Worms

The more we peer into the can, the more worms we find.

The House committee on transportation has been holding hearings on why the LTO’s multibillion-peso Land Transportation Management System (LTMS) cannot seem to get off the ground. In previous columns, we detailed the issues bugging this costly project and how the LTO appears unduly lenient in tolerating the sins of its contractor.

It turns out, our motorists are not only burdened by a malfunctioning IT system. They are also screwed by peripheral services, such as the online payments system.

Those familiar with the state of play among competing online payments systems know this is a war of disappearing margins. The service providers offering the least margin per transaction beats the competition.

Disappearing transactions cost lessens friction. With lesser friction (and more reliable service providers), more and more Filipinos are switching to electronic modes of payment. As of 2022, according to a BSP study, the volume of digital payments grew to 42.1 percent of total retail payments.

In the case of the LTO’s information system, the game is turned on its head. The goal, in this case, is to make digital payments as costly as possible.

During the last congressional hearing on the follies of LTO’s attempt at automation, our legislators found out that citizens paying their fees online can only use one provider. That provider, consistent with monopoly behavior, charges transactions fees of P60 to P80 – or over five times what other digital payments providers charge. This, by itself, is a scandal.

The LTO’s contract granting exclusivity to online payments platform Paynamics was signed in October 2020, when the LTO was headed by Edgar Galvante. Necessarily, the digital payments platform was given access to the LTMS – and the potential wealth of marketing information contained therein.

That is not the end of the story.

Current LTO chief Vigor Mendoza disclosed during the congressional hearing that he had recently rejected a request from Paynamics to increase the fee it charges. Not only is this provider charging fees way above industry standards, it wants to raise those fees even more.

For the same digital service that Paynamics charges, more reliable digital payments providers such as Maya or GCash charge between P12 and P15. Of course, Mendoza should have rejected the request for even higher charges.

In the course of the hearing, Rep. Romeo Acop inquired into greater detail as to why Paynamics was chosen as payments service provider. Under closer scrutiny, the LTO could produce no documents to show that any bidding was held to choose this particular contractor. This is not the norm set by the Procurement Law.

As Acop pressed harder as to why other payments services providers were not allowed in, the LTO explained that they could only accommodate one since Dermalog (the German technology firm holding the contract for the agency’s automation) continued to hold on to the source code. This happens despite a very clear provision in the contract requiring Dermalog to hand over the source code to the LTO. The COA had already red-flagged this failure to surrender the source code.

Dermalog’s continuing refusal to surrender the source code to the LTO raises even more questions.

On further questioning, it turns out that Paynamics has a joint venture agreement with IT firm Gold Gate Technology Solutions. This agreement explains why Paynamics was the exclusive beneficiary of the digital payments component.

Despite the initial denial of its president Nick Torres that Gold Gate is related party to Dermalog, it was later established that Paynamics’ former chairperson, Voltaire Encarnado, used to be the representative of the Dermalog joint venture for the LTMS project. It was Encarnado who represented the Dermalog-led joint venture in a media conference held on Sept. 7, 2022 in the midst of the nationwide LTMS shutdown.

Encarnado is also the signatory in a document dated Dec. 12, 2021 amending the delivery and payment schedule of Dermalog’s delivery and payments schedule. Such changes in the schedule enabled the contractor to push back delivery schedules even as the LTO made payments on time.

The COA has repeatedly flagged this, declaring the 13 extensions granted Dermalog to be baseless. As far as the state auditors are concerned, the repeated baseless extension orders should be considered violations of the contract. They are, in fact, ground for contract rescission.

Our legislators scrutinized Gold Gate’s General Information Sheet as filed with the SEC. The company’s contact information and email address was attributed to Torres even as Encarnado sat as chairperson when the disclosure was filed May 2019.

The committee asked the SEC to investigate possible violations committed in the information Gold Gate filed. Encarnado was invited to attend the next hearing to answer the increasing number of questions that the inquiry generated so far.

The last hearing also discovered that one of former LTO chief Edgar Galvante’s consultants, Bernard Yu, has also been a consultant of Dermalog since November 2020. This adds to the other suspicious relations between people who work for LTO and those who work for Dermalog noted in previous COA findings.

The increasing number of coincidental relationships might help explain why the relationship between the LTO and service provider Dermalog seems too cozy for taxpayer comfort. The overlapping relationships might even suggest the multibillion automation contract was more an insider job than an arm’s length transaction.

There is more to be known.