Cebu City to 'lose' P1.2B in 10 years-A A +A
Saturday, August 23, 2014
BALANCING ACT. The Cebu City Government will have to pay for its South Road Properties loan until 2025, on top of providing basic services and paying for projects like safer housing. Its loan balance stood at P2.91 billion as of Feb. 27, 2014. (Alex Badayos)
THE Cebu City Government will lose at least P1.2 billion that it could otherwise spend on basic services in the next 10 years if it will not convert its foreign loan for the South Road Properties (SRP).
Officials of the City Accounting Office, in an executive session with the City Council yesterday, said there is a “compelling need” to convert the loan into a domestic one.
The P1.2 billion will not cover the City’s payments for the principal amount of the loan it took from the Japan International Cooperation Agency (Jica), but only the payments for currency fluctuations and the guarantee fee.
The City had availed itself of a 12.315-billion yen with Jica in 1995 to develop the 300-hectare SRP. At that time, its peso equivalent was P4.65 billion.
The loan is payable in 30 years, ending in 2025. The City’s balance was P2.91 billion, including interest, as of Feb. 27, 2014.
Appearing before the council yesterday, City Accountant Atty. Mark Solomon said the foreign exchange losses are expected to reach P992,626,938 in the next 10 years or nearly P100 million every year.
For the next 10 years, Solomon also said, the City will have to pay P206,513,590 for the guarantee fee, on top of its foreign exchange losses.
Since the City started paying for the loan in 2005, Solomon said, it has already suffered foreign exchange losses of P90,238,812 per annum or a total of P902,388,126.
The amount forms part of the P2.63 billion that the City has so far paid for the principal.
“This is a substantial amount which is charged to the general fund of the City and this could have been used as additional budget for basic services,” Solomon said.
The City suffered foreign exchange losses, he said, because when the City entered into the loan agreement for the SRP in March 1996, there was a huge difference in the value of the yen to the US dollar and the dollar to the peso.
During that time, the exchange rate for one yen was US$1.3, while each US dollar was worth P26.30.
Now, however, Solomon said the yen-to-dollar exchange rate is at 0.90, while the dollar-to-peso exchange rate is at P43.
“So there is really a big difference. Foreign exchange loss occurs when an agreement is entered into under a foreign currency, which in this case is Japanese yen, and at the time of payment, there is a higher exchange rate due to the fluctuation of currency valuation,” he said.
The City pays for the SRP loan twice every year, in February and August.
"If we don’t convert the foreign loan into a domestic loan, we will really suffer further losses,” he said.
Aside from this, Solomon said there is a need for the City to convert the foreign loan to a domestic loan so the City will no longer be paying the guarantee fee.
The Land Bank of the Philippines (LBP) collects a one-percent guarantee fee of the City’s total outstanding loan balance for the year and remits it to the Department of Finance (DOF). LBP is the conduit bank of Jica while DOF is the guarantor of the loan.
As of December 2013, Solomon said the City has already paid P546,362,774 for the guarantee fee.
Lastly, Solomon said there is a need to convert the loan in order to fix the actual interest rate. He said the present interest for the loan is based on the yen, and fluctuates depending on the currency valuation.
“As a conclusion, unless we provide a remedy today, the coffers of the City will continue to bleed, which will eventually affect the City’s capacity to deliver basic services,” he said.
In their discussion, Councilor Margarita Osmeña, chairperson of the council’s committee on budget and finance, said that Solomon’s report seems to show that the City is “in a bad position.”
She said that his report did not include the City’s receivables from the two investors at the SRP, SM Prime Holdings Inc. and Filinvest Land Inc., which amount to P602 million this year.
The amount, she said, can take care of the City’s loan amortization of P550 million annually.
Seal of approval
Also, Osmeña said there are qualifications that the City has to meet to convert the foreign loan.
Elsie Tagupa of the LBP, who also appeared before the council yesterday, submitted a list of requirements the City has to comply with.
Of the seven requirements, one is that the City should have the latest Seal of Good Housekeeping from the Department of Interior and Local Government (DILG).
DILG last gave the City the Seal of Good Housekeeping in 2011 yet.
“How can we even get that (seal) when we have adverse rulings from the Commission on Audit in the past three years? Maybe we should fix our books first,” said Osmeña.
Osmeña added that the conversion of the foreign loan is “easier said than done” and that the City should comply first with all the requirements set by the bank.
Published in the Sun.Star Cebu newspaper on August 23, 2014.