12 FEBRUARY 2008
P C I J I N V E S T I G A T I O N — BIDS SANS CAPS, TIED LOANS FAVOR FOREIGN CONTRACTORS
A COST-BENEFIT GAME
The issue entails costs for borrowers such as the Philippines, which must raise its local counterpart funding. In contrast, the situation benefits contractors awarded the lucrative contracts with no or restricted bidding among companies from the lending country.
A case in point is the Subic-Clark-Tarlac Expressway Project, the country’s second biggest foreign-funded project that is being built by Kajima Corp., Hazama Corp., and other Japanese companies with the backing of a $355-million loan from JBIC.
When NEDA approved the project in 1999, the cost was estimated at P15.3 billion. In 2000, the Bases Conversion and Development Authority (BCDA), which was implementing it, raised the cost estimate to P18.7 billion. NEDA approved this the following year.
But the lowest bid BCDA got when it auctioned off the contracts between September 2003 and January 2004 was P27 billion. Though it knew that costs had gone up to P25.1 billion, BCDA was hoping competition among the bidders would force down the price.
BCDA was being overly optimistic. The loan was tied and bidders were limited to a few Japanese construction companies. Madrasto suggests that BCDA could have gotten lower bids if the tender was opened to local construction companies.
NEDA refused to approve the higher cost, prompting BCDA to negotiate with the winning bidder to bring the price down to P20.1 billion. NEDA cleared the award to the Japanese companies but the latest indications are that the cost may go up to P32 billion.
AN EVEN CHANCE
The World Bank has also started packaging its Philippine projects into smaller components, giving local suppliers and contractors an even chance to win the contracts.
About 55 percent of goods and services for World Bank-funded projects procured through international competitive bidding between July 2000 and February 2007 went to Philippine-based suppliers, according to World Bank procurement data. The Philippines was followed by South Korean suppliers, who got 18 percent, and Chinese companies, 13 percent.
Some of the so-called Philippine companies, however, are subsidiaries of foreign companies that were incorporated locally. In fact, the single biggest World Bank-funded civil-works contract tendered through national competitive bidding was awarded to China State Construction Engineering Corp., which was classified in the World Bank database as a Philippine company even though it is a unit of a Chinese state firm.
Japan had already begun to reform its lending policies in the 1990s in response to criticisms that tied aid smacks of false and self-serving altruism. It reduced the proportion of tied packages in its foreign aid portfolio from 100 percent in the 1980s to only 26 percent in the early 1990s — though this has gone up again in recent years, according to a study completed last year by University of the Philippines Professor Eduardo Tadem.
In the Philippines, Tadem says, JBIC still links, totally or partially, almost 90 percent of its loans to purchases from Japanese companies.
China, an emerging major source of ODA that was the country’s fifth biggest lender as of end-2006, also ties all of its aid to the Philippines. The Export-Import Bank of China is lending $400 million, the single biggest ongoing project loan, for the North Luzon Rail project that aims to revive rail services between Manila and Central Luzon.
Apart from tying aid to procurement from Chinese companies, China also unilaterally chooses its project contractors, precluding any competitive bidding to select the best and least costly supplier.
The practice, which is inconsistent with Philippine laws that require competitive bidding for ODA-funded projects, has generated a lot of public enmity for Chinese development aid, and sparked suspicions that the goods being supplied are either overpriced or of dubious quality.
Widespread criticism of Chinese ODA prompted President Gloria Macapagal Arroyo to cancel the $329-million National Broadband Network (NBN) deal with ZTE Corp. and to review other China-funded projects, including the $542-million Cyber Education project.
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