WB  FREEZES  $232 M LOAN FOR  ROAD  IMPROVEMENTS  OVER  CORRUPTION

MANILA, NOVEMBER 20, 2007
(MALAYA) BY RUELLE ALBERT CASTRO - Chinese contractor tagged in bid rigging.

THE World Bank has suspended issuance of the second loan tranche that will finance government’s road improvements program because of issues of corruption on the implementation of the project’s first phase.

The World Bank’s local office said that the 2nd National Roads Improvement and Management Program (NRIM) was set for approval on December 14. The project loan amounts to $232 million.

Jim Adams, World Bank vice president for the East Asia and Pacific Region, said the during the first phase of the program, government made major progress toward putting in place a modern, transparent and accountable national road management system.

In a statement, he noted that about 90 percent of the project goals were achieved: 382 kilometers of roads were built or upgraded in provinces across the Philippines and a further 975 kilometers of existing roads resurfaced and maintained.

"As a result, people throughout the Philippines have benefited through a more efficient and transparent road system, improved access to social services, lower transport costs and reduced traveling times," he said.

In 2003, however, signs of procurement problems in the first phase of the program were identified.

"Between 2003 and 2006, the World Bank rejected two large road contracts in three successive rounds of bidding because of strong signs of collusion and excessive pricing," Adams said.

He said the World Bank team and other stakeholders brought this information to the Department of Institutional Integrity (INT), the World Bank’s internal investigations unit, which launched an investigation.

Findings were discussed with the Philippine authorities, he said.

"The rejected contracts, worth around $33 million, representing about 10 percent of the total project cost, were never financed by the World Bank," he said.

Building on the experience of the first phase and the lessons learned from the INT investigation, and in line with the World Bank’s governance and anti-corruption strategy, the Philippine government and the World Bank team jointly developed stringent anti-corruption measures for the second phase of the program.

The package of measures incorporated in the project design includes:

• Independent procurement assessment and technical audit that strengthens transparency of the bidding process.

• Enhanced processes for procurement, financial management, internal controls and audits of the road management agencies.

• Inclusion of a new and innovative coalition of citizen and road user groups, called Road Watch in the project management set-up.

Adams said Road Watch would monitor project implementation and procurement and issue periodic report cards on the performance of the road sector.

"With the INT report now completed, the discussion of the Phase Two project at the Board has been deferred until the government and the Board members receive the information they have requested," Adams said.

CHINESE FIRM

The Wall Street Journal identified China government-owned China State Construction Engineering Co. as a company involved in bid-rigging in other construction loans.

Wall Street reported that the World Bank suspended payments for two projects won by China State under the loan because of "strong signs of collusion and excessive pricing."

The local agency of the World Bank said the rejected contracts ware worth "around $33 million, representing about 10 percent of the total project cost."

China State Construction is one of the world’s largest construction firms and has subsidies around the world.

It started a Philippine subsidiary in 1989 and has been involved in at least 16 projects in the Philippines.

It first won its initial $5.6 million contract under NRIM in 2002 but World Bank investigators began to suspect that the company had tried to rig bids with a cartel of construction firms in two additional road contracts worth $33 million, the Wall Street Journal said.

Sometime before May 2005, the company was placed on a Philippine construction-industry blacklist at the request of the Department of Public Works and Highways, which expired in December of the same year, the paper also said.

NO COPY

The Philippine-based World Bank unit was tight-lipped on the circumstances of the China State anomaly, saying it was a finding by the mother agency’s anti-fraud unit – the Department of Institutional Integrity (INT).

"INT is an agency which directly reports to the president of the World Bank," said Leonora Aquino-Gonzales, Philippines World Bank senior external relations officer.

Gonzales said the local office has not obtained a copy of the INT findings.

The 2nd NRIM loan was supposed to finance:

• Improvement of 450 km of national arterial roads and related bridges, including upgrading of 146 km and rehabilitation or widening of 304 km.

• Delivery of a comprehensive road maintenance program through long-term performance-based contracts and preventive, routine and emergency maintenance.

• Improved organizational effectiveness and integrity of public road management services in DPWH through reforms in corporate processes, partnerships, and service delivery structures.

• Strengthened operation of the road fund and a framework for subsequent sector restructuring.

FAILED BIDDINGS

Public Works Secretary Hermogenes Ebdane said Phase II involves 1,102 kilometers of road in North Luzon, South Luzon, Mindanao, Mindoro, Negros and Panay, that would cost about P6.082 billion.

He said the World Bank’s concerns stemmed from failed biddings for the road improvement of portions of the Marihatag-Barobo/Tagbina-Hinatauan road in Surigao del Sur, San Enrique-Valle Hermosa road in Negros Occidental, and the Cabancalan-Basay road also in Negros Occidental that are all part of the NRIMP Phase I.

He said there have been two failed biddings since 2000. Instead of pushing for a public bidding in 2006, Ebdane said he decided to cancel the third bidding "to eliminate the root of the problem."

He said the failed biddings stemmed from the failure of the bidding companies to comply with the "approved budget ceiling… as required by the World Bank" as their offers were all above the ceiling.

Ebdane said he has already "requested President Arroyo for possible local funding for the three projects (under the NRIMP Phase 1) …in order to continue the projects."

Cabinet secretary Ricardo Saludo and Cerge Remonde, chief of the Presidential Management Staff, said the Arroyo administration has been working with the World Bank to ensure transparency in all projects.

President Arroyo has formed the Pro-Performance Group to "ensure the transparency and efficiency of road and other infrastructure projects."

The group, headed by Remonde, was formed in September at the height of the controversy surrounding the cancelled $329 million national broadband network deal with China’s ZTE Corp.

Remonde also said he is consulting Finance Secretary Margarito Teves and Secretary Ebdane over the World Bank concerns. – With Jocelyn Montemayor


Chief News Editor: Sol Jose Vanzi

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