FOLLOWING the Supreme Court order stopping the implementation of the $330-million National Broadband Network (NBN) project, an opposition senator challenged Cabinet members to reveal the truth behind the controversial Philippines-China deal. (See the temporary restraining order issued by the Supreme Court.)

In a privilege speech today, Senator Panfilo Lacson claimed he has in his possession copies of both the original and reconstituted versions of the contract. Last month, the Department of Transportation and Communications (DOTC) confirmed it had signed a supply contract with Zhong Xing Telecommunications Equipment Limited (ZTE) for the NBN project. Palace officials had earlier insisted that the contract, signed last April, was “nonexistent.” It was reportedly stolen in China shortly after the signing; it was later reconstituted and re-signed.

Read Lacson’s privilege speech on the ZTE contract.

Lacson said the “reconstituted” version is word-for-word similar to the “lost” original signed contract, except for the pagination on every sheet. Corroborated with the two versions of contracts the PCIJ obtained from sources, among the crucial provisions highlighted by Lacson include:

The Contract Price:
$329,481,290, which consists of:

  • Price of Equipment — $194,051,628
  • Price of Engineering Services — $118,605,650
  • Price of Managed Services — $14,875,507
  • Price of Training — $1,948,505
  • (all prices mentioned above are net prices, exclusive of all taxes)

Terms of payment

The NBN-ZTE deal is to be financed by the Export-Import Bank of China, and paid by the Republic through the Shenzen Branch.

Upon release of the loan, the Republic will immediately pay 15 percent of the contract price for the equipment as advance payment.

For each Provisional Acceptance of Equipment, and upon receipt of the commercial invoices, the Republic will pay 35 percent of the contract price for equipment.

The Republic will pay 15 percent of the price of the Engineering Services once the loan agreement has come into effect, and 55 percent of the price for each Provisional Acceptance Certificate.

(Similar provisions cover the rest of the services.)

ZTE is scheduled to complete the supply and installation, testing and commissioning within 36 months from the date of effectivity of the contract, which means after 2010. The broadband network project aims to establish a “seamless connectivity of landline, cellular and Internet services in all government offices nationwide.” The government saw the NBN project as a way to drastically cut the cost of communications between government agencies; the government at present pays telecommunication companies for the interconnectivity infrastructure.

“Whether it works as well as it should, given that the contractor themselves will plan, design, test and implement, that’s the problem of the next government. That’s the problem of the generation that will pay for the huge loans contracted for the project,” Lacson argued. “After all, the ‘commissioners’ shall have received their commissions well in advance, and would be laughing all the way to some foreign banks.”

Lacson described the project as a “legacy too costly” that will only benefit “those who profited handsomely, indeed, exceedingly well, in overpricing and kickbacks.”

The senator earlier said he has a witness who could reveal the identity of the so-called “big one” and the “little one,” and the “usual boys” who received $198 million in bribes from the anomalous deal.

The affidavit executed yesterday by Jose De Venecia III of Amsterdam Holdings Inc. (AHI), one of two companies that lost the bid to ZTE, also confirms rumors of payoffs involving the deal. De Venecia divulged that he was offered $10 million just to back out from the NBN project.

De Venecia said he politely declined the bribe offered by Commission on Elections Chair Benjamin Abalos Sr., who allegedly brokered the deal between the two governments in exchange for $130 million. In his account, de Venecia said there were repeated attempts by Abalos to convince AHI to no longer interfere with the project.

No less than DOTC Secretary Leandro Mendoza himself arranged the so-called “reconciliation” meetings between Abalos and de Venecia, at one point saying: “Your project, Joey, is a big problem as Chairman Abalos is so angry at you and wants the NBN project for himself.” (See excerpts from the affidavit below.)

But de Venecia said: “I could not back off on behalf of AHI, and besides, I knew that AHI’s proposal was far superior to the original Abalos-ZTE proposal, and at the same would be more advantageous to the government.”

The supposed “Abalos-ZTE proposal” being lobbied by Abalos on December 27, 2006 had a cost of $262 million that covered only 30 percent of the entire country. AHI’s proposal, on the other hand, was worth $240 million, which will cover 80 percent of the country.

“I was shocked at this enormous overprice and informed Chairman Abalos that this simply cannot be. I told him you cannot expect to book an asset at $262 million when its actual value is only half of that,” de Venecia said in his affidavit.

AHI was then surprised when the government announced that it approved the ZTE contract, which in total will cost $329.4 million to be sourced from the Chinese government through a loan. AHI’s proposal, meanwhile, will not cost the government a single centavo as the project will be implemented under a built-operate-transfer scheme. AHI also offered the government a 25-percent discount for the broadband services compared to the rates of private telcos.

AHI repeatedly sought the government’s explanation why its proposal was brushed aside. AHI’s several requests for access to agreements signed between China, DOTC, and ZTE were denied. Yesterday, asserting the right to information, AHI filed before the Supreme Court a petition seeking full access to the contract and other documents. It also sought a temporary restraining order against the DOTC and other agencies involved to stop them “from entering into any agreement or engaging in any activity with regard to the NBN project until the legality of the contract is determined.”

“Very plainly, these parties…are railroading the NBN-ZTE transaction, ramming it down every Filipino’s throat,” the AHI petition read. “At the rate these parties are going, the Filipino people will once again be in very deep debt for something that has not been thoroughly scrutinized.”

Abalos has however repeatedly denied all the allegations against him.

Read excerpts from Jose de Venecia III’s affidavit:

16. Sometime in late December 2006, Chairman Abalos asked me to join him in a meeting with ZTE officials in Shenzhen, China. He said that he wanted to introduce me to ZTE and its top management. I initially begged of, and explained that it is not necessary for me to go to Shenzhen, as I already had previous dealings with ZTE as former chairman of Broadband Philippines.

17. Chairman Abalos, was, however insistent, and asked me to join him in a meeting with ZTE’s chairman Ho, even only for one day. Again, in deference to Chairman Abalos, I agreed to go to China, but on a separate night, and at my own expense.

18. On 27 December 2007, a meeting was held at the Kempinski Hotel, which I knew to be a favorite hangout of ZTE officials. Prior to the meeting, Chairman Abalos showed me ZTE’s draft proposal for the NBN project, to be undertaken at the cost of Two Hundred Sixty Four Million United States Dollars (US$262,000,000,000). I noticed that the proposal only covered about thirty percent (30%) of the country.

19. I sent this proposal to the technical personnel to AHI and to the technical country representative of ZTE in Manila, via facsimile, for evaluation, so that I could approximate the actual value of the ZTE proposal, and would be prepared for the meeting with them. AHI’s and ZTE’s evaluation was that the value of ZTE’s rough proposal for which Chairman Abalos was lobbying (the “Abalos proposal”) was only about One Hundred Thirty Million United States Dollars (US$130,000,000,000) I did not entirely discount the possibility of using ZTE, instead of Huawei, as AHI’s supplier-partner. I asked to have ZTE evaluate our own proposal, and their people came up with a costing of Two Hundred Forty Million United States Dollars (US$240,000,000,000) for the broadband facilities and equipment, which would cover about eighty percent (80%) of the country, as opposed to the original “Abalos” proposal which was to cover only thirty percent (30%) of the country, and which cost only 130 million but was overpriced to $262 million. I informed Chairman Abalos of the apparent overprice. I was shocked at this enormous overprice and informed Chairman Abalos that this simple cannot be. I told him you cannot expect to book an asset at $262 million when its actual value is only half of that.

20. In the meeting with ZTE officials, in attendance were, ZTE Vice-President Yu Yong, ZTE Director Fan Yang, and some other company officers. On the other side of the table were Chairman Abalos, myself, Ruben Reyes, Leo San Miguel, General Dela Torre, and Jimmy Paz.

21. In said meeting, I was again introduced by Chairman Abalos as his partner. Chairman Abalos demanded from the ZTE officials the money he promised him…I am certain that throughout my meetings with Chairman Abalos that my President and the Speaker, my father absolutely had no inkling about the details and absurdities in this project. I thus asked to talk to speak to Chairman Abalos in private, and I told him it was highly inappropriate and wrong to mention the names of my President and the Speaker. I told him that my President and the Speaker are well-respected in China, and that his words to the ZTE officials were simple unacceptable, and asked him not to drag my president and father into this.

22. We returned to the meeting, and Chairman Abalos insisted on getting the money promised him. ZTE officials, however, stated that they would release the money only after the “loan documents” were finalized. At this point, when ZTE officials refused to hand over the money Chairman Abalos was asking for, he started banging his fists on the table and started shouting at the ZTE officials, who refused to budge. He bragged about his position as the “most powerful man in the Philippines” starting January 15, (2007), being the chair of the government electoral body, in view of the coming May 14 elections. In particular, Director Fan Yang countered with a question “What about the money we already advanced, Mr. Chairman?” to which Chairman Abalos could offer no response.

23. After Director Fan Yang of ZTE asked the question, the meeting abruptly ended, as we received word that Chairman Ho of ZTE was already waiting for us at the Ocean Pearl Restaurant for dinner, in said dinner, no business matters were discussed, and only light conversation was maintained on leisurely topics such as golf.

24. Sometime early January 2007, I was again invited by Chairman Abalos to meet ZTE officials at the Diamond Hotel. Chairman Abalos then insisted that the contract for the project be signed in front of Chinese Premier Wen Piabao, who was then visiting the Philippines.

25. ZTE, in the meantime, requested for a meeting with me and AHI personnel to negotiate for acceptable contractual terms — as I could not bear the brazen overpricing under the “Abalos proposal.” ZTE Officials agreed that AHI’s design and specifications for nearly 80% coverage of the country were fair, at the price of Two Hundred Forty Million United States Dollars. I informed Chairman Abalos via text message that it appeared that a compromise deal might be in the offing in view of ZTE’s assessment.

26. Sometime in early February 2007, I was again requested by Chairman Abalos to meet him at Wack Wack County Club. I went there, accompanied by Mr. Richard Pratte, one of AHI’s technical resource personnel. In that meeting, DOTC Assistant Secretary Elmer Soneja was present, and again, Chairman Abalos represented to him that “you see, Asec Soneja, Joey, and I are partners now” While AHI had not withdrawn its original unsolicited proposal which was purportedly being evaluated by DOTC at that time, I did not disagree to the statement, in view of the looming compromise deal between ZTE and AHI.

27. A few days later, however, Chairman Abalos called me up and started screaming shouting invectives at me. He said “Salbahe kang bata ka. Putang ina mo kung alam lang ng tatay mo ang ginagawa mo, putang ina mo” I was bewildered where all of this coming from, until in the middle of his ranting he said that “I tapped your telephone” I responded, “Isn’t that illegal?” He said “gusto mo ng transcript?” and I said I certainly would like to have a copy. Apparently, he got angry because he found out from my phone calls that I had mentioned to several AHI personnel, as well as AHI’s partners that we were having difficulty with the NBN contract because he (Chairman Abalos) wanted a $130 million dollar kickback from the project. While this was extant from Chairman Abalos’ foul language while we talked, I never received a copy of the alleged transcript of the conversation which Chairman Abalos said he would send.

28. In the meantime, notwithstanding between ZTE and AHI, neither company withdrew it’s original proposal from the DOTC. Based on a number of correspondences, the DOTC was still in the process of evaluating the same.

a. On 26 February 2007, DOTC Assistant Secretary Soneja in his capacity as Chairman of the bids and Awards for Information and Communications technology (BAC-ICT), asked the proponents of the NBN project to submit the final version of their respective proposals no later than 27 February 2007, in view of President Arroyo’s directive for the DOTC to submit its recommendation for the implementation of the NBN, on 01 March 2007.

b. On the same day, ZTE responding to Assistant Secretary Soneja’s directive submitted to the DOTC the same proposal it had submitted to the CICT, but with the reservation that the same would be subject to revisions. On the other hand, AHI replied to Assistant Secretary Soneja’s letter by stating that it is deeming its earlier submission as final.

c. On 28 February 2007, DOTC’s Technical Working Group (TWG) for ICT projects completed its evaluation of AHI and ZTE’s proposal for the NBN as well as for the Department of Education’s Cyber Education Project. The evaluation did not endorse any particular proponent.

d. On 6 March 2007…BAC-ICT adopted the recommendations of the TWG and resolved to forward the same to NEDA for appropriate action.

29. Sometime in mid-March 2007, I visited my father at his residence where I found DOTC Secretary requesting that my father support and endorse his (Secretary Mendoza’s) son, who was running for an elective position in Batangas.

30. Taking the opportunity, I went forward and informed Secretary Mendoza of AHI’s pending unsolicited proposal with me…Secretary Mendoza responded by saying “your project, Joey, is a big problem as Chairman Abalos is so angry at you and wants the NBN project for himself.” We discussed the developments in the project, and the end result was that Secretary Mendoza insisted that Chairman Abalos and I thresh out our dispute and offered to broker a reconciliation meeting between the two of us

31. Secretary Mendoza thus arranged the “reconciliation” meeting, which was again held in Wack Wack. In attendance were Secretary Mendoza, Chairman Abalos, Ruben Reyes, Jimmy Paz, Leo an Miguel, and General Dula Torre. Chairman Abalos said that he “has forgiven me for what I did” but I continued to push me into backing out of the NBN project.

32. The “reconciliation” meeting was inconclusive, insofar as the NBN project was concerned. I could not back off on behalf all AHI, and besides, I knew that AHI’s proposal was far superior to the original Abalos-ZTE proposal, and that the same would be more advantageous to the government, as AHI’s proposal entailed absolutely no outlay from the government, compared to the Abalos-ZTE version, which would have the government incur indebtedness from the Chinese government.

33. On 21 April 2007, through Official News Release (Release No. 5) issued by the Presidential News Desk/Office of the Press Secretary, the government announced the signing of five 95) key economic agreements between the Philippines and China, including a Three Hundred Twenty Million Five Hundred Thousand United Sates Dollar (US$329,500,000.00) — supply contract for the NBN between the DOTC and ZTE, with DOTC Secretary Mendoza and ZTE Vice President Yu Yong as signatories.

34. On 20 June 2007, Assistant Secretary Formoso, in a conference on Philippine Infrastructure Development sponsored by the Economic Policy Reform and Advocacy at the Ateneo Professional Schools in Rockwell, Makati, disclosed that the signed copies of the NBN contract were “stolen’ but at the same had been reconstituted.

13 Responses to The case of the ‘missing’ ZTE broadband contract

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After Estrada: ZTE « Postcard Headlines

September 13th, 2007 at 8:40 am

[…] readings from the Philippines Without Borders blog and the Inside PCIJ blog . […]

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INSIDE PCIJ » First Gentleman is ‘mystery man’

September 18th, 2007 at 11:56 am

[…] unlike the proposal of the Chinese company Zhong Xing Telecommunications Equipment Limited (ZTE). (See related […]

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adviser

September 19th, 2007 at 2:25 am

Joey De Venecia is a bigger man than his father. I am sure the speaker adviced his son not to speak out. But the younger De Venecia has more guts even if it means that Mike Arroyo will illegally use the full force of his wife’s administration to stop him. Joey De Venecia had more to lose by baring the ZTE broadband anomaly. He could just have accepted Commissioner Abalos’s bribe of $10 Million and forget about the whole matter. But apparently, the truth is more important to Joey De Venecia than a quick buck. If the Philippines is to improve economically and morally, we need more men like Joey De Venecia to shed light on crimes committed by the likes of Mike Arroyo, Benjamin Abalos and Leandro Mendoza. If justice is to prevail in the Philippines, these 3 people must be prosecuted by the full force of the law in the same way the prosecutors went after Ex-Pres. Joseph Estrada. “What is good for the goose is good for the gander.”

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SHORT PRIMER ON THE ZTE-NBN SCAM « like a rolling store

September 19th, 2007 at 4:34 pm

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INSIDE PCIJ » The ABC’s of ZTE

September 20th, 2007 at 7:08 pm

[…] Chinese company now in the middle of the controversy surrounding the Arroyo administration’s initiative to set up a $329-million national […]

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INSIDE PCIJ » Navigating legal concerns on investigative journalism

September 27th, 2007 at 10:06 pm

[…] media personnel may access contracts that have not yet been finalized, such as the ZTE contract, as long as these contracts are matters of public […]

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rhy_me1975

October 8th, 2007 at 11:08 am

i dont know why they enter into a contract like these..since the philippies is not that ready. many people are still unaware of the internet especially in the province. i’ve known many people from the province who graduated with computer degrees but still does’nt know how to use a computer just because they dont have any pc in their school. i think its better they put the money in an education program like additional schools with computers…i saw on the news that some schools only has 1 pc and all children are looking in that small monitor…tsk tsk tsk

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The Daily PCIJ » Blog Archive » Dawn of the Chinese century?

November 22nd, 2007 at 6:45 pm

[…] and development assistance. Yet loans and agreements between the Philippines and China such as the NBN-ZTE deal, the Cyber Education project, and the North Rail project have come under fire for being […]

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The Daily PCIJ » Blog Archive » Challenging ‘aid effectiveness’

August 27th, 2008 at 7:29 pm

[…] instead of asserting its waiving,” noted Nachura. “This is the reason why we have the national broadband deal […]

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The Daily PCIJ » Blog Archive » JDV pushes impeachment bid vs Gloria on wings of bribe exposé

November 24th, 2008 at 11:50 pm

[…] younger de Venecia had offered to undertake the $329-million national broadband network (NBN) project of the government through a build-operate-transfer scheme. The project ended up with China’s […]

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The Daily PCIJ » Blog Archive » Congress on the dock

November 25th, 2008 at 10:56 am

[…] the apparent Malacañang-instigated backroom dealmaking that attended the botched $329-million national broadband network project awarded to ZTE Corporation, and his confirmation of the alleged P500,000-bribe for him to endorse […]

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Manunulat, Maniniyot » Jun Lozada in Davao City

February 11th, 2009 at 10:56 pm

[…] FOR GOOD AND TRUTH Rodolfo ‘Jun’ Lozada , whistleblower of the anomalous ZTE Broadband deal, speaks before the media, academe, church people and civil society organizations in Davao City on […]

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The Gathering Storm, Part I | The Pro Pinoy Project

July 1st, 2010 at 11:49 am

[…] multiplied like bacteria on a warm petri dish (worth noting: the Fertilizer Scam and NBN-ZTE Scandal) as Gloria Arroyo romped off to all sorts of foreign trips, averaging 8 trips a year in her 9 […]

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