DFA’s e-passport project goes bust

HERE’S BAD news for applicants for Philippine passports: The Department of Foreign Affairs (DFA) has decided to terminate the P900-million e-passport contract with controversial French firm Oberthur Technologies.

Not only has Oberthur been a part of recent mistakes, it has also dragged the Philippine government down along with its mess.

It will be recalled that Oberthur is the same company that misspelled the name of then President Gloria Macapagal-Arroyo as “Arrovo” on some 80 million P100 bills in November 2005. More than 2 million of the erroneous P100 bills had already been circulated when the error was discovered. The government, through the Bangko Sentral ng Pilipinas (BSP), was subjected to a lot of ridicule because of it.

The year before, the French company, known as Francois-Charles Oberthur Fiduciaire prior to the merger of all its activities and card systems to form Oberthur Technologies in 2011, was involved in an electronic passport bidding scandal in Kenya. Oberthur Fiduciaire’s $34-million contract to supply passport-making equipment was scrapped by the Kenyan government over allegations of irregularities. The deal was said to be initially worth $10 million, but the contract was subsequently awarded without a tender to Oberthur for $34 million.

All this unflattering history apparently was not enough to scare the BSP when it allowed Oberthur to participate in (and eventually win) a government contract to produce electronic passports for the DFA in January 2008 by besting 14 other companies in a public bidding. The bid was for two million outer electronic covers (e-cover) of the e-passport, with its embedded microchip containing the passport holder’s vital information, and the system to enroll, personalize and issue the passport.

The BSP came into the picture after the DFA was restrained from managing the e-passport project due to a lawsuit filed by Filipino-Thai company BCA International, which had won the first machine-readable passport and visa project in 2001 conducted by the DFA. The DFA sent a notice of termination to BCA in 2005 because of its alleged failure to submit proof of financial capability to complete the project.

The DFA sought the opinion of the Department of Justice, which concurred with the DFA decision to terminate the project with BCA.

The DFA then entered into a memorandum of agreement with the BSP for the latter to supply passport requirements compliant with international standards. The BSP then solicited bids for the supply, delivery, installation and commissioning of a system for the production of e-passports. Under the agreement, the BSP will supply all passport requirements of the DFA for the next 10 years and would be the one dealing with a private company to undertake the e-passport project.

Oberthur Technologies won the e-passport contract worth P859.7 million or roughly $20 million. The DFA and BSP claimed that the e-passports to be manufactured by Oberthur will come equipped with a tamper-proof microchip that will contain the identification and personal information of the bearer. Initially, only 3,000 e-passports  were produced daily. Applications then increased from an average of 4,000 to 5,000 daily to 10,000 to 12,000 a day. By April 2010, the DFA and BSP targeted to process 15,000 passports daily once the e-passport is fully implemented worldwide.

Oberthur failed to meet the supply requirements in 2010. But despite Oberthur’s incompetence, it clinched another lucrative deal with the Philippine government.

In November 2010 the BSP held a bidding for the supply of 2.3 million e-covers. That was a prequalified bid, meaning bidders were first prequalified and then invited to bid. Only two prequalified—Oberthur and Smartrac. Curiously, during bidding day, only SinoPhil Greater Solutions Inc., which represents Oberthur in the Philippines, was present as Smartac did not show up. As it turned out, Smartac is the subcontractor of Oberthur and the supplier for the antenna embedded in the e-cover of the passport. With no one to oppose it, Oberthur bagged the deal at $5.75 per e-cover.

The BSP again held a bidding for 4.5 million e-covers last February, which Oberthur again won over three other bidders with a bid of $2.59 per piece. However, Oberthur has been selling the e-covers to the DFA at $5.76 each since 2009. This blatant overpricing of the e-passport has cost the Philippine government more than $10 million a year, at an estimated 10,000 passport applicants at P1,200 each. The total loss may reach P260 million since the implementation of the e-passport in August 2008.

Oberthur had also twice failed to supply samples that meet stringent specifications due to the mounting incidence of e-covers and inside pages becoming detached. This caused delays in the production of e-passports and caused huge problems for the DFA, which has been forced to extend the effectivity of expiring passports.

With the French company reportedly incurring a production backlog, the DFA sought an “emergency procurement” of around 300,000 passport booklets, claiming that it was facing another mass shortage of e-passports unless it could add to its dwindling supplies. The supplier turned out to be—surprise, surprise—Oberthur once more.

With the public outcry against Oberthur at fever pitch, the DFA terminated the contract and refused to release to Oberthur the remaining $3.2 million, claiming that the French firm had yet to comply with its deliveries.

However, the DFA has been vague about its decision. So is the BSP. What will happen to the e-passport project now? Will we go back to the old system? How long will we have to wait?