Page 1 of 2 Disconnect in Philippines
over China deal By David
Llorito
MANILA - A US$329 million
broadband infrastructure contract inked between
the Philippine government and Chinese telecom
giant ZTE Corp has raised critical questions here
about the deal's lack of transparency and
threatens to kick off a new round of political
troubles for President Gloria Macapagal-Arroyo's
already scandal-plagued administration.
The infrastructure deal involves the
construction of an integrated
Internet-protocol-based broadband network that
would provide
connected voice, data and
video services for national, regional and local
government agencies. The Export-Import Bank of
China agreed to provide concessionary loans at 3%
annual interest with a five-year grace period on
the condition that ZTE is the exclusive supplier
for the project.
In a dramatic twist,
government officials recently disclosed that the
actual contract - of which Arroyo was in
attendance for the signing ceremony in China on
April 21 - has since gone missing. The alleged
misplacement of the contract - some officials have
said the signed document was stolen from a China
hotel - has raised allegations among opposition
politicians and the media of possible official
impropriety.
In part that's because the
ZTE contract was priced higher than other
competitive bids for the contract, including
offers from Amsterdam Holdings Inc (AHI), a
Philippine company in partnership with another
Chinese firm, Huawei, and Arescom, a US
telecommunications supplier. The Huawei deal
proposed to build the same broadband network for
$240 million, while Arescom's offer was reportedly
$135 million.
Sources familiar with the
negotiations say ZTE initially tabled a proposal
for $262 million, which apparently was close to
the bid made by AHI. Why the awarded contract was
inflated to $329 million when the deal was
finalized and signed in China is still unclear,
the same sources say. So too is the added $500
million expense for a "cyber-education" component
to the deal, which Arroyo reportedly wanted to
maximize the utilization of the broadband
network's capacity.
Technical experts have
already raised critical questions about the
cyber-education project's expense and viability.
Nonetheless, Arroyo's government initiated the
separate big-ticket project when the Chinese
government indicated it would not finance the
e-education component of the original
broadband-network contract, according to minutes
of a March 27 meeting of the government's
Investments Coordinating Committee seen by Asia
Times Online.
The document has prompted
opposition speculation that the Chinese government
- which has agreed to provide concessionary loans
for both multimillion-dollar projects - may have
dictated the terms of the deals, which when
finalized were nearly three times the value of
ZTE's original bid for the project.
That
price inflation is bringing Arroyo's personal
relations with Beijing under new scrutiny.
Meanwhile, ZTE has not commented publicly on the
deals and failed to reply to e-mailed questions
from Asia Times Online.
The company
recently sponsored an all-expense-paid trip for
Filipino journalists to travel to Shanghai to
witness the company's technological expertise.
Business backlash The Philippine
business community has openly questioned the
government's decision to opt for the higher-priced
Chinese bid.
"The contract appears to be
highly questionable," said a joint statement of
the Philippines' three major business
organizations, namely the Management Association
of the Philippines, the Makati Business Club, and
the Financial Executives Institute of the
Philippines. The influential Bishop-Businessmen's
Conference also signed the statement.
"The
country still lacks 41,000 classrooms, even as our
constitution mandates that education should be the
top priority in the national budget," the
statement said. "In remote barangays and in
quite a few municipios, access to water is
still a basic need. The ZTE contract value of
US$330 million could be spent in building 36,000
classrooms, or 6,000 rural health centers or
120,000 artesian wells."
ZTE competitors
have made similar grumbles. Marinelle O'Santos,
lawyer and spokesperson for AHI, said that as
early as last December her company had offered an
"unsolicited proposal" to undertake the project
for $240 million at "no cost to the government"
under the Philippine build-operate-transfer (BOT)
law. She said AHI proposed to build the
infrastructure backbone and transmission sites and
provide all other technical and software support
for the entire national network at rates "25%
less" than other private telecommunications
companies had offered. Philippine officials, on
the other hand, have questioned the merits of the
AHI and other bids.
"There's no such thing
as a free lunch," Lorenzo Formoso, assistant
secretary of the Department of Transportation and
Communications (DOTC) and commissioner of the
Communication of Information and Communications
Technology Council, said in an interview. "If they
[AHI] are serious about putting in a network, then
they should put up the money where their mouth
is."
Formoso said AHI, owned and
controlled by businessman Joey de Venecia, son of
the current of Speaker of the House of
Representatives, doesn't have the funds or
know-how to undertake and complete the project. He
claimed AHI is requesting that the government
grant it the contract through an "executive
performance undertaking", which the firm would
leverage to raise funds for the project in capital
markets.
"They are going to borrow P10
billion [$214.6 million] at commercial rates, so
you can imagine how much debt servicing
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