THE government must have the approval of the Monetary Board, the policy-making board of the Bangko Sentral ng Pilipinas (BSP), and the National Economic and Development Authority (NEDA) in securing foreign loan to fund the multibillion-peso SouthRail Project.

Solicitor General and Acting Justice Secretary Agnes Devanadera issued the legal opinion in response to a query by Finance Secretary Margarito Teves, who has been tasked to sign in behalf of the President an executive agreement with the Export-Import Bank of China to obtain funding for Phase 1-A of the project.

The proposed agreement provides that the Chinese bank would shoulder 95 percent of the cost of the P16-billion SouthRail Project, which China National Technical Import and Export Corp. will implement.

Devanadera, in her legal opinion, said, “The subject loan facility still needs prior concurrence of the Monetary Board in order to be valid and effective pursuant to the Section 20, Article VII of the 1987 Constitution.”

Said provision of the Constitution states: “The President may contract or guarantee foreign loans on behalf of the Republic of the Philippines with the prior concurrence of the Monetary Board, and subject to such limitations as may be provided by law. The Monetary Board shall, within thirty days from the end of every quarter of the calendar year, submit to the Congress a complete report of its decision on applications for loans to be contracted or guaranteed by the Government or government-owned and controlled corporations which would have the effect of increasing the foreign debt, and containing other matters as may be provided by law.”

Devanadera also stressed that the government needs to secure a separate approval from the NEDA.

The same legal opinion gave Teves the go-signal to sign the contract as long as he has “Full Powers/Special Authority.”

As to the issue of whether a prior appropriation from Congress is necessary for the entire SouthRail Project, where the government would provide for the 17 percent of the total cost, or P2.72 billion, the Department of Justice chief tossed up the matter to the Department of Budget and Management that is responsible for the formulation and implementation of national budget.

However, in terms of repayment of the loan, Devanadera explained that appropriation of debt service should be “automatic” under Republic Act 4860, or the “Foreign Borrowings Act.”

The Justice department chief also said that it is necessary for the Government Procurement Policy Board (GPPB) to resolve the issue of whether the designation of the corporation by Chinese government as contractor for the project would be consistent to Philippine laws.

“The GPPB has broad legal mandate to protect national interest in all matters affecting public procurement, taking into account the policy repercussions of addressing the question involved,” the Justice secretary stressed.

Nonetheless, Devanadera cited the prior opinion of the Justice department on the controversial National Broadband Network project with Chinese ZTE Corp., where it said that no more public bidding was necessary based on agreement between the two governments.

The 542-kilometer project involves three phases to be implemented from 2008 to 201—Phase I-A for the rehabilitation of the existing line from Calamba in Laguna to Lucena in Quezon; Phase I-B for the rehabilitation of the line from Lucena to Legaspi; and Phase II for the extension of the line from Comun, Camalig in Albay to Matnog in Sorsogon.

It is expected to divert some 28 percent of road traffic and decongest the increasing traffic along the existing road network. The forecasted daily ridership per segment ranges from 8,654 passengers (Sariaya to Lucena Segment) to 27,800 passengers (Manila to Calamba Segment) in 2010.

According to the Philippine National Railway, the estimated total cost of the SouthRail Project amounts to $932.037 million, including $627.811 for Phase 1 and $304.226 million for Phase 2.

In July 2007, the NEDA and the Ministry of Commerce of China signed a memorandum of understanding for the project.

Under the agreement, both countries will create a Philippine-China Economic Joint Working Group to track and review the project’s performance.