Business World - October 9, 2007
The debate on the ZTE-NBN deal is getting murkier. The DOTC, in refuting the statements of the two UP economics professors that the NBN project did not make economic sense, now shifts the issue to an ODA vs BOT debate. The DOTC said that the BOT scheme would not necessarily lead to lower expenses because the contractor would have to borrow at interest rates higher than the Official Development Assistance (ODA) from China. This was the also the line of Secretary Romulo Neri which, surprisingly, went past the Senators unquestioned.
Secretary Neri is a decent and intelligent man. But when he said that he favored the Chinese ODA-financed project because a BOT proponent would have to borrow at a higher interest rate, I suspected that there was pressure exerted on him. He knew that interest rate on the loan is only one factor of a project cost; the other bigger factors being price, operating and maintenance costs, and obsolescence. No one disputes that ODAs are useful. But a recipient country must know how to protect its interests, since even donor countries bearing gifts have their own agenda. Concessional loans can be “tied or untied.” Projects funded by Special Yen Loan Packages from the Japan Bank for International Cooperation, for instance, while bearing interest rates below 1 per cent and payable over 40 years, are “tied” or restricted to Japanese contractors. Still, they undergo a competitive bidding process. Collusion among suppliers can happen, of course, but it’s up to the recipient country to safeguard its interests by insuring that competition comes into play and the winning bid is not too far from the Government Agency estimate. But how does one protect itself when no one knows the Agency estimate and there is only one designated contractor, such as in the China Ex-Im Bank- funded ZTE-NBN project? It is not, therefore, surprising that there were talks of the price being doubled or trebled! If Secretary Neri was satisfied with the project’s EIRR despite the high price, wouldn’t he be doubly pleased if the price were halved?
The BOT Law, on the other hand, was passed because there are limits to what Government can borrow, not to mention that revenue collections are always insufficient and public assets for sale are not inexhaustible. There is also no reason why infrastructures development must remain the sole responsibility of the State. Under the BOT scheme, “the contractor operates the facility over a fixed term during which it is allowed to charge facility users appropriate tolls, fees, rentals and charges sufficient to enable the contractor to recover its operating expenses and its investment in the project plus a reasonable rate of return thereon.” Since the Law’s passage, investments in BOT projects have reached $20.349 Billion, of which $7.975 Billion was invested in Power projects. The rest went to the Water, Information Technology, and Property Development sectors. Had it not been for the Law, these projects might not have been implemented.
But not all projects are financially viable for a BOT scheme. In missionary projects such as the Subic-Clark Expressway, it would take time for traffic volume to build up so that financing was done via a Japanese ODA loan. It’s a different story now for the expressway’s extension from Tarlac to Rosario, La Union where the mainstream north-south traffic flows. It is attractive enough for the private sector, including a Filipino consortium of contractors, to be interested in it as a BOT project. Similarly, there was private sector interest in the NBN project for which an unsolicited proposal for a Build-Own-Operate (BOO) project was submitted by Amsterdam Holdings, Inc (AHI). Under stricter rules for an unsolicited BOO proposal, the proponent does not get any government loan or guarantee, or a “take or pay” provision. It competes with the rates of the telcos, and keeps up with technology advances in telecommunications which has one of the highest obsolescence in the industry. Assuming it is qualified, it is AHI, not the Government, which must hurdle the financial, operational, and marketing risks, unlike in the $320 million NBN Government project which can turn out to be a white elephant just like the moth-balled Bataan Nuclear Power Plant, and the more recent Telepono sa Barangay.
But the bigger question is: do we really need another broadband that the DOTC says will provide seamless connectivity between our national government offices and our local government units down to the 45,000 barangays? Here is where the Senate inquiry was not pushed to ask the question: What percentage of our population and area are not yet served by landlines or cellular phones? The DOTC could not even provide the figures and we had to get the information from the NTC: there are now 13,000 base stations nationwide provided by Smart (6,000), Globe (5,000), Sun and others (2,000). Smart or Globe, singly, covers about 98 per cent of the population and 75 per cent of the geographical areas of the country. In other words, only 2 per cent of our population is not presently served by voice or text messaging system. The PLDT has also embarked in providing value-added services such as internet connection and cable TV. So, is there really need for another backbone?
And what about the $460 Billion Cyber Education project that will also install its own dedicated broadband? The objective is to broadcast to the rural public schools lectures of master teachers in the different disciplines. Has the DepEd looked at more cost-efficient alternative modes of delivery such as using the Knowledge Channel through the private sector broad bands including the smaller Trans Pacific Broadband and Broadband Philippines? And where transmission is blocked by a mountain terrain, can we not harness the services of local cable TV operators in airing the lectures from CDs? Does the DepEd know that we now have 1,501 cable TV operators covering 1440 cities and municipalities? And for the remaining 210 municipalities that are beyond reach by cable TV, why not send CDs directly to the schools? How much would this alternate mode of “last mile” delivery cost? Perhaps a pittance compared with the P23 Billion for the Cyber Ed project which can be used for building classrooms, hiring additional teachers, acquiring books and paying for feeding programs for schoolchildren.
And to those enamored by high-tech, instantaneous simulcast of the lectures that they would not tolerate even a month’s delay, we ask: do the laws of Physics change? How often does History get revised? Would one plus one no longer be two after a month, or a year?
Felicito C. Payumo was a three-term Representative of the First District of Bataan and the former Chairman and Administrator of the SBMA. He was the principal author of R.A. 6957, known as the Build-Operate-Transfer Law.
Comments to: payumo.felicito@gmail.com or fax to +632-812-4527
