Arroyo okayed talks with ZTE on NBN before NEDA review

EXCLUSIVE: Through "special authority" documents she gave two Cabinet secretaries, President Gloria Macapagal Arroyo authorized negotiations for the award of the national broadband network (NBN) project to China’s ZTE Corporation, months before the National Economic and Development Authority (NEDA) started its evaluation of the NBN project, according to official records submitted to the Senate Blue Ribbon Committee. And four days before formal talks with ZTE could start, Mrs Arroyo brought the ZTE chairman to Cotabato City, as her special guest, at the joint Cabinet-regional Development Council meeting there on July 8, 2006. She told local folk at the meeting that ZTE was investing US$1 billion in telecommunications and other projects in the Philippines. On July 12, 2006, Mrs Arroyo signed a “special authority" document vesting Trade and Industry Secretary Peter J. Favila “full powers" to “negotiate, conclude and sign, for and on behalf of the Republic of the Philippines" the award of investment projects, including NBN, to ZTE International Investment Corporation, a sister company of ZTE Corporation. This occurred three months before the NBN project was endorsed for review by the NEDA, and eight months before the NEDA board chaired by the President formally approved the same. In a second “special authority" document dated April 20, 2007, Mrs Arroyo granted Transportation and Communications Secretary Leandro Mendoza “full powers and authority" to “sign, execute and deliver, in accordance with the law, for and on behalf of the Republic of the Philippines the Contract for the Supply of Equipment and Services for the National Broadband Network Project between the Government of the Philippines through the Department of Transportation and Communications (DOTC) and ZTE Corporation." The day after, on April 21, 2007, Mendoza signed the “provisional" supply contract with Yu Yong, president of ZTE International Investment Corporation. But Acting Justice Secretary Agnes Devanadera said there was nothing unusual with the grant of special authority to Favila to negotiate with ZTE, ahead of the Chinese government’s designation of the firm as its preferred contractor for the NBN project. “There were preliminary meetings even before December," she said. Executive Secretary Eduardo Ermita shrugs off as pure politics suggestions that the President had a direct hand in the award of the NBN project to ZTE, adding that the deal passed through review processes. “’Di naman name-mressure ang Pangulo. Kung na-mressure siya, bakit ngayon pinasuspinde niya?" Sought for comment, another Cabinet official said that the “special authority" instruments are “given all the time" by the President because she is the only authorized contracting party for the republic. “That’s ministerial only," the official said. The official explained, however, that the “special authority" was “not meant to pre-empt the project review process" except that “there were already government to government communication… about concessional loans that might gave some benefit like improving bilateral relations." GMANews.TV also exerted all effort to get the side of Favila and Mendoza on these issues. Favila texted that he was still in New York with Mrs Arroyo, while Mendoza simply refused to return calls because his aides said he was busy all day Friday. Not registered with SEC A check with the Securities and Exchange Commission showed that ZTE International Investment Corporation, which signed the MOU with Favila, has not registered as a company doing business in the Philippines. SEC records showed that only ZTE Philippines had registered. A source privy to the deal said ZTE International Investment Corporation and ZTE Corporation are one and the same company, but that the MOU and related documents pertaining to the grant of the NBN deal were matters for the governments of China and the Philippines to discuss. In the “special authority" documents she signed together with Ermita, Mrs Arroyo said the two secretaries were “to do and perform every act and thing which may be requisite and necessary to be done for the accomplishment of the Special Authority herein granted, as fully to all intents and purposes as I, the President of the Republic of the Philippines, might or could lawfully do or cause to be done by virtue of these presents." ZTE eyes mining deals, too In the July 12, 2006 “special authority" document, Mrs Arroyo gave Favila “full powers and authority to sign the “Memorandum of Understanding between the Philippine Government and ZTE International Investment Limited, a sister company of ZTE Corporation concerning cooperation in various investment projects," including the NBN project, and mining operations in Diwalwal and North Davao. Surprisingly, the resulting MOU signed by Favila and Yu Yong, ZTE International Investment Ltd. president, reveals that ZTE wanted to acquire more than just the NBN deal valued at $329 million. ZTE also listed mining projects in Mindanao worth nearly ten times more, or $4 billion. Michael Defensor, then Presidential Chief of Staff, and ZTE Corporation chairman Hou Weigui signed the MOU as witnesses. Apart from the “government broadband communication project," the MOU said the following “investment projects" worth $4 billion will be funded and fully provided by ZTE International": • “establishment of information technology school and training center; • “exploration, development and operation of mining areas in North Davao; • “exploration, development and operation of mining areas in Diwalwal; • “establishment of a special a Special Economic Zone in the Davao area." Under the “terms of the agreement," the MOU stated that “ZTE INT’L shall be the Parties’ Financial and Technical Services Provider for the Investment Projects." Its role includes “the preparation and implementation of a sound financial and budgetary plans (sic) for the projects; providing and making available all the required funds and financial support for the full development and implementation of the Investment Projects in the amount of US$4 Billion; and the provision of technical know-how and competence in the development and implementation of the Investment Projects." All gov’t agencies to help? On the other hand, the MOU stipulated big and broad roles for seven line departments and “all other government agencies and offices" of GRP or the Government of the Republic of the Philippines. These roles are: • “The GRP, particularly the Department of Finance, Department of Trade and Industry, Department of Interior and Local Government, Department of Environment and Natural Resources, Department of Transportation and Communication, Department of Budget, National Economic (and) Development Authority, and all other Government Agencies and Offices shall provide all necessary assistance for the development and implementation of the Investment Projects; and • “The GRP shall make available technical advice on the local nuances in the development and implementation of the Investment Projects to ensure compliance with all applicable laws, rules and regulations." The Agreement, the MOU stated, “shall comply with the requirements of the Laws and Regulations" of the Philippines and China “and shall be consistent with the objectives of the Parties herein." Virtual gag clause The MOU enshrined under a miscellany clause titled “Good Faith," the following: “The Parties hereto recognize that it is impossible to elaborate in advance on the operating details of this Agreement." Hence, “in discharging their respective duties and obligations hereunder, a Party shall apply the standards of good faith, taking into consideration that the main purpose of this Agreement is to ensure the utmost cooperation among the Parties and the success of the undertakings hereunder contemplated." Still and all, the MOU prescribed a virtual media gag on the contents of the agreement. Under the heading “Announcements," it stipulated: “Unless otherwise required by law, regulation or on order of any appropriate agency, a Party hereto shall not reveal the contents of this Agreement, or issue any press release or make any public announcement pertaining to the projects contemplated herein without the prior written approval of all the Parties to this Agreement." Mrs Arroyo herself seemed to have preempted this gag clause when she announced ZTE’s investment plans on July 8, 2006, or four days ahead of her issuance of a “special authority" document for Favila. When she visited Compostela Valley on July 8 last year, Mrs Arroyo said ZTE Corporation was planning to invest US$1 billion in the region, or half the $2-billion total projected Chinese investments into Mindanao. She made the statement during the joint Cabinet-Regional Development Council meeting in Cotabato City, archives of the Office of the Press Secretary and GMANews.TV showed. Mrs Arroyo’s special guest at the meeting was, in fact, the ZTE chairman. “I brought with me the chairman of the ZTE, the Chinese corporation with the largest value traded in the Shenzhen Stock Exchange," Mrs. Arroyo told her audience. “Together with the China Development Bank, they are bringing into Compostela a $1 billion investment." Mrs. Arroyo explained that the amount is part of the $4 billion in various Chinese investments in the country. Favila, who was also in Cotabato City, said the state-owned ZTE is seeking to have a Memorandum of Understanding with the Philippine government. The investments, Favila said, “may not be only in the areas of telecommunications." Exchange of notes As a result of the MOU, a fast-paced exchange of notes ensued between ZTE, and officials of the two countries. On August 7, 2006, ZTE sent a letter from its “Philippine Representative Office" located at the Pacific Star Building in Makati, on its “Proposal for a National Broadband Network Project." It noted: "Further to your requirements for nationwide telecommunications network, we are very pleased to submit herewith our Proposal for National Broadband Network Project." The single-page letter was simply signed “ZTE Corporation" and not addressed to anyone in particular but simply to “Gentlemen." The letter said “the proposal includes technical proposal, Engineering Proposal, Managed Services Proposal, and Bill of Quantity and Financial proposal (which) will be submitted to the secretary on later date." On September 8, 2006, Li Xiaoping, general manager of the Export Credit Department of the Export-Import Bank of China wrote the NEDA on the subject of “Philippines National Broadband Network Project." “We are pleased to notice that ZTE is making an effort to pursuing the captioned Project in your good country." Li said. “China Eximbank held discussions with ZTE and reviewed the Project information, which resulted in the conclusion that China Eximbank may be available for this transaction." No loan amount was specified in Li’s letter, just an endorsement of ZTE . “As one of our best clients, ZTE has established and maintained good cooperation relationship with our bank. We attach great importance on the captioned Project submitted to us by ZTE," Li said. “We are ready to exchange opinions with you and explore all cooperation opportunities," he said. The $4 billion amount quoted in the MOU between the Philippine government and ZTE International Investment is what seems worrisome, according to economics professor and former NEDA director-general Solita Monsod. While the grant of “special authority" may be “SOP" or standard operating procedure, Monsod said: “Imagine, 4 billion dollars, hindi clear kung paano papasok ang pera, Uutangin ba? Grant o investments?" Yet again as a result of the MOU, Secretary Michael Defensor, on Nov. 21, 2006, wrote China’s Minister of Commerce Bo Xilai requesting confirmation “whether Chinese companies are interested in providing a comprehensive solution, to include financial and technical support, for the development of the NBN and Distant (Distance) Learning Program of the Philippine Government." Defensor's sudden entry in the negotiations could not be explained. It was Favila and NEDA that had maintained contact with ZTE until Defensor wrote China's minister of commerce. By his own account in press interviews, Defensor was at that time largely working as a political lieutenant with allies in Congress and local government units, and spokesman, for Mrs Arroyo. Envoy: Delink NBN, CyberEd Twelve days later on December 12, 2006, China’s Ambassador to the Philippines Li Jinlin replied to Defensor, and confirmed that consistent with the MOU, “we intend to support your priority initiative, the NBN project and agree to provide preferential buyer’s credit financing support through the China Exim Bank." However, the Ambassador specified that “the Chinese Ministry of Commerce designated ZTE as the NBN project’s prime contractor." In addition, the Ambassador clarified that the Distant Learning Project, which eventually evolved into the Cyber Education project, “has been discussed by the Chinese Tsing Hua Tonghang Nuctech Company and the Philippines’ Department of Education." MoUs, special authority Section 57 of Executive Order No. 292, or The Administrative Code of 1987, on “Conveyances and Contracts to which the Government is a Party," states that only the President is authorized to negotiate and sign “any deed, instrument or contract conveying the title to real estate or to any other property" that exceeds P50 million. In Section 51, the Code specifies that “Contracts in behalf of the Republic of the Philippines shall be executed by the President unless authority therefor is expressly vested by law or by him in any other public officer." Under law and diplomacy, a “memorandum of understanding" is defined as a legal document outlining the terms and details of an agreement between parties, including each parties requirements and responsibilities." Legal lexicon also spells out that “the MOU is often the first stage in the formation of a formal contract. An MOU is far more formal then a handshake and is given weight in a court of law should one party fail to meet the obligations of the memorandum." Additionally, established jurisprudence clarifies that “a Memorandum of Understanding (MoU) is a legal document describing a bilateral or multilateral agreement between parties. It expresses a convergence of will between the parties, indicating an intended common line of action and may not imply a legal commitment. It is a more formal alternative to a gentlemen’s agreement, but in some cases, depending on the exact wording, lacks the binding power of a contract." – Malou Mangahas, GMANews.TV