Rama to Land Bank: Call SRP loan, sue city council

Cebu City Mayor Michael Rama would rather have the city government declared in default and sued for payment of the South Road Properties (SRP) loan than bow down to Bando Osmeña-Pundok Kauswagan (BO-PK) councilors.

He’s not budging from his stand to pre-pay the P2.4-billion outstanding balance for the SRP loan instead of paying the P185-million amortization which is due on Saturday, Feb. 20.

He challenged the Land Bank of the Philippines (LBP), which is the conduit for the loan from the Japan International Cooperation Agency (JICA), to call the loan or demand full payment in order to pressure the council into approving the P2.6-billion Supplemental Budget 1. The P2.4-billion payment is included in SB1, which is funded from proceeds of the sale of the SRP lots.

“There’s no need for them to be bringing us the amortization. Send us a demand letter. The money is around. Now if we will not be (paying), let them sue us. Then sue the City Council. Don’t sue the mayor, because the mayor is ready to pay,” Rama said yesterday.

Inocentes Ypanto, Land Bank account manager for the SRP loan, declined to comment.

“We have to get clearance from our central office. I hope you understand,” he told Cebu Daily News.

The agenda for today’s City Council session doesn’t include the SRP loan payment.

“There is nothing in the agenda for loan repayment,” said Councilor Margot Osmeña, the council’s majority floor leader and head of the committee on budget and finance.

Osmeña said the council is just waiting for the executive department to submit a Supplemental Budget that would include an appropriation for loan payment.

“We cannot act on anything unless we are given something to work on,” she said in a phone interview.

Rama said he will write the Land Bank and JICA regarding his challenge to call the loan.

A provision of the loan agreement can work in Rama’s favor. Section 2.1 of the loan agreement states that if the city fails to pay the amortization due, the lender can demand the full payment of the loan including interests and charges.

If the city defaults, the provision states that the lender can “declare all the principal then outstanding, with the interest and other charges thereon, to be due and payable immediately, and upon such declaration such principal, interest and other charges shall become immediately due and payable.”

There can be ramifications though. City Administrator Lucelle Mercado said defaulting on the payment is “bad for us.”

She said there should be no reason to default since the city has the money from the proceeds of the SRP lots’ sale.

Use of the SRP lot sale proceeds is being opposed by the City Council, which has cited a case filed by former prosecutor Romulo Torres questioning the validity of the SRP sale.

Mercado said the Local Finance Committee and Rama will continue to discuss their next steps.

Councilor Noel Wenceslao, a former banker, said once a borrower defaults, the borrower’s credit standing will be affected. But he says that might not be the case for the Cebu City government.

He said the Land Bank can look at the situation differently especially with the political undertones regarding the payment.

“However, in the case of Cebu City, if ever we default in paying the amortization, it’s not because we don’t have money but because there is no appropriation for the amortization. So in our case, the bank will treat this differently,” Wenceslao said.

Osmeña, for her part, was confident that the funding source is not a problem for City Hall because they have continuing appropriations that could be realigned to pay for the amortization.

A possible source is the P1.5-billion allocation for drainage improvement projects which the city included in its 2015 budget. This has remained unused to date.

“We can always realign part of the appropriation. All we need is only P185 million,” she said.

Besides, Osmeña said, there is no rush to implement the 2015 drainage improvement projects because of the election ban on infrastructure projects.

“If we are able to find P200 million for bonuses, why not for this (SRP amortization)? This is an obligation. But Mike Rama is just willing to risk the credibility not just of the city but the whole country,” Osmeña said.