Storm over Philippines' broadband deal

Philippines' broadband deal with Chinese firm ZTE has some critics wary of its 'lack of transparency'

The Straits Times
Friday, August 10, 2007

By Alastair McIndoe

Controversies over business deals are never far out of the news in the Philippines.

But few in recent times are having such a long run as the superheated row over a S$500 million government broadband contract awarded to one of China's biggest telecommunication equipment makers, ZTE Corporation.

That the wrangle involves a well-known Chinese firm is unfortunate, to say the least. President Gloria Arroyo is energetically courting Chinese investment in the Philippines, hoping for Beijing to become a source of cheap loans.

Just how highly President Arroyo values ties with China was clear when she left her ailing husband's bedside in a Manila hospital to fly to China to open a conference in the southern city of Boao.

Here, she also witnessed the signing of the broadband deal on April 21.

ZTE beat offers from a Philippine company and an American firm to build a broadband network that would link 26,000 government offices and agencies across the country. The aim is to save taxpayers around S$130 million a year in communication costs.

The project will be bankrolled by a loan to the Philippine government from China's state-owned Eximbank.

The deal was not awarded in an open tender, but signed as an agreement between governments, with ZTE named as the prime contractor.

Both the losing firms offered much lower prices. They and other critics of the deal say that the agreement was pushed through with suspicious haste and lack of transparency.

Spotting a storm in the making, President Arroyo requested the Justice Department to go over the terms of the agreement.

However, international relations specialist Herman Kraft said that reviewing the deal after it had been signed could damage the Philippines' reputation as a reliable business partner.

"You have a contract between two governments that is caught in a bind because of domestic politics," he said.

But business consultant Peter Wallace, who has over 30 years of experience in the Philippines, believes that aspects of the deal appear questionable.

"Inviolacy is not an issue in this case," he said.

What is more, he added, the government should not have embarked on building a new broadband network for government offices as well as one to put the country's schools online in a separate contract awarded to a Chinese firm.

"A broadband network already exists here, which could have been expanded at a much lower capital cost by the private sector."

All the parties in the dispute are energetically trying to win over public opinion, airing their sides in full-page newspaper advertisements.

The government regards ZTE's offer as technically superior and most suited to its broadband needs. It also stresses that procurement procedures were properly followed.

In a recent briefing on the deal, Department of Transport and Communications deputy executive director Carmelo Arcilla underlined the favourable financing terms of the agreement. Eximbank's loan has a 3 per cent interest rate, payable over 20 years, and with the first instalment due only in 2012.

But the controversy continues to rage, with some wondering if the deal was ill-fated from the start.

Just a few hours after the agreement was signed in Boao, the documents mysteriously went missing from the hotel room of a member of the Philippine trade delegation. According to reports, it was later re-signed.

"The contract should now be made public," said the head of the Philippine chapter of Transparency International, Ms Dolores Espanol.