Tuesday, July 31, 2007

National Broadband Network: A backbone of waste and shame

"The bloated NBN (national broadband network) and the CEP (cyber-education projects) are parables whose moral cannot be reiterated enough. The only backbone the government needs today is a moral one; not fiber-optic but fibre politique."Raul Fabella and Emmanuel de Dios, economics professors from the UP School of Economics

IF the President still thinks of her legacy in the last three years of her administration, she had better heed the call of her colleagues (she is economist, remember?) from the University of the Philippines’ School of Economics.

The professors are advising her, albeit implicitly, to stop the multibillion-peso national broadband network (NBN) and the so-called cyber-education projects, for they cannot be justified on sheer economic logic. It’s a complete waste of people’s money.

We agree with the professors’ call, especially in the case of the NBN. It was apparently negotiated in utmost secrecy with the Chinese government; and, with the subsequent “loss” of the signed contracts in a hotel room in China, the hush-hush deal seems to have the makings of another scam that could push this country into another cycle of economically destructive political spasms.

Take the case of NBN. Drumbeaters for the NBN from the Department of Transportation and Communications say the government is going to save P27 billion over the 15-year span of the project and reduce telephone expense by 8 percent.

What they are not telling us is that the government is going to spend P31 billion in operations and maintenance for the network within the same period—a huge amount of money that will be collected straight from taxpayers. That’s a conservative figure, given that taxpayers are also going to pay for the interest and principal, plus the possible extra spending on delays and cost overruns. This extra cost is expected given the consistently bad record of the government in implementing infrastructure projects.

And for what? For that huge amount of money that the State will squeeze off taxpayers, we are going to have a network that is destined to be another lemon. Why? For two major reasons.

First, it’s in the nature of government, particularly the Philippine government. The NBN is going to be run by bureaucrats who have no stake in the system but just receive their monthly salaries; no discipline that could only be ensured by the need to make the business profitable, and is therefore likely to be managed inefficiently.

Remember the multibillion Telepono sa Barangay Program? We no longer hear from it, but we know taxpayers paid P10 billion for it without alleviating the rural areas’ need for communications access. And how could the government make a difference this time?
Second, it’s in the nature of technology. As explained by the two economists, technological change in the information and communications technology (ICT) sector is quick, driven by competitive market pressures.

The anecdote is that ICT technologies are obsolete even before contractors have finished setting up the cables. Private companies, therefore, keep on updating their ICT capability as a way to ensure competitiveness.

But there is no similar imperative among bureaucrats, whose primary motive is getting their monthly salaries.

That implies that the NBN could be nothing but some clunky museum relic by the time the government is done paying it with people’s blood money. And even before the government has written the last check for the Chinese after 20 years, government agencies may have completely abandoned the network for its sheer inefficiency and obsolescence.

We are talking here about the possibility that we are going to continuously pay people’s hard-earned money for a system that’s doomed to be inutile in just a few years of operation.
With such a huge cost and questionable, nay, probably even negative, social benefit, one can’t help but ask whose interest the government is trying to satisfy with its not-oh-so secret pursuit of the NBN.

If its social benefit is in doubt, one could be tempted to think some private motive is the primary consideration. It’s so tempting to think that way because the government seems to be moving heaven and earth to keep the issue hidden from public scrutiny.

We all know the project started with an unsolicited proposal from Amsterdam Holdings Inc. (AHI) for a build-operate-transfer (BOT) project amounting reportedly to about $260 million, supposedly at no cost to the government.

President Arroyo supposedly favored this approach since the government is penniless. Not to be outdone, Americans came up with their offer from Arescom for a lesser amount, reportedly about $135 million, to be financed through overseas development assistance.

Then suddenly, the Chinese-owned ZTE came into the picture, with an offer equivalent to that of AHI, plus supposedly a “superior” technology.

Suddenly, the government forgot all about Arescom and AHI, and came for ZTE. Come signing time, however, the total amount for the project rose to US$329 million, payable in 20 years to the China Export-Import Bank. Hence, from a BOT deal, it has become a supply contract with ZTE.

To top it all, the Chinese bank also offered $500-million more for an e-education project, on condition that this money is going to be spent on Chinese equipment. And of course, all the transactions are supposedly covered not by Philippine laws, but by Chinese laws.

After the signing ceremony, no less witnessed by the President, the signed documents were supposedly “stolen” in the hotel, a convenient excuse for bureaucrats to hide details of the contract. Those bureaucrats may have committed our souls to Mephistopheles, and we wouldn’t know it because someone “stole” the document! Of course, the government could have easily asked the Chinese to fax us their copy for distribution to the media and whoever is interested, in the interest of transparency, while reconstructing the Philippine copy—but it seems the government is not willing to do that. Or maybe the Chinese have lost their copies of the contract too? Strange world this is.

(Note: originally prepared as editorial for the BusinessMirror, 31 July 2007)


Ned Hughes said...

Whoa, thank you for posting this article. I have relatives from the Philippines, but I don't think that broadband was ever something that concerned them a lot.

the becky said...

Hi there.
I find it interesting that I you are looking into the project, and would want to know more about your views--and others, for that matter, through your blog. I agree with most of the surfacing issues and accusations, but in light of constructive criticism, I guess what we can offer now is an 'ideal' plan of action for the government. I reckon you are a researcher, and from one to another, I think we can start the ball rolling (and not put things in stasis) by asking: So, pano na? Anu na ang gagawin natin? what do you think?

Dave Llorito said...

the next thing to do is abrogate that agreement. the ball is now in congress hands. we are going to pay for that with our taxes and for what?

the becky said...

Do really think they'll abrogate such arrangements, when signatures have already flourished and names at stake? The government is waiting for us to shut up, by shutting down further information. You can't make a credible claim against something you havent seen or read, and they are taking this reasoning against the UP Econs Profs' list. Its either they are hoping we forget about the whole deal (or be in this state of loss), or that we'll be kept out of it. Now, looking at the dynamics of it, what are the chances of congress voting against the deal? With the exposure such controversy is currently enjoying, we may have a problem with getting things too hyped up. I think, in the end, it's not a matter of whether they should abrogate or not, but on which angle of major interest will this deal serve? Im not even talking about the citizens, but our legislators per se. This is expensive, high tech stuff which rules to operate and maintain we'll leave to political players who may not even know the difference between a PC and a mac.

Dave Llorito said...

i hope the senators statements that they are going to investigate the deal will push through. this deal ought to be stopped or we are going to pay for this while others are pocketing the money.

Anonymous said...

Now that the Philippine Government just paid off Bataan Nuclear Power Plant That cost the Philippine people over $2.3 Billion, that was never used. The Philippine Government is now going to make history by funding the NBN (national broadband network) and the CEP (cyber-education projects). The questions to ask is, the Philippine Senate hearing for the people or are they mad that they were circumvented and would have like part of the action. The sacrifice of every man, woman, and children in the Philippines will go on until life becomes so unbearable that fighting to be heard and represented will mean more then life it self.