Chinese loan caps sneaky ZTE deal

GOTCHA By Jarius Bondoc, The Philippine Star, Wednesday, August 29, 2007

On the sly the government signed last weekend a loan from China to fund the purchase of broadband gadgets from Chinese ZTE Corp. It was a final act of sneakiness to ram a project of dubious use and costing. Filipinos will now have to pay 20 long years $330 million (P16 billion) for something that was hidden from them.

The loan signing was made with no prior public notice. Only now is info surfacing that staff from China Export-Import Bank arrived two weeks ago to review various loan bids of the Philippine government. ZTE veep Yu Yong and finance woman Fang Yang also flew in Friday afternoon to lobby for insertion of the $330 million in the 2007-2008 loan package. Minister of Commerce Bo XiLai then arrived Saturday to approve $1.8 billion in all, including an excessive $400 million for ZTE’s broadband network.

Even the bigger amount now raises questions. Trade Sec. Peter Favila could only say it was China’s wish to help. Finance Secretary Gary Teves and Transport Sec. Larry Mendoza were tight lipped. Sectors questioning the purchase are now wondering if ZTE’s tag price has risen again — from $262 million during talks with transport officials in Feb. to $330 million for the Apr. supply contract signing in Hainan.

Mr. Bo was said to be looking forward to seeing again Economic Sec. Romulo Neri, but learned he had been replaced only last month. Neri’s fall from the Cabinet had to do with his resisting the ZTE deal, according to ex-congressman Rolex Suplico who petitioned the Supreme Court to stop it.

Fast breaks marked the ZTE deal from the start. In a Cabinet meeting in Nov. President Arroyo had told Neri and technology chief Ramon Sales she wanted the broadband project done by Build-Operate-Transfer. That way, there would be no cost to government and no loan would have to be taken out. Still, DOTC officials signed a purchase deal, with a Chinese loan at a hefty 4-percent interest and a sovereign guarantee to repay at all costs.

Two bids came ahead of ZTE’s to build the telecoms setup for much less or no cost to government. Yet when ZTE offered $262 million in Feb., it got the DOTC’s ear. Arescom of USA and Nasdaq-listed Wireless Facilities Inc. cried that their $135-million tag was ignored. US Ambassador Kristie Kenney wrote Neri on Apr. 20 to caution against undue haste. The next day Mendoza and Yu signed the deal in China, with Arroyo witnessing. There was no explanation why ZTE’s price rose from $262 million to $330 million. There was no explanation of what the network was for to begin with.

Businessmen and competitors were stunned. Six groups called for abrogation of the deal: Management Association of the Philippines, Finance Executives’ Institute, Foundation for Economic Freedom, Makati Business Club, Bishops-Businessmen’s Conference, and Action for Economic Reform. The Phil. Chamber of Commerce and Industry asked for at least a review. Like what happened to ZTE competitors, all were ignored by the DOTC. Pressed for a copy of the contract during a forum in June, DOTC deputy Lorenzo Formoso claimed the only two copies were stolen in a hotel room hours after the signing.

But not to worry, Formoso said, they had reconstituted the papers, so available to interested parties. The competitors and business groups wrote DOTC for copies. They got no reply within the required 15 days. More than a month later, DOTC said in a newspaper ad that copies for the contract, for which three generations of Filipinos will pay, is confidential.

ZTE and Filipino lobbyists have always employed slyness because the project appears indefensible. Not only was Arroyo’s desire for B-O-T disregarded, but also the Telecoms Policy Act of 1995. That law requires the government to relinquish the industry to the private sector for competitive improvement. But the ZTE deal would require government to operate and maintain the broadband system and even allot annual budgets for it.

Professors Emmanuel de Dios and Raul Fabella of the UP School of Economics said the government would only botch up the job of running a huge telecoms system. After all, it had failed to run three smaller versions, for which billions of pesos also were wasted. The two economists also debunked the DOTC’s claims that government would save in the long run from its annual telephone and Internet bill of P4 billion. They showed that government would spend P5 billion more overall during the 20-year loan period.

Mr. Bo’s loan signing comes in the midst of mounting opposition to the ZTE deal among senators and congressmen. Ironically, the minister had warned Chinese enterprises in a Dec. speech in Beijing to take precautions against economic, political and security risks as they step up overseas investments. Rep. Carlos Padilla said upon learning of the contract signing that “Minister Bo XiLai would be violating his own warning if he does not move to avoid being embroiled in legal and political troubles here in the Philippines.” He said Bo should await the resolution of the Supreme Court case before making any move about the broadband controversy.

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E-mail: jariusbondoc@workmail.com