Hasty China deal worries US envoy

The US embassy is concerned about the government’s rush to sign a shady supply deal with a Chinese telecom firm. Ambassador Kristie Kenney said so in a letter to Economic Planning Sec. Romulo Neri on Apr. 20, a day before President Arroyo witnessed the hurried contract signing in China.

Malacañang announced the contract signing, but the Department of Transportation and Communications has yet to disclose the document.

Kenney urged Neri "to avoid undue haste and take the time to carefully review" the competing offers for a national broadband network. The NBN would fuse all government landline, cellular and Internet needs into one system, to be supplied by ZTE Corp. of Shenzhen for $330 million (P16 billion). Kenney said "multiple American firms" had told her of the planned purchase, and thus stressed "open competition and transparency."

Kenney’s letter came in the wake of a complaint — also to Neri — from an American firm about the sudden entry of ZTE into the picture. California telecom specialist Arescom said "we strenuously object to the Chinese proposal and seek clarification" on why it bagged the contract from nowhere. Arescom noted that ZTE’s bid "is almost identical to ours, using similar technology, but which will cost more than double our offer of $135 million."

"This is the first we have heard of this Chinese project," Arescom said, "whereas the documentation for our proposal has taken several years to go through your government process."

Another early competitor, Filipino-owned Amsterdam Holdings Inc., also lambasted the DOTC last month for rushing to accommodate latecomer ZTE. It lamented that the agency ignored its earlier offer to build an NBN worth $240 million but at no cost to the government.

In a letter to The STAR Neri said the Commission on Information and Communications Technology first broached the NBN to the Cabinet-level National Economic and Development Authority in Oct. 2006. He stressed though "that the choice of contractor for the project is the main responsibility of the DOTC, and they are in a better position to clarify any concerns on the proposals of AHI and Arescom."

Neri said he learned of Arescom’s offer only when it wrote to him, and has asked the DOTC for its position on the issue. The DOTC has yet to reply.

Last Dec. 5 AHI gave DOTC an unsolicited proposal to build the NBN in three years on its own expense. It would integrate all national agencies, provincial and city halls, state universities and hospitals but charge them 25 percent less than current rates, recovering its investments from private subscribers. Under the Build-Operate-Transfer Law, an agency must initiate a study of the unsolicited bid within 60 days. DOTC ignored the rule and entertained instead an unsolicited proposal in Feb. from ZTE.

ZTE’s offer was inferior and would break four laws. It would only supply the government with the broadband infrastructure, but the latter would have to operate and maintain it. This is contrary to the Telecoms Development Act, which requires government to privatize all its telecom facilities. Under the ZTE deal, government would need to borrow the $330 million from a Chinese bank and issue a sovereign guarantee of repayment — both of which are barred in B-O-T projects.

The signing came during the election period, a breach of the Election Code that bans procurements during campaigns — unless issued a Comelec waiver. DOTC insiders say ZTE at first quoted $300 million, then negotiated it down to $262 million, but raised it to $330 million for the signing. A Comelec bigwig and a powerful official’s spouse jointly pushed for ZTE, prompting the DOTC and NEDA to endorse it posthaste.

The supple contract also did not undergo public bidding. Ironically this broke the e-Procurement Law, which requires competitors to submit by Internet to an agency simultaneous bids on a specified day and time.

Insiders say that when ZTE’s price dropped to $262 million, $130 million of it was for kickbacks and $132 million would be for the hardware. Part of the kickback already was advanced to silence protests.

Up to two months ago, the NBN was not even a priority; hence, the unhurried unsolicited bid from AHI and the long process of accreditation that Arescom went through. Big amounts reportedly changed hands to consider solely ZTE’s proposal in the end.

ZTE is notorious for unethical means to land contracts. The mayor of Mexico City is presently under investigation for commissioning it to set up wireless "hotspots" in parks and government offices for hundreds of millions of dollars, when the city is in dire need of water and electricity. ZTE is blacklisted in Ecuador and Ethiopia for overpricing, and in Indonesia for price dumping. Several local telecommunication firms also had been sold inferior ZTE wares.

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