Kickbacks, negotiated deals mar AFP procurement setup

By Malou Mangahas (Philippine Center for Investigative Journalism)

(Conclusion)

For 40 years, or until the Senate voted in 1991 to terminate the RP-US Military Bases Agreement, the Armed Forces of the Philippines (AFP) had acquired all its big-ticket communication, mobility and artillery equipment from the United States, under the Foreign Military Sales Credit program.

The service commands drew up their "wish list" of what they wanted to acquire, and the former Joint US Military Assistance Group checked this against a list of materiel the United States wanted to give away.

After 1991, negotiated deals became the norm, with the AFP going straight to the President for what-ever big purchases it wanted to make.

Nearly all these deals turned disadvantageous — if not downright disastrous — to the troops in the end.

Some officers and arms contractors concede that the years of dependence on the United States for war materiel have resulted in a Philippine military that has little expertise at the bargaining table, and even less in discerning the advantages of one equipment over another.

But they also say that corruption in the AFP officers corps is mainly to blame why paratroopers are jumping out training planes without the required parachutes and equipment, supposedly brand-new jets are crashing, causing the deaths of their pilots, and young soldiers are toting 35-year-old M-l6s that can no longer fire accurately.

Officers say that corruption has become so pervasive in the AFP that the crooks in their midst have evolved a vocabulary all their own. For instance, one colonel said, "cost of money" means "the amount a proponent pays to facilitators for making his dreams come true."

"Cleared money," meanwhile, is "money (procurement budget) that has been converted (to other uses), which one could spend anywhere." Put another way, it is "laundered money," he said.

Contractors for their part said that the evolving consensus among them is that some service commands are more corrupt than others. Their integrity meter puts the Army on top, followed by General Headquarters, and then the Navy. The Air Force ranks last, they said, for allegedly being the most corrupt.

"There’s an enormous amount of overpricing in the Air Force, about 200 to 300 percent mark-up," said one veteran contractor. "In the Navy, about 100 to 200 percent. If GHQ said 30 percent, hey, that’s a deal! And the Army, if you give them five percent, that is cost of sale, just like you’re selling peanut butter."

That is why when word got around early this year that the Air Force had just signed a $4-million contract to purchase four second-hand C-130 planes, tongues also began wagging.

It was no help that one of the companies involved was the US defense giant Lockheed Martin, which in the 1970s got embroiled in a bribery scandal in Japan that led to the resignation of then Prime insider KakueI Tanaka.

Defense Secretary Angelo Reyes and Air Force chief Lt. Gen. Benjamin Defensor, however, said that the contract they signed represented a "bargain" and was done above board.

Reyes actually put his name on the deal three weeks before his retirement last March 17 as AFP chief. On March 21, he was appointed defense secretary, a position that gives him the authority to approve the deal he signed.

Ironically, it was also in March that Adm. Guillermo Wong blew the whistle on questionable procurement deals in the Marines, an act that eventually cost him the post of Navy service commander.

"To the man in the foxhole, all this talk (about modernization) does not matter unless the equipment reaches him," said Col. Ricardo Morales, Army assistant commanding general for plans. But what usually reaches the lowly soldier is equipment that more often than not is inferior to that of the enemy

This is because even quartermaster equipment such as uniforms, boots, helmets, bayonets and mosquito nets have not escaped the heightened "business skills" of those involved in the procurement chain, and are reportedly overpriced by at least 30 percent. Quality is often sacrificed to make up for the "extra expense."

The prize deals, however, are obviously those involving big-ticket items such as armed personnel carriers, aircraft and patrol vessels.

According to military insiders and contractors alike, contracts entered into by the AFP involving such items have, at the very least, been suspicious.

Among these deals are those inked by the Aquino administration before it exited in 1992. One of these contracts was for 150 Simba armoured vehicles from GKN of the United Kingdom. Another was for 18 S-211 basic trainer jets from Augusta of Italy.

The Philippines now has the distinction of being the sole nation using the Simba, which even the United Kingdom, the manufacturer’s home country, does not use. The local partner of the Simba deal, Asian Armoured Vehicle Technologies Corp., had a board dominated by retired military officers, including Gen. Juanito Dator, and Col. Cesar Pio Roda. It was organized only in September 1989, or close to the award of the contract.

A "revolving door" phenomenon has emerged: a number of military officers assigned to technical and logistics units, upon retirement from the service, have signed up as consultants or executives of certain defense suppliers they had favored earlier.

Like the deal signed just a few months ago by Reyes and Defensor, the Simba deal had an in-country component – the production of tractors and heavy equipment.

No such thing happened, and no transfer of technology took place. Only an assembly line of knocked-down parts was set up at the firm’s offices in Subic.

As for the S-211 planes, six of them have since crashed, for reasons the Air Force has yet to establish. A total of four pilots perished in the crashes, which led to a temporary grounding of the remaining S-211s.

According to some contractors, friends of then President Corazon Aquino had allegedly brokered the S-211s’ purchase.

In 1994, the Ramos administration opted to buy six more S-211s, even though by then, the Philippines was the only country left using the basic trainer jets – and for counter-insurgency even.

A negotiated deal to purchase allegedly an overpriced radar system from Marconi of Italy in the same year was aborted after an expose by Sen. Sergio Osmeña, on complaint of a rival company that later merged with Marconi.

What did push through three years later was the purchase of three second-hand Peacock-class patrol vessels from the United Kingdom’s fleet in Hong Kong.

Normally, these vessels are fitted with armaments, ammunition and surveillance monitors, which are all requisites for patrol boats. But what the Philippines ended up with were practically no better than motorboats, because the vessels were almost bare bones, sans even air-conditioning units.

These purchases were not on the list of priorities to be purchased under the AFP Modernization Program, which was launched in 1996 and ends in 2010. Neither was the purchase in August 2000 of 10,000 rounds of 105-mm howitzer shells from Thailand by the Estrada administration, at the height of the military offensive against the Moro Islamic Liberation Front (MILF).

One round of the 105-mm howitzer shells costs from P8,000 to P11,000. The President’s Contingency Fund covered this unprogrammed deal, which showed how the combined threat of Abu Sayyaf bandits and the MILF rebels pose in Mindanao nudged the government to stockpile an excess of howitzer shells.

Then President Joseph Estrada and his closest generals also tried to push two negotiated deals but failed because of opposition from then Defense Secretary Orlando Mercado.

In mid-1999, Mercado said that then Navy chief, Commodore Luisito Fernandez, negotiated with the US company Litton Ingalls for the purchase of three missile-capable Corvette fighter ships for $100 million. The deal was promoted to be "a government to government" transaction but Mercado said he stopped Fernandez from escorting the Ingalls executive for a meeting with Estrada.

In March 2000, Mercado rejected a proposal by then Air Force chief, Lt. Gen. Willie Florendo, to negotiate the "urgent purchase" of 42 UH-IH helicopters and 17 helicopter gunships for $63 million from Asian Aerospace Corporation.

This is the same corporation that is the local partner of Lockheed Martin Overseas Corp., seller of the C-130 planes covered by the Air Force contract that is now in dispute.

The purchase of the UH-IH helicopters and helicopter gunships would have been made outside the loop of the AFP Modernization Program, prompting Mercado to observe, "They (officers) always try it, dismantling and cannibalizing the Modernization Program."

In fact, Reyes and Defensor had also said that the C-130s contract does not fall under the Modernization Program because it was an "interim" purchase.

As a senator in 1992 to 1998 and chairman of the Senate defense committee, Mercado was the chief author of the AFP Modernization Law, which lays out strict guidelines for the procurement of military equipment.

For instance, the modernization law requires suppliers to demonstrate or certify that their product is in use in the country of origin or by two other armed forces. Interestingly enough, this provision had been brought about by the AFP’s experience with the Simba and Augusta deals.

"We should not be used as a guinea pig for testing weapons systems," remarked defense supplier Randy Limjoco, president of Intrade Asia Pacific Corp., which sells various military materiel, ranging from artillery to communications equipment. "We can’t afford it. We are a developing country and we have an ongoing conflict in Mindanao, which is very expensive. We need products that are cost effective and proven."

This is obviously not lost on military officers. But insiders themselves agree with contractors that other considerations have come into play in deciding what the AFP must have – and at what price.

Alberto Filart, executive vice president of Jet Ventures Philippines, said he has tried to play by the rules. But he recounts that when he hired a marketing person a few months ago to help him follow up proposals with the Air Force, he was told that they needed "some magic."

"I asked what he (the marketing person) meant by magic," said Filart. "He said, ‘Magic’ is padulas (grease money), under the table, you have to make promises.’ I said no."

Filart’s company was contacted by the Air Force for the repair of the OV-10B Broncos, the ground attack aircraft also being used as bombers by the military. Then he was suddenly told by his partner, Many Aircraft of the United States, that he had somehow lost the repair deal to Lockheed Martin. Filart said the tragedy of contractors like him is that "we played by the rules and then people will not play by the rules."

Military insiders and contractors said that those who cut deals remain unrepentant supposedly because they continue to be tolerated by their superiors. One contractor even comments, "I’ve come to realize commanders are chosen not because of their competence or leadership or ability to fiscalize but more because of their political loyalty to the administration."

In one key office, said the contractor, nearly all the officers know about the notoriety of a senior officer.

"But how come he is still there?" asks the contractor. "Is there no one else who could take over the job? Of course, the answer to that is there are people who can but obviously this guy has a protector, a sponsor." – With additional reporting by Manny Mogato