FUZZY LOGIC
Still, the NEDA personnel are not always successful in resisting instructions from higher officials to improve cost-benefit numbers of projects, especially those enjoying strong backing from what Lozada calls “good political sponsors.” That may help explain the fuzzy economic logic that underscored the NEDA-ICC’s approval of the NBN project.

As initially conceived by the DOTC and the Commission on Information and Communication Technology (CICT), a major NBN component was to provide Internet connection to 23,549 schools nationwide. This was on top of a telecommunications network linking close to 2,300 national government offices.

The Chinese government, however, refused to finance the education component, dealing the project a potentially fatal blow. The NEDA staff had estimated that economic return on the project would fall from 20 percent to only 13.01 percent, below the 15-percent hurdle rate, if the schools’ Internet connection were taken out of the project.

To keep project returns above 15 percent, DOTC and CICT proposed to substitute exactly 23,549 municipalities and barangay offices for the schools that would be taken out of the project. The NEDA-ICC Technical Board and Cabinet Committee, in a joint meeting on March 26, 2007, agreed with the project proponents.

“The option to provide connectivity to local government offices such as barangay offices may be explored, so as to optimize utilization of the NBN infrastructure,” the NEDA-ICC Technical Board and Cabinet Committee concluded, according to the meeting’s minutes.

NEDA’s evaluation report showed that benefits, consisting largely of savings in government’s phone, Internet and mobile expenses, are higher than costs over the next 15 years or so.

But in estimating savings, the NEDA staff largely adopted the optimistic assumptions of the project proponents. For example, all schools or offices covered by the project that do not currently spend for Internet access are assumed to have Internet connection through a private Internet service provider.

Even Neri found the assumption too optimistic and questioned it in one of the meetings of the NEDA-ICC Technical Board and Cabinet Committee. “Savings in Internet connection cannot be considered as a benefit given that the government does not have much Internet connection,” Neri had pointed out, according to minutes of the meeting.

Too bad Neri did not pursue the point further. It could have made all the difference in how the public and his former colleagues should regard him now.

SIDEBAR NEDA in Knots FORMER ECONOMIC planning secretary Felipe Medalla may have spoken in jest during a forum of previous chiefs of the National Economic and Development Agency (NEDA) last September when he said there are two NEDAs. There is, he said, “NEDA sa Pasig,” which houses the offices of the director general and staff, and which supposedly embodies the technical side of the agency. Then there’s the “NEDA sa Pasig River,” which he said refers to the more political side of the planning body whose Board and other Cabinet-level committees often meet in Malacañang, the presidential palace. But to staff at the economic planning agency, the joke ceased to be funny when the NEDA Cabinet Group — one of the Cabinet groups created by President Gloria Macapagal Arroyo in May — approved a big jump in the cost of a Japanese-funded irrigation project in Bohol amid serious procedural lapses by the implementing agency during an October 9 meeting in Malacañang. The NEDA Cabinet Group’s action effectively reversed a standing decision by the technical board and Cabinet panel of the NEDA Investment Coordination Committee, which evaluates infrastructure projects, not to affirm the 52-percent increase in the cost of the Bohol Irrigation Project Phase 2 (BHIP-2) in Bayongan, a barangay in Bohol’s San Miguel town. In a joint meeting early last year, the two bodies merely “noted” rather than approved the proposed cost adjustment from P2.4 billion to P3.6 billion, in part because the project proponent, National Irrigation Administration (NIA), had already incurred the additional costs before seeking ICC approval. The Department of Justice and Office of Government Corporate Counsel have issued separate opinions saying that NIA’s civil works contract with Hanjin construction company of Korea was legal, even though the irrigation agency accepted the winning bid that was more than half higher than the original costs approved by the NEDA-ICC (Investment Coordinating Committee). But NEDA maintains that the project was no longer economically viable following the cost increase. The NEDA project monitoring staff calculated that following the big jump in costs, the dam’s economic internal rate of return (EIRR), a measure of economic soundness, would fall to only 14.76 percent, slightly below the NEDA’s minimum hurdle rate of 15 percent. Costs are estimated to exceed benefits over the life span of the project by P53.6 million. Then NEDA chief Romulo Neri had strenuously objected to approving the cost increase, which he suspected was highly irregular. President Arroyo, however, transferred Neri to the Commission on Higher Education in August. When the NEDA Cabinet Group met on October 9, Augusto Santos was already head of NEDA. Just four days after the meeting in Malacañang, Arroyo inaugurated the dam on October 13, delighting Bohol local officials led by provincial governor Erico Aumentado, a staunch Arroyo ally who had been badgering NEDA to approve the cost increases so that funds could be released for the completion of the project. BHIP 2 was originally scheduled for unveiling in May but the ICC’s refusal to give its blessings to the cost increases had stalled the dam's official launch. No doubt, the Cabinet group’s action resolved an extended impasse between NEDA and NIA. It got the dam finally completed, to the immense pleasure of the President and her political allies in Bohol. But it also may have dealt a blow to NEDA’s institutional integrity and widened the loopholes in the agency’s project evaluation system designed to separate the bad government projects from the good. Yet while the Cabinet group’s decision may have disappointed the NEDA staff, their boss, Santos, says the agency is composed of professionals who know their place in the bureaucratic hierarchy. “NEDA is a body covered by the rule of law,” he says. “If we are a lower body overruled by a higher body, we respect that.” It may have helped that Santos also sits in the NIA board and is a strong believer in the project. He explains the Cabinet group’s decision thus: “One major consideration was the contribution of the project to resolving the peace and order situation in Bohol. The project will benefit a lot of farmers and their families, and that’s where insurgency starts.” — Roel R. Landingin/PCIJ