China Eximbank pledges $329.5 million preferential buyer’s credit for National Broadband Project

On July 12, 2006, a Memorandum of Understanding for the Nationwide Government Broadband Communication Infrastructure Project was signed between the Government of the Republic of the Philippines and ZTE International Investment Limited. An Executive Agreement was then entered into between the Chinese Government and the Government of the Republic of the Philippines, wherein the Chinese Government agreed to finance the National Broadband Network (NBN) Project through a loan from the Export-Import Bank of China. The initial borrowing terms were identified as a 7 year maturity, 3 year grace period, and a 4% interest rate. On December 2, 2006, China's Ambassador to the Philippines Li Jinjun informed the Government of the Republic of the Philippines — through then Presidential Chief of Staff Mike Defensor — that the Chinese Government would support the project through a preferential buyer’s credit (PBC) from China Eximbank and ZTE Corporation would serve as the prime contractor. Then, during a March 29, 2007 NEDA Board Meeting, the borrowing terms and conditions of the PBC were modified, extending the loan term to 10 years and the grace period to 5 years, and lowering the interest rate to 3%. The proceeds of the PBC were to be used by the borrower to partially finance a $329,481,290 contract between the Department of Transportation and Communication (DOTC) of the Philippines and ZTE Corporation, which was signed on April 21, 2007. On April 21, 2007, the Department of Transportation and Communication (DOTC) entered into the contract with Zhong Xing Telecommunications Equipment (ZTE) for the supply of equipment and services for the National Broadband Network (NBN) Project in the amount of U.S. $329,481,290 (approximately P16 Billion Pesos). The total contract price consisted of the price of the equipment, $194,051,628, and the price of the engineering services, $118,605,650, and price of the managed services, $14,875,507, and the price of the training, $1,948,505 (above figures are all net prices exclusive of all taxes). Equipment was expected to have been delivered by the contractor within 3 years of the contract date. The purpose of the NPBN Project was to construct high speed internet services for 25,844 government offices in the country by building 148 microwave radio relay stations and 300 WiMax wireless base stations. ZTE Corporation would be responsible for maintenance and repair for the broadband network, as well as training Filipino technicians. On September 11, 2007, the Philippines' Supreme Court issued a temporary restraining order against the implementation of the commercial contract. President Arroyo suspended the commercial contract and the project on September 22, 2007. She also announced the cancellation of the contract during her meeting with Chinese officials in Beijing on October 3, 2007. The NBN project was plagued by accusations of overpricing and bribery. A congressional investigation by the Committee on Accountability of Public Officers and Investigations suggested that the commercial contract with ZTE Corporation was artificially inflated by $130 million in order to facilitate various bribes and kickbacks involving Benjamin S. Abalos, Chairman of the Commission on Elections (COMELEC). When then-National Economic Development Authority (NEDA) Secretary Romulo L. Neri was called upon to testify before congress, he disclosed that Benjamin S. Abalos, the Chairman of the Commission on Elections, had offered him a bribe to favorably endorse the NBN contract. Neri also stated that he had informed President Gloria Macapagal-Arroyo about the bribe offer. The disclosure prompted Senators to ask whether President Arroyo followed up the NBN project with Neri, whether President Arroyo directed Neri to prioritize it, and whether President Arroyo directed Neri to approve the project. Neri responded to each question with a claim of executive privilege.

Additional details

The face value of the buyer’s credit loan is not reported by any of the underlying sources. AidData estimates that the face value by taking 85% of the value of the underlying commercial (EPC) contract supported by the buyer’s credit loan.

Number of official sources

8

Number of total sources

17