(Third of a series)
AFTER poring over the Commission on Audit’s detailed reports from 2015 to 2017 on the passport-printing contract given without any public bidding to a private firm, I was, to be honest, shocked at its brazenness.
I can only describe it as a crony deal, since a contract that would generate P11 billion in profits in 10 years was handed over on a silver platter to a private firm.
The contract doubled the price for Philippine passports from P520 to P950, which generated for the firm involved monopoly profits of P3 billion from 2016 to 2018 and would give it, by a very conservative estimate, P8 billion from 2019 to 2025.
Aquino and the officials who executed the transaction—Presidential Communications Operations Office head Herminio Coloma, Jr. and APO Production Unit (APO-PU) chairman Milagros Alora—kept the P38 billion deal secret (more on that on Wednesday),
It was so brazen that the Commission on Audit demanded that the government agency amend or rescind the contract, according to its 2016 report. The APO-PU ignored the COA, probably thinking that the Yellows would win in the 2016 elections, and therefore they could keep the lid on the anomalous colossal deal through its 10-year term.
Shepherded, according to a reliable source, by one of former President Benigno Aquino 3rd’s closest confidantes, the scheme started off when the then Foreign Affairs Secretary Albert del Rosario ended his department’s contract for the printing of Philippine passports with the Bangko Sentral ng Pilipinas in March 2014. The DFA then gave the contract in October 2015 to APO-PU, which was under Coloma’s supervision.
Kept secret all the time though was the fact that APO-PU subcontracted the passport printing to a private firm, United Graphic Expressions Corp. (UGEC), disguised as a joint venture with APO-PU, set up in November 2014. Reports had billionaire Iñigo Zobel as UGEC’s biggest stockholder. UGEC was a nondescript printing shop based in Malabon, owned by an obscure businessman named Henry Cureg. Sometime in the 2014 to 2016 period though, billionaire Zobel appears to have become though his clan’s firm E. Zobel its biggest stockholder.
The contract was cunningly disguised as a “joint venture” between APO-PU and UGEC. The COA rent asunder the joint-venture façade. It pointed out that UGEC owns 90 percent of the “JV,” and got 70 percent of the JV’s profits starting from 2016 and up to 2025. The masquerade of a joint venture was necessary since the contract under government regulations had to be bid out, if it was to be undertaken by a private firm.
With that lopsided sharing of profits, UGEC—with anomalous additional revenues of P670 million annually from leasing its machines to the JV—got about P3 billion in profits from 2016 to 2018, 15 times its P193 million investment in the scheme.
The “JV” disguise though couldn’t work even if it was a real joint venture. The COA pointed out that, probably suspicious that something rotten was being planned, the Government Procurement Policy Board – the inter-agency body that sets guidelines on government procurement of service and products – in its Resolution 26-2015, “required the APO-PU to directly print the electronic passports.” To justify its proposal to print the passports, the APO-PU had told the board that it had all the expertise to undertake the job.
The Palace legal counsel and now presidential spokesman Salvador Panelo in April 2017 claimed that he had given President Duterte his legal opinion on the UGEC contract, which he told a press briefing, was “void for being ultra vires,” meaning it is “an act committed by an entity beyond the powers conferred upon it by law.” He explained that under the memorandum of agreement between APO-PU and the DFA of Oct. 5, 2015, APO-PU was “required by law, rules and regulations to use its own facilities, equipment and machinery in printing the passports for the DFA.”
For some reason, the furor over that contract that prodded Panelo to make his remarks has died down.
The passport scheme has a similarity to the scheme by a Marcos corny during the Martial Law regime, when under the purported aim of raising money for the modernization of the coconut industry, a government entity imposed a levy of P3 for every kilogram of copra sold in the country. However, a huge chunk of the funds raised was used to buy nearly all of the shares of San Miguel Corp. and set up various businesses, which came under the control of Marcos crony Eduardo Cojuangco.
The similarity is that the amounts involved seem small: The P3 levy per kilogram of copra during the Marcos era, and now the P400 difference from the old P520 passport fee to the new P920. Even a poor OFW would not raise a howl over the increase, thinking that the amount was minuscule considering what he would be earning abroad.
In both cases, though, the amounts raised are staggering, given the millions of kilograms of copra on which the levy was imposed, and in the case now in question, the tens of millions of passports to be issued.
The COA audit disclosed that the “purchase order” APO-PU gave to the “JV” was for 45 million passports from 2016 to 2025. For 2016, the “JV” sold to APO-PU, for delivery to the DFA, 1.2 million passports at a cost of P960 million.
These figures unearthed by COA are revealing. That means the JV sold the passports at P800 each to the DFA which got just P150 per, for its work in processing these for the individual applicants. Sources claimed that the production cost of the passports is only P400 per. The JV’s profit margin was an unbelievable 100 percent, to make products sold to what the COA itself termed as a “captured market.”
“What printing deal can anyone get here in the country to print 45 million pamphlets, acquired with no bidding at all?” a printer explained. “And you have such huge economies of scale there, which means cost of production drastically falls, with the only cost really is for the paper.” No wonder the JV generated P3 billion in just three years of operation.
This brazen passport scheme was cleverly executed. The DFA has been portraying the new machine-readable electronic passports as high-tech, and therefore more expensive than the old passports. When the printing contract with the BSP was ended, there was a huge backlog of passport issuances, which, according to congressmen when the controversy was investigated early last year, was deliberately done to justify the transfer of the deal.
“The e-passports cost practically the same, and the chips embedded there were as cheap as cellphone SIMs, so cheap that the cellphone firms don’t charge anything for these,” they said.
With the COA’s voluminous data and damning conclusions, I don’t think there is any question that the passport deal was so anomalous it could only be a case of brazen corruption during the past regime.
The mystery is who is really the major stockholder of UCEG whose profits from the deal would amount to a staggering P11 billion in 10 years? Iñigo Zobel is already the country’s 11th richest billionaire, mainly because of his inheritance from his father Enrique, who has no track record in doing business with government. And Zobel being known to be a fun-loving partygoer, why would he go into such serious stuff that would risk a criminal, graft charge for him? Was he just doing a favor for somebody powerful in the previous Yellow regime?
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