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(Third of six parts)
ONE of the contentious issues in the National Broadband Network (NBN) project is the supplier contract signed by the Department of Transportation and Communications (DoTC) and Chinese supplier ZTE Corp.
In the supply contract, it was noted that the Philippines and China had already entered into a supposed executive agreement, where the latter agreed to finance the NBN project through a loan agreement with Export-Import Bank of China.
Under Republic Act 9184, government deals made under executive agreements are exempted from procurement laws applied to locally-funded projects, which would have to go through a public bidding.
Government lawyer Ruby Alvarez, executive director III of the Technical Support Office of the Government Procurement Policy Board (GPPB-TSO), agreed the Government Procurement Reform Act (GPRA) does not apply to the multi-billion NBN project.
The GPPB-TSO is mandated to provide research, technical and administrative support to the Government Procurement Policy Board (GPPB). Her office serves as a secretariat to the GPPB, which is an inter-agency organization led by the Department of Budget and Management and the National Economic and Development Authority as co-chairpersons.
She said government procurements that fall under executive agreements are not covered by the GPRA, which was the same opinion shared by the Department of Justice Secretary Raul Gonzales in a legal opinion issued on July 26, 2007.
The GPBB was created under the Republic Act 9184, or the Government Procurement Reform Act. Its primary job is to formulate procurement policy, implement and monitor the implementation of procurement reform act to ensure “transparency, accountability, equity, effectiveness, efficiency and economy in government.”
The GPBB, however, does not scrutinize government contracts.
Alvarez said the GPRA is supposed to govern all government procurement activities, except for those covered by executive agreements or international agreements.
This provision is contained in section 4 of the GPRA, which states, “Any treaty or international or executive agreement affecting the subject matter of [GPRA] to which the Philippine government is a signatory shall be observed.”
A provision in the implementing rules and regulations of the GPRA, dubbed the “IRR-A,” has noted that an “IRR-B” covering “foreign-funded procurement activities,” would come out soon.
Apparently, an “impasse” over section 4 of the GPRA among proponents led to this unresolved provision in the GPRA. Pressed for time, legislators decided to come out with an IRR-A, hoping that they would be able to deal with the issue on foreign-funded projects in the IRR-B, according to Alvarez. The IRR-B, which is expected to come out before end of 2008, aims to address foreign-funded projects.
But based on the NBN supply contract, it was not clear when the executive agreement was executed between the two countries, but the supply contract stressed that a loan was being extended to the Philippines under a “condition that the equipment and services” would come from (Zhong Xing Telecommunications Company Limited) or ZTE Corp.
The supply contract also indicated that the Philippines and China through ZTE International Limited executed a memorandum of understanding related to a “Nationwide Government Broadband Communication Infrastructure project” on July 12, 2006.
The 39-page supply contract laid down conditions that had to be fulfilled for it to become effective. Among the conditions (Philippines, 2007) are:
• the issuance of a forward obligation authority by the Department of Budget and Management;
• the conclusion of the loan agreement between Export Import Bank of China and the Department of Finance;
• a legal opinion on the procurement process from the Department of Justice; and
• the ratification by the People’s Republic of China and the Philippine government of an executive agreement which was initiated through the exchange of notes between former Presidential Chief of Staff Mike Defensor and Chinese Ambassador Li Jinjun and the letter of Neri to the China’s Ministry of Commerce and the Exim Bank of China president.
GPRA law exemption
During the Senate investigation, DoTC Assistant Secretary Formoso III reiterated that the ZTE contract was not covered by the government procurement law because of an exemption provided by Section 4 of the GPRA.
But Formoso stressed that the DoJ issued an opinion affirming that the NBN was covered by an executive agreement, which are like treaties that do not require legislative concurrence, as defined by Executive Order 459.
And yet Formoso admitted that the project was awaiting the “forward obligation authority from DBM, the loan negotiation by the Department of Finance and China Exim Bank, final DoJ opinion on overall agreement, and Supreme Court decision on ZTE.”
A forward obligation authority is DBM’s way of saying that government has money to fund the proposed loan.
Alvarez didn’t find the conditional NBN procedure irregular.
“Contracts [whose] effectivity is conditioned on submission of documents or occurrence of certain events are common in the commercial world. These conditions are usually called ‘condition precedents.’ When I was with the private sector, I was able to negotiate several contracts of this nature,” she said.
In a paper, the Action on Economic Reforms (AER), a non-government organization composed of academics and economists had this to say:
“The contract purports to be a result of an executive agreement between China and the Philippines, which exempts it from the bidding requirements of RA 9184 in accordance with the Supreme Court Decision in Abaya vs. Ebdane. However, the said executive agreement has yet to be presented to the public and doubts, as to its ratification or even its existence, have been raised. If that is the case, then the contract is void for violating government procurement and accounting procedures since it puts the project with the purview of RA 9184 and the Revised Administrative Code.”
“One of the arguments noted in the Abaya vs. Ebdane by the petitioner in questioning the application of Japan Bank for International Cooperation guidelines was that there was no executive agreement between RP and Japan as defined in E.O. 459. The Supreme Court ruled that there was an executive agreement using international law principles,” AER added.
During the Senate investigation, Senators went back and forth on whether or not the supposed NBN supply contract was under an executive agreement. In the Supreme Court decision on Abaya vs. Ebdane case, a loan agreement was done prior to an executive agreement, according to AER.
DoTC Secretary Mendoza admitted, however, during the Senate investigation that he had signed a “supply contract” in China but it was a “conditional supply contract” agreement, reiterating that certain conditions had to be met for it to be consummated.
Loan agreement
During the Senate investigation, Senator Panfilo Lacson pointed out several opinions issued by the Department of Justice that a “loan agreement is a must” prior to executive agreements. These opinions were contained in Legal Opinion No. 102 series of 2004 and Legal Opinion No. 17, series of 2005, which involved the Philippine Rural Electrification Service Project, he added.
Following Lacson’s argument, a loan agreement should have been signed even before the exchange of notes happened between then Presidential Chief of Staff Mike Defensor and Chinese Minister of Commerce Bo Xian and Chinese ambassador to the Philippines Li Jinjun.
The AER agreed in its paper.
It said that in the Abaya vs. Ebdane case, “the exchange of notes between Department of Finance Secretary Domingo Siazon and Japanese Ambassador Yoshihisa Ara was recognized as an executive agreement. Also, in this case, a loan agreement was signed after the exchange of notes,” the AER said.
Executive Order No. 459, issued by former President Fidel Ramos on November 25, 1997, mandated that all international agreements, including executive agreements, should be ratified by the President of the Philippines to become effective.
Considering that an executive agreement between China and the Philippines had not been ratified despite the signing of a supply contract, the NBN project is not exempt from the government procurement law, which requires public bidding.
According to Executive 459, negotiations of executive agreements should be “coordinated with, and made only with the participation of the Department of Foreign Affairs (DFA).” It also requires that the lead agency, in this case the DoTC, should secure authorization form the President through the Secretary of Foreign Affairs.
“The authorization shall be in the form of Full Powers and formal instructions. In case of other agreements, a written authorization from the President shall be sufficient.” the directive stated.
EO 459 further states that all executive agreements should be given to the DFA prior to its ratification. The DFA is then required to transmit the executive agreement to the President for ratification.
The AER paper also pointed out that without a loan agreement, the contract should not have been executed without a certificate from the DBM that funds are appropriated.
Otherwise, the contract is deemed void under the Revised Administrative Code, which states that the DBM should also “determine the budgetary implications of foreign assisted projects from the time of project design to the negotiation for financial assistance, prepare recommendations for fund releases, formulate and implement fiscal policies and plans for budget preparation and control, and conduct studies on economic trends and factors affecting government revenues, expenditures and borrowings.”
Alvarez explained that “without a loan agreement, which is automatically appropriated, then it has to be funded from our budget.”
“I don’t know what provision AER is citing from the Revised Administrative Code, but I’m second guessing they’re referring to the constitutional precept that no public money may be spent without an appropriation made by law,” she added.
NBN under ODA?
During the Senate inquiry, a question was raised whether the NBN deal is considered under official development assistance (ODA). Under Republic Act 8182, project proponents are required to go to Congress to get express approval “prior to the negotiation and implementation of projects funded from ODA.”
Budget and Management Secretary Rolando Andaya said that the legal basis of the NBN project was through the Foreign Borrowings Act, which was promulgated in 1966, and not through the ODA law.
The Foreign Borrowings Act allows the President, in behalf of the country, to enter into contracts, including loans, with foreign governments, including foreign financial institutions on the condition that “at least seventy-five per cent shall be spent for purposes or projects which are revenue-producing and self-liquidating, such as electrification, irrigation, river control and drainage, telecommunication, housing, construction and improvement of highways and bridges, airports, ports and harbors, school buildings, waterworks and artesian wells, air navigation facilities, development of fishing industry, and others.”
(To be continued)
