• 06/25/2019
  • 12:13 AM
League Online News


MANILA, Philippines – If the Philippines is defaulted not to pay its Php 3.69-billion loaned from China for the expensive Chico River Pump Irrigation project—then the Reed Bank (Recto Bank) is up for the grabs by the Peoples Republic of China.

Supreme Court Senior Associate Justice Antonio Carpio warned regarding this compromise.


The Chico River project is estimated to cost a staggering amount of P4.37 billion, of which about 85% (or P3.69 billion) will be funded by China under a loan deal. The loan has an interest rate of 2% and a "management fee" worth $186,260, as well as a "commitment fee" worth 0.3% per annum.

The Philippines has 20 years to pay for the loan, inclusive of a 7-year grace period. 

However, Philippine economic managers shrugged off the idea of a debt trap with China, saying that it's "purely hypothetical."

Should the Philippines default on its loan, Carpio said an arbitration will be held, but said there is no chance of winning.

Under the agreement, the arbitration will be held in Beijing and will be governed by the rules of the China International Economic and Trade Arbitration Commission (CIETAC). The tribunal will have 3 members, with the Philippines and China each choosing one arbiter.

A common choice from among the two countries' proposed arbiters' list will be the 3rd member. If no common name emerges, it will be the CIETAC chairman who will choose the 3rd member.


"Who is the chairman of CIETAC? A government official of China. So China will have two members and we will have one. For sure we will lose in all the arbitrations," Carpio said.

"If you are a national or a relative to one of the parties, you cannot appoint the 3rd member. It’s basic. But here, we allowed China to appoint the 3rd member. Lutong macau (Rigged in favor of China)," he added.

Under CIETAC rules, the arbitration results will be final and binding. China can take any patrimonial assets or assets dedicated to commercial use, except diplomatic, military, and non-commercial assets.

The SC associate justice pointed out that China can take anything, and that includes gas-rich Reed Bank, which it has an interest in recently.

"We waived sovereign immunity on the enforcement of any arbitral award, except for 3. All the rest are patrimonial assets and that includes the gas in the Reed Bank," Carpio said.

He also raised concerns over the "confidentiality" of the loan agreement.

"Even the agreement itself is strictly confidential. That’s against the Constitution. You cannot keep it confidential," Carpio said.


Located off the west coast of Palawan, Reed Bank, also known as Recto Bank, is a large table mount in the South China Sea, NE of the Spratly Islands. It covers an area of 8,866 sq kms (3,423 sq mi), and is rich in oil and gas deposits, but they have only been partly tapped due to disputed claims from countries, led by the Peoples Republic of China.


The bank is in the northeast quadrant of the Philippine's Kalayaan claimed territory, which also includes most part of the northern and eastern portions of the disputed Spratly Islands. Court of Arbitration ruled in 2016 that the area is within the Philippine Exclusive Economic Zone, economic rights to the area continue to be disputed


A 2013 report by the United States Energy Information Administration said Reed Bank could hold up to 5.4 billion barrels of oil and 55.1 trillion cubic feet of natural gas.

In November 2018, President Rodrigo Duterte and Chinese President Xi Jinping exchanged a memorandum of understanding (MOU) on oil and gas development in the West Philippine Sea, during Xi's state visit.


The MOU allowed for the crafting of a program on how the joint exploration or development can be done.

Last week, however, two former Philippine officials and a group of fishermen filed a complaint against the Chinese leader before the International Criminal Court (ICC) for crimes against humanity over environmental damage in the South China Sea.

Former Philippine foreign secretary Albert del Rosario and former ombudsman Conchita Carpio Morales, along with the fishermen, submitted the communication to the ICC on March 15. 

Del Rosario, Morales, and the fishermen told the ICC's Office of the Prosecutor that Xi and other Chinese officials have committed crimes "which involve massive, near-permanent, and devastating environmental damage across nations."

They said the environmental damage occurred as Xi and other officials implement "China's systemic plan to take over the South China Sea." The Philippines owns rights over part of these waters, called the West Philippine Sea by Manila. (With reports from Rappler)

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