Holding company puts Smartmatic in control

This was in Mr. Bondoc’s column, “Gotcha”, published in the February 5, 2010 edition of the Philippine Star, Opinion Section.

Although only 40 percent, Smartmatic paid up 90 percent of the capital. TIM, the 60-percent “majority”, paid only 10 percent. That gave Venezuelan-owned, Barbados-based Smartmatic control over the Filipino TIM — worrisome in case of failure.

It’s okay to debate publicly whether President Arroyo can or can’t name the next Chief Justice. But shouldn’t foreigners keep out of it — even if they’re presidential spokesmen? From official records it appears that Gary Olivar, who has been insisting that Arroyo may appoint a CJ even without nominees from the Judicial and Bar Council, travels with a US passport. Flying out of RP eleven times between Mar. 2003 and Nov. 2009, he showed the US document numbered 0958687472.

Olivar was our radical leader at U.P.-Diliman in the heady ‘70s. As his fan and comrade in campus activism, I must warn him to not talk about elections. He might be jailed up to six years for foreign interference under the Omnibus Election Code.

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Everyone except crooked politicos wants poll automation to work. Sadly, it isn’t advancing as slickly as desired. Myriad lawsuits have delayed the Comelec’s timetable, while technical snafus cast doubt on the reliability of electronic vote counters. The poll body has yet to let political parties start a tedious review of the computer source code. Meantime, automation suppliers Smartmatic-TIM have removed the vote-verification feature of their counters, marring the credibility of tallies. Poor enforcement of election laws and last-minute changes in plans further are imperiling the process. Failure of election — and resulting chaos — loom.

In case of trouble Venezuelan-owned, Barbados-based Smartmatic International Corp. can just up and leave. Local partner Total Information Management will be left holding the bag. Filipinos will have useless voting machines. But Smartmatic will be billions of pesos richer. This, because the Comelec let it become the dominant partner, then advanced money to it — all in violation of the automation contract.

Conceding foreign superiority in electronic voting, the automation law (Republic Act 9369) allows foreign firms to participate. Still it requires observance of the Foreign Investments Act, and so limits foreign partners to only 40 percent of the contracting venture. Smartmatic-TIM seemingly complied with this in bid submissions. But in truth Smartmatic pitched in nearly 90 percent of the capital. TIM founder Jose Mari Antunez admitted as much in a Senate inquiry last July. And the SEC papers of Smartmatic-TIM’s holding company, 1920 Business Inc., reflect the same.

Incorporated last Aug., 1920 Business has 13,559,997 Class-A shares, each worth P1, for a total of P13,559,997. TIM, the holding firm’s registered 60-percent owner, paid up a total of P67,799,997 for the Class-A chunk.

1920 Business has another 9,039,998 Class-B shares, valued P13.50 apiece, for a total of P122,039,973. Smartmatic, the holding firm’s 40-percent owner, plunked in P610,199,673 for the Class-B portion.

1920 Business’ total paid up capital was P678 million. In effect, TIM pitched in only 10 percent (P67,799,997) of the working capital; Smartmatic gave the lion’s share (P610,199,997).

A month before 1920 Business’ birth, TIM nearly backed out of the automation project. Antunez confided to senators his fears about being jointly and severally liable with foreigners. His TIM was doing only 10 percent of the work, and Smartmatic 90 percent. But if anything went wrong, TIM would be absorbing 60 percent of the legal liabilities, while Smartmatic only 40 percent.

Comelec boss Jose Melo seethed that the automation was collapsing. Antunez and Smartmatic CFO Armando Yanes were ordered to settle their differences right in the Comelec conference room. Emerging smiling, they told the press they had been barred from saying anything bad about the project, each other, and the Comelec. Then came 1920 Business.
The Comelec’s automation budget (Smartmatic-TIM won with a P7.2-billion bid) was P11.2 billion. Bidding rules stipulated that the winner must immediately post a cash or credit guarantee of 10 percent of that amount, or P1.12 billion. Smartmatic-TIM tendered a letter of credit from HSBC-Manila in the equivalent $25.3 million, for the Comelec to issue an order to proceed.

In Nov., however, Smartmatic requested the Comelec to let it cancel the LC. The Comelec en banc granted it in Jan., though only in the amount of $21 million. Still, Yanes happily accepted, as the Comelec in effect had paid him $21 million. This was a breach of contract, which states that the supplier must maintain a 10-percent performance guarantee throughout the procurement process.

E-mail: jariusbondoc@workmail.com

See also Smartmatic hiring weak automation trainers

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