The Derivation of the

US$329 Million
ZTE-NBN Contract Price
As illustrated by Thads Bentulan
(streetstrategist@gmail.com)

from
Dante Madriaga’s statements
E.&O. E.
 Background
• Dante Madriaga’s testimony could be true or false.

• This is merely an illustration of the deal structure based on Dante Madriaga’s statements, and not
of 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 with
different 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 of
Shenzhen and Hong Kong

• These are all based on Madriaga’s statements. Somehow, the statements of Joey De Venecia III
and Rodolfo Lozada Jr. coincide with Madriaga’s.

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

• Dante Madriaga graduated from Texas A&M University, former part-owner of Pacific Microwave
in Laguna, and involved in the gov’t’s Barangay Telephone project
 Hearsay Rule
1989 Rules of Evidence
5. TESTIMONIAL KNOWLEDGE

Sec. 36.Testimony generally confined to personal knowledge; hearsay excluded. — A witness can
testify only to those facts which he knows of his personal knowledge; that is, which are derived
from 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 taking
place or immediately prior or subsequent thereto with respect to the circumstances thereof, may
be given in evidence as part of res gestae. So, also, statements accompanying an equivocal act
material 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 as
witness fee for the President of the Philippines a “startling event?”
 Hearsay vs. Direct
• Some contents of Madriaga’s statements are hearsay (such as payouts).
• However, the fact that these people such as Leo San Miguel and Fan Yang met, talked, and told
Madriaga these payouts, is valid as he was directly involved. After all, he was the other person in
the conversation. The fact that the conversations between Leo San Miguel and Madriaga, and
between 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 during
these personal meetings invent false stories about these transactions? At the time, Leo and Fan
Yang didn’t 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 to
believe them.
• And notice that the external events are corroborated and dovetailed by the statements of Jun
Lozada and Joey De Venecia and Romulo Neri.
• Recall that Neri in the Senate hearing has confirmed that he told Pres. Gloria Arroyo about the
P200 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 don’t expect a rape victim to come up with a document evidencing she was too
terrified to fight the rapist.)
 True or False?
• Question: If you declare in the Senate that certain powerful people are demanding and have
received kickbacks, and your declaration is false, would you say that these powerful people would
be 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 expose
your family to possible murder by the powerful people you are implicating with your false
statements?

• 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 the
Senate? Money? Career? Business?

• Would any govt agency give contracts and consultancy to Lozada and Madriaga after their
testimonies?
 True or False?
• Would any big private company risk the ire of the powerful govt administration by hiring Lozada or
Madriaga?

• So, are Jun Lozada and Dante Madriaga lying about the corruption in the NBN scandal exposing
their 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?

• Shouldn’t these implicated persons be charging towards Lozada and Madriaga mauling these two
personally?

• Why aren’t the Filipino people seeing the proportionate angry response from innocent people who
are maligned and falsely accused?
 The Importance
of Dante Madriaga
 The Importance of Madriaga’s Testimony
• This is the first testimony coming from the side which perpetrated the corruption and the
kickback.
• Rodolfo Lozada’s testimony came from the side of the receiver of the bribes, while the Dante
Madriaga’s testimony comes from the side of the giver of the bribes.
• Madriaga’s testimony contains details that give flavor to the external events such as why GMA,
the symbol of Philippine sovereignty lowered the country’s dignity and went to China to witness a
private contract signing while her husband was critically ill.
• Madriaga’s testimony contains details that Rodolfo Lozada didn’t know about.
• Lozada merely testified that the ZTE proposal was overpriced but he didn’t know why and exactly
where the overpricing was.
• Madriaga, on the other hand, gives a detailed account of the evolution of the ZTE proposals until
it reached the final version of $329M.
• Madriaga gives a detailed breakdown of the proportion of the technical cost and the proportion of
the kickbacks and with dates and events
• Madriaga had personal knowledge including dates and persons attending because he was at
those meetings or was made to wait outside the rooms. Nobody so far, including Lozada, knew
about 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.
 The Importance of Madriaga’s Testimony
• Madriaga was the one who personally supervised the design of the ZTE proposal from a
technical side.
• Madriaga is the workhorse being the person tasked with the design and the padding of the
mandated kickbacks. Jun Lozada’s account is too general while Madriaga’s 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 employed
up to 800 people exporting microwave transmitters. Thus, he is not some ordinary person that
can be paid to testify. He has much to lose.
• Madriaga’s testimony gives the Senate and the people in the country solid leads on the real
parties involved, the dates, times, places, and amounts involved in the scandal. Even Jun Lozada
or Romulo Neri couldn’t give these leads.
 The Importance of Madriaga’s Testimony
• Romulo Neri could only testify as to the fact that the ZTE proposal was overpriced but could not
give details how or where in the contract or how much is the overpricing. Neri could testify as to
whether the President did nothing or something after he told her of the bribery and the overpricing
but Neri couldn’t testify as to how much had been paid out already.
• If true, Madriaga’s testimony is the turning point in finding the truth. However, Lozada’s testimony
was more dramatic because it was preceded by the abduction and media frenzy of his arrival
from Hong Kong. Given only Lozada’s testimony the investigation could not have proceeded with
details as to how much did the Abalos group actually receive and if the First Gentleman or the
even the President are involved.
• With Madriaga’s testimony, the people now know what questions to ask, who to summon, how to
trace the money, who else is involved, how the ZTE proposal was evaluated by CICT, DOTC and
NEDA and other government agencies, and most importantly, that indeed, there was corruption
involved 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 don’t believe him,
and what would the country gain if the people believed him?
 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 GMA’s representative)
• Witness: Dante Madriaga, Head of Design Group of proponent/ZTE
NBN-1
 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
– Arescom’s 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
– Madriaga’s signed a contract with ZTE’s Wang Feng for P250,000 a month. He got P100T/ month with the
balance to be paid when NBN contract is approved.
 NBN-1
Cost + Kickback = Contract Price
$90M + $40 M = $130 M (to match Arescom)
……………………………………………………………………
(Cost) + (Kickback) + (addn’l 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.
 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 original
contract 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 Madriaga’s 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
NBN-2
 NBN-2
Cost + Kickback = Contract Price
$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 be
increased to $109M due to increase from 36 sites to 53 sites. This the so-called NBN-2
NBN-3
 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, Madriaga’s 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 that
another draft was refined by Madriaga by Dec 2006.
– This $262M was an internal draft and not presented to NEDA. It was NBN-3 that
was presented.
– In July 2006, the ZTE group presented NBN-3 to NEDA’s head of infrastructure
Ruben Reynoso and evaluator Ken Tanate
– A few days later, ZTE presented to CICT Chairman Ramon Sales, CICT
Commissioner Lorenzo Formoso, and TELOF head Asec. Frank Perez, son of
former Sec of Justice Hernani Perez. Sales suggest private sector handles NBN.
 NBN-3 (cont’d)
– Perez prepared a presentation of his objections. He suggested
terrestrial not satellite. Formoso secretly told ZTE if he were in charge
the latter would have no problem.
– In one week, Formoso replaced Perez at head of TELOF. Perez was
junked to CICT.
– In Aug 2006, Comelec Chairman Ben Abalos, Ruben Reyes, Leo San
Miguel went to China. ZTE paid $1M “public relations” fund to the
Abalos group upon mentioning the name of First Gentleman Mike
Arroyo.
– 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 officially
endorsed the project
– NEDA insisted on terrestrial-based NBN
NBN-4
 NBN-4
Cost + Kickback = Contract Price
$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 la
Torre, 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 to
NEDA’s insistence on terrestrial instead of satellite.
– NEDA through Jun Lozada, advised ZTE that Amsterdam Holding (AHI) of Joey De Venecia
has 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 ZTE’s 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 to
AHI.
 NBN-4 (cont’d)
– On Dec 5, 2006 in Wack-Wack, the Mike Arroyo told Joe de Venecia in the presence of
Abalos: “Back off!” Mike Arroyo joined the table of Ruben Reyes, Quirino de la Torre, Leo
San Miguel, and Benjamin Abalos. Joey left.
– Abalos sought Joey to arrange a cooperation, introduced Joey to others as “his partner”
although they haven’t agreed on anything yet, and invited Joey to China
– On Dec 27, 2006, barely two days after Xmas, in Shenzhen, China meeting: Benjamin
Abalos, Joey, Jimmy Paz, Ruben Reyes, Leo San Miguel, Quirino de la Torre, Yu Yong, Fan
Yang and other ZTE officials. Abalos demanded more money, invoked the name of
President GMA and House Speak Jose de Venecia (Joey’s father) and banged his fists on
the table but the meeting abruptly ended when Fan Yang said, “What about the money we
already advanced to you, Mr. Chaiman?” (from Joey’s 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 old
draft with $262M covering 30%. This short-lived draft was superseded by NBN-4 but Abalos
didn’t use NBN-4. This is the reason Joey tagged ZTE’s proposal at only $262M covering
30% geography.
– In Jan. 2007, Abalos invited Joey to a meeting with ZTE at Diamond Hotel for possible
signing during visit of China’s Premier Wen Jiabao. (from Joey’s affidavit).
– In Jan 2007, now head of TELOF Lorenzo Formoso formed a TWG (technical working
group) to evaluate ZTE, AHI, and Arescom. The TWG favored ZTE as expected.
 NBN-4 (cont’d)
– In Jan 2007, DOTC formed a TWC (technical working committee) to evaluate TELOF
TWG’s recommendation.
– In Feb 2007, an Executive Order was issued placing TELOF under DOTC. DOTC’s Leandro
Mendoza and CICT’s Chairman Sales endorsed ZTE’s proposal to NEDA.
– In Feb 2007, DOTC Asec Elmer Soneja was in a meeting with Abalos and Joey who was
introduced as “partner” by the former. (from Joey’s affidavit).
– In Feb 2007, Abalos castigated Joey bec the former claimed to have tapped the
conversations of Joey. (from Joey’s affidavit).
– Feb 26, 2007, Asec Soneja as Chairman of Bid & Awards Committee for ICT projects asked
for final versions on NBN bids from ZTE and AHI. (from Joey’s affidavit).
NBN-5
 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 secured
GMA’s 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 the
total kickback is $200M.
The kickback of $200M is 155% of the technical cost of $129M
 NBN-5
• Notes:
– March 12, 2007 meeting: Abalos group meets with Fan Yang and Yu Yong of ZTE. After the
meeting 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 to
Madriaga 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 signing
as a condition to the release of the $30M election fund.
 NBN-5
– On April 21, 2007, GMA went to China to witness the signing. Nobody realized the story
behind this lightning visit while her husband was in critical condition in St Luke’s hospital
way 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 private
company and the DOTC. This raises several diplomatic issues especially that the President
represents 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 Favila
announced there was no contract signed but only a MOA
– Aug 9, 2007, DOTC Sec Mendoza and TELOF head Formoso confirms a supply contract
with 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 isn’t covered in this summary)
PAY-OFF
 Payoff Dates
Aug 2006 (PR fund fee) $1M
March 2007 (success fee; NEDA approval) $10M
April 2007 (GMA’s presence fee; election fund) $30M
_______
Total $41M or P2.05B

$41M = 16,754 years

 Payoff Structure
$35M + $31M + $4M $70M or P3.5B
FirstCouple Greedy Group
Neri
=
Before the contract was signed, the Group $70M
fixed their kickback at $140M, 50% ($70M) of ZTE = $70M or P3.5B
which goes to ZTE and 50% ($70M) to the
Greedy Group. The First Couple gets 50% of
the latter amounting to $35M (P1.75B).
Joey ($10M) and Neri ($4M) rejected the $10M = $10M or P500M
Joey
bribes.
Instead of $140M, Abalos wanted to protect
$130M because he didn’t need to pay off $20M
Joey’s $10M anymore. Thus, the infamous Razon = $20M or P1B
“protect my $130M” statement.
How long will it take a min. wage worker
(P362/day with 13th month) to earn: $30M
$4M = 1,634 years
Election Fund = $30M or P1.5B
$10M = 4,086 years
$129M
$20M = 8,173 years
Tech Cost = $129M or P6.45B
$30M = 12,259 years
$70M = 28,605 years
Total = $329M or P16.45B
 How large is $130 M?
What can you buy with:
Neri’s $4M = P200 Million
Joey’s $10M = P500 Million
Razon’s $20M = P1,000 Million
Election Fund’s $30M = P1,000 Million
First Couple’s $35M = P1,750 Million
Abalos’ Group’s $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
 $329 Million
Quod Erat Demonstrandum
 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 GMA’s representative) – for DENR sec; gave P50,000 pocket money to
Jun 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
 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 was
ousted, many believed due to this NBN expose of his son Joey.

• Arescom
– Stephen Lai – technical specialist
 Dramatis Personae
GOVT
• TELOF
– Frank Perez, son of former Justice Secretary Nani Perez, Asec Head of TELOF
later transferred to CICT due to objections to ZTE’s proposal; replaced by
Formoso
• CICT
– Ramon Sales – Chairman CICT, resigned from govt service two months after
ZTE signing
– Lorenzo Formoso III – Commissioner CICT; promoted to head TELOF in the
middle 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
 Dramatis Personae
• NEDA
– Romulo Neri – Sec General NEDA later transferred to CHED (education); told the President
Arroyo of the P200M ($4M) bribe attempt of Abalos;
– Ruben Reynoso - NEDA’s 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 in
Senate
• Media
– Jarius Bondoc – columnist of Philippine Star who first wrote on the ZTE scandal