Centenial Expo: Convenient Cover For Election Fundraising

2ND PRIZE—1999 JVO INVESTIGATIVE JOURNALISM AWARDS

Part One
CENTENNIAL EXPO
Convenient Cover For Election Fundraising
by CHAY FLORENTINO-HOFILEÑA and IAN SAYSON

MONTHS BEFORE the May 1998 presidential elections, the Lakas party, through campaign manager Cesar Sarino, opened a discreet, fund-raising office at the Manila Hotel where contributions to the then ruling party’s campaign were accepted.

Among those who visited Sarino’s office were representatives of the Bases Conversion Development Authority (BCDA) and the Clark Development Corporation (CDC), two government agencies involved in the construction of the Centennial Exposition in Clark.

Joseph Ocol, then head executive assistant to CDC president and chief executive officer Romeo David, recounted that during those visits, BCDA and CDC representatives delivered millions of pesos stashed in envelopes. The deliveries, he said in a recent interview, were made mostly in the afternoons when Sarino was present to accept contributions.

In an affidavit issued just last week, Ocol described how contractors working on the project were asked to make substantial donations to Lakas. Such contributions violate the Election Code, which bans direct or indirect contributions from companies or individuals with contracts or subcontracts with government agencies.

In his affidavit, Ocol said, “I witnessed the delivery of money by CDC and BCDA officials, as well as contractors and duty-free shop owners to a political office at the Manila Hotel.” He recalled going to the hotel at least “six times” either for meetings or deliveries.

In a statement submitted to the Senate blue ribbon committee early this year, Ocol – whose position made him privy to CDC biddings and transactions involving contracts, procurements and lease arrangements in Clark – described how “everybody in BCDA and CDC then at that time was desperate in (sic) coming up with all means and money to prevent Erap from winning in the elections.”

“That is why ‘Centennial’ was an overused word then,” he added. “It was the best alibi to shortcut rules and regulations to raise money from contractors, suppliers and businessmen in order to support the candidates for the May elections.”

One year after the centennial celebrations, controversy still hounds the sprawling 60-hectare Centennial Expo project, which cost the government more than P9 billion, according to investigations of the Senate blue ribbon committee. This amount is 1.7 percent of the 1998 national budget, almost equivalent to the allocation for a medium-sized government department.

After months of investigation, the blue ribbon committee discovered substandard work on some projects in the Expo site and irregularities in the disbursement of funds, but it was unable to trace where the money went and who should be held accountable. It also failed to pursue the leads provided by witnesses like Ocol who gave clues to the money trail, particularly in infrastructure projects.

Our own investigation shows that the centennial projects, which involved either support infrastructure or services for the Expo site, became a convenient vehicle for election fund-raising at the expense of the Filipino taxpayer.

Originally intended to catalyze development in both Clark and Central Luzon, the project has so far brought little tangible gains to the region. Instead, it reveals the inefficiency and extravagance of the Ramos government, which poured in billions into a project of dubious worth, while scrimping on other projects – roads, housing, etc. – that were sorely needed.

Government financing institutions were also pressured to bail out the Expo at the expense of other priorities like agriculture and housing because, officials involved in the centennial preparations reasoned, the country could ill-afford a sullied image during its first centennial.

Over 30 people involved with the Expo in some way were interviewed for this report. We examined the transcripts of the blue ribbon committee hearings and close to 30 folders containing documents submitted to the committee. Documents obtained from other sources were also used to piece together a story about government officials who were leading celebrations for the centennial while at the same time raising funds for a presidential campaign.

FUNDRAISING
Contractors and duty-free shop owners in Clark were among those tapped to help oil the Lakas campaign machine, according to Clark insiders. They were convenient targets because they had business interests to protect or were eager to make investments they could collect from in the future.

Lakas fundraisers, however, were torn between supporting Jose de Venecia Jr., Ramos’s preferred candidate, and former defense chief Renato de Villa, a long-time Ramos ally.

Torn between their loyalty to Lakas and their own personal preferences, some Ramos loyalists based in Clark were forced to work doubly hard to be able to contribute to both the de Venecia and the de Villa camps. Because they had quotas to meet in such a short time, some of these Lakas supporters, according to BCDA and CDC officials, turned to the multibillion-peso centennial and other related projects inside Clark.

At the helm of both the CDC and the BCDA were former military officials with known close ties to Ramos, and who were said to be rivals for the latter’s attention. CDC chief David, a retired Air Force general, belongs to the class of 1956, the same Philippine Military Academy class as then Ramos security adviser Jose T. Almonte. BCDA chairman Victorino Basco, a retired Navy captain, was in class 1957, the same class as presidential candidate de Villa.

Sometime in late December 1997, Basco and Nestor Mangio, a CDC board director who is also a Ramos ally, called for a meeting at the CDC conference room, Ocol recounted in his June 8, 1999 affidavit certified by an Ombudsman graft investigating officer.

“The purpose of the meeting was to find means of funding and helping certain presidential candidates in the coming May elections,” Ocol said. “Among those who attended the meeting were CDC/BCDA director Roberto Flores, vice president (Francis) Elum, vice president Angelino Medina, manager Monina Pineda, and manager Carmelo Villacete.” Ocol said he was present in that meeting. So was David, Ocol’s boss, said a CDC official who was also there.

“It was agreed that money was to be raised from contractors, smugglers, duty-free shop owners, importers, lessees and buyers of disposed equipment and materials,” Ocol added in his sworn statement. “The beneficiaries of the money raised from the aforementioned people were presidential candidates Jose de Venecia and Renato de Villa.”

Basco denies the meeting took place or that Ramos asked him to help raise funds for the campaign. “Mahihiya siya sa akin eh (He would be embarrassed to ask me),” Basco said. Besides, he added, Ramos knew he was for de Villa.

But two other CDC officials named by Ocol did not categorically deny that a meeting was called. Elum said he had “heard about it” but that he was not invited, while Pineda said she could not recall it and that she could not have been invited as well because she did not belong to David’s “inner circle.”

Ocol however countered that Pineda was CDC’s direct link to Malacañang because her husband was a “law partner” of Alexander Aguirre, who became acting executive secretary, and deputy executive secretary Renato Corona was a ninong in her wedding.

MONEY FROM CONTRACTORS

A month before the December 1997 meeting, Ocol said he had already learned about plans to raise money from Clark contractors for the elections.

Philippine National Construction Corporation (PNCC) vice president Ibarra Paulino, Ocol said in his affidavit, came to Clark to ask for David’s help in speeding up payments to build the 14-kilometer Mabalacat-Clark spur road. The PNCC got the contract to build that road although it in turn subcontracted the project to three other firms.

Because David was not around, Ocol said he entertained Paulino who came to Clark with his family. In the course of their drinking session, Ocol said, “I came to know about the plan of PNCC and BCDA to raise money from the contractors to support certain candidates in the coming May 1998 presidential elections.”

In his affidavit, Ocol said that Paulino admitted he brought “P2 million as initial ‘SOP’” which he was handing over to a CDC official to ensure his cooperation. “Paulino and I had some drinks at the Holiday Inn coffee shop” where he was to meet (that) official, Ocol said in his affidavit.

When the official arrived and talked with Paulino, Ocol said he sat at another table. “I saw (with) my own eyes” a long, brown, expandable envelope being handed to the CDC official, Ocol recounted in his sworn statement. When the official left, Ocol said Paulino told him that he got assurance from the CDC official that “he will not be a hindrance to the PNCC projects in Clark.”

The official denied he “ever asked Paulino for any amount whatsoever.” He also dared his accusers, “Kung totoo yang mga iyan, i-file niyo sa Ombudsman (If that’s true, file a case against me at the Ombudsman’s office).”

Paulino, too, denied the incident took place. “That’s ridiculous. That’s untrue because everything we do is audited by the Commission on Audit. We never engaged in such deals. What would we get from that when we are both government corporations?”

Also in November 1997, another former CDC senior official said contractors went to the Manila Hotel to attend informal meetings with Basco. The official said there were “not less than 10” people in one meeting held at noon, with two contractors present. One contractor handed over a P1-million check, the CDC official added.

BIG TICKET ITEM

All in all, there are about 18 centennial-related projects funded mostly by BCDA in Clark. Contract costs total some P3.67 billion, according to the CDC and BCDA. The biggest among these projects – about a third of the total – is the Mabalacat-Clark spur road.

The project was originally packaged as a joint venture between the PNCC and a subsidiary of Benpres Holdings Corp. But because of delays in securing government approval for the project, four government firms (BCDA, CDC, CIACOR and PNCC) took over, supposedly to speed up the project in time for the Expo. BCDA and PNCC took charge of contracts and implementation, while CDC and CIACOR or the Clark International Air Corp. also chaired by David handled administration.

Signing the documents for the project were David, BCDA’s Basco, who had just moved from his post as chairman of PNCC, and another retired military officer, Col. Rogelio Luis, who assumed Basco’s position at the PNCC.

Estimated by the Senate blue ribbon committee at P1.071 billion, the project was supposed to consist of two sections: the Mabalacat-Clark spur road, a four-lane 5.6-kilometer expressway from the Dau interchange to Clark; and the 8.7-kilometer Clark perimeter road that connects the spur road to Gil Puyat Ave. inside Clark and to the Centennial Expo site.

Early this year, the current BCDA chairman Rogelio Singson stopped the construction of the spur road after it was found to be of “substandard” quality and the performance of the contractor, PNCC, was found to be unsatisfactory. By then the government had already spent more than P200 million on the project.

The suspension of the work, Singson said, was by mutual agreement since the urgency was no longer there as the centennial year was over. “BCDA would have been in the red if we had not stopped. There is no way PNCC could have finished on schedule,” he added.

The Senate blue ribbon committee found that the project was tainted with irregularities, among them, illegal subcontracting by the PNCC and the absence of public bidding.

Referring to the spur road project, Willy Castor, national president of the National Constructors Association of the Philippines Inc., said, “Malakas ang lagayan diyan (there were big payoffs there).”

PNCC was given the P1.2 billion-contract but acted like a “broker,” according to Castor, because it subcontracted the project for some P628 million to three firms: R.D. Policarpio and Co., New Sampaguita Builders Construction, Inc., and Unicorn Construction Co., Inc.

Sampaguita, in turn, subcontracted four other contractors to do its work, providing a third layer of contractors. This is “disadvantageous” to the government because the “contract price is jacked up with the entry of each contractor or subcontractor who will factor in his mark-up,” the Senate report said.

In a letter to blue ribbon committee chairman Aquilino Pimentel last February, Basco defended the lack of public bidding in the spur road project, saying that “where time is of the essence,” projects may be undertaken by negotiated contract “subject to the approval of the President.”

He added that since PNCC is the “sole legislative franchisee to own, operate and maintain the tollways and their extensions,” subcontracting was its “prerogative.” BCDA, he said in a counter-affidavit submitted to the Office of the Ombudsman in October 1998, “had no participation whatsoever” in the selection and engagement of subcontractors.

On Dec. 15, 1997, Basco wrote Luis, giving him the “notice to proceed” or NTP for the project’s second section, the Clark perimeter road. Days later, Basco would be in that meeting where he supposedly talked of the need to produce campaign money for Lakas.

Castor said that after the NTP is issued, contractors get their initial downpayment to begin work. It is from this downpayment that commissions given out to officials are usually taken, he added.

MORE MONEY

In December 1997, the president of Leadway Construction, a contractor for at least two centennial-related projects worth over P50 million “turned over P1 million” to a BCDA and CDC director at Woodland Resort Hotel in Mabalacat, Pampanga, Ocol said in his affidavit. The money was in exchange for the official’s signature on the check payment for Leadway, Ocol said.

The official, according to other CDC officials, was said to be a close associate of then executive secretary Ruben Torres.

The official “wanted to hand me P100,000 to help him follow up the papers of Leadway,” Ocol said in his affidavit. “When I refused to accept the amount, he told me, “Kung ganoon, I’ll just donate this amount to the campaign fund of Lakas and Sec. Torres.”

Besides contractors, fund-raisers also eyed duty-free shop owners who were bold enough to smuggle items out of Clark. As part of the “fund-raising” effort, Clark officials agreed to tighten security and squeeze money “from those who made money at the expense of government,” Ocol said.

On Feb. 3, 1998, police operatives intercepted frozen duty free goods worth P800,000 that were about to be smuggled out of Clark via the Sapang Bato gate at noontime.

The goods were inside an Isuzu van with plate USG-273, according to an “After Operation Report” submitted by Clark security and fire department manager Carmelo Villacete to David.

“Further investigation revealed that the goods are owned by one Edgar Ti,” the report said, a “locator” or investor in Clark who is also president of ELT Enterprises and director of Gloria Maris restaurant.

Ti offered to settle. In his affidavit, Ocol said, “Although the goods smuggled cost only P1 million, Ti agreed to pay Villacete the P2 million because he did not want a scandal of a smuggling case against him. I personally witnessed Ti (give) the P2 million to Villacete because it was done inside my residence. He then took P100,000 from the envelope and tried to hand it to me. I refused to accept it and told him that it was against my religion.” The following day, Ocol said, the money was forwarded to CDC higher-ups.

Ti’s case, listed under violations of the tariff and customs code, was described as an “ongoing case” in an April 10, 1999 report of the Clark security and fire department. In another report the following month, the case was no longer part of the list.

Part of the campaign money raised by the Clark officials was eventually turned over to the Manila Hotel office, two former CDC officials confirmed. Some contractors went straight to their “solicitors,” said Castor. The contributions, he said, ranged from P500,000 to P10 million, with the average donation at about P1.2 million.

It is difficult to ascertain how much was raised all in all from these operations since the transactions were made mostly in cash and left behind no paper trail. Official Comelec records of contributors to the de Venecia campaign do not show the names of these contractors either.

Only de Villa’s list of campaign contributors revealed familiar names – Mangio, who contributed P1 million, businesswoman Nora Bitong who gave the same amount, and contractor Edgardo Angeles of Asia Construction & Development Corporation who shelled out P5 million.

The latter two would figure prominently in another facet of the centennial scam involving a much grander and more expensive project.


Part Two
CENTENNIAL EXPO
The Freedom Ring: How To Build A White Elephant

THE LARGEST amphitheater in Asia, with a seating capacity of 35,000, stands virtually unused in the middle of what used to be barren, lahar-filled land inside the Clark Special Economic Zone.

This gargantuan structure, which cost P1.2 billion to build, is called the Freedom Ring and was intended as the centerpiece of the 60-hectare Philippine Centennial Exposition.

How it got built is a story of grand plans gone wrong, made worse by poor government planning, unbridled ambition and the symbiotic relationship between contractors and public officials.

Today, one year after the centennial celebrations, the Freedom Ring is a white elephant whose long-term benefits to the local economy are as hazy as the procedures that were followed to build it.

Envisioned to symbolize “freedom and the Philippine spirit,” it is instead a monument to the power of a president to mobilize massive government resources for a project with little tangible returns.

Our investigation shows that the Freedom Ring was built by systematically shortcutting government procedures and with high officials led by former president Fidel V. Ramos and National Centennial Commission (NCC) chief Salvador Laurel irrationally insisting on the grand project even if it could not be fully funded. Although we did not uncover hard evidence of commissions or bribes being paid to these officials, the project is nonetheless reminiscent of the extravagance of the Marcos era.

That it was considered at all, particularly at a time when the currency crisis was beginning to wreak havoc on Asian economies, shows how much more monitoring and checking there needs to be done on the use of public resources. The Freedom Ring had grown well beyond the initial projected cost of P260 million. From the initial design of two hectares, the project ballooned to nine hectares.

Today the folly of a 35,000-seat amphitheater is evident in the cracks on the floors of the bleacher section as well as dust and cobwebs on the imported blue seats – sure signs that the place has been used only rarely.

Besides small conventions, the amphitheater has so far drawn one international show and a beauty contest that filled only half the performance area. Little wonder: The sellout Michael Jackson concert in Pasay some years ago drew a crowd of only 19,000, says former Bases Conversion Development Authority (BCDA) chairman Victorino Basco.

Other officials interviewed for this report, however, are hopeful the government will recoup its expenses from the conversion of the Expo site into a recreational theme park and the envisioned development of Central Luzon. But this, they conceded, will take some time.

GRAND VISION

Former President Fidel V. Ramos wanted the Expo to be a catalyst for development in Central Luzon, which has borne the brunt of Mt. Pinatubo’s wrath since 1991. The region’s economy has remained almost stagnant and the Expo was expected to spur economic activity by building roads and bridges and attracting tourists and businesses.

P1.9 billion was initially thought sufficient for the project, but documents obtained from the Senate blue ribbon committee and BCDA officials showed that this budget increased to over P3 billion for structures on the Expo site alone, representing about a third of the amount spent for the centennial preparations.

When Ramos created the NCC in October 1993, he had already asked Laurel to be chairman. Laurel said he was chosen because of his “stature” and “sense of history” and that he accepted the post on two conditions: that he not be paid and the project be kept above politics.

Laurel said he contacted Douglas/Gallagher, a Houston and Washington-based development planning firm to do a master plan and feasibility study. The firm presented two options for the Freedom Ring in its Nov. 15, 1995 report: scheme A, costing P1.92 billion, involved a covered space; and scheme B, estimated at P1.53 billion, was for an open space.

The economy was then doing well. Still, the study advised a combination of public, private (through a “strategic partner”), domestic and international resources since the Philippine government could not afford the entire cost of the exposition. Officials did not expect to make money from the Expo since previous expos –save for the one in Taejon in South Korea – were financial failures.

Since a joint venture had better chances of making some profit after the lifetime of the Expo and the private sector could help shoulder the costs, the government looked for a business partner. But little did officials expect that projections would go awry and that relations with the partner would turn sour.

EXTRAORDINARY ARRANGEMENTS

To implement Ramos’s vision, a Philippine Centennial Expo ‘98 Corporation (Expocorp) was created as a government-owned joint venture that would later invite a private sector partner to assume majority ownership of the company.

The feasibility study rationalized this majority ownership as a way of allowing the new corporation to function as a private entity and not make it “responsible for following government contracting procedures. Such procedures would present a difficult burden on the development of the Exposition in the time available,” the study said.

A Memorandum of Understanding was signed by BCDA and NCC on Mar. 18, 1996 –four months after the completion of the master plan – to pave the way for Expocorp. The agreement provided for an extraordinary arrangement when it required a government-controlled board for a private corporation.

Eleven days before the agreement was signed, NCC executive director Luis Morales had already written to Jaime Koa, president of Lilly Hill Corporation, asking him to confirm his interest in Expocorp.

A public relations man who helped in the 1992 Ramos campaign, Morales was appointed by the former president to run the day-to-day operations of the NCC. He spelled out in his letter to Koa the “Terms of Reference” of the negotiations – among them, a critical 55-45 percent ratio in the joint venture.

The private-sector partner was supposed to pour in P550 million in capital, while government was committed to put in its P450-million share for a total of P1 billion. In exchange, the partner would be extended a maximum 75-year lease of the 60-hectare Expo site and be allowed to operate whatever useful structure is left on the site.

The Terms of Reference also indicated a 14-18 month life for the Expo (from December 1997 till June 1999) and set land rentals at a rate of five percent on the gross revenue. It set Nov. 14, 1997 as the completion date for the construction of the Freedom Ring.

Within five days of the Morales letter, Koa confirmed his acceptance and named as his partner, Nora A. Bitong, with whom he was putting up a consortium, Global Clark Assets Corporation (Global). Described as a “shrewd, sometimes abrasive” businesswoman, Bitong, according to several officials involved in the centennial project, saw the opportunity to make money by leasing Expo land.

By June 1996, Expocorp, BCDA, Clark Development Corporation and Global signed an agreement that pegged the total cost of the Expo project at P1.9 billion. The agreement affirmed the constitution of the Expocorp board, granting government nine of the 11 seats. It also required Global to pour in P123 million, with the balance of P427 million funded by way of loans, a departure from the paid up capital that the Terms of Reference had specified.

On July 15, 1996, Douglas/Gallagher submitted its final report which clearly indicated that the centerpiece of the Expo would be temporary and have a covered roof structure that would stretch about 2.7 hectares.

Using adjusted estimates by ICF/Kaiser which it hired to do costings, Douglas/Gallagher gave an estimated design budget of $9.5 million for the Freedom Ring structure and roof packages, roughly equivalent to P248.6 million at the time. While Kaiser estimates placed the total Expo project cost at P3.035 billion, design estimates were pegged at P2.25 billion.

In its final report, however, Douglas/Gallagher said, “While the Kaiser estimates are higher than the P1.9 billion budget adopted, we feel they do not adequately reflect the temporary nature of the celebratory architecture and exposition construction and, therefore, tend to maximize the general construction over the development of show and entertainment.”

Laurel said the final report was disapproved and the original Freedom Ring cost estimate was “grossly inaccurate.” He insisted on a permanent structure that, he stressed, had the approval of Ramos and the Cabinet. This, however, would heap disaster on a grand project already pressed for time.

PERMANENT OR TEMPORARY

Veldon Corporation, tapped by the Bitong group to manage the Expo project, listed two options: a temporary structure for the duration of the Expo and a permanent structure with a design life of over 20 years.

Following the Douglas/Gallagher proposal, Veldon’s design brief gave an “indicative budget” of P260 million maximum for a temporary structure and asked contractors to submit a price estimate for a permanent structure as an alternative offer.

On Nov. 27, 1996, Maj. Gen. Cesar Tapia, then Expocorp vice president for operations, wrote a memorandum addressed to Tony Gulliver, Veldon Corporation vice president for operations, telling him that Laurel wanted a permanent Freedom Ring structure.

“This is the understanding from the very start which I understand the chairman reiterated and stressed during the briefing at Manila Hotel last 21 August 1996. As the chairman said then, ‘this is not negotiable.’ The roof, when viewed from the air, should look like a giant Pampanga lantern,” Tapia wrote.

Apparently wanting to make sure that Laurel’s instructions were clear, Tapia wrote another letter on the same day and said, “The fact that a permanent Freedom Ring structure will cost more is beside the point.”

The day before, Tapia scribbled a note to then Expocorp president Teodoro Peña. Quoting Morales of NCC, Tapia said Laurel wanted the Freedom Ring contract awarded before the end of November and that “Birdair of USA be the supplier/fabricator of the roof cover.”

On the evening of Nov. 28, Gulliver wrote Laurel to point out that covering the amphitheater only instead of the whole Freedom Ring would achieve a “substantial cost reduction in budget” without “any great loss of amenity to the remaining uncovered area which comprises already enclosed pavilions.”

He also estimated that covering the entire Ring, all of nine hectares, would mean an additional P260 million for the roof material, excluding additional expenses for the structure. This meant spending beyond what was budgeted for the project.

But Laurel would not budge. On Nov. 29, 1996, Tapia again wrote Gulliver, telling him that the structure “will be completely roofed.” Laurel’s decision, he stressed, is “final.”

Laurel’s specifications were distributed to four pre-qualified contractors: Asian Construction & Development Corporation (Asiakonstrukt), Kajima Construction, EEI Inc., and H.R. Lopez Construction.

Furthermore, the bid papers specified, “A quotation from Bird Air for the supplier of the roof fabric is to be included in your offer as a minimum requirement.” To avoid a highly questionable closed bid, the brief said that alternate prices may be included “from other suppliers.” Contractors were expected to present their design proposals by Dec. 18, 1996.

In its design proposal, EEI Inc., one of the largest and oldest construction companies in the country, said that after extensive investigation and discussion with fabric contractors, manufacturers and structural engineers, it found the 300-meter roof of about 60,000 to 80,000 square meters of fabric area “impossible for anybody to guarantee to complete” by Nov. 14, 1997 using the preferred fabric cover.

Even assuming that sufficient Teflon material is available, “the cost to cover the whole Freedom Ring is staggering and seems unnecessary,” the EEI proposal pointed out. EEI eventually lost its bid.

WINNING BID
On Dec. 11, 1996, Veldon said the budget needed to be reviewed and made a preliminary estimate of P1 billion. Then, on Dec. 19, 1996, Laurel –vested with authority by the Expocorp Board – declared Asiakonstrukt the winning bidder after presentations were made on the same day.

Asiakonstrukt put in a bid of P1.165 billion for its proposed design and construct package that included Birdair as a manufacturer and supplier. Birdair Inc., a wholly-owned subsidiary of the Japan-based Taiyo Kogyo Corporation, is known as a world-class builder of “tensioned membrane structures.”

Bondad said it was Louis Berger, a service engineering and construction management firm that Asiakonstrukt teamed up with, which dealt directly with Birdair. It was Louis Berger too, he added, that got retired Lt. Gen. Bennett Lewis, an army engineer and former classmate of Ramos at West Point, to become the project director of the Freedom Ring project.

The choice of Asiakonstrukt, however, only exacerbated the already uneasy relationship between Laurel and Veldon Corporation. The brewing tensions came to a head on Christmas eve of 1996 when Gulliver raised concerns about the conduct of the bid and exclusion of Veldon from the assessment of the bid proposals.

“We have also been aware of instances where Expocorp staff have had direct unreported communication with suppliers and contractors involved in the preparation of costed proposals. We find this unusual, disorganized and unnecessary. The instruction to evaluate and negotiate award of a P1.2 billion peso contract in one day we cannot accept as reasonable and can in no way feel confident that our Client is not exposed to contractual chaos in the future,” Gulliver said.

At around this time, Bitong was beginning to worry about the budget. She held on to her money and asked for control of the Expocorp board, while Laurel insisted that Global fully pay P550 million in equity to maintain its 55 percent share in the firm.

During the Dec. 19 Expocorp board meeting, Laurel said that if the 55-45 percent ratio were not maintained, Expocorp as a government-controlled corporation would be “subject to inspection and audit by the Commission on Audit” and be required to follow rules and regulations on government disbursement and purchases. “This would also mean that all officials and employees of the corporation would have to reckon with provisions of existing anti-graft and corrupt practices laws,” the minutes of the meeting said.

Laurel said he eventually terminated the services of Veldon because of “loss of confidence.” He accused Veldon officials of arrogance and of being “anti-Filipino.”

A former BCDA official however said there was talk about commissions given out but that no proof exists. Willy Castor, national president of the National Constructors Association of the Philippines, said it is common practice for contractors to get the commission they pay out to government officials from the advance payment given after the bid has been approved and a notice to proceed is issued.

By Jan. 10, 1997, according to a confidential memorandum prepared by Basco for Ramos, BCDA had put in P200 million of its required P300-million share. The Bitong group by this time had poured in P216 million, putting Expocorp’s capitalization at P416 million. But with barely 10 months to go before the targeted completion date of the Freedom Ring and a P1.2-billion contract to fund, Expocorp resources were clearly insufficient.

Basco warned Ramos that Expocorp will likely “depend on the President’s assistance to raise additional government contribution” to cover the estimated balance not covered by the initial budget. He anticipated funding problems given the emerging differences between Laurel and Bitong. Ramos, the following day, scribbled on the memo, “Let’s stick to original plan. We need BCDA money for other projects.”

But efforts to downsize the project did not work as Asiakonstrukt had already ordered the materials and advanced over P400 million. Laurel, meanwhile, was annoyed that a presidential team tasked to solve the Laurel-Bitong impasse recommended downsizing the project, and offered to resign in May 1997.

“Nakataya na ang mukha ng bayan. I had invited 14 heads of state and government. It would have been a national embarrassment. Kahiyaan na,” Laurel said.

For reasons mysterious even to officials close to Ramos, the former president went along with Laurel’s decision and did not accept his resignation. He instead mustered all the powers of his office to finance the Freedom Ring.


Part Three
CENTENNIAL EXPO
The great Cost Of Saving The Centennial

THE CENTENNIAL Exposition in Clark was completed at the expense of other government projects that had to be sacrificed because public funds were diverted to the construction of the Freedom Ring amphitheater and the surrounding theme park.

Because of the grandiose plans for the exposition which the private sector could not fund and because money could not be found elsewhere, President Fidel V. Ramos mobilized all the resources of government—including those from five government departments, the government-owned National Development Corporation, and four government financial institutions—to raise money for the Expo.

Such diversion of funds was made possible by a budget law that is a legacy from the Marcos era. It meant that money intended for, among others, the development of an industrial estate in Leyte, the construction of roads and bridges elsewhere in the country, and the lending of public funds to socially meritorious projects such as housing and job creation, would be used to build the centennial white elephant in Clark.

“The spending for the centennial is a political judgment call,” said Ramos budget secretary Salvador Enriquez. “(It may have been extravagant to some) but in my sense of value, the centennial is an important event in the life of a nation and I would go along with the President in admonishing everybody to participate.”

Ramos stretched legal limits, in part to prevent an international embarrassment stemming from an unfinished centennial centerpiece. He used Executive Order 292, based on Ferdinand Marcos’s Presidential Decree 1177, which allows the president to transfer funds allocated for one purpose to other uses as long as certain requirements are met.

Because of such fund transfers, the Department of Public Works and Highways (DPWH) – the department that contributed the largest share to the Expo – listed in March 245 projects under its 1998 work program that were suspended due to the non-payment of billings and the absence of cash allocations. Another 115 projects supposed to have been started under the same work program were stalled for the same reasons.

The DPWH funneled P720 million of its 1997 budget into the Expo, funding over a quarter of the Expo’s construction cost of about P3.12 billion, including roadworks. The DPWH could otherwise have used this amount to construct a 72-kilometer, two-lane road or a three-kilometer, two-lane bridge, according to a public works official.

Similarly, the government-controlled National Development Corporation (NDC), which was ordered to invest in the Expo, could have used its money to invest in an industrial complex in Isabel, Leyte – a project that was not only more financially viable but would also have spurred economic activity in one of the most depressed parts of the country.

At the start of the Centennial project, Ramos had already directed the Philippine Charity Sweepstakes Office and the Philippine Amusement and Gaming Corporation to remit their equity contributions of P75 million each to the Philippine Centennial Expo ‘98 Corporation (Expocorp), the government-private sector joint venture in charge of the Clark Expo.

The Social Security System (SSS), Government Service and Insurance System (GSIS), Land Bank, and Development Bank of the Philippines (DBP) were likewise “encouraged to invest” by Ramos in the centennial project in February 1997.

But the project was stalled because of the conflict between National Centennial Commission (NCC) chairman Salvador Laurel and businesswoman Nora A. Bitong, head of Global Clark Assets Corp., the government’s partner in Expocorp. The two officials were caught in a legal tug-of-war over equity contributions to Expocorp. and control of its board.

CHANGING OF THE GUARDS
While the squabbling was going on, Asian Construction & Development Corporation (Asiakonstrukt), the main contractor for the Freedom Ring, gave notice that it was going to suspend work on May 10, 1997.

In a letter to Laurel, Asiakonstrukt officials blamed Expocorp’s failure to deliver the required funds. By this time, Asiakonstrukt vice president Eduardo Bondad said the firm had already spent P410 million on the project and borrowed money for it.

In March of the same year, Bitong’s Global had already indicated its willingness to withdraw from Expocorp on condition that at the minimum, it would be reimbursed the amount it had put in as equity – about P216 million. NCC officials, in turn, had intimated that government “would be able to find a replacement for Global.”

While the NCC was trying to find a new partner to replace Global, the Asian financial crisis was starting to rage. Potential partners either backed out or set conditions that government could not comply with.

Asiakonstrukt, according to Bondad, had “little choice” but to step in as the new partner to save its investment. It thus became both the major contractor of the Freedom Ring project and co-owner of the property.

The new partnership gave birth to the First Centennial Clark Corporation (FCCC), organized as a joint venture on Sept. 8, 1997 with a capital of P1 billion. Like its predecessor, FCCC was initially a private corporation, with Asiakonstrukt owning 60 percent.

By then, Laurel had already found a way to fund the government’s 40-percent share in the joint venture. Three months before, in a June 6, 1997 “urgent and confidential” memorandum to Ramos, Laurel suggested that NDC, a government corporation that has traditionally been used as a milking cow for losing ventures, be mobilized for the Expo.

Laurel said the NDC could either provide a loan or a loan guarantee for the centennial project or else it could come in as a major investor. He cited the NDC charter, which empowers it “to engage or invest in or extend loans and guarantees to, or enter into joint ventures with Filipino and foreign investors.” His recommendation was approved by Ramos.

With the backing of the Office of the President, NDC was practically pressured to be part of the FCCC even if financial returns were uncertain. Worse, it was clear that the heavily indebted NDC was not in a position to invest in the joint venture.

In an April 3, 1997 letter to the Department of Finance (DoF), Mariano Salazar, appointed NDC general manager in March 1997, said that NDC had accumulated “negative retained earnings of P4.84 billion” as of end-1996 because of high interest rates on government advances and on loans it obtained to rehabilitate the National Steel Corporation.

OVERCOMING RESISTANCE

Salazar asked the DoF to ease NDC’s debt burden and enhance its earnings potential by converting its advances from the government into equity. NDC could use the savings on interest, he argued, to fund projects that are “environment-friendly and vital to economic growth.”

Later, however, NDC would seek the conversion into equity of P1.9 billion in advances and interest payments it owed the DoF. Documents show that Ramos eventually approved such conversion to allow NDC to invest P400 million in FCCC.

Thus, with Asiakonstrukt’s P600 million and NDC’s P400 million, FCCC was capitalized at P1 billion. But it needed P1.4 billion more. By this time, it was estimated that the Freedom Ring would cost P1.2 billion, while another P1.2 billion was needed to build the surrounding theme park.

On the heels of Laurel’s June 6 memorandum, another memorandum prepared by SSS administrator Renato Valencia on June 10, 1997 proposed the creation of a new company to take over the centennial project. He also proposed the creation of a “financial consortium” consisting of the SSS, GSIS, DBP and Land Bank from which the P1.4 billion could be sourced.

In his memo Valencia also said, “I suggest that the loan be secured by RP guarantee or NDC guarantee,” with the option to convert the principal and interest into equivalent leasehold rights on the same 200 hectares – inclusive of the 60-hectare Expo site – that were offered to the Bitong group.

The proposal led to negotiations that culminated with an approval by Ramos on Nov. 17, 1997 of a decision to ask the four government financial institutions (GFIs) to lend P1.4 billion to NDC which it would then put in as equity in FCCC. Of the P1.4 billion, P900 million was to be relent to FCCC and the P500 million invested as preferred shares and additional equity for NDC.

With three months to go before the Expo’s “soft opening” in February 1998, wearing down resistance on the part of the NDC became imperative. With the NDC contributions, FCCC was transformed on Feb. 24, 1998 into a government corporation that was now entitled to a government loan guarantee.

The final guarantee was issued only on Feb. 10, 1998 and signed by then acting finance secretary Enriquez. Roberto de Ocampo, the previous finance secretary, had stalled although he eventually issued an initial guarantee letter in January 1998. Not long after, he quit his office to run for president.

“De Ocampo was also reluctant for NDC to enter into the venture especially since he had to issue the guarantee. It was clear that this is something that will be investigated,” an NDC official familiar with the corporation’s participation said.

Documents obtained from the office of Sen. Nikki Coseteng showed that de Ocampo doubted the “financial viability of the project as confirmed by the GFIs’ reluctance to extend a loan for this project without a national government guarantee.”

The document, quoting excerpts of an undated memorandum by Ocampo addressed to then executive secretary Ruben Torres, said: “We do not want to repeat history that the national government ends up servicing government-owned and controlled corporations’ obligations as in Philphos. This corporation has substantially eroded the national government’s fiscal position due to huge advances for debt servicing amounting to P35 billion as of 30 April 1997.”

The NDC official said, “The Expo is the first in a long, long time that NDC entered into a project not on the basis of the merits of the venture.” It also went against NDC’s practice of investing in projects that demand little or no cash outlay.

The NDC official said the Expo continues to be a “problem” for them because of the no-win situation. “If we stop operations, all the more that the public will criticize NDC. But if we continue, we will be subsidizing it.”

Indeed, a May 1998 study by the accountancy firm Sycip, Gorres & Velayo had suggested that NDC withdraw from the venture as soon as possible because the returns are very low. “But we can’t just do that because the loan requires that FCCC has to be government owned – NDC has to pay the loan first,” the NDC official said.

ADDITIONAL FUNDS

Other departments were encouraged to participate in the Expo as well. Ramos’s executive secretary, Ruben Torres, said during a Senate blue ribbon committee hearing in October 1998 that they “appealed to all government departments to put exhibits to help the Expo become successful as a showcase of our centennial.”

For instance, Agriculture Undersecretary Domingo Panganiban said his department received P77 million in September 1997 through a Special Allotment Release Order (SARO) given by the Office of the President through the budget department. The amount was supposed to be spent for an exhibit in the Expo theme park.

The Department of Trade and Industry (DTI) was given “P49.4 million though it was promised P50 million,” ranking DTI officials told the blue ribbon committee. The amounts were released in April and June 1998 for “trade shows.”

The Department of Environment and Natural Resources contributed P75 million to pay two contractors and other centennial-related activities. The sums were released in September for landscaping and the purchase of trees and plants.

Also in September, the budget department released P237.50 million to the DPWH to build the Expo’s parking space, inner roads and other related structures that had been identified as items that could not be funded by the P2.4 billion budget of the just-organized FCCC.

“This release is made pursuant to the handwritten instruction of the President dated Aug.19, 1997,” the SARO said.

In March 1998, just three months before the centennial, Ramos ordered the DPWH to release another P491 million to fund the second phase of the theme park, which includes landscaping, the entrance plaza, millennium hall, Philippine pavilion, time walk and two bridges within the global city site. The amount was taken from congressional initiative allocations in the 1997 DPWH budget, Enriquez said.

All in all, the departments spent about P929.9 million, 78 percent of which was taken from the DPWH. Most of these releases were made at a time when FCCC had just been incorporated and was still a private entity. Government then was a minority shareholder yet it was already spending big sums.

Enriquez said using the budget to fund the Expo, including the other centennial-related projects, was “legal and did not involve the unlawful transfer of funds,” contrary to the Senate’s assertions.

Ramos and Enriquez, together with five former department secretaries, according to the Senate blue ribbon committee, failed to show or present evidence that the amount that “they funneled or caused to be funneled to the 1998 centennial celebration and its related projects had come from savings of their departments, agencies and/or offices, or had been specifically appropriated for such purpose.”

Enriquez argued that Executive Order 292 allows a realignment of funds on two conditions: there are “savings” from which the transfers will be taken, and the item to which the augmentation is being made must be an “existing item in the budget.” The realignments they made, he insisted, satisfied these two conditions.

Ramos, in a press conference last March, said he had issued Administrative Order 372 in December 1997 instructing departments to “save 25 percent of their budget for reserves” or mandatory savings.

“Upon this issue alone, the entire case against me and my officials dealt with by the Senate blue ribbon committee falls flat on its face,” he argued.

COSTS

Such fund transfers were made at the expense of other projects. The DPWH, for instance, completed only 34 percent of its 1998 infrastructure program, way below the 85 percent goal it was eyeing for the year. To date, it has completed only 59 percent of its 1998 work program.

“It’s a matter of policy decision,” a DPWH ranking official said. “The money could have been spent on something else. It would have come handy especially when our projects slowed down due to the cash crunch, but it was the decision to finish the centennial projects.”

The NDC, meanwhile, had given up the development of the Isabel, Leyte industrial project, which the DoF had recommended to enable the cash-strapped company to raise revenues. The project involves the development of the still unused part of the 400-hectare NDC property where the Philippine Phosphate Fertilizer Corporation and the Philippine Associated Smelting and Refining Corporation are located.

The NDC had planned to initially develop an additional 100 hectares in the Leyte Industrial and Development Estate (LIDE) as a site for medium and heavy-scale industries that would use the by-products of existing investors in the area. The NDC envisioned that such development “will benefit the local population as it will generate added revenue and provide more jobs.”

LIDE is the only industrial estate in the entire Eastern Visayas and contributes significantly to the region’s economy. The project, according to the NDC masterplan, could address some of the region’s concerns such as poverty, slow pace of industrialization and lack of employment.

With the entry of a private sector partner and with NDC contributing the land, the Leyte project would have cost only P760 to P893 million, according to NDC estimates. The project, NDC calculated, would make profits after five years.

Thus, the Senate blue ribbon committee concluded, the sums spent by the Ramos government on the Centennial Expo “constitute a gross misuse and wanton misapplication of scarce government resources during a period of devastating financial crises.”


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PHILIPPINE CENTER FOR INVESTIGATIVE JOURNALISM