CEBU City Hall will have to continue to shoulder the guarantee fee that it pays the Department of Finance (DOF) for its loan for the South Road Properties (SRP) every year, since the agency refused to waive it.

The City has so far paid DOF P450 million as guarantee fees, which represents one percent of the loan balance and diminishes as the balance decreases.

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For 2010 alone, the City is paying DOF P35 million in guarantee fees.

City Treasurer Ofelia Oliva told the City Council last Wednesday that the DOF is not willing to relieve the City of the obligation since this is a standard requirement when local government units (LGUs) take out a loan from foreign funding agencies.

Vice Mayor Michael Rama, who is running for mayor, said the City shells out P50 million a year for the guarantee fee, which he said can be used to fund basic services if DOF agrees to the City’s request. He raised the need to request for exemption in 2008 yet.

For Rama, the 302-hectare reclaimed property that is ready for disposal, and the sales the City is getting, should suffice as a guarantee that it can pay for the loan balance, which is pegged at 9.06 billion yen after the payment last Feb. 20.

Since 1996, the City has been paying P38 to P40 million a year to the DOF as sovereign guarantee for the 12.315-million-yen loan with the Japan Bank for International Cooperation (JBIC), now the Japan International Cooperation Agency (Jica). The guarantee fees diminish every year with the loan balance.

“What other guarantee does DOF need when the entire SRP is guarantee in itself? We are paying millions in guarantee fees, which can be better used for basic services for our constituents,” he told the council.


But Oliva told the council that she recently talked to a DOF undersecretary, who explained to her that a sovereign guarantee is required for foreign loans, that is why a guarantee fee is paid to the DOF.

Cebu City cannot be exempted, she was told, in the same way that Makati City’s and Quezon City’s requests for exemption were not granted.

A circular issued by the Bangko Sentral ng Pilipinas also provides that any LGU borrowing money from foreign funding agencies must pay the necessary fees.

“Dili gyud i-waive sa DOF. I was told that some LGUs also requested for exemption but they would not allow it because that is payment to the National Government as guarantee of the Republic of the Philippines to the foreign country that gave the City the loan,” Oliva said yesterday.

The Land Bank of the Philippines (LBP) is the borrower of the loan from Jica. The Department of Finance served as the guarantor, while the City Government is considered the subsidiary borrower.

The City pays the guarantee fee to the LBP as part of its loan payments every February and August, and the bank remits the amount to the DOF.