MANILA, JULY 2, 2007 (STAR) By Paolo Romero - The $329.5-million contract between the government and ZTE Corp. for a nationwide broadband network apparently violated a Malacañang policy to undertake the project on a build-operate-transfer (BOT) basis to save on public funds, confidential Cabinet meeting transcripts show.

The ZTE is the second biggest telecommunications firm in China.

During a meeting of the Cabinet and the National Economic and Development Authority (NEDA) board at Malacañang on Nov. 21 last year, the board said all government agencies and offices needed to be linked through a privately funded broadband network.

The transcript shows President Arroyo stating that she did not want the government to spend for a project that could be funded by a private proponent.

But under the ZTE contract, the government will avail itself of a loan from the China Eximbank to finance the National Broadband Network (NBN), which will be paid in 20 years at three percent interest with a five-year grace period.

No officials were available yesterday to explain the turnaround.

Last week Transportation and Communications Secretary Leandro Mendoza said the project was awarded to ZTE without any bidding because it was a government-to-government deal on a supply contract.

Critics of the contract say the deal was done in a rush without a bidding and the project cost is too high compared to the offers of losing bidders Amsterdam Holdings Inc. (AHI) and US company Arescom Inc., which offered to build a similar network for $242 million and $135 million, respectively.

The signing of a contract for such a project last April is also supposedly covered by an election ban.

Earlier, the National Bureau of Investigation (NBI) expressed suspicion that rivals of ZTE might be behind the disappearance of original copies of the memorandum of agreement shortly after its signing in Boao, Hainan last April 21.

A few months before the meeting at the Palace, ZTE Corp. and AHI already submitted their respective proposals on putting up the NBN, which includes delivery of voice, data and Internet services.

Also present during the meeting was Trade and Industry Secretary Peter Favila.

Transcripts of the meeting showed that President Arroyo was apprised of the need to put up a broadband network to cut the government’s P4-billion communications expenses by half.

“Do we need a government broadband?” the President asked the Cabinet, to which Socio-economic Planning Secretary Romulo Neri replied: “Physically, ma’am, we need a backbone, but who will provide this, is the issue. But there is the private sector…”

Neri added that the NBN could be set up through a BOT, where the private proponent operates the system until it recovers its investment and turns the project over to the government.

“That’s why you have to make sure it’s BOT. That’s why I asked where the money is coming from,” Mrs. Arroyo stressed. “If somebody else would provide additional (funding), BOT, unsolicited, therefore, no subsidy.”

Neri said the only condition for the government to agree to push for the NBN is for the government to be the customer of the communications backbone.

The President said any contract for the NBN should not be on a “take or pay” scheme, where in an agreement between a buyer and seller, the buyer will pay some amount even if the product or service is not provided.

“What we need to do, Ma’am, is to structure it in such a way that there is no subsidy but the government will just be a main customer for this backbone,” Neri assured Mrs. Arroyo.

“But not take or pay,” she reiterated. “It has to be ‘you use, you pay’.”

“We will avoid the take or pay provision Ma’am,” Neri said.

She also directed then Commission on Information and Communications Technology (CICT) chief Ramon Sales, who was making another presentation during the Cabinet meeting, that the government would not spend a single centavo for a broadband contract.

She also warned that if such a contract won’t be “managed this well,” the government might end up continuing to spend billions in telecommunications expense and end up with a “take or pay” deal.

“That’s what we want to avoid. Unless we’re sure that that will happen, Ma’am, we (NEDA) will not approve,” Neri told Mrs. Arroyo.

He gave assurance that there will be “no incremental expense on the part of the government. If we could manage a savings, so much the better, but we will see that that can be done.”

In connection with the anticipated implementation of the NBN, Mendoza sent to the President on January this year a draft executive order transferring the Telecommunications Office (TELOF) from the CICT to the Department of Transportation and Communications (DOTC).

On Feb. 13, Mrs. Arroyo signed Executive Order No. 603 transferring TELOF from CICT to DOTC “to streamline bureaucracy operations and effectively promote fast, efficient, and reliable networks of communications system and services.”

Sources said the DOTC rejected the AHI proposal since it was not able to comply with the requirements for a BOT proposal.

Executive Secretary Eduardo Ermita and Mendoza last week said the ZTE deal remains conditional depending on a coming legal opinion from the Department of Justice to determine whether contract was an executive agreement or not.

If the justice department thinks the loan agreement was not an executive agreement, a bidding could commence, Mendoza said.

“This contract is actually very transparent,” Mendoza told reporters last week. “It has passed all the requirements for such an agreement and has gone through two agencies, the DOTC and the CICT.

Chief News Editor: Sol Jose Vanzi

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