Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

Nineteenth Congress
First Regular Session

care . eo

House Bill No. __

Introduced by Representative JOEY SARTE SALCEDA

AN ACT
SETTING STANDARDS FOR THE CONTRACTING OF
OFFICIAL DEVELOPMENT ASSISTANCE, AMENDING FOR THE PURPOSE
SECTIONS 2, 3, 4, 7, AND 11 OF REPUBLIC ACT NO. 8182,
OTHERWISE KNOWN AS THE “OFFICIAL DEVELOPMENT
ASSISTANCE ACT OF 1996”

EXPLANATORY NOTE

Official Development Assistance packages are a powerful tool for financing national
Priorities due to their nature as long-tenured, deeply concessional loans with a more diplomatic
character. ODA loans allow for the financing of programs and projects where economic returns
are not necessarily immediately realizable, or where a viability gap would make a certain
project less financial to the open capital markets or to private or commercial institutions

ODA for national defense purposes also allows the country to prioritize economic
services in its current-revenue-funded, cash-based budgeting, while also meeting its national
security needs.

As of December 31, 2021, some 43.93% or P1.663 trillion of our external debt is
contracted through ODA. The Weighted Average Maturity (WAM) of the entire outstanding
ODA loan portfolio, including the undrawn loan commitments that are yet to be availed/repaid
in subsequent years, is estimated at 20.80 years. Given the BVAL average rates, similar
commercial loans of such maturity should fetch a coupon rate of 8.1250%. Not including the
concessional aspect of the ODA due to the grant component, the nominal interest rate of the
commercial loan component of the most expensive available multilateral ODA loan, the Asian
Infrastructure Investment Bank 12-29 year loans, is 6.48% as of February 9, 2023!

Expanding the country’s ODA portfolio is thus critical both for our fiscal stability and
for funding our long-term priorities.

1 Using USD LIBOR + 0.64% or 1.04% spread

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For large-scale development projects, financial facilities from European bilateral and
multilateral partners are often a blend of a sovereign soft loan backed with buyer credits (bank
credits guaranteed by the State at a preferential rate). The constitutionality of such
arrangements has been affirmed by the Supreme Court in Neri J. Colmenares, et al. Vs. Rodrigo
R. Duterte, et al /Neri J. Colmenares, et al. Vs. Rodrigo R. Duterte, et al?

However, the current ODA Law, under Republic Act No. 8182, does not explicitly
provide a mechanism for ODAs in the blended financing approach — or financing arrangements
where the bilateral or multilateral partners mobilizing funds from a commercial or private
financing institutions. As such, similar financing arrangements could be subject to litigation,
raising the risks of materially-adverse government action for such projects.

Such risks also restrict bilateral (especially European) partners’ ability to provide their
expertise in many areas where cooperation could contribute to the development of the
Philippines,

To settle such ambiguities in the law, while providing safeguards for such mechanisms,
this bill aims to establish the following:

1. Allow blended financing in Official Development Assistance loans as long as they are
covered by national or international official instruments in the nature of exchanges of
notes, memoranda of understanding, or similar instruments. The ODA partner may
mobilize financing from private or commercial institutions in funding the loan or loan
grant;

2. Provide the condition that the partner government, bilateral or multilateral agency, or
international or multilateral lending institution shall guarantee the timely and complete
release of funds committed by such private or commercial institutions;

3. Reduction of the ODA grant component to 15% to attract more ODA, considering that
they remain more attractive as a financing option than alternatives. The 40%
requirement for the weighted average of the grant component of all ODAs is rendered
superfluous and is proposed to be deleted;

4. Expand the use of ODA loans to include human security;

5. Provide more flexibility in the loan component of ODAs, by allowing the Monetary
Board to determine the rate and terms that it considers concessional, and including
Project management costs and other similar charges in the effective interest rate;

6. Preserve the terms and conditions under which ODA loans prior to these amendments
were contracted, but allow unutilized balances to be diverted through their
corresponding loan agreements, and only apply the new provisions to loans after the
effectivity of the amendments; and

7. Allow ODAs to be used to acquire critical capabilities not available in the Philippines
by exempting such capabilities from preference for Filipino suppliers.

In view of the foregoing, the approval of this bill is urgently sou;

JOEY SARTE SALCEDA

2G.R.No. 245981/G.R. No. 246594,

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Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

Nineteenth Congress
First Regular Session

‘House BiliNo, 7135

Introduced by Representative JOEY SARTE SALCEDA

AN ACT
SETTING STANDARDS FOR THE CONTRACTING OF
OFFICIAL DEVELOPMENT ASSISTANCE, AMENDING FOR THE PURPOSE
SECTIONS 2, 3, 4, 7, AND 11 OF REPUBLIC ACT NO. 8182,
OTHERWISE KNOWN AS THE “OFFICIAL DEVELOPMENT
ASSISTANCE ACT OF 1996”

Be it enacted by the Senate and the House of Representatives of the Philippines in
Congress assembled:

SECTION 1. Section 2 of Republic Act No. 8182 is hereby amended to read as follows:

Sec. 2. Official Development Assistance (ODA). — For purposes of this
Act, ODA is a loan or loan and grant which means all of the following criteria:

(a) It must be administered with the objective of promoting sustainable
social and economic development, HUMAN SECURITY, and welfare of the
Philippines;

(b) It must be [contracted] COVERED BY NATIONAL OR
INTERNATIONAL OFFICIAL INSTRUMENTS IN THE NATURE OF
EXCHANGES OF NOTES, MEMORANDA OF UNDERSTANDING, OR
SIMILAR INSTRUMENTS, with governments of foreign countries with
whom the Philippines has diplomatic, trade relations or bilateral agreements or
which are members of the United Nations, their agencies and international or
multilateral lending institutions[;]: PROVIDED, THAT THE PARTNER
GOVERNMENT, BILATERAL OR MULTILATERAL AGENCY, OR
INTERNATIONAL OR MULTILATERAL LENDING INSTITUTION
MAY MOBILIZE FINANCING FROM PRIVATE OR COMMERCIAL
INSTITUTIONS IN FUNDING THE LOAN OR LOAN GRANT:
PROVIDED FURTHER, THAT THE PARTNER GOVERNMENT,
BILATERAL OR MULTILATERAL AGENCY, OR INTERNATIONAL.
OR MULTILATERAL LENDING — INSTITUTION SHALL
GUARANTEE THE TIMELY AND COMPLETE RELEASE OF FUNDS

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COMMITTED BY SUCH PRIVATE OR COMMERCIAL
INSTITUTIONS.

(©) There are no available comparable financial instruments in the
capital market; and

(d) It must contain a grant element of at least [twenty-five] FIFTEEN
percent ([2]15%). Grant element under this Act is the reduction enjoyed by the
borrower whenever the debt service payments which shall include both
principal and interest and expressed at their present values discounted at ten
percent (10%) are less than the face value of the loan or loan and grant. The
grant element of a loan or loan and grant is computed at the ratio of (i) the
difference between the face value of the loan or loan and grant and the debt
service payments to (ii) the face value of the loan or loan and grant.

SEC. 2. Section 3 of Republic Act No. 8182 is hereby amended to read as follows:

Sec. 3. Amendatory Clause. — Official Development Assistance, as
defined in this Act, is hereby excluded from the application of Paragraph 1,
Section 2 of Republic Act No. 4860, as amended: [Provided, That the weighted
average grant element of all ODA at anytime shall not be less than forty percent
(40%):] Provided, [further,) That in no case shall the EFFECTIVE interest rate
AND THE TERMS on the loan or loan component, INCLUDING PRIVATE
OR COMMERCIAL FINANCING MOBILIZED BY BILATERAL OR
MULTILATERAL PARTNERS, exceed seven percent (7%) OR A RATE
AND TERMS AS MAY BE DETERMINED BY THE DEPARTMENT OF
FINANCE AS BEING CONCESSIONAL.

THE EFFECTIVE INTEREST RATE SHALL INCLUDE ALL.
INTEREST PAYMENTS AS WELL AS PROJECT MANAGEMENT
COSTS AND SIMILAR COSTS INCURRED BY THE BORROWING
ENTITY IN THE CONTRACTING OF THE ODA LOAN.

SEC. 3. Section 4 of Republic Act No. 8182 is hereby amended to read as follows’

Sec. 4. Use of ODA for Equitable Development. ~ The proceeds of ODA
shall be used to PROMOTE NATIONAL SECURITY AND
DEVELOPMENT AND achieve equitable growth and development in all
provinces through priority development projects for the improvement of
economic and social service facilities taking into account such factors as land
area, population, scarcity of resources, low literacy rate, infant mortality and
poverty incidence in the area: Provided, That rural infrastructure, countryside
development and economic zones established under the PEZA law shall be
given preference in the utilization of ODA funds. Towards this end,
WHEREVER APPROPRIATE, the National Economic and Development
Authority (NEDA) shall endeavor to obtain ODA funds from donor countries,
which shall approximately be five percent (5%) of the total ODA loan from the
immediately preceding year. Said funds shall be administered by the NEDA for
project identification, feasibility studies, master planning at local and regional
levels, and monitoring and evaluation: Provided, further, That ODA shall not

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be availed of or utilized directly or indirectly for the following:

(a) Telephone programs contracted as of 1 January 1996 except basic
telephone programs and projects for rural areas not adequately serviced and/or
currently developed by private enterprises shall be entitled to ODA loan
availments;

(b) Projects mandated primarily by law to be served by the private
sector; and

(©) Financing for private corporations with access to commercial credit.

The NEDA shall ensure that the ODA obtained shall be for previously
identified national priority projects which are urgent or necessary. ODA shall
not be accepted or utilized solely because of its availability, convenience, or
accessibility

Provided, finally, That the expressed approval of Congress shall be
obtained by the Executive Department prior to the negotiation and
implementation of projects funded from ODA on or after 1 January 1995 as
well as those that have not been finalized.

NO CONTINGENT LIABILITY ARISING FROM ODA LOANS.
TO SUBNATIONAL GOVERNMENTS SHALL BE INCURRED BY
THE NATIONAL GOVERNMENT. LIABILITIES THAT.
SUBNATIONAL GOVERNMENTS MAY INCUR FROM ODA LOANS,
INCLUDING THOSE ARISING FROM EXPOSURE TO FOREIGN
CURRENCY RISKS, SHALL BE SUBJECT TO DEBT LIMITATIONS
PRESCRIBED BY THE BUREAU OF LOCAL GOVERNMENT
FINANCE.

THE DEPARTMENT OF FINANCE MAY GRANT ODA LOANS
AND GRANTS TO SUBNATIONAL GOVERNMENTS ELIGIBILITY
TO RELIEF FROM VALUE-ADDED TAX.

SEC. 4. Section 7 of Republic Act No. 8182 is hereby amended to read as follows:

See. 7. Applicability. — This Act shall apply to ODA loans and loans
and grants contracted on or after | January 1995.|

[Notwithstanding the exclusion of ODA loans as prescribed in Section
3 hereof from the debt ceiling of Ten billion US dollars (US$10B) prescribed
in Section 2 of Republic Act No. 4860, as amended by Presidential Decree No.
1939, nothing contained in this Act shall be interpreted to mean that whatever
ODA loans that are within the debt ceiling of Ten billion US dollars (US$20B)
can be substituted or replaced by non-ODA loans.}

ODA LOANS CONTRACTED BETWEEN 1 JANUARY 1995

AND 31 DECEMBER 2023 SHALL BE GOVERNED BY THEIR TERMS.
AND BY THE LAWS, RULES, AND REGULATIONS UNDER WHICH

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THEY WERE CONTRACTED. UNUTILIZED BALANCES UNDER
SUCH LOANS MAY BE DIVERTED TO OTHER PROJECTS:
PROVIDED, THAT SUCH DIVERSION SHALL BE REFLECTED
THROUGH AMENDMENTS IN THEIR CORRESPONDING TERMS,
MEMORANDA OF UNDERSTANDING, EXCHANGES OF NOTES,
AND OTHER APPLICABLE NATIONAL OR INTERNATIONAL
OFFICIAL INSTRUMENTS OF AGREEMENT.

ODA LOANS CONTRACTED ON OR AFTER 1 JANUARY 2024
SHALL BE GOVERNED BY THIS ACT.

SEC. 5. Section 11 of Republic Act No. 8182 is hereby amended to read as follows:

Sec. 11. Implementation, Restrictions, Rules and Regulations. — In the
implementation of the projects: (a) Consultants for the feasibility and design
aspects of the project may not participate, directly or indirectly, in any
subsequent phase of project implementation; (b) Project execution shall not be
delegated by the implementing agency except where the latter does not have the
capacity to implement such project; (c) In the hiring of consultants, contractors,
architects, engineers, and other professionals necessary for a project's
implementation, Filipinos shall be given preferences; (d) In the purchase of
supplies and materials, preference shall be given to Filipino suppliers and
manufacturers, so long as the same shall not adversely alter or affect the project,
and such supplies and materials are to the standards specified by the consultants,
contractors, architects, engineers, and other professionals connected with the
projects; and (e) ODA projects shall not be exempt from the requirement of first
obtaining an Environmental Compliance Certificate (ECC), or other such
certificates and clearances necessary or required by law for the purpose of
environmental protection, from the Department of Environment and Natural
Resources (DENR) or proper government agency, as the case may be.

THE PREFERENCE FOR FILIPINOS AND FILIPINO
SUPPLIERS AND MANUFACTURERS SHALL NOT APPLY TO
PROJECTS WHOSE NATURE IS INHERENTLY TO ACQUIRE
EQUIPMENT OR CAPABILITIES NOT AVAILABLE IN THE
PHILIPPINES OR FROM FILIPINOS OR FILIPINO SUPPLIERS AND
MANUFACTURERS.

The NEDA shall promulgate the Implementing Rules and Regulations
(IRR) to implement this Act within thirty (30) days from its approval.

The Implementing Rules and Regulations shall take effect five (5) days
after publication in a newspaper of general circulation.

SEC. 6. Separability Clause. - If any provision of this Act is held invalid or
unconstitutional, the other provisions not affected thereby shall remain in full force and effect.

SEC. 7. Repealing Clause, ~ All laws, presidential decrees, executive orders, rules and
regulations and other issuances or parts thereof which are inconsistent with the provisions of
this Act are hereby repealed, amended or modified accordingly.

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SEC. 8. Effectivity. - This Act shall take effect fifteen (15) days after its publication
in the Official Gazette or in at least two (2) newspapers of general circulation in the Philippines.

Approved,

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