A dragon’s gifts

Let’s get things straight from the start. The railway and other projects China is offering us are not really gifts in the sense that we get these for free. China is offering us loans, which means we (or our grandchildren) have an obligation to pay back.

Much as I am excited by all the transport infra projects in Sec. Art Tugade’s list, I am just wondering if any basic due diligence is being done. The way they are talking, it is as if the Subic-Clark cargo railway and the Mindanao railway projects are done deals.

Just because we have the money or rather, the credit facility to undertake those projects doesn’t mean we should. We still have to make sure those projects will not end up as white elephants the way an international airport and shipping port projects funded by China in Sri Lanka did.

The thing is… China doesn’t make sure or even care if we use the money they lend to build a white elephant. At least with the World Bank, there is due diligence. The WB makes sure we need the project and we will generate enough social or economic benefits from it and we can afford to pay it back.

That was not the case when China financed Sri Lanka’s  Mattala Rajapaksa International Airport and the nearby port. The airport, which opened in 2013, is the world’s emptiest. Likewise, Hambantota’s Magampura Mahinda Rajapaksa Port remains largely idle.

These massive China-funded infra projects were located in the home region of then-president Mahinda Rajapaksa, trophy projects so to speak. The president virtually ruled as a dictator for nearly a decade.

After Rajapaksa lost in an election, the Sri Lankan national airlines decided to pull out of the airport. The airport is not needed, the airline said in a press release. But both the airport and the port are useful to China’s quest for commercial and military hegemony under its Belt and Road program.   

From a white elephant, the airport became the playground of real elephants. The expensive new airport hardly has any flights.  One of its unused terminals was turned into a warehouse for storing rice. Wild animals, including elephants, walk in from a nearby jungle. Sections of its tarmac were being rented out as long-term parking lots for unneeded jets.

Well, that’s Sri Lanka, Duterte diehards will say. Duterte’s economic managers will not allow funds to be wasted by irrelevant projects. I sure hope so, but I am worried politics will trump logic here as it did in Sri Lanka.

Let’s take that Mindanao railway proposal. That had been a long nurtured dream. I recall then Sen. Nina Rasul sponsoring such a project in the Senate many years ago when I was still covering the upper house. But it seems the project never really got off the ground because there was little economic justification to allocate so much resource for a non-viable project.

I doubt DOTr has a current market study for the project. It is simply seen as a “must” project, a fulfillment of an election promise of President Duterte who happens to come from the area. It is estimated to cost P32 billion and will  be completed in 2022... an impossible deadline based on DOTr track record.

Will it have enough passengers and cargo to justify the investment? How much subsidy will be required to run the proposed railway? How will they protect the railway line from the various armed groups in the area that also blow up power transmission towers?

It is the same thing with the proposed Subic-Clark cargo train. It is a rather short route that is well served by cargo trucks. Indeed, the expressway connecting Clark with Subic is still underutilized. And there is a pretty good Gapan-Olongapo highway running along the same route too.

The reason the Subic port is not utilized more is because ships prefer the crowded Manila port. A sharp shift in government policy to marginalize the Manila port in favor of Subic will do more to improve cargo movement in Subic than a railway line.

Of course, it is nice to have all those trains running. But even if China and Japan are falling all over themselves offering to fund those big ticket dreams, we still must make sure there is strong economic justification. After all, we eventually will pay those loans and that will crowd out funding for other more useful projects.  

Then too, I get the feeling government decision makers favor dealing with an ODA donor country like China because it seems quicker and not much thinking is required. As someone puts it, build and forget. That’s how white elephants are born. On the other hand, in PPP they have to consider building, operating, maintaining and recouping investment.

The other thing to worry about China and, even Japanese, ODA-funded projects is that corruption is somehow embedded in contracts our government signs. We saw that in the NorthRail project.

We spent close to $300 million for NorthRail for absolutely nothing. But it had been whispered even before the project started that some of our political leaders demanded and got a good part of that money in advance.

Everything from feasibility study to procurement handled by the donor country or under their supervision takes care of our bureaucrats. Probably, the enthusiasm bureaucrats have for ODA funded projects rather than PPP is because they have perfected the art of hiding their “consultancy fees” in ODA-funded projects.

Actually, we have had our share of white elephant projects. That Subic port modernization is a good example. We have been paying off the ODA loan on the project for years and getting very little traffic volume to justify it. Loan payments are automatic, outside of the appropriation process of Congress.

I suppose the decision to invest heavily on the Subic port modernization was justified by assumed traffic volume that didn’t materialize. Our leaders didn’t have the political will to impose policies that will move traffic from the crowded Manila port to Subic. Perhaps, the vested interests were just too powerful.

What happened to Sri Lanka and its massive China loans? An article in Forbes sums it up:

“Sri Lanka’s debt situation is severe. The country is currently in $58.3 billion deep to foreign financiers, and 95.4 percent of all government revenue is currently going toward paying back its loans. This means that out of every hundred dollars the government brings in, only $4.60 is going toward essentials like education and public services…”

The new Sri Lankan government offered debt for equity swaps. But the Chinese ambassador told the Sri Lankans that it was not possible according to China’s laws. In so many words: “We want our money, not your empty airport.”

However, China said it would extend its “fullest cooperation” to arrange such deals with China’s private sector investors on proper commercial terms. In other words, Chinese corporations can gobble up the failed projects for cents to the dollar.

Hopefully, in the extreme enthusiasm of the Duterte administration to accept everything China has on offer, what happened to Sri Lanka doesn’t happen to us. I hope someone in government is checking up what happened to Chinese projects in Africa too.

We have to realize China is offering that trillion dollar infra funding under its Belt and Road program not out of altruism, but in pursuance of China’s ambitious economic and geopolitical interest. President Xi Jinping is creating new markets for China’s construction companies. It is also part of China’s diplomatic offensive to create modern vassal states. Our interests and that of China hardly coincide.

Even Philippine Communist party leader Joma Sison has expressed concern we may end up a “debt slave” of China. We have to keep our eyes open… and learn from past mistakes… ours and others.

After all, a dragon is always a dragon. It is foolish to think we can tame a dragon. We always have to be on guard or be consumed by it.

Boo Chanco’s e-mail address is [email protected]. Follow him on Twitter @boochanco.