Government’s Approval of the Kaliwa River and Chico River Dam
Projects

MEMORIAL IN BEHALF OF THE PETITIONER CHICO RIVER COALITION

FACTS
 The country has been experiencing water shortage particularly in Metro Manila and is
said to be caused by the lack of new water source to sustain the demands of the increasing
population. In order to address the water shortage problem, the New Centennial Water Source -
Kaliwa Dam Project (NCWP - KDP) was proposed wherein the Kaliwa River located at Tanay,
Rizal will be used as an additional source of water supply for Metro Manila and surrounding
provinces. Currently, there is also a Chico River Pump Irrigation Project (CRPIP) being
constructed at Kalinga Province. Both projects are now subjects of opposition for being approved
without having any Environmental Impact Assessment (EIA) which must first be complied with
under the law. In addition, the Indigenous People’s Rights Act also requires that the free and
prior informed consent of the indigenous people that will be affected by the projects must first be
obtained. However, pre-construction activities were already started without obtaining the consent
of the indegenous people in clear violation of the law. Another concern is the propriety of the
loans negotiated by the government for the projects, having China as creditors of the loan
agreement. It appears that there are anomalies with the agreement as it offers onerous provisions
to the cost of the government.

SUMMARY OF ARGUMENTS

In this case, rivers, plants, and animals have legal standing. Rivers are protected under
RA No. 9275, or the Philippine Clean Water Act of 2004. The law is consistent with the
protection, preservation, and revival of the quality marine waters. The law specifically applies to
water quality management and control of pollution from land-based sources. As for plants, there
are designated spaces and areas in the country solely where wildlife, flora, and fauna can grow,
and where the rich biodiversity of the ecosystem can be preserved. Also animals are protected
under RA No. 9147, or the Wildlife Resources Conservation and Protection Act. The law covers
all wildlife species found in all areas of the country, including protected areas and critical
habitats.
 On the rights of affected Kalinga and Dumagat, Past and future generations of Kalinga
and Dumagat people have legal standing in this case. It has been settled by the Supreme Court in
its landmark decision of Oposa v Factoran that future generations can in fact be represented by
the present generation based on the concept of intergenerational responsibility.

On the issue of whether or not the president can exempt projects from EIA, The President
must first declare that the project, undertakings and areas in question are not environmentally
critical. Even for the sake of National Interest, the President can not exempt a project from EIA
without first declaring that the project and the area concerned are not environmentally critical.
Exempting a project from EIA without first following Presidential Decree 1586 does in fact go
against the Constitution specifically Section 16 of Article II.

ARGUMENTS

Legal Standing of Rivers, Plants, and Animals

In this case, rivers, plants, and animals have legal standing. Rivers are protected under
RA No. 9275, or the Philippine Clean Water Act of 2004. The law is consistent with the
protection, preservation, and revival of the quality marine waters. The law specifically applies to
water quality management and control of pollution from land-based sources. As for plants, there
are designated spaces and areas in the country solely where wildlife, flora, and fauna can grow,
and where the rich biodiversity of the ecosystem can be preserved. There is also a need to reserve
certain areas exclusively for the environment, and to exclude all other forms of land use and
utilization. RA No. 7586, or the National Integrated Protected Areas System (NIPAS) Act serves
as the basis for the said protection. Lastly, animals are protected under RA No. 9147, or the
Wildlife Resources Conservation and Protection Act. The law covers all wildlife species found in
all areas of the country, including protected areas and critical habitats. With the laws mentioned
above, rivers, plants, and animals are all protected and have standing in this case since any act in
violation of their preservation and maintenance is contrary to the law and their own rights.

Intergenerational Responsibility
Past and future generations of Kalinga and Dumagat people have legal standing in this
case. It has been settled by the Supreme Court in its landmark decision of Oposa v Factoran that
future generations can in fact be represented by the present generation based on the concept of
intergenerational responsibility. The concept of intergenerational responsibility in this case is
when it is concerned with the right to a balanced and healthful ecology. We have the
responsibility then to protect the environment not just for ourselves but also for the generations
after us. This case then has settled that previous and future generations can in fact have legal
standing when represented by the present generation.

The President can not exempt projects from Environmental Impact Statements and Assessments
Presidential Decree No. 1586 gives the guidelines for EIA’s, such as when it is required
and also when it is not. Section 5 of this Presidential Decree states when an EIA does not have to
be submitted:
All other projects, undertakings and areas not declared by the President as
environmentally critical shall be considered as non-critical and shall not be
required to submit an environmental impact statement.

As can be seen from this Section, the President must first declare that the project,
undertakings and areas in question are not environmentally critical. Even for the sake of National
Interest, the President can not exempt a project from EIA without first declaring that the project
and the area concerned are not environmentally critical. Exempting a project from EIA without
first following Presidential Decree 1586 does in fact go against the Constitution specifically
Section 16 of Article II. The state has the duty to protect the right of the people to a balanced and
healthful ecology, and going against the guidelines of laws set to protect this right would be
unconstitutional.

Supreme Court’s Power to Review Loans

The Supreme Court may review loans that may be contrary to the provisions laid down
by the Constitution such as under Section 21 of Article XII which says that “information on
foreign loans obtained or guaranteed by the government shall be made available to the public”;
Section 20 of Article VII which states that foreign loans may be contracted “with the proper
concurrence of the Monetary Board.”; and Section 10 of Article XII which says the state shall
always “give preference to qualified Filipinos” in the grant of rights, privileges, and concessions
covering the national economy and patrimony. If the contracts will be proven to be violative of
the Constitution and onerous, the Court may issue a TRO for said contracts not to proceed as
agreed upon.

Loan with China unconstitutional

Loan agreement did not have prior approval by the Monetary Board and several provisions of
the loan agreement violate the 1987 Constitution such as the confidentiality clause, the choice of
Chinese law as governing law, the selection of an arbitration tribunal in Hong Kong, and the waiver
of sovereign immunity over assets of MWSS as borrower and the Philippine government as
guarantor.

The condition in the loan agreement awarding contracts to Chinese contractors goes against
the policy preferring Filipinos stated under Section 10 of Article XII of the Constitution which
provides that the state shall always “give preference to qualified Filipinos” in the grant of rights,
privileges, and concessions covering the national economy and patrimony and also a violation under
the Procurement Reform Act which requires public bidding. While Philippine laws require
contractors to undergo a procurement or bidding process, in this case, China simply imposed its own
contractor.

The deal provides that any delay or default in payment should be settled under Chinese law in
a tribunal in China. It also prevents the Philippines from making any move that in China's opinion,
would affect the country's performance of its obligations under the contract.

With the“onerous” Chico River Dam Project also entered by the Philippines with the
same Chinese lenders, this Kaliwa Dam loan agreement was identified to be equally onerous and
was feared to cause more harm to the environment and the indigenous people.

The terms of the contract also bears an interest rate of 2%, with a management fee of 0.3%
and commitment fee of 0.3% per annum, payable in 26 equal installments within 20 years.
Reasonable consumers should consider other lenders with more favorable loan agreements, which in
this case, Japan’s proposal who would less harm the environment.

Petition for Writ of Kalikasan

The Supreme Court should issue a Writ of Kalikasan for both projects. Rule 7 Rules of
Procedure for Environmental Cases provides that Writ of kalikasan is a remedy available to a
natural or juridical person, entity authorized by law, people’s organization, non-governmental
organization or any public interest group accredited by or registered with any government
agency, on or on behalf of persons whose constitutional right to a balanced and healthful ecology
is violated, or threatened with violation by an unlawful actor omission of a public official or
employee, or private individual or entity, involving environmental damage of such magnitude as
to prejudice the life, health, or property of inhabitants in two or more cities or provinces.
In this case, the two projects should be issued Writ of Kalikasan

Supreme Court Prohibition on China Loans

The Supreme Court should issue a prohibition to prevent the government from
proceeding with the loans from China. We have settled that it is unconstitutional for the
President to exempt the project from an EIA for the sake of National Interest. As such, acts that
would further this project should also be prevented. Since this is within the powers of the
Supreme Court as can be seen in Section 5 (1) of Article VIII of the Constitution, the Supreme
should in fact issue this prohibition.

PRAYER FOR RELIEF