derivation of the $329 million

8/14/2019 Derivation of the $329 Million

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The Derivation of theUS$329 Million

ZTE-NBN Contract PriceAs illustrated by Thads Bentulan

([email protected])

fromDante Madriagas statements

E.&O. E.


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Background Dante Madriagas testimony could be true or false.

This is merely an illustration of the deal structure based on Dante Madriagas statements, and notof the illustrator. No malice is intended. We apologize for any errors.

This presentation was made due to the confusion over the amounts involved in the deal and withdifferent figures flying all over the place.

The contract price for the ZTE-NBN evolved over a few months.

Madriaga labeled them NBN-1 to NBN-5.

ZTE is Zhong Xing Telecommunication Equipment enterprise listed on the stock exchanges ofShenzhen and Hong Kong

These are all based on Madriagas statements. Somehow, the statements of Joey De Venecia IIIand Rodolfo Lozada Jr. coincide with Madriagas.

Recall that Madriaga is a witness coming from the side of the proponents (supply-side) whileLozada is witness from the side of the project users (demand-side).

Dante Madriaga graduated from Texas A&M University, former part-owner of Pacific Microwavein Laguna, and involved in the govts Barangay Telephone project


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Hearsay Rule

1989 Rules of Evidence5. TESTIMONIAL KNOWLEDGE

Sec. 36.Testimony generally confined to personal knowledge; hearsay excluded. A witness cantestify only to those facts which he knows of his personal knowledge; that is, which are derivedfrom his own perception, except as otherwise provided in these rules. (30a)

6. EXCEPTIONS TO THE HEARSAY RULE

Sec. 42.Part of res gestae. Statements made by a person while a startling occurrence is takingplace or immediately prioror subsequent thereto with respect to the circumstances thereof, maybe given in evidence as part of res gestae. So, also, statements accompanying an equivocal actmaterial to the issue, and giving it a legal significance, may be received as part of the res gestae.(36a)

Question: Is the fact that $30M (P1.5 billion!!) has been paid out aswitness fee for the President of the Philippines a startling event?


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Hearsay vs. Direct

Some contents of Madriagas statements are hearsay (such as payouts).

However, the fact that these people such as Leo San Miguel and Fan Yang met, talked, and toldMadriaga these payouts, is valid as he was directly involved. After all, he was the other person inthe conversation. The fact that the conversations between Leo San Miguel and Madriaga, andbetween Fan Yang and Madriaga happened, is a direct testimony, not hearsay.

Whether those statements by Leo San Miguel or Fan Yang are true is another story

But in 2006 and 2007 before the NBN scandal broke out, why would Leo and Fan Yang duringthese personal meetings invent false stories about these transactions? At the time, Leo and FanYang didnt anticipate this NBN deal was to explode like this.

This the reason why it is highly probable these statements are true. But nobody is forcing you tobelieve them.

And notice that the external events are corroborated and dovetailed by the statements of JunLozada and Joey De Venecia and Romulo Neri.

Recall that Neri in the Senate hearing has confirmed that he told Pres. Gloria Arroyo about theP200 million bribe attempt by Abalos and the overpricing of the ZTE proposal.

Note also that evidence need not be documentary.

Oral evidence is still evidence.

(For example, you dont expect a rape victim to come up with a document evidencing she was tooterrified to fight the rapist.)


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True or False?

Question: If you declare in the Senate that certain powerful people are demanding and havereceived kickbacks, and your declaration is false, would you say that these powerful people wouldbe justified to cause the murder of your entire family because you lied about them?

If you are a paid witness, how much money would you accept to lie in the Senate and exposeyour family to possible murder by the powerful people you are implicating with your falsestatements?

Would you lie about such heavy accusations involving the First Couple, powerful politicians,former military generals, and cabinet secretaries?

What would be the profit motive of Jun Lozada and Dante Madriaga to give false testimony in theSenate? Money? Career? Business?

Would any govt agency give contracts and consultancy to Lozada and Madriaga after theirtestimonies?


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True or False?

Would any big private company risk the ire of the powerful govt administration by hiring Lozada orMadriaga?

So, are Jun Lozada and Dante Madriaga lying about the corruption in the NBN scandal exposingtheir family to retaliation?

If Lozada and Madriaga are lying, are the reactions of Abalos, Mike Arroyo and other persons

implicated proportionate responses as coming from persons falsely maligned?

Shouldnt these implicated persons be charging towards Lozada and Madriaga mauling these twopersonally?

Why arent the Filipino people seeing the proportionate angry response from innocent people whoare maligned and falsely accused?


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The Importance

of Dante Madriaga


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The Importance of Madriagas Testimony

This is the first testimony coming from the side which perpetrated the corruption and thekickback.

Rodolfo Lozadas testimony came from the side of the receiver of the bribes, while the DanteMadriagas testimony comes from the side of the giver of the bribes.

Madriagas testimony contains details that give flavor to the external events such as why GMA,the symbol of Philippine sovereignty lowered the countrys dignity and went to China to witness aprivate contract signing while her husband was critically ill.

Madriagas testimony contains details that Rodolfo Lozada didnt know about. Lozada merely testified that the ZTE proposal was overpriced but he didnt know why and exactly

where the overpricing was.

Madriaga, on the other hand, gives a detailed account of the evolution of the ZTE proposals untilit reached the final version of $329M.

Madriaga gives a detailed breakdown of the proportion of the technical cost and the proportion ofthe kickbacks and with dates and events

Madriaga had personal knowledge including dates and persons attending because he was atthose meetings or was made to wait outside the rooms. Nobody so far, including Lozada, knewabout these meetings. Although, in those meetings where Neri or Lozada, or Joey were involved,the account of Madriaga dovetails with the account of the three.


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Madriaga was the one who personally supervised the design of the ZTE proposal from atechnical side.

Madriaga is the workhorse being the person tasked with the design and the padding of themandated kickbacks. Jun Lozadas account is too general while Madriagas is rich in details.Nobody else could probably give such details.

Madriaga has much to lose economically, businesswise, careerwise, and family security-wise with

his exposition that implicates the First Couple. Would he do this if he were lying? Madriaga has been in business having been a part-owner of Pacific Microwave which employedup to 800 people exporting microwave transmitters. Thus, he is not some ordinary person thatcan be paid to testify. He has much to lose.

Madriagas testimony gives the Senate and the people in the country solid leads on the realparties involved, the dates, times, places, and amounts involved in the scandal. Even Jun Lozadaor Romulo Neri couldnt give these leads.


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Romulo Neri could only testify as to the fact that the ZTE proposal was overpriced but could notgive details how or where in the contract or how much is the overpricing. Neri could testify as towhether the President did nothing or something after he told her of the bribery and the overpricingbut Neri couldnt testify as to how much had been paid out already.

If true, Madriagas testimony is the turning point in finding the truth. However, Lozadas testimonywas more dramatic because it was preceded by the abduction and media frenzy of his arrivalfrom Hong Kong. Given only Lozadas testimony the investigation could not have proceeded withdetails as to how much did the Abalos group actually receive and if the First Gentleman or theeven the President are involved.

With Madriagas testimony, the people now know what questions to ask, who to summon, how totrace the money, who else is involved, how the ZTE proposal was evaluated by CICT, DOTC andNEDA and other government agencies, and most importantly, that indeed, there was corruptioninvolved as testified to by the workhorse of the side that perpetrated the corruption.

Again, nobody is forced to believe Dante Madriaga. What would you lose if you dont believe him,and what would the country gain if the people believed him?


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ZTE-NBN CONTRACT

Date signed: April 21, 2007 (China)

Signatories: Leandro Mendoza, Secretary of DOTC, Phils and Yu Yong, VP of ZTE

Witness: Asec Lorenzo Formoso III and ZTE Chairman Hou Wei Gui

In the presence of: President Gloria Arroyo

Condition: Loan agreement China & Phils

Total Contract Price: US$329,481,290.00 (P16.45 Billion) Equipment $194,051,628

Engineering $118,605,650

Management $14,875,507

Training $11,948,905

Greedy Group + + Benjamin Abalos

Ruben Reyes Quirino dela Torre

Leo San Miguel

Mike Defensor (as GMAs representative)

Witness: Dante Madriaga, Head of Design Group of proponent/ZTE


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NBN-1


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Arescom

Arescom Proposal:

Cost + Kickback = Contract Price

$90M + $40M = $130M or P6.5B (Arescom)

Notes: Arescom proposed Comnet (National Communications Network) to DILG

But when Sec Puno replaced DILG Sec. Reyes the project was shelved

Arescoms Technical Specialist Stephen Lai presented the Arescom documents to ZTE

ZTE approached Comelec Chairman Benjamin Abalos who in turn invited Ruben Cesar Reyes Ruben Reyes contacted Gen. Quirino de la Torre and Leo San Miguel

Leo San Miguel contacted Dante Madriaga

Madriagas signed a contract with ZTEs Wang Feng for P250,000 a month. He got P100T/ month with thebalance to be paid when NBN contract is approved.


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NBN-1


$90M + $40 M = $130 M (to match Arescom)

(Cost) + (Kickback) + (addnl kickback) = (Contract Price)

$90M + $40M + $9M = $139M or P6.95B (NBN-1)Notes:

- The kickback of $49M is 54% of the technical cost of P90M.

- On June 16, 2006 meeting at Shang Palace, Makati Shangrila.

- Attendees: Ruben Reyes, Quirino de la Torre, Leo San Miguel, Yu Yong, Fan Yang,Stephen Lai, Benjamin Abalos. Dante Madriaga was outside the room.

- June 18, 2006: The additional kickback of $9M is added.- Attendees: Mike Defensor, Jimmy Paz, Ruben Reyes, Quirino de la Torre, Leo San Miguel,

Yu Yong, Fan Yang, Benjamin Abalos. Dante Madriaga was outside the room.


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NBN-1

.

(Cost) + ($80M Kickback) = (Contract Price)

$59M + $80M = $139M (NBN-1)

Notes: The kickback of $80M is 135% of the technical cost of $59M

June 18, 2006 meeting, the new kickback has been set to $80M, while retaining the originalcontract price of $139M.

By insisting on a fixed kickback of $80M, the actual cost of contract will have to be reduced

to $59M giving headaches to Madriagas engineers. Madriaga recalculated the technical cost.

The $80M was to be divided: $40M for ZTE, and $40M for the Abalos group

Of the $40M for the Abalos group, $20M was to given to First Couple


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NBN-2


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NBN-2


$109M + $80M = $189M or P9.45B (NBN-2)

Notes: The kickback of $80M is 73% of the technical cost of $109M.

In June 2006, while fixing $80M kickback, the technical cost of the project have to beincreased to $109M due to increase from 36 sites to 53 sites. This the so-called NBN-2


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NBN-3


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NBN-3

Cost + Kickback = Contract Price$99M + $90M = $189M or P9.45B (NBN-3)

Notes:

The kickback of $90M is 91% of the technical cost of $99M In June 2006, Madriagas engineers reduced the cost to $99M while retaining the

contract price, thus the built-in kickback is increased from $80M to $90M. This is

NBN-3. In June 2006, a draft of the NBN proposal was pegged at $262 million. This was

the draft that Abalos brought to Shenzhen in Dec 2006 despite that fact thatanother draft was refined by Madriaga by Dec 2006.

This $262M was an internal draft and not presented to NEDA. It was NBN-3 thatwas presented.

In July 2006, the ZTE group presented NBN-3 to NEDAs head of infrastructure

Ruben Reynoso and evaluator Ken Tanate A few days later, ZTE presented to CICT Chairman Ramon Sales, CICTCommissioner Lorenzo Formoso, and TELOF head Asec. Frank Perez, son offormer Sec of Justice Hernani Perez. Sales suggest private sector handles NBN.


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NBN-3 (contd)

Perez prepared a presentation of his objections. He suggestedterrestrial not satellite. Formoso secretly told ZTE if he were in chargethe latter would have no problem.

In one week, Formoso replaced Perez at head of TELOF. Perez wasjunked to CICT.

In Aug 2006, Comelec Chairman Ben Abalos, Ruben Reyes, Leo San

Miguel went to China. ZTE paid $1M public relations fund to theAbalos group upon mentioning the name of First Gentleman MikeArroyo.

In Sept 2006, the Abalso group frequently met at Wack-Wack Golf Club NEDA Secretary Romulo Neri opposed NBN-3 On September 14, 2006, Amsterdam Holdings c/o Joey De Venecia

proposed its Orion Network for NBN but the formal proposal was

submitted on Dec 5, 2006 In Sept 2006, ZTE presented to DOTC Sec. Leandro Mendoza who

endorsed it to DOTC Asec for Legal, Noel Santos. DOTC officiallyendorsed the project

NEDA insisted on terrestrial-based NBN


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NBN-4


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NBN-4


$129M + $140M = $269M or P13.45B (NBN-4)Notes:

The kickback of $140M is 108% of the technical cost of $129M

Sept 22,2006: In Wack-Wack meeting: Abalos, Jimmy Paz, Ruben Reyes, Quirino de laTorre, Leo San Miguel, Yu Yong, Fan Yan. Madriaga outside the room waiting.

Leo San Miguel summoned Madriaga to the room and was told new kickback: $140M

The new kickback is fixed at $140M, while the technical cost is raised to $129M due toNEDAs insistence on terrestrial instead of satellite.

NEDA through Jun Lozada, advised ZTE that Amsterdam Holding (AHI) of Joey De Veneciahas a BOT proposal (not loan)

In 2nd

week Oct 2006, the Abalos group offered $10M to Joey to withdraw his objection.NEDA, TELOF, CICT release favorable reports on ZTEs NBN project.

In 4th week Oct 2006, Joey rejected the $10M bribe.

In Nov 2006 rumor: Jun Lozada proposed AHI to win the contract, while ZTE is supplier toAHI.


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NBN-4 (contd)

On Dec 5, 2006 in Wack-Wack, the Mike Arroyo told Joe de Venecia in the presence ofAbalos: Back off! Mike Arroyo joined the table of Ruben Reyes, Quirino de la Torre, LeoSan Miguel, and Benjamin Abalos. Joey left.

Abalos sought Joey to arrange a cooperation, introduced Joey to others as his partneralthough they havent agreed on anything yet, and invited Joey to China

On Dec 27, 2006, barely two days after Xmas, in Shenzhen, China meeting: BenjaminAbalos, Joey, Jimmy Paz, Ruben Reyes, Leo San Miguel, Quirino de la Torre, Yu Yong, FanYang and other ZTE officials. Abalos demanded more money, invoked the name ofPresident GMA and House Speak Jose de Venecia (Joeys father) and banged his fists onthe table but the meeting abruptly ended when Fan Yang said, What about the money wealready advanced to you, Mr. Chaiman? (from Joeys affidavit). No money at this meeting.Joey left China for Philippines next day.

The draft that Abalos brought with him on this trip and showed to Joey De Venecia is an olddraft with $262M covering 30%. This short-lived draft was superseded by NBN-4 but Abalos

didnt use NBN-4. This is the reason Joey tagged ZTEs proposal at only $262M covering30% geography.

In Jan. 2007, Abalos invited Joey to a meeting with ZTE at Diamond Hotel for possiblesigning during visit of Chinas Premier Wen Jiabao. (from Joeys affidavit).

In Jan 2007, now head of TELOF Lorenzo Formoso formed a TWG (technical workinggroup) to evaluate ZTE, AHI, and Arescom. The TWG favored ZTE as expected.


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NBN-4 (contd)

In Jan 2007, DOTC formed a TWC (technical working committee) to evaluate TELOFTWGs recommendation.

In Feb 2007, an Executive Order was issued placing TELOF under DOTC. DOTCs LeandroMendoza and CICTs Chairman Sales endorsed ZTEs proposal to NEDA.

In Feb 2007, DOTC Asec Elmer Soneja was in a meeting with Abalos and Joey who wasintroduced as partner by the former. (from Joeys affidavit).

In Feb 2007, Abalos castigated Joey bec the former claimed to have tapped theconversations of Joey. (from Joeys affidavit).

Feb 26, 2007, Asec Soneja as Chairman of Bid & Awards Committee for ICT projects askedfor final versions on NBN bids from ZTE and AHI. (from Joeys affidavit).


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NBN-5


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NBN-5

(NBN-4) + (Bribe to Joey) + (Payoff to Razon) + (Election) = Contract Price

$269M + $10M + $20M + $30 = $329M (NBN-5)The NBN-4 amount of $269M was increased by $10M supposedly to pay off Joey De

Venecia which the latter refused; $20M as commission for Ricky Razon who securedGMAs approval; and $30M for the 2007 election fund

Or equivalently

$129M + $200M = $329M or P16.45B (NBN-5)

(39.2%) + (60.8%) = 100%The real cost of the project is $129M which includes already the profit of ZTE, while thetotal kickback is $200M.

The kickback of $200M is 155% of the technical cost of $129M


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NBN-5

Notes:

March 12, 2007 meeting: Abalos group meets with Fan Yang and Yu Yong of ZTE. After themeeting Leo San Miguel told Madriaga, more kickbacks to be added.

$20M for Ricky Razon so he could help secure the approval

$30M as 2007 election funds

$10 originally allocated for Joey (which was later refused)

Total of $329M, the so-called NBN 5 Recall that it was NBN-4 that was endorsed by CICT and DOTC to NEDA. But Leo San

Miguel assured Madriaga that will be taken care of

NEDA-Investment Credit Committee approved NBN-5.

In Mar 2007, on separate occasions, Leo San Miguel and also Fan Yang confided toMadriaga that $10M has been released to the Abalos group as success fee.

On April 4, 2007, Makati Shangrila meeting the Abalos group demanded the $30M election

from Fan Yang

ZTE demanded the presence of President Gloria Arroyo in China as witness to the signingas a condition to the release of the $30M election fund.


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NBN-5

On April 21, 2007, GMA went to China to witness the signing. Nobody realized the storybehind this lightning visit while her husband was in critical condition in St Lukes hospitalway back in the Philippines until Madriaga testified as the to flavor of the visit.

This was not a state visit but a very lowly visit attending a private contract between a privatecompany and the DOTC. This raises several diplomatic issues especially that the Presidentrepresents the sovereignty of the Filipino people.

June 20, 2007 Asec Formoso claimed the copy of the ZTE contract was lost.

June 30, 2007 Chairman Sales of CICT resigned from public office

Aug 6 & Aug 7 Presidential Legal Counsel Sergio Apostol and Trade Secretary Favilaannounced there was no contract signed but only a MOA

Aug 9, 2007, DOTC Sec Mendoza and TELOF head Formoso confirms a supply contractwith ZTE has been signed contradicting Apostol and Favila.

Sept 10, 2007 Joey De Venecia signs an affidavit on the NBN scandal

Senate investigation followed Oct 1, 2007 Benjamin Abalos resigns as Chairman of Comelec

Oct 2, 2007 President Arroyo cancelled the ZTE contract

(the resulting investigation isnt covered in this summary)


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PAY-OFF


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Payoff Dates

Aug 2006 (PR fund fee) $1M

March 2007 (success fee; NEDA approval) $10M

April 2007(GMAs presence fee; election fund)

$30M_______

Total $41M or P2.05B

$41M = 16,754 years


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Payoff Structure

$70MZTE

$31MGreedy Group

$129MTech Cost

$10MJoey

Before the contract was signed, the Groupfixed their kickback at $140M, 50% ($70M) ofwhich goes to ZTE and 50% ($70M) to theGreedy Group. The First Couple gets 50% ofthe latter amounting to $35M (P1.75B).

Joey ($10M) and Neri ($4M) rejected thebribes.

Instead of $140M, Abalos wanted to protect$130M because he didnt need to pay offJoeys $10M anymore. Thus, the infamousprotect my $130M statement.

$20MRazon

$30MElection Fund

$4MNeri+ $70M or P3.5B

= $70M or P3.5B

=

= $20M or P1B

= $30M or P1.5B

= $129M or P6.45B

Total = $329M or P16.45B

How long will it take a min. wage worker(P362/day with 13th month) to earn:

$4M = 1,634 years

$10M = 4,086 years

$20M = 8,173 years

$30M = 12,259 years

$70M = 28,605 years

= $10M or P500M

$35MFirstCouple +


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How large is $130 M?What can you buy with:Neris $4M = P200 Million

Joeys $10M = P500 Million

Razons $20M = P1,000 Million

Election Funds $30M = P1,000 Million

First Couples $35M = P1,750 Million

Abalos Groups $31M = P1,550 Million

Note:

An AUV car = P1 million each A rural bank can be capitalized at P20 million each

A computer costs P20,000 only

A Nokia cellphone may cost P2,000

A public school textbook approx P150.00 each

A kilo of rice approx P25.00


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$329 Million

Quod Erat Demonstrandum


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Dramatis Personae

Greedy Group + + Benjamin Abalos Chairman of Comelec; resigned when NBN exploded

Ruben Reyes rich businessman; close to military

Quirino dela Torre retired police general

Leo San Miguel former part-owner of Home Cable

Mike Defensor (as GMAs representative) for DENR sec; gave P50,000 pocket money toJun Lozada at the height of his abduction

Henchmen Dante Madriaga: consultant of ZTE for NBN project; now witness against the Greedy Group

++

Jimmy Paz: Chief of Staff of Abalos


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Dramatis Personae

ZTE Group

George Zhu: Country Manager

Wang Feng: Project Director

Yu Yong: Vice President

Fan Yang: Director

Hou Wei Gui: Chairman

Amsterdam Holdings

Jose Joey De Venecia III part owner, son of House Speaker Jose De Venecia who wasousted, many believed due to this NBN expose of his son Joey.

Arescom

Stephen Lai technical specialist


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Dramatis Personae

GOVT

TELOF

Frank Perez, son of former Justice Secretary Nani Perez, Asec Head of TELOFlater transferred to CICT due to objections to ZTEs proposal; replaced byFormoso

CICT

Ramon Sales Chairman CICT, resigned from govt service two months afterZTE signing

Lorenzo Formoso III Commissioner CICT; promoted to head TELOF in themiddle of NBN evaluation

DOTC Leandro Mendoza DOTC Secretary, former head of National Police

Atty. Noel Santos Asec Legal DOTC

Asec Elmer Soneja - Chairman of Bid & Awards Committee for ICT projects


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Dramatis Personae

NEDA

Romulo Neri Sec General NEDA later transferred to CHED (education); told the PresidentArroyo of the P200M ($4M) bribe attempt of Abalos;

Ruben Reynoso - NEDAs head of infrastructure group

Ken Tanate NEDA staff

Rodolfo Lozada Jr. President of Philippine Forest Corporation, consultant to Neri on NBN

projects, resigned in the middle of NBN scandal; abducted by govt to prevent testifying inSenate

Media

Jarius Bondoc columnist of Philippine Star who first wrote on the ZTE scandal

derivation of the $329 million

Documents