'Grand infrastructure projects pose corruption risks'

MANILA, Philippines - Although it is encouraging that the Philippines has conducted extensive investigations into allegations of bribery, it is “disconcerting” that the companies at the center of these debacles have not been held accountable for their part in the activities, according to the Transparency International’s new Global Corruption Report.

Transparency International (TI) said in its Country Report on the Philippines that when funding is sought from abroad and foreign contractors are tapped for projects in the country, “this apparently decreases the Philippines’ ability to manage its affairs openly and transparently.”

The report highlighted collusion between foreign contractors that has been seen in multimillion-dollar, foreign-funded infrastructure projects in the Visayas and Mindanao.

Large foreign contractors allegedly colluded with each other and rigged bidding processes, and, in doing so, dictated the terms of the bids in violation of government rules and policies.

The TI report said it is clear that the recent slew of grand infrastructure projects involving foreign companies poses significant corruption risks.

“Furthermore, the involvement of foreign companies apparently decreases the access of Filipinos to information on the deals, while at the same time incurring potential losses to the state budget,” the report said.

The report also noted that “graft and corruption are a fact of life in the Philippines; since Liberation almost every administration has suffered its sensational graft cases.

“Moreover, the private sector has cultivated various corrupt practices in order to obtain significant and continuing concessions and advance its private interests,” it said.

According to the report, a big issue related to private sector corruption is the dynamic that is created when foreign investors and contractors enter the market and see double standards and collision in foreign-assisted projects.

Since there is no ceiling or cap on costs for projects funded by foreign donors, it leaves them open to collusion and bid-rigging.

Although the Philippines sought to impose caps on bids, international financial institutions have “insisted on exempting foreign-assisted projects from new Philippine procurement rules that disallow bids above the so-called approved budget contract (ABC), an estimated cost that is calculated by third party consultants at considerable expense.”

In its 2007 review of official development assistance (ODA), the National Economic and Development Authority (NEDA) reported that 21 of the 123 ongoing projects incurred cost overruns amounting to almost $698 million.

While this had benefits for the contractors in terms of more lucrative contracts, it entailed considerable costs to the Philippines, as counterpart funding would have to be raised to pay back the loan.

One of the most high-profile private sector corruption cases presented in the report is the national broadband network (NBN) project. The NBN deal involved contracting a China-based telecommunications company to set up a broadband network connecting government offices throughout the country.

It was just one of many investments, however, that were agreed in a July 2006 memorandum of understanding between the Department of Trade and Industry and Zhong Xing Telecommunications Equipment International

Investment Ltd. (ZTE).

On April 21, 2007, the $329.5-million NBN contract was signed between the Department of Transportation and Communications and ZTE, funded by the Export-Import Bank of China.

Controversy began to surface when Rep. Carlos Padilla disclosed in a speech on Aug. 29, 2007 that the then chairman of the Commission on Elections (Comelec), Benjamin Abalos, had allegedly served as a broker for the Chinese company, playing golf and meeting with ZTE executives several weeks before the NBN contract was signed in China. Abalos admitted to traveling to China and playing golf, but he denied playing middleman for the firm.

The Senate investigated the charges of bribery. The Supreme Court issued a temporary restraining order on the contract, and 11 days later, on Sept. 22, President Arroyo suspended the deal.

“In the meantime, the fallout from this case has been dramatic,” the report said.

In recognition of growing public unease, in September Mrs. Arroyo set up the Chinese Projects Oversight Panel to oversee Chinese projects.

Former Senate President Jovito Salonga filed a criminal complaint against the President in relation to her involvement in the case weeks after she had faced calls for her resignation, following testimony before the Senate that “implicated former and current senior officials.”

In February 2008, Arroyo halted all “fresh borrowings from China and other lenders of big infrastructure projects.”

 “As a result, alternative sources of funding would have to be sought for the 11 outstanding projects for which no contract had yet been signed. This case illustrates how the involvement of foreign companies, often supported by state loans and guarantees, can pose substantial corruption risks,” the report said.

The report also cited the Northrail project where the corruption risks continue.

The foreign-assisted Northrail project, also funded by the Export-Import Bank of China, threw up its own issues of corruption, including “alleged onerous terms and conditions imposed upon the Philippine government in the contract.”

During a December 2003 state visit to China, Arroyo signed a Memorandum of Agreement (MOA) between the North Luzon Railways Corp. and the China National Machinery and Equipment Corp.

On Feb. 26, 2004, a buyer credit loan agreement was made between the Export- Import Bank of China and the government, in order to fund the Northrail project. The bank agreed to lend $400 million of the total $503 million, the remainder to be funded by the Philippine government.

Allegations of corruption, however, flew about the project. Protests began when it was found that the contract had been awarded without a competitive bidding process.

Notwithstanding the serious infirmities in the agreement, billions of pesos in public funds will be spent by the government pursuant to agreements in the contractual implementation of the Northrail project when the project is resumed.

“Meanwhile, the government continues to pay interest charges for the Northrail project loans to the tune of P1 million ($21,250) a day,” it said.

Despite these alarming issues, reasonable requests from media organizations for certified copies of the Northrail contract from the Philippine National Railways have been declined.

TI said the private sector plays a pivotal role in fighting corruption worldwide and its Global Corruption Report 2009 documents in unique detail the many corruption risks for businesses, ranging from small entrepreneurs to multinationals.

More than 75 experts examined the scale, scope and devastating consequences of a wide range of corruption issues in various countries, including the Philippines.