In Retrospect, A Flawed IRR Takes on a Sinister Significance

Gomez is a trustee of Action for Economic Reforms. This article was published in the Opinion Section, Yellow Pad Column of BusinessWorld, October 8, 2007 edition, pages S1/4 and S1/5.

Early this year, the NGO community learned that Malacañang wanted to change the Implementing Rules and Regulations (IRR) to the BOT (Build-Operate-Transfer) Law.  (Sorry, I can neither confirm nor deny the source of this information.) According to the existing IRR, projects of various forms of private-public partnership that cost P200 million or more, as well as all negotiated contracts, regardless of project cost, should be approved by NEDA–ICC (National Economic and Development Authority-Investment Coordination Committee). The most important of the proposed changes to the IRR was that of shifting approval authority from the NEDA-ICC to the line agencies/agency heads. NEDA would be reduced to approving a “list” of projects endorsed by the line agencies. The proposed changes in the draft of the new IRR were to apply to all projects currently under review. Ostensibly, the rationale for these changes was to facilitate and shorten the approval process.

On May 10, 2007, more than 200 persons attended a Public Hearing on the proposed changes to the BOT Law IRR. Mr. Ruben Reinoso, Assistant Director General of NEDA for Infrastructure, Regulation and Contract Review explained their proposal to amend the IRR. Among others, representatives of the private sector, civil society, the World Bank and the academe (represented by Mr. Dante Canlas, former NEDA Director General), raised some concerns.

Their main objections were:

  • It was unclear what project specifications were to be submitted to NEDA-ICC, which would be reduced to a rubber stamp, if it just approved a list of priority projects.
  • Compared to the ICC, which is an inter-agency collegial body, line agencies have demonstrated that they do not have the capability to effectively evaluate all aspects of a project. Even if a given agency might have the ability to evaluate the technical aspects of a proposal (e.g. the Department of Transportation and Communications (DOTC) has Mr. Lorenzo Formoso III, a lawyer-cum-technical man, who was presented as the in-house expert on NBN), it may not have the ability to weigh a project against financial parameters or legal, and social/public implications of the project (as demonstrated by the inability of Mr. Formoso and Secretary Leandro Mendoza to effectively defend the  merits of the ZTE contract).
  • Relegating project approval to the agency level gave rise to fears that there might be a proliferation of unsolicited projects, i.e., projects that were not previously determined to be priorities in accordance with the MTPDP (Medium-Term Priority Development Plan) and/or for which the government has no pre-determined specifications or benchmarks for its actual needs (as is the case for the NBN).
  • The proposed changes would lead to less transparency and accountability in government contracts because the agency heads who are directly under the President can take the fall whenever problems crop up or anomalies are exposed (as is the case of the NBN-ZTE).  In short, from a rational point of view, the proposed change in the approval process seemed to be a case of shooting one’s foot to cure the wound.

It was subsequently learned that despite the objections aired in the Public Hearing, the executive was bent on implementing the changes to the IRR.  This prompted several groups to write a joint letter addressed to then-NEDA Director General, Romulo Neri, on 22nd of June, reiterating opposition to the proposed IRR changes. Action for Economic Reforms (AER), Economic Policy Reform Advocacy (EPRA), as well as representatives of the American Chamber of Commerce, Ateneo de Manila University, the UP School of Economics and the Philippine Institute for Development Studies (PIDS), signed the letter. It is believed that the World Bank and other multilateral institutions sent similar letters of concern to the executive.

There was no response to our letter and no more was heard of the proposed changes in the IRR. Prior to implementation, an IRR is supposed to be published in a newspaper of general circulation, but it was not. We wondered what happened to it. Not being insiders, we had to rely on the rumor mill, and our sources told us that while it was not yet formally adopted, it was more or less already being implemented. Judging from our past experience with this administration, we would not have been surprised if it totally ignored our objections. But we thought it was possible that the views of institutions like the World Bank might carry quite a bit of weight.

Then Mr. Romulo Neri testified at the Senate on September 26. It was a confounding testimony. The former NEDA chief argued for its acceptable economic benefits (which is not the same thing as financial benefits). Economists have wondered how Mr. Neri arrived at his calculation of economic benefits. In addition, while Mr. Neri admitted that he had objected to the mode of procurement of the ZTE-NBN, he did not adequately explain how he eventually came to be satisfied with it. The NBN project had been approved by Secretary Mendoza, and Mr. Neri claimed that NEDA does not approve projects. (It certainly used to). Since he kept referring to the DOTC as the approving body, his testimony left the Senators in a “puzzlement,” putting the role and usefulness of NEDA into question.

Not privy to much of the information that is necessary to draw conclusions, the public is forced to be content with putting-two-and-two-together and raising some puzzling questions. Was there a more sinister motive behind the timing and proposed changes in the IRR? In light of Mr. Neri’s unfavorable opinion of the project, were some people in the executive casting about for some other procedure/process to facilitate the approval of the NBN-ZTE project?  It appears that the executive decided at last to go forward with the ZTE contract, not the BOT way, but through some mestizo process that does not meet any of the existing legal processes. The signed agreement failed to meet certain requirements, such as Monetary Board approval (required for loans). It was a reconstituted supply contract that was not subjected to public bidding because officials say it was exempt from such since it is covered by an executive agreement, that: a) does not yet exist, but is forthcoming and/or b) exists because there has been an exchange of notes between China and the Philippines.

Action for Economic Reforms (AER) has been advocating greater transparency and accountability from government. If information is available to the public, there is less opportunity for public officers to enter into onerous contracts. Mr. Joey de Venecia III’s revelations at the Senate hearing confirmed that information is available only to insiders. If Mr. de Venecia III had not blown the whistle on the ZTE contract, the public would never have known of it and would have been deprived of the opportunity to question and probe into its merits, demerits, regularities (if any) and irregularities. The public has to be vigilant about similar questionable projects and press government to restore NEDA’s previous role. In the spirit of transparency and accountability, government must also reveal other BOT-IRR changes and subject these to public sector and civil society scrutiny and inputs.

No comments yet.