Cost of corruption: Government projects overpriced by 20%

MANILA, Philippines – Contracts with the Philippine government are usually overpriced by at least 20 percent to facilitate kickbacks, former Philippine Forest Corp. chief Rodolfo Noel Lozada Jr. told the Senate yesterday.

But Transportation Secretary Leandro Mendoza, in an apparent attempt to discredit Lozada’s exposé, countered at a press conference at Malacañang that the NBN deal was aboveboard.

In an emotional testimony that started at 10 a.m. and ended at around 6 p.m., Lozada reiterated previous allegations that former Commission on Elections chairman Benjamin Abalos demanded $130 million as his cut for an eventual $329-million broadband deal with China’s ZTE.  The amount was supposedly double the usual kickback.

“The whole problem started when Chairman Abalos wanted $130 million for the project,” said Lozada. “I told him the $130 million was too much and too difficult to cover. Maybe, if it was only $65 million (that would have been acceptable).”

Lozada said that a 20 percent overprice in a contract of such magnitude would usually be acceptable.

“It looks like that’s the norm in government,” he said, citing as an example the $1.3-billion Southrail project to improve railway links to and from the capital, which was also  allegedly overpriced by at least $70 million.

Lozada said the cost of linking government departments in a broadband network, which is what ZTE had been contracted to do, should only have been around $132 million.

He said he had been getting death threats even before his Senate appearance, and said he would like to disclose now whatever he knew about government deals as he had decided to break free from the administration.

He added he had been coached so he would not be able to appear before the Senate and testify on the anomaly, which was what he wanted before so as not to complicate his life.

While he was not able to elaborate, Lozada disclosed he was also involved in the evaluation of the Southrail project that would also be funded by China through a loan agreement.

But the senators present at the Senate investigation expressed belief that Lozada was able to explain why the $329-million national broadband network deal was suddenly funded by a loan agreement with China and not undertaken through a build-operate-transfer (BOT) scheme.

Other important projects such as housing of the military and police, as well as the Angat Dam rehabilitation may also have been sacrificed because of the NBN project that was not a priority of the administration in the first place, senators said.

Senate zooms in on Southrail project

As if to put more weight on allegations of corruption in government, the lawmakers said they will train their sights on the Southrail project and would investigate it as well to correct what Lozada said was a “dysfunction” in the government’s procurement system.

Senate President Manuel Villar Jr. and Sen. Panfilo Lacson inquired about the Southrail project when mentioned by Lozada during the hearing on NBN.

Sen. Manuel Roxas II said in a statement that he would file a resolution on Monday calling for an inquiry into the Southrail project as part of the Senate’s bid to review the government’s procurement system.

Lozada said a certain lawyer “Mallari” and “Anthony Wang” were the ones who brokered the Southrail project, like what resigned Commission on Elections chairman Benjamin Abalos did on the allegedly overpriced NBN deal.

The “star witness” said he could not detail who earned from the $70 million commission because he was told that Mallari and Wang would be in charge of that.

“Sila na raw bahala sa Palasyo.  (They will take care of the Palace),” Lozada said.

Villar said it would be up to appropriate committees to conduct the investigation into the Southrail project. Roxas said he would discuss with his colleagues the proper time for the inquiry.

The $932-million Southrail project, which is meant to rehabilitate the railway from Manila to Bicol, is to be implemented in two phases. Phase 1 is for the rehabilitation of the 423-kilometer stretch from Calamba, Laguna to Legazpi City in Albay, while Phase 2 will create a new 135-km railway like from Albay to Sorsogon, costing $304.2 million.

Like the NBN project, the Southrail was funded by loans from the Export-Import Bank of China.

Mendoza: NBN deal aboveboard

Meanwhile, the Department of Transportation and Communications said only the allegations of overpricing and the government’s decision to enter into a government-to-government deal for its NBN project need to be addressed.

Mendoza, together with his assistant secretary Lorenzo Formoso III and former Commission on Information and Communications Technology (CICT) chairman Ramon Sales, held a press briefing at the Palace yesterday at the same time Lozada was being grilled at the Senate, to reiterate that the deal was legitimate.

The DOTC is the implementing agency for the NBN project.

Formoso and Sales were the technical people that evaluated the proposals for the NBN.

Mendoza said an explanation was necessary to refute the claims of Lozada that the project was overpriced and that Arroyo and Abalos sought kickbacks for the deal with ZTE.

Lozada, at the Senate, said the contract price of the NBN project went up from the original $262 million to $329 million by the time he quit as NBN consultant to then National Economic and Development Authority director general Romulo Neri.

Formoso explained that an adjustment was made because a $262- million NBN would cover only 30 percent of the country. He explained that the new price would reflect 100 percent coverage.

He said the Chinese loan facility planned for the ZTE project would have a 20-year maturity at a concessional rate of three percent.

Mendoza said the evaluation process was fair compared to proposals from De Venecia’s Amsterdam Holdings Inc. (AHI) and the United States-based Arescom.

AHI’s proposal carried a lower cost and was intended to be implemented through the BOT scheme.

Formoso pointed out that serious concerns were raised about the capability of AHI to implement the project as he described the firm to be a shell company with a capitalization of only P5 million.

He said they conducted due diligence on AHI and discovered that the company had no firm commitment from any financial institution so there was no guarantee whatsoever that it would be able to come up with the funds needed to build the NBN.

Moreover, he said that AHI does not have a franchise from Congress as required for all telecommunications enterprises operating in the country.

Mendoza said that security was also a consideration during the selection process because the project would involve the transmission of sensitive government data and communication.

Formoso added that a BOT would eventually be more expensive than a government-to-government transaction because the government would have to pay for the services at rates higher than the concessional rates for government loans.

“There was not even a debate whether to go BOT or government-to-government,” Mendoza said.

Sales, for his part, said that the CICT was the official agency tasked to evaluate the proposals for the NBN project.

When he was still evaluating the proposals, Sales said that he did not form a bids and awards committee at the time because he felt that it was not yet ready.

Then he started hearing about the influence peddlers getting involved in the project and “felt that I had to leave the government.”

“I did not have an understanding of what was happening in government,” Sales said.

Officially, Sales said he resigned from the CICT because he was suffering from herpes zoster or shingles, which was brought about by chicken pox he had when he was a child. Antonio Roxas Chua had since replaced Sales.

“I didn’t understand what the vendors were doing with those who could influence the decision,” he added.

“I didn’t know what Abalos was doing. I was out of the loop. We were the primary group that was talking with ZTE and AHI,” Sales said.

No check and balance

Lozada, however, said projects were being decided by “people like us” who did not even have formal appointments as government officials specifically tasked to look into project proposal based on their expertise.

“I know I am not right (to do the job of reconciling proposals). I don’t know who are but I know I’m not,” he said.

But Lozada said he could provide insights into telecommunications projects being an electronics communications engineer and an information technology expert.

“The procurement system doesn’t really work. The due process of procurement is primarily geared towards tailoring the process to the sponsor. We don’t look (for the best supplier). It should be need-driven. Our need should be the basis of our procurement but now it is supply driven. If someone in the government knows a supplier they will now tailor fit a project that will fit the (supplier),” Lozada said.

He also said there was hardly check and balance  with regard to these multimillion projects and if there were, they were “restrained.”

He added the NBN and the Southrail projects were examples of government’s lack of check and balance. Both were approved by the Arroyo administration under a government-to-government agreement.

Lozada earlier said First Gentleman Jose Miguel Arroyo and Abalos worked to have the NBN project approved under a loan agreement from China to be undertaken by China’s ZTE Corp.

He said the First Gentleman was also present in meetings where the Southrail project was discussed.

Lozada said he informed Mr. Arroyo during a trip to China that a lot of people were dropping his name in connection with the Southrail project.

“I told him a lot of people are using your name, you have to make sure that (the commission they are talking about) is yours or you stop them (from namedropping),” Lozada said.

Lozada disclosed the First Gentleman only replied: “Okay, okay.”

More than meets the eye

But there were more than just the fat commissions that are at stake in the controversial NBN deal, De Venecia, namesake and son of former Speaker, said.

Abalos’s crucial role in the 2004 elections that led to President Arroyo’s victory is also a major consideration why the administration cannot turn down the former Comelec chief’s demand that the build-operate-transfer scheme be converted into a government loan, De Venecia III said.  

“The President has gone through numerous elections right? And If you have the patronage of the chairman of the Commission on Elections then there is, at least, maybe a good chance that you will be protected or have certain things manipulated to your own benefit,” De Venecia told reporters.

Asked why the First Gentleman and Abalos were keen on bagging the deal, De Venecia said it is about greed for money.

“These are all money-driven. Too much money, too much money and too much corruption. Even more than the Marcos regime. We are talking here of hundreds of millions of dollars and potentially in different projects as (Lozada) stated,” he added.

“Because he (Abalos) can demand, because all of them are part of the commissions that they are gonna receive. So Chairman Abalos, as the point man, could just say to FG because NEDA says it cannot be. That is why the BOT policy was overturned and became government-to-government (contract).”

De Venecia has also implicated President Arroyo in the bribery scandal saying that she had asked Neri to divert funds intended for the housing projects for policemen and soldiers and the development of Angat Dam to the NBN project.

He added that Mrs. Arroyo made the order two days before she flew to China to witness the signing of the allegedly overpriced project.

“Secretary Neri was asked by the President to do all the necessary paper work and some realignments from that package from China to be able to reallocate them to the NBN,” De Venecia said referring to the five-year fund package aid from China to the Philippine government.

FG power appalling

The senators, however, said the apparent power of Abalos over the First Gentleman was appalling as it could extend to President Arroyo.

“Very clearly, it was established that it became a loan agreement because that was what the First Gentleman wanted. It’s all about money, it’s all about greed,” Lacson said.

He added it could be a mix up of what Abalos was able to do for the First Couple in the 2004 elections, which Mrs. Arroyo won over popular actor, Fernando Poe Jr.

“We can see now how powerful the First Gentleman is over Gloria (Arroyo),” Lacson said.

Cayetano said the circumstances behind the approval of the NBN deal could not be known without Lozada.

“He provided the missing link, he filled in the gaps,” Cayetano said.

“He strengthened the allegations against (Abalos). Where is that P6.5 billion ($130 million)? This also shows that the NBN project is not the exception, it is the rule. We will now have to look into projects one by one,” Cayetano said.

Roxas said they asked the Supreme Court to compel NEDA to submit the documents regarding the NBN project to see how the policy of having it done through BOT was changed.

“The executive has invoked executive privilege on these documents and we have filed a case with the Supreme Court precisely to obtain these documents,” Roxas said.

He said it was important to establish why the government reversed its previous position that the NBN project ought to be BOT - meaning private sector money, no loan, no government guarantee. – With Marvin Sy, Christina Mendez