COA confirms problems with ODA projects; billions of pesos wasted

Foreign loans or official development assistance (ODA) have been touted as manna from heaven, with their lower interest rates and longer payment terms. Although these foreign-assisted loans could yield development projects, the other side of the coin may be the unnecessary financial burdens in the form of cost overruns (excess of cost over budget) and commitment fees (a fee lenders charge their borrowers for unused credit or credit that has been promised at a specified future date). The latest Commission on Audit report on ODA shows more troubling signs on the implementation of foreign-assisted projects: indications that some might have been mismanaged or worse, not thoroughly evaluated. The COA’s 2006 report on the ODA shows a myriad of problems on 38 foreign-assisted projects—from non-compliance with the procurement law and auditing rules to unliquidated cash advances, absence of inventories, overstatement of accounts and delays. But it appears that the COA report merely confirmed what have been raised before against some of the projects. These projects have been questioned in the past – from the allegedly unlawful Northrail to the allegedly overpriced Clark-Subic-Tarlac Expressway to the failed Emergency Network Philippines and the Third Elementary Education Project. The 38 projects found with deficiencies were implemented by a total of 20 government agencies and government-owned and controlled corporations. The COA matrix of observations enumerated 31 observations covering procurement of consulting services, civil works and goods; financial performance; physical performance; and project sustainability. Most common problems In the review, COA noted unliquidated cash advances/fund transfers on 15 projects under different implementing agencies. The total unliquidated amount from the 15 projects amounted to P1.56 billion. Fifteen ODA projects were also marred with absence of inventory-taking and records/ reports, non-maintenance of property, plant and equipment (PPE) ledger cards, unrecorded issuances of PPE, and non-reconciliation of/ unreconciled/ unaccounted balances of Property, Plant and Equipment and their respective physical inventory reports. The total unreconciled balance was P314.46 million. Double-recording of/unrecorded/erroneous transactions and understatement/ overstatement of various accounts resulted in overstatement reaching P2.61 billion. Fourteen projects were cited for this. Non-compliance with accounting and auditing rules and regulations, agreements and contracts was found in 14 projects; the amount involved was P14.45 million. Delayed completion of projects/low rate of accomplishment due to, among others, delay in the clearing of right-of-way and failure of agency to implement the project within the period stipulated contributed to the incurrence of commitment fees. The delays in nine ODA projects reviewed cost the government P159.9 million. DepEd’s problematic project Project sustainability is one of the significant observations of the COA report. Under it, COA looked at the "absence or lack of specific programs, financial and manpower resources to sustain completed projects." Only two projects were cited under this heading: the Department of Education's Third Elementary Education Project (TEEP) and the Water Resources Development Project (WRDP) of the National Water Resources Board. The P3.9-billion TEEP, funded by the World Bank and the Japan Bank for International Cooperation, provided technical and financial assistance to local government units in the construction and rehabilitation of school buildings. "Its overall objective is to improve the quality of and access to elementary education...," the National Economic Development Authority (NEDA) had noted. COA may have raised a question on the sustainability of the TEEP, but the NEDA Secretariat used this same project to boost the doubtful economic viability of the now suspended CyberEd project. NEDA’s "recalibrated" socio-economic analysis of CyberEd said, "Post assessment reports show that TEEP schools performed statistically better than non-TEEP schools..." The subsequent memorandum by NEDA Director General Augusto Santos to the NEDA Board stated, "It was assumed that the CEP will result in improvements similar to or of the same level as those resulting from the TEEP." TEEP earned eight “significant observations" in the COA audit report —the most number among the 38 projects reviewed: - Excessive/defective school desks, armchairs, textbooks and learning materials worth P13.59 million - Absence of inventory-taking and records/reports - Uncollected receivables from loans granted to local government units worth P104.61 million outstanding accounts payable for more than two years/without records and valid claims - Non-compliance with accounting and auditing rules and regulations, agreements and contracts - Uncorrected construction defects in spite of the presence of consultants and TEEP engineers, worth P0.569 million In the 15th ODA portfolio review of NEDA, the planning agency noted that TEEP was among the loans closed in 2006 that have “incomplete project outputs." Target outputs were not fully attained on the loan closing date owing to delayed release of funds. Northrail and Subic-Clark-Tarlac Expressway The $503-million North Luzon Railways Project (Northrail), already controversial for passing without public bidding and tying the loan to donor country suppliers, was cited by COA for the following: - Unliquidated cash advances - Irregular, unnecessary and uneconomical use of funds - Non-compliance with accounting and auditing rules and regulations, agreements and contracts - Delayed completion of projects/low rate of accomplishment - Non-compliance with MOA provisions on, among others, relocation sites/program; establishment, operation and maintenance of nationwide groundwater, stream flow and water quality collection network Lawyers from the University of the Philippines College of Law and the affected settlers has filed before the Makati City Regional Trial Court a civil case for the annulment of the contract between the government-owned North Luzon Railways Corp. (Northrail) and China National Machinery and Equipment Corp. (CNMEC). The contract is funded by the Export-Import Bank of China. The case, now pending before Branch 145 Judge Cesar Santamaria, was bolstered by a UP Law Center study declaring the contract "unlawful and void" for failure to undergo public bidding provided for under Republic Act 9184 or the Government Procurement Reform Act. The contract appointed CNMEC as prime contractor. The UP study also questioned the legality of the buyer credit loan agreement, CNMEC’s qualification to undertake the project and the displacement of affected residents without adequate relocation. Northrail would reconstruct and convert the existing track of the Philippine National railways to provide transport service for passengers and goods from Metro Manila to Central and Northern Luzon. Another ODA road project, the Subic-Clark-Tarlac Expressway (SCTEx), got the COA’s attention for the following: - Appointment of vice president for finance as chairman of the bids and awards committee - Irregular, unnecessary and uneconomical use of funds - Absence of inventories and records - Non-compliance with accounting and auditing rules and regulations, agreements and contracts - Maintenance of the temporary and permanent field office of the engineer, laboratory, living quarters and all utilities therein increased project cost (P30.730 million) The 93.77-kilometer SCTEx is said to be the second-biggest foreign funded project, built from a 41.9-billion yen loan from the Japan Bank for International Cooperation. It will be the country’s longest expressway, providing shorter travel time and integrating economic activities in the Subic Freeport and Special Economic Zone, the Clark Special Economic Zone and the Central Techno Park in Tarlac. Last year, NEDA included it in the list of 21 foreign-assisted projects with cost overruns. SCTEx had the biggest cost increase among the projects at P6.48 billion. The project cost ballooned to P26.33 billion, from the original price of P15 billion. NEDA said the cost increase was attributed to “currency exchange rate movement, price escalation/adjustment, ROW (right-of-way) acquisition, taxes, administrative expenses, and interest during construction." The Bases Conversion and Development Authority (BCDA), which implements the project, sought the 24.6-percent increase in budget. But a recent Philippine Center for Investigative Journalism report noted that cost overruns are common in bilateral loans—notably those funded by Japan, Korea and China—wherein aid is tied to the purchase of goods or services from companies based in their respective countries. In the case of SCTEx, PCIJ said bidders were limited to a few Japanese construction companies, which presented high bids. Another foreign-assisted project with cost overruns that was also cited in the COA ODA report was the World Bank-funded Metro Manila Urban Transport Integration Project, which covers traffic management improvements in the three busiest public transport corridors in the metropolis. The project cost increased 40 percent to P3 billion owing to “high bid cost resulting in rebidding and contract variations and delayed employment of consultants." Patrol 117 Another problematic ODA project is the P1.37-billion Emergency Network Philippines being implemented by the Department of Interior and Local Government and financed by the Austrian government. The project aims to assign a nationwide emergency phone number, 117, and establish an integrated communication system equipped with state-of-the-art facilities to prevent, control and manage crimes, disasters and calamities nationwide. The call centers are supposed to be distributed to 16 call centers all over the country. The project has not been fully operational years after it was completed in 2004 mainly for the lack of budget to actually run the call centers. In the 2006 audit report on DILG, COA noted that no funds have been provided in the DILG budget to put the project in full operation. Meanwhile, “the national government continues to provide for the payment of commitment fees and increasing interest expenses of an average of P69 million a year or a total of P271.6 million since the loan availment in 2002," the COA report said. The COA audit on ODA projects noted the following on ENP: - Waiver of delivery and withholding of distribution of certain items from programmed equipment packaged for different call centers belie necessity of their procurement - Irregular, unnecessary and uneconomical use of funds - Deficiencies such as double/excess payments of various transactions - Non-operational/unutilized equipment, software guidelines and manuals - Completed call centers still not operationalized despite acceleration of deliveries of subsequent project components which increased project’s interest charges; and - Non-compliance with MOA provisions on, among others, relocation sites/program; establishment, operation and maintenance of nationwide groundwater, stream flow and water quality collection network As of last year, five ENP-equipped call centers are in operation, funded by LGUs and donations from a private group. Recommendations The ODA audit made a litany of recommendations relative to the audit observations. With the huge amounts of money involved, preparation must be a major issue in the contracting of loans. The COA asked implementing agencies to ensure that the feasibility study had been thoroughly studied and the amount required “determined reasonably." NEDA was advised to strengthen monitoring of ongoing ODA-funded projects and evaluate completed ones. COA said the Department of Finance should ensure that the loans are contracted in the amounts necessary and can be absorbed by the implementing agencies. It should seek the cancellation of amounts that will no longer be used to minimize commitment fees. The Department of Budget and Management was told to ensure adequate and timely release of project funds. Congress, COA said, should facilitate the approval of bills, which are conditions for loan effectiveness or release of additional loan tranches and ensure that the General Appropriations Act for any given year is passed to preclude the lack of funds for projectimplementation/operationalization and incurrence of additional commitment fees due to delays. - GMA News Research with reports from FTBalmes