Funding fudges

Among the kleptocratic absurdities inflicted in 2009 one that elicited the most responses was the existence of a corruption cartel involving our highest officials, their relatives and “relevant local media” as described by the World Bank’s Department of Institutional Integrity. One reader recalled in particular a judicial decision that unintentionally predicates perpetuation, providing as it does virtual insulation from anti-corruption and overpricing controls. The decision rendered in the bellwether case of Abaya versus Ebdane where a petition for certiorari and prohibition to nullify a May 27, 2004 resolution issued by the Bids and Action Committee of the Department of Public Works and Highways (DPWH) had quietly set precedents of far-reaching consequences. The resolution recommended awarding to a Chinese state corporation the rehabilitation of a 79.82 kilometer road in Catanduanes. The approved budget for the contract was P738,710,563.67. The bid awarded was P952,564,821.71 or 26 percent higher than the budget. The petition considered the resolution in violation of Section 31 of Republic Act 9184 that set ceiling prices for bids. The petition for nullification was however dismissed following the brocard of pacta sunt servanda in international law that specifically states within Section 4 of RA 9184 that “any treaty or international or executive agreement affecting the subject matter of this Act to which the Philippine government is a signatory, shall be observed.” In this case, the creditor, the Japan Bank for International Cooperation (JBIC) was considered an adjunct of the Japanese government. The loan between the DPWH and JBIC fell under Section 4 of RA 9184, thus overshadowing budgetary parameters set in Section 31. Following the liberalism effectively supplied, had the folks behind the North Rail project and the notorious ZTE broadband band fiasco (NBN-ZTE) concocted similarly capitalized deals then jurisprudence might underlie fudges beyond budget limits. Some view law as a manner to control against wrongs. Others see it as a license. Where overpricing and fudges are concerned, this decision differentiates between infrastructure projects funded by private debt against those coursed through executive agreements and treaties where “agreements must be kept” regardless of budget parameters. Infrastructure projects funded through the Samurai bond route, Official Development Assistance (ODA) for as long as these do not involve state adjuncts, the World Bank, the International Monetary Fund, the Asian Development Bank and the general banking system fall under the first category. Banker’s prudence necessitates the chemistry of cost and capacity to repay. These are checked and balanced, and are scrutinized as to viabilities and repayment – the latter, a function of state revenues and economic wherewithal. Controls are provided by budgetary boundaries, requisite limits on spending and repayments as well as parameters on what can and cannot be burdened on an already financially-wrung, thoroughly taxed and systemically-squeezed public. Within the second category of executive agreements and treaties, funding fudges are effectively limitless. The consequences of the differences, similarly infinite. Costs can escalate beyond requisites and economic realities. The public burdened immeasurably, their backs broken by debt. While the courts are innocent of fudging folly, the consequences of innocence may not be blameless where we might be victimized by infrastructure projects overpriced beyond our economic capacities to repay. Projects such as the ZTE NBN deal, tucked and snuck under the legally hairy armpits of an executive agreement are allowed vast parameters under Section 4 of RA 9184. In the ZTE NBN project, the US-based Arescom contractor proposed $135 million, Amsterdam Holdings proposed $240 million under a build, operate and transfer scheme, while the ZTE proposal was for $329.5 million under a straight debt financing plan. For the $530 million North Rail project, the original debt was designed for a complete cargo and commuter transport system. It was eventually for a shorter narrow-gauge commuter railway whose total 64 kilometer project was deemed overpriced by $15 million relative to a 2,000 kilometer railway system in China that had cost only $1.8 million per kilometer. The “Executive” character of these deals is at the center of the logic in granting immunity from limitations on cost and repayments. That is likewise the reason for these fiascos as constants in the periodic impeachment complaints arrayed against Gloria Arroyo. But should treaties and executive agreements be above public interest where these unnecessarily burden? Senator Richard Gordon recently said that from one-third to a half of public works funds are lost through inefficiencies and corruption. Should treaties and executive agreements be the default development route, that estimate may be on the low side.