October 2, 2007
Mr. Romulo Neri
Commission on Higher Education
5th Floor DAP Bldg., San Miguel Avenue
Ortigas Center, Pasig City
Dear Mr. Neri:
It is with a heavy heart that I am composing this letter. For heaven knows that ever since it was announced that you were appointed as NEDA Chief some years ago, I assured myself that your personal and professional contribution to the good governance of our nation would be immense and gratifying.
And so coming direct to the point, with due respect to you as my fellow professional in academe and in government service (some years ago), also as a taxpayer and business executive for more than 40 years up to now, I am asking you to RESIGN for the following compelling reasons:
It was a clear major lapse in moral judgment and professional competence on your part as NEDA Chief, when you endorsed without any recorded objection or dissenting opinion, that notorious ZTE-NBN project (NOT the contract!) despite your personal knowledge of huge bribery offers and other clear indications of the questionability of its underlying financial assumptions and overall economic cost-analysis. Thus many reputable and major NGOs, newspaper editorials and opinion writers have asked for its cancellation.
Let me even assume for the sake of argument that your technical review and analysis of the supposed economic investment rate of return (EIRR) of 29% plus, as submitted to NEDA by the DOTC, was NOT haphazardly and irresponsibly done. But the fact that the whole project has caused a major crisis involving all the three co-equal branches of our government and the President of our Republic as well, is reason enough for you to follow the recent example of Benjamin Abalos.
And at the very least, unlike Abalos who was clearly pressured by the strong probability of impeachment, you are in a more credible position to offer yourself as our long-hoped-for example of moral and professional delicadeza among our top government officials.
Allow me however to go back to my very first reason and to substantiate it further. Below is a straightforward analysis using SIMPLE ARITHMETIC in refutation of your shallow argument that the 3% soft loan rate being offered by China on the ZTE-NBN project was too good to reject, simply because its purported savings on interest expenses compared to existing commercial rates of interest would allegedly offset any price-padding if any. And thus it was also your justification for the absence of public bidding or resort to any other reliable price-checking processes.
Incidentally, I trust you will agree that the arithmetical logic and computational skills required to understand the following analysis is at most that of a College Freshman. And surely therefore, the same analysis and conclusions should have been easily done and obtained by yourself or by any of your hundreds of technical assistants, within just a few minutes!
And please note the following easily available, verifiable and authoritative DEFINITION of “EIRR” which I obtained from the Asian Development Bank’s website. You told the Senate investigation committees, that NEDA had correctly employed such an EIRR-based method of analyzing the ZTE-NBN project’s economic viability and official acceptability. Thus according to the ADB, the EIRR is:
The rate of return that would be achieved on all project resource costs, where ALL benefits and costs are measured in economic prices (emphasis added!). The EIRR is calculated as the rate of discount for which the present value of the net benefit stream becomes zero, or at which the present value of the benefit stream is equal to the present value of the cost stream. For a project to be acceptable the EIRR should be greater than the economic opportunity cost of capital.
And so in keeping with that true definition of EIRR which NEDA and you in particular were duty-bound by law and logic, professionally and morally as well, to follow strictly, you should have included the obvious albeit camouflaged additional cost behind the alleged “soft loan” from China. For obvious to all of you in NEDA was the obligation of DOTC to use the loan proceeds from China to pay ZTE for the entire UNVERIFIED turnkey cost of the project.
And so LET US ASSUME that for the ZTE-NBN and ZTE’s other project proposals:
True Price = One Peso
ZTE Overprice (if any) = x % of the True Price, therefore
ZTE Overprice = x % of One Peso, or simply
ZTE Overprice = x %, [Note: It could be zero to let’s say, as much
Loan Proceeds subject to
3% Interest Rate = True Price + x %
Cost of Borrowing from China = Nominal Interest Charges of 3% + ZTE overprice if any
(for 1st interest-bearing year)
China Borrowing Cost = 3% (True Price + x %) + x %;
and because we assumed that the True Price = P1
China Borrowing Cost = 3 % (1 + x %) + x %
Therefore, if the “ZTE Overprice” is zero, the borrowing cost would be [3% (1 + 0) + 0] or 3% only.
If the “ZTE Overprice” were, say 10%, the first year cost would be [3% (1 + 10%) + 10%], or 13.3%. And so in that case, even if the overprice were as relatively low as 10%, the resulting first year borrowing cost of 13.3% would be at least twice more expensive than existing commercial rates!
But if the “ZTE Overprice” were as high as 100% of the True Price, as Messrs. Jose de Venecia III and/or Jarius Bondoc had claimed, then the simple arithmetic of [3% (1 + 100%) + 100%] would turn out to be a shocking 106%. And that would be PLUNDER of the first magnitude, because it would translate to an overprice of at least $169 Million or about P7.3 Billion.
To keep the arithmetic simple, I did not use the 20-year long annuity equivalent of the “overprice”. But just the same, the figures above make it obvious that NEDA and you, certainly DID NOT INCLUDE in its EIRR analysis a super-major cost item. And that was inexcusably contrary to what was mandated by simple logic and the EIRR definition itself, to include “all benefits and costs”. For a man of your stature, experience, intellectual skills and academic background, such an obvious anomaly is certainly more than enough reason for you to resign graciously, and also to apologize to our people, ASAP!
And may God have mercy on you!
Very truly yours,
EDUARDO B. OLAGUER
Aurora Milestone Tower
1045 Aurora Blvd., Q.C.