16 January 2009

Cartelized Corruption for WB Road Projects

Photo courtesy of kerolic
Corruption in the Philippines is nothing new. Hence, it is not surprising to read in the papers that the World Bank had barred three firms from the Philippines from bidding on its projects due to alleged corruption. Four other firms from China were included in the list.

The three firms were involved in a road project in the Philippines that was financed by the Washington-based bank.

Investigation by the bank "uncovered evidence of a major cartel involving local and international firms bidding on contracts under phase one of the Philippines National Roads Improvement and Management Program, known as NRIMP 1," the bank said in a statement.

The probe "closely analyzed the procurement process the firms participated in and conducted numerous interviews before closing the investigations and initiating sanctions proceedings against the entities," it said.

No World Bank funds from the project were disbursed to the now-sanctioned firms, the statement said, adding that it had stopped about 33 million dollars from being awarded.

"This is one of our most important and far-reaching cases, and it highlights the effectiveness of the World Bank's investigative and sanctions process," said Leonard McCarthy, World Bank vice president for integrity.

"As the World Bank Group continues to ramp up its anti-corruption work, (it) will remain vigilant in investigating allegations and holding wrongdoers accountable," he said.

The bank was also in the process of conducting a worldwide review of its activity in the roads sector, McCarthy said. He did not elaborate.

China Road and Bridge Corp. was debarred for eight years, China State Construction Corp. and China Wu Yi Co. Ltd. for six years, and China Geo-Engineering Corp. for five years.

Philippine firm E.C. de Luna Construction Corp. and its sole proprietor, Eduardo de Luna, were both debarred indefinitely -- the first permanent debarments since 2004, the bank said.

The other Philippine firms, Philip-Cavite Ideal International Construction and Development Corp. and CM Pancho Construction, Inc., were each debarred for four years.

Another South Korean firm, Dongsung Construction Co. Ltd., was separately debarred in August 2008 for four years for alleged fraudulent and corrupt practices in relation to the project, the bank said.

What does this tell us? It means that even if the country has numerous anti-corruption laws, its enforcement is inconsistent. It also supports the perception that judicial, executive, and legislative corruption remains high as reported by the Heritage Foundation in its 2009 Index of Economic Freedom.

The World Bank decision will also have a great impact on the government's revenue generation program. In a developing economy like the Philippines, this can be extremely debilitating. The continuing budgetary deficit of the government results into cutbacks in expenditures for much needed social services.

More importantly, the World Bank findings will set the partnership between the government and private sector a few steps back. With tightening sources of funding for infrastructure development, government partnership with the private sector is very critical. A public good like roads, bridges, ports and airports will necessarily be charging user fees to be able to earn profit and recover capital. That is the usual practice among developed countries and there is nothing wrong with that. However, if the private sector waver in their partnership with the public sector, then there is danger that the project will not become financially viable to lenders because it requires performance undertaking from the government.

With the current expose of corruption in the infrastructure industry, the public is again reminded of NAIA III Terminal, an edifice that cannot be operated until now; the Macapagal Boulevard which can easily enter the Guiness Book as the world's most expensive boulevard and the Smokey Mountain Project, where almost a billion of OFW's money was invested and has not been repaid until now. Last count in 2003, it stood to over PhP 500 Billion.

The government really needs to get its act straight because there is no available loose change to pay for corruption.