Tuesday, September 25, 2007

The NBN-CEP mess: Neda is part of the problem

By the time I got to the office 1 pm today, everybody knows that former Neda director general Romulo Neri has admitted being offered a P200 millon bribe by Comelec Chair Benjamin Abalos (which he denied) during the hearing on the controversial NBN deal at the Senate. That's a bombshell! But let me put it here that Neri himself is part of the problem why we have this mess. You may read my op ed piece I wrote for BusinessMirror today (26 Sept 07) below.

ON Monday the acting director general of the National Economic and Development Authority (Neda) said the suspension of the national broadband network (NBN) and cyber education program (CEP) deals is going to “affect investor confidence” in the Philippines.

Certainly, it will. But it’s not because legislators are investigating these controversial deals forcing President Arroyo to back off from a very hot rotten potato.

It’s because this recent brouhaha involving more than $800 million seems to prove the point that the government of President Arroyo doesn’t seem to learn the value of prudence after nearly getting toppled by popular unrest following the “Hello, Garci” and North Rail controversies and the fertilizer scam. Walang kadala-dala! in local parlance.

It’s unfair for acting Neda chief Augusto Santos to blame, even impliedly, the “lack of investor confidence” in the Philippines on the Senate investigation against the NBN and CEP deals. The determinants of investor confidence are many, the least among them being the government’s continuing failure to provide adequate infrastructure and its inability to pursue crucial economic policy reforms.

This is quite obvious if we look at the national income accounts: in the last three years, investments by the private sector on durable equipment in real terms have been miniscule.

Yes, we have been growing quite decently in the last several years—courtesy of dollar remittances. But jobs in greater numbers are not created because firms are not yet building more factories, upgrading their plants and equipment, or putting up orchards. These are the types of investments that we need to address joblessness, especially for those who can’t speak English to qualify for call centers.

And why is this so? It’s because since August 2004 the net satisfaction rating of President Arroyo has been in the negative. More people are not happy with the way she runs the affairs of the State despite the very obvious effort she puts into the job and her work ethic. More people simply don’t trust her mainly because of the continuing stream of accounts of corruption and misdeeds in high places, the latest being the controversies that have entangled the multimillion-dollar NBN and CEP deals with the Chinese government.

In the Philippine context, a perennially negative trust or satisfaction rating for the presidency tends to create uncertainty. It’s so hard for business managers to make long-term decisions when the ruling party sits on a house of cards ready to collapse anytime another political scandal bursts.

And certainly, corruption is a great turnoff to investors. Yes, there are “political noises,” but it’s the ones that are coming from the executive, and not somewhere else.

The Palace is making it worse by employing tactics like gag orders or the latest apparent attempt by MalacaƱang to spirit out of the country former Neda chief Romulo Neri to prevent him from being grilled by the senators, only to retreat at the last minute, apparently sensing the huge outcry against so blatant a scheme.

To be fair, Palace officials explained later that it wasn’t President Arroyo but Foreign Affairs Secretary Alberto Romulo who wanted Neri to come along because they will meet with Millennium Challenge Account (MCA) officials in New York, and Mr. Neri as ex-Neda chief is familiar with the MCA. But still, the damage to public trust was done.

If there’s one agency that can’t escape blame in these controversial deals, it’s the Neda itself. It acts as the secretariat of the Investment Coordination Committee (ICC) and has enough chances to see to it that projects proposed by line agencies are aboveboard.

Such huge projects usually go through the scrutiny of the Neda technical staff before being tabled at the ICC technical board. Then, they go through another round of discussions at the ICC Cabinet committee before they are set for approval by the Neda board, headed by no less than the President.

So in effect, Neda, as an institution of governance, has at least four chances to correct possible anomalies in the process of coming up with a proposal as the NBN.

The real problem with Neda is that it has been quite timid to play its role. In the discussions regarding the NBN and CEP, all the Neda did—according to sources within the organization—was determine whether or not these projects were “consistent” with government goals.

Did Neda officials bother to check the economics of the project, its costs and benefits, its technical feasibility and the possibility that it was overpriced?

Neda officials were not even bothered by the fact that there was no way it could determine whether or not it was bloated. They simply assumed that the proponents—bureaucrats from the Transportation department and Education department—submitted their proposals in good faith like angels. They simply assumed that a “government-to-government deal” is legally sound without ascertaining the true costs of the projects through economic measures such as open bidding.

It’s possible Neda failed to do its job for lack of technical expertise. In the last two Senate hearings on the NBN, the proponents (specifically Transportation Secretary Leandro Mendoza and his assistant secretary Lorenzo Formoso) could not provide enough justification for the NBN in financial and technical terms.

The hearings proved what professors from the UP School of Economics had said all along—that the project didn’t undergo any decent feasibility study. There was no honest-to-goodness numbers crunching. Grilled by senators, Transportation officials couldn’t answer even the most trivial details (like the cost components of government telecommunications expenditures) on the “savings” that the supposed NBN could bestow on the country’s coffers.

Apparently, the Neda technical committee assumed that the Transportation department’s numbers on the projects’ cost and benefits, as well as their economic rationale, were accurate.

Assuming that Neda indeed lacks technical expertise on the technical and economic nitty-gritty of NBN and CEP, the best thing it could have done is open the process to public participation and debate. It should have been transparent since the inception stages of the two projects by giving all the details of these projects to the media. Had it done that, the country could have been spared this wrenching political process.


Anonymous said...


I have not seen any reference to the the technical details of how this NBN and CEP is planned to be undertaken. Would appreciate if you can provide the info (or link).


Dave Llorito said...

the dotc has been secretive about the whole thing. but they did adverstise something about this in the papers. but if you have read my previous posts about the NBN and CEP, you will have an idea. Ive been writing about this for more than two weeks now.

Anonymous said...

the NEDA board, headed by the president herself, didnt do their job properly because thats exactly what they want. They dont want to do their job because doing their job means this NBN deal wouldnt see the light of day. eh eleksyon na nun, kailangan na ng pondo.

Anonymous said...

Thanks for this illuminating piece and for forthcoming econ-related pieces.

International Professors Project would like to learn something of the higher education status and development.


Deany Bocobo said...

It's a game of tag where no one did anything and it was always the "other guy" that was in charge of "that". But I think the big story here is that the Senate is reclaiming its rightful place in the govt which has been under attack. As for DOTC, boy do I know about them from helping with the MRT once. It's a sleaze pot, man.

Margaux Salcedo said...

One of the funnier (sad but funny) parts in the hearing was when Chiz asked Neri if NEDA had conducted any studies to base their NBN/ZTE recommendations on, and, in struggling to explain that no they did not, Neri said, "We checked the internet ..." Guess they didn't find anything on wikipedia!