China's ZTE Corp. Misdeal?

Contract with Chinese supplier breaks 4 laws
GOTCHA By Jarius Bondoc
The Philippine Star 04/23/2007

Despite warnings of potential fraud, Malacañang went on and signed Saturday in China a hurried, overpriced telecom contract. The violation of four major laws could cost the administration the senatorial election and expose President Arroyo to yet another impeachment suit.

The deal is for China’s ZTE Corp. to supply the government $329.5 million (P16 billion) worth of broadband apparatus. Up to two months ago the project — to fuse all landline, cellular and Internet needs of national and local offices — was not even a priority. But in March the Dept. of Transport and Communications rushed up some justifications to the Cabinet-level National Economic and Development Authority, which in turn hastily assented. Arroyo witnessed the signing of the supply deal by DOTC Sec. Leandro Mendoza and ZTE chairman Hou Weigui.

Government officials are forbidden to make purchase or construction contracts during election periods, lest they favor or hurt certain businesses for political reasons. The ZTE deal thus violates the Omnibus Election Code — unless issued a waiver by the Comelec.

Telecom industry men are curious if Comelec chair Benjamin Abalos will give such a waiver. From murmurs at the DOTC, a Comelec bigwig is behind ZTE’s entry.

The supply deal also was signed sans public bidding, another breach of law. ZTE is supposed to erect a broadband infrastructure, but ironically disregards the e-Procurement Law that requires competitors to submit bids simultaneously via Internet on a specified date and time.

Again telecom men are abuzz with talk that the DOTC itself broke rules that it proposed during Congress debates on the procurement act. Questions abound if Mendoza will take the rap for a powerful official’s spouse who is also pushing for ZTE.

Biddings aim to elicit the best price for the best product. A US firm, Arescom, is complaining to NEDA Sec. Romulo Neri why DOTC endorsed the supply offer of "a Chinese proponent that is almost identical to ours, using similar technology but which will cost more than double our offer of $135 million." Arescom had submitted its papers well ahead of ZTE.

DOTC insiders say ZTE’s offer came only in February, first for $300 million. Faced with an earlier superior bid from Filipino firm Amsterdam Holdings Inc. (AHI), it haggled down to $262 million. But the final quote zoomed to $329.5 million on the way to last Saturday’s signing. Since Feb., insiders add, it was known that ZTE’s real price is $132 million, but talks of overprice were hushed by promises of huge payolas.

AHI has threatened to sue the government for two other breaches. It had sent in an unsolicited proposal on Dec. 5 to build a broadband network worth $240 million, but at no cost to government. All Malacañang needed to do was move government telecoms subscriptions to the network at only 75 percent of current rates; AHI will earn profits from private subscribers.

Under the Build-Operate-Transfer Act, an agency must start studying an unsolicited bid within 60 days, then put it to a "Swiss challenge". DOTC sat on AHI’s bid on the pretext that it was deficient. On the sly, it accepted ZTE’s late inferior bid on the say-so of two influence peddlers.

To buy ZTE’s system, government would need a loan, accompanied by a sovereign guarantee of repayment. These too are against the sections of the B-O-T Act.

ZTE will only sell and set up the broadband network, then turn it over to the government to operate and maintain. This is in violation of the Telecoms Development Act, which ordered government starting 1995 to privatize all its telecom facilities. The ZTE deal would revive unfair state competition with private telcos.