A P1.3-B embarrassment

ISecond of two parts.

N spite of the somewhat unusual arrangement that involved the Department of Information and Communication Technology (DICT) handing over responsibility and the necessary funds for the implementation of a large part of the “Pipol Konek” free public wifi program to the United Nations Development Program (UNDP) in September 2018, there was still, at the time, basis for presuming the project would be successful.

The UNDP, after all, has vast experience in supporting a wide variety of development projects all over the world, and as any credible development agency does, follows a set of firm guidelines to ensure that any work done is completed properly and without corruption. Even though what the UNDP was being tasked to do — constructing some 6,000 satellite internet connection pointsthroughout the Philippine countryside — was a big job, it was not a particularly unusual or complicated one, or at least it shouldn’t have been.

Questionable selections

To carry out the work, the UNDP selected Speedcast Ltd., an Australian company based in Hong Kong, with an extensive portfolio of satellite internet projects to its credit. In order to more easily carry on work in the Philippines, in October 2019, Speedcast partnered with the Philippine Communication Satellite Corp. (Philcomsat), which has a broadcast franchise, and in which the Philippine government owns a 35-percent share. The basic arrangement for Phase 1 of the Pipol Konek project, which would create 3,000 internet sites, was that site selection would be managed by UNDP and Speedcast, and the latter would be responsible for procurement of the necessary equipment, which would be specified and installed for each site by Philcomsat.

Philcomsat would turn out to be the only bright spot among an otherwise comprehensively bad string of decisions by the parties involved, and as a consequence, was the only one not to be subject to brutal criticism by the Commission on Audit (CoA) at the end of last year.

The first problem was UNDP’s selection of Speedcast as a contractor. The usual careful standards applied by any development agency or multilateral development bank in approving project contractors failed in this case, for reasons that are still not known, because at the time of its selection, Speedcast was already in grave financial trouble from mounting debts. This would eventually result in the company’s declaring Chapter 11 bankruptcy in the US in July 2020. It only emerged from bankruptcy proceedings in mid-March this year, after being taken over byprivate investment firm Centerbridge Partners, which put $500 million into Speedcast to clean up its balance sheet.

The second serious problem detailed by the CoA report was in the selection of sites for the internet connection facilities. According to the CoA, out of 3,000 sites selected for Phase 1 of the project (as of November 2020), 1,767 of them were “problematic:” 242 sites had “faulty” or “incomplete” data preventing proper site surveys; 459 had “severe geographic or terrain challenges;” 326 had “feudal and political issues;” 200 sites (all in Lanao del Sur) were located on private property; and 540 had “unverified power supply sources.”

As quite obviously no work could be undertaken on those sites, that combined with more “normal” challenges of building internet sites in areas with poor infrastructure led to a dismal completion rate of just 15 percent by the end of 2020, according to CoA. At that rate, less than half of the project under the UNDP arrangement would be completed by the time it expired in 2022.

Straight-up corruption

If the existing problems were already not enough of a headache, a scandal involving gross customs violations, which was exposed just last month, put the final nail in the project’s coffin as far as DICT and Sec. Gregorio “Gringo” Honasan 2nd was concerned.

According to information from the DICT and the Bureau of Customs (BoC), at least two employees of Speedcast were “caught red-handed” organizing bribes for customs inspectors in order to get undervalued import shipments cleared. It has been reported that the scheme was exposed when one shipment arrived with paperwork declaring one value, but the original paperwork listing a higher value was mistakenly left inside the package by whoever prepared it in Hong Kong. The “oops” caused BoC inspectors to review other shipments by Speedcast to Philcomsat (serving as the local consignee), and a number of similar undervaluations were uncovered.

There is no evidence that Philcomsat was a party to the technical smuggling or was even aware it was happening. As is the usual procedure in such cases, BoC informed Philcomsat as the consignee of its findings; Philcomsat, to its credit, promptly informed Speedcast’s management and the UNDP.

All but dead

In light of the Customs violations and the other problems revealed by the CoA report, on May 3 the DICT pulled the plug on the agreement with the UNDP, asking the agency to return the funds given to Speedcast so that the DICT can carry out the project on its own.

Although the UNDP certainly has no justification for keeping the funds, and would just as certainly not attempt to do so, under the circumstances, retrieving them may still be problematic. Any money paid to Speedcast prior to March of this year would be affected by its bankruptcy restructuring, and sorting that out with the company under new ownership will take time. Likewise, a legitimate issue can be raised with respect to what small amount of work was successfully completed; the valuation for that, and the subsequent amount that should be deducted from the “refund” sought by the DICT has to be agreed by the DICT, UNDP, and Speedcast.

All of that means that, with only about six months of useful time left before the onset of the election period next year, the likelihood of any of the project being completed, at least whatever portion of it depends on the missing P1.3 billion, is very small.

So, who’s to blame?

Except for Philcomsat, everyone involved shares some fault for the failure of the “Pipol Konek” project. The UNDP took on a project that was out of scope from its usual activities, and compounded that error by failing, one way or another, to properly vet its selection of Speedcast as contractor. Speedcast, or more specifically, a couple of its employees, committed outright criminal fraud in handling imports, and exercised poor judgment in selecting internet sites.

None of this would have happened, however, had the DICT not abrogated its responsibilities and handed over the entire project to the UNDP. Even if the arrangement with the UNDP did legitimately fill some gaps in the DICT’s capacities, at no point was the department incapable of exercising greater oversight than it did.

To be fair to current DICT Secretary Honasan, he inherited a mess created by the department before he took over in late 2019; he has an obligation to clean it up, but not to fall on his sword over it. However, part of that job, whether it’s done just for the DICT or as part of wider effort that applies to the entire government, must be to implement policies that ensure that the government does not again hand away complete control over a key development project.