Rama (CDN File)
Two options are being presented to Cebu City City Mayor Michael Rama to improve finances of City Hall before his term ends in 2016.
He can go ahead with selling 45 hectares in the South Road Properties (SRP) or he could restructure terms for the P2.9 billion balance of the city’s Japanese loan to lighten the burden of amortization payments.
“Let the executive decide which is which because we can’t do both,” said City Councilor Sisinio Andales after an executive session yesterday, wherein bank officials and the city treasurer laid out alternatives.
Rama told reporters later he would do “both”.
“We are not selling (SRP lots) just because, automatically, we will also be paying (our loan.) We are selling because it has to already be sold,” he said.
The decision is left to Mayor Rama, who now has authority from the City Council to negotiate and sell SRP lots by public bidding, a position strengthened by the defection of four councilors from the once-dominant Bando Osmena- Pundok Kauswagan (BO-PK) this week.
An option was presented in the session yesterday to reduce interest charges by availing of a loan from the LBP in order to convert the currency of Cebu City’s P2.9 billion loan balance from Japanese yen to Philippine pesos.
Cebu City pays about P550 million a year as amortization for its SRP loan, a burden many officials consider too heavy, prompting Councilor Noel Wenceslao, a banker, to call for the executive session to find a solution.
Loan payments for the 300-hectare reclamation project formerly called the South Reclamation Project run until 2025.
The LBP , which is the conduit bank of the payments, would become the city’s main creditor if officials agree to change terms of the loan.
No final recommendation was made in yesterday’s executive session presided by Vice Mayor Edgardo Labella in City Hall’s legislative building.
Among those invited to the session were former mayor Tomas Osmeña, the mayor’s arch critic.
“The idea of conversion is pretty good but the city won’t qualify for the loan because it’s not ready,” he said. He said City Hall should explore all options to improve its finances.
One of LBP’s requirements in granting a local government loan application is a Seal of Good Housekeeping issued by the Department of Interior and Local Government (DILG).
“But three years in a row the city was given adverse rating by the Commission on Audit,” said Osmeña. He was referring to the Annual Audit Report released in the last three years which gave the city an adverse rating in the handling of its finances.
PESO CONVERSION
Cuevas , the treasurer, explained in the session that availing of a peso conversion would do away with having Cebu City pay a guaranty or commitment fee to the national government which is equivalent to one percent of its loan principal.
Cebu City is charged 5.7 percent interest for its loan with the Japan International Cooperation Agency (JICA).
Of this total, 2.7 percent is paid to JICA while 2 percent goes to LBP as the conduit bank. The remaining 1 percent is paid to the national government.
So far Cebu City has paid P2.6 billion of its loan principal of P4.6 billion since it started amortization payments in 2005.
Andales said in an interview after the session that if the conversion is approved, the city would in a way avail of a loan with LBP in order to pay off the P2.9 billion balance of its SRP loan.
As proposed, LBP would stand as the creditor bank to JICA and no longer the national government.
LOWER INTEREST
Yesterday LBP presented a sample computation of the city’s amortization if it avails of an 11-year loan with 4.5 percent interest.
In this sample, Cebu City would pay P404.6 million amortization in April and August 2015.
This figure is lower than the P500 million to P550 million that the city pays every year.
By 2025, the amortization payment would be further reduced to P281.9 million under the LBP scheme.
“But we will have to evaluate everything during the final deliberation. If needed the City Council will have to vote on the conversion proposal,” said Andales.
During the session, Osmeña repeated his position that Cebu City should not sell SRP land by public bidding but be more selective in screening investors by evaluating unsolicited bids.
One reason, he said, is to protect the investments of pioneer locators, SM and Filinvest, whose ongoing massive commercial projects, would raise the overall value of reclaimed land around them.
The Rama administration is eying disposal of 45 hectares of reclaimed land that would give the city at least P12 billion in fresh funds.
Osmeña, who left the SRP as his centerpiece project as former Cebu City mayor, said that if he were to have his way, only five hectares would be sold every year to allow land prices to appreciate over the years.
“We’ve always had the SRP for sale but under a specific format following a financial plan that would make it last as long as possible. You borrow money now with 4.5 percent interest. The land appraisal of the land where the Calungsod template is located used to be P3,800 per square meter in 2007. What is worth now today?” Osmena asked during the session.
He said it’s not necessary to sell 45 hectares immediately because property values at the SRP would appreciate by 50 to 60 percent per year.
“They should explore all opportunities available. Find out what financing options are available (to take care of the balance of the city’s JICA loan), but not just with one bank,” he added.
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