Tuesday, 11 September 2007

The legal dimensions of a scandalous contract (II)

By Josefina T. Lichauco Former DOTC secretary
Original article at The Philippine Star
Tuesday, September 11, 2007


II. Violations of standard procedures: a) The creation of a “Legal Monster” has resulted from the use of the term “Executive Agreement” to justify the failure to observe the provisions of our Philippine Procurement Act which requires a public bidding. Calling it first a “g to g” contract, short for “government to government” contract, was an unfortunate, if not stupid mistake. I have never come across this terminology at the UP College of Law or the Yale Law School. “Government to government” most likely is a descriptive phrase for the NBN/ZTE contract that was entered into between a government agency (DOTC) on one side, and ZTE Corporation on the other. Remember I still do not have a copy of the contract and am just relying on news reports and the remarks of DOTC Assec Lorenzo Formoso who happens to be the official who speaks out for the DOTC in defense of the NBN project.

“G to g” metamorphosed into an “Executive Agreement” when an Opinion was officially requested from the Department of Justice (DOJ), and the latter issued the requested statement that indeed the NBN contract was an Executive Agreement hence, exempt from public bidding requirements.

b) This is precisely the moment when the “Legal Monster” was born. A country like China, therefore, who is overflowing with foreign exchange reserves, approximately US$1.3 trillion, desirous of unloading some of her reserves, looks for naïve states, offering a product at a certain price with a supposedly concessional loan, and succeeds in seducing the victim–state. Putting the label of an Executive Agreement over the transaction and you’ve got a naive state seduced and in fact transfixed, so that no downward negotiation of the price happens, in fact, if we are to believe the reports, since this transaction started with a much lower price, the negotiation was indeed an upward one. The price, as reports go, is US$329 Million or Php16 billion. This is what the monster looks like right now.

It is important to have a public bidding because this was, plain and simple, a supply contract.

According to Prof. Harry Roque of the UP College of Law, who is also director of the UP Institute of Legal Studies of the UP Law Center, whose expertise in both Public and Private International Law I respect, an Executive Agreement is, in simple terms, a “written agreement between two sovereign states governed by International Law.” The only difference, he says, between an Executive Agreement and a Treaty is that the latter has to be confirmed by the Senate. This is fundamental in International Law.

Was the NBN/ZTE contract an agreement between two sovereign states? Of public knowledge is the fact that Mrs. Arroyo flew from the sickbed of an ailing husband to witness the signing of what DOTC itself called a “contract” that however was “stolen” soon after it was signed. Absolutely no copies were available, computer copies or any copies whatsoever, even though it was later announced that the contract had been “re-constituted and re-signed.”

The signatories were DOTC Secretary Leandro Mendoza and a mere Vice-president of ZTE, not even a senior vice-president. There certainly was a breach of protocol here. China’s Head of State was visibly absent. And, this absence, after the Philippine Head of State flew to China coming back the same day. Isn’t this not only a breach of protocol but an insult to the dignity of our country? This is what we now call an Executive Agreement exempt from the public bidding rules of our country, tied not only to Chinese technology, meaning, Chinese supplier-companies, but tied to a specific contractor, the now infamous ZTE Corporation, and, which is worse, stuck to a specific price tag which never got the opportunity to be negotiated downwards at all.

c) Isn’t this a very callous and inhumane manner of tying the Filipino people to a debt of Php16 billion? The 3% rate of interest, in my experience, is not a concessional rate to rejoice over. The JBIC (Japan Bank for International Cooperation) gives loans at much lower rates. The 20-year repayment period with a 5-year grace period is no big deal. This is standard for concessional loans.

Why did we even bother to get excited over such a deal? Were there side attractions? Is this what this legal monster has done to us, our children, and our children’s children?

d) What about the loan agreement announced as signed, but copies of which were not made available to the citizenry, a violation of a specific constitutional provision, with attendant criminal and civil sanctions? If this loan agreement, as was the case in the Northrail project and other Chinese-funded projects, then, Chinese law is the governing law. Since we do not have copies of it and the substance of the agreement, not having been published, all kinds of conjectures abound.

When the DOTC published a full-page advertisement upholding the sanctity of the NBN/ZTE contract, they used the Abaya v. Ebdane case as one of their legal bases to justify their contention that the ZTE contract was an Executive Agreement. Firstly the Abaya case is still under a Motion for Reconsideration and cannot be a judicial precedent. There is still no “res judicata” on it. For all intents, the case is still pending.

Furthermore, the Supreme Court has changed its mind in the past. The Court will have to balance good governance, bearing in mind that the national interest is involved in such exemptions from public bidding for ODA (Overseas Development Assistance) contracts, as well as the requirements of transparency and accountability in government, against our obligations under International Law, especially where International Law is seemingly being used to avoid domestic laws. And of course, let us not forget the violation mentioned in Part 1, and which is section 20, Article VII of the Constitution and which provides: “The President may contract or guarantee foreign loans on behalf of the Republic of the Philippines with the prior concurrence of the Monetary Board and subject to such limitations as may be provided by law.”

Where is the concurrence of the Monetary Board? I still contend that the sequential order of events is being arranged, in order to give way to the validity of the Loan Agreement and the supply contract with ZTE. It could be, that this prior approval is necessary before the element of validity can be claimed by both the Loan Agreement and the supply contract, both already announced as signed by the DOTC. Where is it indeed? What dates will all these documents bear when they are all released to the public?

e) The extremely hasty procedure undertaken by the DOTC/CICT (Commission on Information and Communications Technology) is shown by the fact that there were no TORs (Terms of Reference) and no Pre-feasibility and Feasibility studies undertaken, and this should not be one done by the contractor. In accomplishing the so-called “Scope of Work”, a preliminary detailed engineering study is usually undertaken especially for an infrastructure project of this magnitude. In my 19 years with the DOTC, I have never seen such a speedy study/approval/signing process which characterized the NBN/ZTE project. In order to avoid cost overruns, these actions/processes have to be undertaken.

f) If the intent of the DOTC and the CICT is to harness the provisions of their charter EO 269, dated 12 January 2004, as legal bases for the project, there is absolutely no provision they will be able to obtain which even remotely provides for the CICT to implement the massive broadband network project which the resigned chair of the CICT had first undertaken to implement. Under Section 14, Powers and Functions of EO 269, par.(d) is the only paragraph where the gruesome misconception could have happened, so that the originator of this sinful project, completely mindless of existing laws, RA 7925 the fundamental law governing telecom development, and RA 8792 the E Commerce Act, both providing for private sector investments to be utilized in the development, expansion and upgrade of networks. There is no way anyone could have misconstrued or misinterpreted the very specific provisions of the law.

On the 26th of March 2007, at a speech before Singaporean and Filipino businessmen Mrs. Arroyo was quoted as saying before the Singapore-Philippine Business Council: “We want to be a first-world country like Singapore in 20 years… there is something else that Singapore is famous for and that is its high standard of transparency in government. This is another thing we have to emulate.”

ZTE’s Mr. Zhang said: “There is complete transparency in this project.” We, the citizenry are shocked.


Secretary Leandro Mendoza will have a lot of explaining to do.

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