BusinessWorld: Suspended NBN deal could hit RP-China ties

The government's decision to suspend a major telecoms deal with China has weighed on ties with the economic giant and could sour investor confidence, analysts and officials said yesterday. President Gloria Macapagal-Arroyo at the weekend ordered the suspension of a $330-million national broadband project with China’s state-run ZTE Corp. amid allegations of corruption and government incompetence. "It seems like there is a big crack in the wall between Chinese and Philippine relations due to the ZTE deal," said Astro del Castillo, a director of the Association of Securities Analysts of the Philippines. "Our relations will somehow be affected considering this is supposedly a major and serious contract," he said. Senator Manuel A. Roxas II said in a statement that he recommended canceling the deal altogether. "It’s not transparent, thus possibly overpriced, overde-signed," he said, adding he felt Manila’s ties with China were strong enough to withstand the controversy. Economist Bing Icamina from AYC Consultants said confidence might be affected, although he argued China still had surplus cash to invest. "The concern now is dealing with the government on a contract basis, given this experience," he said. "Essentially, you have to be careful when dealing with government agencies." Mr. Castillo said the government should punish those found guilty of corruption over the deal, adding "good governance and transparency" were essential to attracting foreign investment. "If there is no level playing field, you will see an immediate loss of confidence," he said. The broadband project was to have set up a national network for the exclusive use of the government and all its agencies. But allegations of bribery and kickbacks amounting to millions of dollars were made during a Senate inquiry into the project last week. At the center of the scandal is elections chief, Benjamin S. Abalos, Sr., who acted as a go-between for the Philippines and ZTE officials. Mr. Abalos has admitted he was given "golf holidays" in China by ZTE but denied he was offered the services of prostitutes. However, it remains unclear why Mr. Abalos was involved in the deal in the first place. Mrs. Arroyo’s husband, businessman and lawyer Jose Miguel T. Arroyo, has been implicated too. One of the unsuccessful bidders, Jose de Venecia III, claimed he was offered $10 million to pull out of the race. Mr. de Venecia is the son of the speaker of the House of Representatives, Jose C. de Venecia, Jr., who has distanced himself from the controversy. Acting Justice Secretary Agnes V.S.T. Devanadera said that while the Supreme Court has the final say on the contract, the President deemed it wise to suspend the deal due to "diplomatic" considerations. "[T]here are other considerations that she must [think of]... She also has [to consider] diplomatic relations, so the suspension was not only borne out of legal opinions." Ms. Devanadera said China has not turned its back on Mrs. Arroyo despite her decision, noting other projects being funded by the Chinese government. "The Chinese officials have affirmed their support to [the President]." She however maintained that the transaction between the Philippine government and the Chinese firm is aboveboard. By dealing with the state-owned firm, the project that would consequently be tied to a loan obligation does not need to go through a public bidding, she said. She refused to comment further pending the decision of the Supreme Court. Iloilo Vice-Governor Rolex T. Suplico and losing bidder Amsterdam Holdings, Inc. of the younger De Venecia was earlier able to ask the Supreme Court to issue a stay order on the broadband deal. "The Constitution and national legislation have left highly technical endeavors like the [broadband] project to the private sector’s competence, resources and responsibility. Respondents have violated this preference," Mr. Suplico said in his 129-page petition. — AFP and Ira P. Pedrasa, BusinessWorld