From the late 1970s, privatization has become a main stream of government reform under the pressure of finance deficit and inefficiency. Taiwan started to launch its privatization since 1989, which includes privatization of public enterprises, contract-out of public service, and private groups were invited to participate in the construction of public infrastructure (emphasizing the equal partnership between the government and the private). Especially, the Build/Operate (Own)/Transfer (BOT) model played a very important role in Taiwan’s privatization.
There are several aims for privatization, which include reducing government involvement in industry, increasing government efficiency, reducing public sector borrowing requirement, curbing public sector union power, wilder share ownership and employee share ownership, and gaining political advantage (Marsh, 1991). However, corruption seems getting worse in developing countries following the implementation of privatization[1]. Kaufmann and Siebelbaum (1996) agued that privatization per se is not enough to prevent from corruption “because government have been unable or unwilling to honor these market-friendly arrangements or separate politics from business decisions.” (p.412). In sum, the reason for government to become corrupt might be resulted from the government’s incapable of supervision, or those who affiliates with the government trying to maximize their gains from privatization (Jan, 2006).
Taiwan recently broke out serious scandals on three major BOT cases, that is, the Taiwan High Speed Rail (THSR) Project, the Kaohsiung MRT (KMRT) Project, and the highway Electronic Toll Collection (ETC) Project. One of the main purposes to adopt BOT is that the government does not need to put up capital. However, for the first two of these three cases, we found that the Taiwanese government invest or put up capital in considerable quantities which obviously diverge from the principles of the BOT. Besides, the ETC was not planned BOT originally and was forced to changed into BOT under strong pressure from political-business coalition. In this paper, we are going to investigate why these three BOT projects fell into trouble by dealing with the governance mechanism and their accountability relationship to the government, the legislative organs, the court and the public.
I. Theoretical Reviews on Accountability
The privatization does not imply full transfer of accountability functions from the public to the private sector. Even a private company is subject to a variety of forms of state control. For many former nationalized industries, the process of privatization still involved a substantial degree of state regulation. Therefore, the assumption that privatization will lead to less state intervention is in question (Scott, 1993). In other words, the government still needs to play some role in supervising the privatized sectors.
To assure that privatization will serve the public interest, Goodman and Loveman (1991) emphasizes that accountability should be one of the main guiding lights for privatization. For Gilmour and Jensen (1998), effective public accountability scheme is also required for privatization. In other words, to assure the success of privatization, accountability mechanism is a required prerequisite.
As a matter of fact, the accountability of government has been paid much attention in recent years and was taken to be the legitimating foundation of a liberal democracy. R. Pyper argues:
Accountable government is deemed to be good government and carries with it connotations of advanced democracy. Governments which can be characterized as unaccountable or not properly accountable are likely to prove fertile ground for the cultivation of authoritarianism, totalitarianism and every type of abuse of power.”(Pyper , 1996: p.1)
Although accountability is so important for a liberal democracy and privatization, its concept is complex and multifaceted. Matthew Flinders (2001) defined accountability as “the condition of having to answer to an individual or body for one’s actions”. For Talib A. Younis and Iqbal M. D. Mostafa (2000), accountability means answerability for the discharge of duties or conduct, and the relationship between account-holder and accountor. The accountor or agent was under supervision from account-holder or principal. Richard Mulgan (2003) pointed out that four dimensions of accountability relationship provide a flexible framework of analysis. These dimensions answer to: (i) who is accountable, that is the accouters or agents. In this paper, those corporations which were in charged of BOT should be accountable for the performance of those projects. (ii) To whom are they accountable, that is, the account-holders or principals. In this paper, the account-holder of these BOTs should be the Ministry of Transportation and Communications and (MOTC), the Executive Yuan (EY, the Cabinet), the Legislative Yuan(LY, the Congress), the Control Yuan (CY, the Ombudsman), the court and the public. (iii) For what the agent is accountable, that is, the duty or function. In this paper, what people care is whether these BOT projects could reduce the constructing cost, shorten the construction time limit, promote the construction efficiency, reduces the finance burden of the government and accelerate the construction of public infrastructure, etc. (iv) How the agent is accountable, that is, the mechanisms of accountability. In this paper, we will investigate how the BOT projects accountable to the relative account-holders, and find out what’s wrong with their accountability mechanisms.
Accountability is not only a kind of mechanism, but also a process, by which the government discharges duties to specific targets that were required to account for their actions/inactions. Accountability refers to public interest, the formulation and implementation of public policies, the role of political leadership or administrators, and the exercise of power (Younis & Mostafa, 2000). Therefore, the creation of accountability mechanism is trying to meet certain targets, i.e., control of abuse, corruption and misuse of power; assurance that public resources are being used correctly and that public service values are being adhered to; improvement of the efficiency and effectiveness of policies; and the enhancement of the legitimacy of government (Pollitt,1999). However, in different situations, the goals of accountability will also be different. Different accountability mechanism can be applied depending on which objective(s) are given priority (Flinders, 2001). In this paper, we will examine the accountability mechanism for these three BOT projects and find out the factors that resulted in serious problems.
As a whole, accountability refers to the role relationships among political leadership, public officials, public policy and citizens. It can be a criteria used to evaluate conduct and performance. It concerns answerability, legality, responsibility, responsiveness and sanctions. Finally, it involves a number of interrelated internal controls. Therefore, accountability is very important in creating a performance-oriented, neutral civil service, and a responsive, accountable administrative system (Younis & Mostafa, 2000).
The benefits of accountability therefore includes: those who exercise power need to account for what they do, and accountable government will facilitate administrative competence. In addition, accountability requires effective supervision and therefore plays an important role in highlighting irresponsible actions and improper use of public resources, by utilizing sanctions to be imposed for failure to carry out responsibility. The sanctions might prevent the violation of rules and regulations. Under the efficient supervision and sanctions, the government will be less corrupt. Thirdly, accountability system need information on the progress-reporting system and therefore can improve the performance of government. Civil servants can serve the public and answerable to elected representatives. Fourthly, accountability prevents centralization of power and facilitates the devolution of authority which ensures popular participation, and delegate power to elected representatives. Moreover, accountability requires the politicians to serve the public and answer to the congress. Fifthly, accountability strengthens the rule of law and supports democratic legitimacy.
Finally, accountability facilitates more openness and transparency and prevents officials from hiding information from the elected representatives. Accountability also makes officials responsible for their actions (Younis & Mostafa, 2000). However, Flinders’s research finds that the mechanism of responsibility facilitates the distribution of blame rather than credit in the British system. Hence, officials paid more attention to avoid mistakes and protect their ministries than adopt innovative and potentially efficient practices (Flinders, 2001).
As for the types of accountability, according to Younis & Mostafa (2000), it includes: constitutional/political accountability, administrative accountability, judicial accountability, managerial accountability, consultative accountability, quasi-judicial accountability, procedural accountability, public corporation and accountability, professional accountability, decentralized accountability, and moral accountability. For constitutional/political accountability, there is a constitutional arrangement that both the political leaders and civil servants should accountable to the congress for their actions. Although Munishi (1988) argues that the constitutional/political accountability is more important than other accountability[2], Simon el al (1991) identify some limitations on it, i.e., the political independence of executives, the complexity of government, administrative initiative in legislation, legislative delegation, vagueness of legislative content, and the exception principle. Moreover, the decline of congress power, a dominant executive, the diminishing reputation of congress, the control of information by the executive, the growth of quasi-government and indirect control, blurred lines of responsibility for the public corporation and an enlarged bureaucracy make legislative accountability weak and ineffective (Woodhouse,1993).
If the function of political accountability has declined, whether alternative models of accountability can remedy the shortcomings? For judicial accountability, Flinders find that judicial inquiries suffer from the fact that they are not completely independent from political processes that create them. They are created by and report to the executive rather than the Parliament. For managerial accountability, Flinders also find that it does not and cannot replace political accountability. Conversely, it makes parliamentary scrutiny more important to monitor devolved management, prevent ministerial blame shift and compel the executive to release information. Moreover, the imposition of managerial accountability frustrates the government’s wider objectives, particularly cross-departmental interagency work and reduces risk aversion. In other words, alternative models of accountability have not evolved to remedy the ailments of political accountability (Flinders, 2001).
There is a correlation between democracy and accountability. Democracy supports strong accountability, weak accountability undermines democracy by allowing officials to ignore the people will. Where accountability is strong, individuals are able to criticize government’s policies. Opposition becomes very effective and can make the government accountable for non-democratic activities which might hamper the interest of the people. However, weak accountability will hurt people’s freedom of speech, freedom of association, political choice of electorate, universal suffrage, and rights of opposition, equal representation and public interest. In addition, one of the reasons for inefficiency is weak accountability of government. Government with weak accountability is more interested in using civil servants to consolidate power than in developing performance-oriented, neutral and trained civil servants. Moreover, national interest is placed below party, personal or group interest. Government is more interested in responding to a particular class, group or region to whom it owes its power or on whom its continued power depends. Weak accountability will also lead to concentration of power which leads to corruption ( Younis & Mostafa,2000). In other words, accountability could be a very useful indicator to measure a country’s degree of democratization. The more accountability a country has the more democratization it would be.
I1. Governance and BOT
Under the tradition concept of “government”, there is a set of organizations which manage public affairs through coercive power and responsible for its results. However, the concept of “governance”no longer emphasized the traditional hierarchical bureaucratic system. The network replace hierarchically dominated policy-making process, state investment on public infrastructure was cut, market incentive mechanism and private sectors management were introduced into government; the role of government was transferred from providing policy into promoting interaction among different interests; efficiency and responsibility were emphasized; and an equal cooperation between government and society as well as public and private. According to the logos of governance, the state is not the only power center, local government, community organization and private enterprise were all conferred power by the state. Through the cooperation among different roles and institutions to contend, define and reach policy target, the state can no longer dominate the policy-making process. The policy was made through problem solving rather than bargaining. The government was transferred into a coordinator for fusing public and private sectors, the line and responsibility between public and private is also blurred. The state is trying to promote its efficiency through private enterprises’ way, and pay much attention to the participation of those who were managed[3].
Under the concept of new governance, the subject of management was diversified and no longer dominated by the state; the means of management no longer emphasize coercion and were replaced by voluntary and equal cooperation. The exercise of power was no longer restricted to up-side-down one way control and two-ways or multi-ways coordination as well as communication was paid more attention. The citizens and social institutions therefore have more opportunity to participate in public affairs. Through change on governance, the government moves to market participation, i.e., privatization; and hierarchically bureaucratic system was also moved from centralization into decentralization (Hu, 2004)。
Jon Pierr and B. Guy Peters argue that governance should be regarded as an approach for considering state capacity, as well as the relationship between state and society. For political economy, exchange between public and private implies the concept of governance, the role of government was also defined to be economic coordination. There are four reasons that governance was paid attention: (i) since 1980, many states faced serious financial crises. People not only boycotted new tax, but also declined to cut public expenditure. This forced the state to bring in private sectors and coordinate/integrate the public-private resources to maintain the level of public service. (ii) 1980s was the time for President Reagan and Premier Thatcher, both believed that overregulation will hamper economic development. The ideology changed into individualism, market and deregulation, and the necessity to construct public-private coordination and cooperation becomes more obvious. (iii)Under the trend of economic globalization, the capacity of government to guide economy and society was weakened; there is a need to develop a new governance model to integrate public-private sectors. (iv) The failure of big government means that state can no longer effectively manage societal-economic system. Moreover, state gradually developed into a part of economic system or market, or a part of civil society or organized interest groups. The phenomenon of state failure contributes to the new governance which emphasizes public-private sectors compensation and mutual shares of resources (Pierre & Peters, 2000).
Under the new governance model, the role of state gradually moved from power command to power confers and paid more attention to public-private cooperation (Stone, 1989). The Taiwan High Speed Rail (THSR) Project, the Kaohsiung MRT (KMRT) Project, and the highway Electronic Toll Collection (ETC) Project were all activities that the government transferred power to private enterprises, and trying to achieve its goals through private enterprises. However, these BOT projects which in essence conformed to the principles of governance fell into serious problems. In this paper, we are going to investigate the accountability mechanisms behind them and reveal the factors that resulted in these problems.
The BOT projects are public infrastructure projects which employ a particular form of structured financing and a consortium of interested groups (typically including a construction group, an operator, a financing institution, and other various groups) which prepares the proposal to construct, operate, and finance, the particular project. The sponsor may take the form of a company, a partnership, a limited partnership, a unit trust, an unincorporated joint venture or a combination of one or more. Such projects are complex by virtue of the number of parties involved and the corresponding number of contracts, which must all interlock. Furthermore, each party is dependent upon the performance of not only its counterpart, but also the performance of all parties to the project. As a whole, BOT projects require all parties to share the risks of the project[4]. BOT means build, operate and transfer, or build, own and transfer. It’s a product of privatization which trying to utilize market forces to promote the efficiency of public infrastructure and operation. Under the principle of BOT, there is a public-private partnership relationship that might help the government to promote public infrastructure through the private sponsors’ participation and financing.
Generally speaking, BOT could produce many benefits which include: (i) seek assistance of private finance, innovation and management knowledge, reduce the constructing cost, shorten the time limit for a project and promote the construction efficiency. (ii) Reduce the debt of the government and accelerate the construction of public infrastructure. (iii) Share the risk and responsibilities of the projects with private sponsors. (iv) Under the circumstance that finance burden of the government is not increased, the private sponsors not only could have reasonable profit, but also could provide good quality public service. (v) Government still could command the project when its franchise has expired, which is better than those privatization through stock transfer. (vi) Through the participation of private financing sponsors, its conscientious and careful examination on the particular project will assure its feasibility (Hu, 1999).
Taiwan started to launch its privatization since 1989. The Statute for Encouraging Private Sector Participation in Transportation Construction was enacted in 1994, and the Executive Yuan authorized the ”Advance Domestic Infrastructure By BOT”project in 1995, the THSR and other 21 BOT items were under this project. Furthermore, the Executive Yuan (EY, cabinet) passed “Point for Attention of Application and Examine Operations for Civil Participation in Transportation and Communication Construction” in 1998，set up open, transparent and responsible system for private participation. In February, 2000, the Legislative Yuan (LY, the congress) passed the Promoting Private Participation in Public Works Law. The THSR Project, the KMRT Project, and the ETC Project all were BOT projects regulated by this law. In other words, these projects should be invest, build and operate by private; when the operate period is terminate, the ownership of the project should be transferred to the government.
However, under the BOT policy, it will be hard to decide the bids just according to the bid price owing to the reason that information are not complete and uncertain. For those opportunistic corporations, they might try to win the bid first, and then try to change the franchise conditions. If the corporation that won the bid has good political-business relationship, the public sector might be forced to match up the private enterprise’s demands (Hu, 1999). In addition, when the private enterprise participate in public works, it might face some risks like: obtaining land, environment, finance, finish project (finish project behind time, serious overspend, serious defect of finish project), operation, policies and force majeure, which make the finance institutions either ask for comprehensive guarantee or reduce the amount of finance. However, if the government serves as a guarantor for the BOT, the finance institutions’ incentives of evaluation and supervision will be reduced. The government could provide policy finance to strengthen confidence of those finance institutions, or share risks through government investment. If government provide finance guarantee, it should design a comprehensive and strict mechanism to supervise the trade of franchise corporations ( Hu, 1999; Su, 1998). In the THSR and KMRT BOT projects, the government either provide finance guarantee or directly and considerably invest or finance, however, it seems that there is no suitable accountability mechanism for supervising private corporations and therefore resulted in serious problems.
As a whole, the BOT project should adhere to the goal of new governance, i.e., cut public expenditure, bring in market mechanism and private sector management; emphasize efficiency and cooperation as well as interaction between government and society, public sectors and private sectors. However, for those who opposed BOT, they argued that public service should not be provided by untrustworthy and selfish private corporation. The BOT project was even recognized to be pseudo-privatization. It not only failed to draw the benefits of high efficiency, but also failed to prevent from tying bids, expenditure in excess and worse construction quality. Besides, fixed years of operation will also worsen the construction quality so that the quality of the construction and its operating plan were designed according to that fixed years (Su, 1998). For Hal G. Rainey, only government which works perfectly can enjoy the benefits of privatization (Rainey, 1996). In other words, if the government works terrible and its public management capacity is low, the BOT project will be also in trouble. Therefore, if the accountability mechanism of government is in problem, we can hardly expect that the BOT project will be implemented successfully.
III. THSR, KMRT and ETC
The THSR, KMRT and ETC were the most important BOT projects for the ruling Democratic Progressive Party (DPP) government after 2000. To be a party which emphasized transparency, honest and upright all the time, the DPP won a victory over the ruling Nationalist Party in 2000. This party turn-over is a very important symbol for Taiwan’s democratization, and the new government was expected to be more capable and accountable than the old government. However, to get the opposite of what one wants, the DPP failed to satisfy the needs of Taiwanese people. Through the investigation of the BOT projects in this paper, they provide us a good opportunity to examine the new government’s governance and accountability mechanism. Before we review the DPP government’s designs on accountability mechanism, Let’s examine the implementing processes of these three projects first.
1. Taiwan High Speed Rail (THSR) Project
The Taiwan High Speed Rail (THSR) is a BOT project driven by the Statute for Encouraging Private Sector Participation in Transportation Construction in 1996. The Taiwan High Speed Rail Union acquired priority right to negotiate with government by the terms that “zero government capital”, and then was approved to sign contract with government in June 1996.
However, many controversies were occurred in the process of fulfilling this contract. The THSR announced in September 2005 that the launch of the service will be delayed for one year owing to delay of achieved percentage of scheduled progress in construction. The THSR has been encountering difficulties in raising funds and then looking for help from the government on several occasions. This has been criticized by the pubic repeatedly, as the THSR is a BOT project and should not involve government funds or taxpayers' money. However, the government has already pumped NT$12.5 billion into the project through various state-run enterprises, including Taiwan Sugar Corp, the Bank of Taiwan and the Land Bank of Taiwan. The most recent example was that the THSR secured nearly NT$3.2 billion from China Steel Corp, in which the government holds a controlling stake. Furthermore, the original shareholder request government to put up capital at times by the reason that they are incapable of putting up capital and forced government put up more capital from the Labor Pension Fund and public enterprises. According to the Statute for Encouraging Private Sector Participation in Transportation Construction and the Promoting Private Participation in Public Works Law, the investment upper limit for the public enterprises on the THSR is 20%, however, the LY made a resolution in 2004 that “public enterprise should not invest the THSR again” which should restrain the government from putting up more capital on the THSR although capital from government and public enterprises’ on THSR was only 14.5 billion New Taiwan Dollar(NT$) (18.86%)[5].
According to the contract signed by the government, the THSR and the banks, if the THSR failed to raise capital in accordance with the contract, the government should purchase the THSR[6]. It seemed that it’s this article that forced the government to put up more capital to the THSR to avoid purchase the THSR.
In terms of the contract, the THSR has to raise 7.5 billion NT$ special stock certificate before September 2005. However, the original stockholder again turns to government for help. The THSR chairwoman Nita Ing visited Premier Frank Hsieh to ask for help. Hsieh said that the government will study the terms of the legislature's limit on government investment in the THSR, and allowing state-run enterprises to invest more if the legislation allows. Hsieh also said that the government's ultimate responsibility is to buy out the company if it fails to raise enough funds to complete construction. In that scenario, the government may need to spend NT$300 billion (US$9 billion) on the buyout. Hsieh argued that it’s not necessary for government to buy the THSR, but government could be the biggest stockholder of the THSR[7]. Through the intervention of the Executive Yuan, the China Aviation Development Foundation under the MOTC modified the foundation’s regulation that allows it to invest in major national construction projects other than the aviation industry. The foundation raised approximately NT$4.5 billion to inject into the THSR construction. In addition, the China Technical Consultants, Inc. Foundation which is funded by government raised another NT$3 billion to inject. Therefore, the THSR could then obtain loans from banks and solve its financial crisis. However, the government becomes the biggest stockholder of the THSR which controlled more than 30% of the shareholding[8].This not only violate the related statues, but also not conformed to the principle of BOT. Premier Hsieh convened the meeting for the THSR emergency and decided to add two official directors rather than three for the THSR to avoid the result that government may controlled more that half seats in the THSR board of directors[9].In name the THSR is still maintain BOT, in essence it has changed into a quasi-public enterprise. Through the investment of judicial persons, the Executive Yuan not only avoided supervision from the LY, but also avoided the regulated upper limit of related statues.
The THSR promised the terms that “zero government capital”and then acquired the priority right to negotiate with government. However, the THSR repeatedly requested government to put up more capital after the contract was signed[10].This revealed that the THSR is planning to get the contract first and then trying to change the franchise conditions later. Moreover, Nita Ing , the Chairwoman of the THSR is also Advisor to the President which might be one of the main reasons that the Executive Yuan was forced to try its best to satisfy the demands of the THSR. As a whole, we found that the government not only failed to supervise the THSR, but also help the THSR to avoid the supervision from the legislative organ. In other words, the government has been captured by the THSR and the accountability mechanism in this project was totally collapsed.
2. Kaohsiung MRT (KMRT)
The Kaohsiung MRT broke out violent protest from Thai labors in September 2005, and accidentally ignited the KMRT scandal which resulted in the resignations of the Chairwoman of the Council of Labor Affairs (CLA) and the Acting Mayor of Kaohsiung City.
In November 4th 1998, just eve of the vote for mayor of Kaohsiung City, following the direction from the Executive Yuan that the KMRT should be build by the way of BOT, Deputy Mayor Huang Chun-In summit a report to the EY and suggested that those parts invested by government should invite private enterprises to conduct and advocate that the Ministry of Audit handle this project‘s auditing activities by Article 12 of the Audit Law. The EY replied to the Kaohsiung City Government in February 8th 1999 and instructed it to study what government should do in this project and planned well. However, the new Mayor Frank Hsieh replied to the EY that the Kaohsiung City Government still suggested that those parts invested by government could invite private enterprises to conduct. This suggestion was finally approved by the EY at June 4th (Wu, 2005), and the Kaohsiung City Government reported to the Public Construction Commission (PCC) for its approval to exclude the KMRT from applying to the Government Procurement Law. This suggestion was approved by the PCC[11]. Although the Statute for Encouraging Private Sector Participation in Transportation Construction is a special law, its level is higher than that of the Government Procurement Law, it seems not rational to exclude those construction which were financed by the government from applying to the Government Procurement Law, especially when the government capital occupied more than 80% of the total BOT project. The exclusion of the Government Procurement Law in the KMRT seems weakening its accountability mechanism from the government.
The KMRT project was finished by Mayor Hsieh from drafting, approving by the city council, choosing private enterprises, signing contracts and starting construction. In other words, Mayor Hsieh should responsible for the performance of the KMRT. Unfortunately, the KMRT came about many scandals which showed that the KMRT also lack adequate accountability mechanism which can effectively supervise the quality of this construction. For example, the six public bids’ floor price was questioned disclose, bids were dominated by specific companies and changed the sequence of bids illegally which caused the government to pay extra NT$270 million for this project. Although the Kaohsiung District Prosecutor’s Office gets the report on the guilt, it concluded this case by the reason that it’s the coordination among private companies rather than dominating by specific companies[12]. In addition, the Kaohsiung Rapid Transit Corporation (KRTC) ruled that all companies participate in the bid for concrete mix in advance need to be examined first except those companies owned by the vice president of the KRTC. This case was fined NT$6 million by the Fair Trade Commission (FTC) of the Executive Yuan by the reason that it violated the Fair Trade Law. However, the Chairman of the FTC put this resolution by one side[13].In this case, we found that the prosecutor was blind to the KMRT scandal and the chairman of the FTC even leave aside the penalty, which showed that there is no accountability mechanism which can supervise the KMRT from scandals.
As for the recruitment of foreign laborers, the CLF announced at May 10th 2001 that it will terminate the application for foreign laborers for those new bids on major construction after May 16th 2001, and turned back the KMRT’s application for foreign laborers. However, the CLF changed its position at June 26th 2003 under the request of the THSR to recover the right of applying foreign laborers for those BOT project which was approved before May 16th 2001. The KRTC therefore applied again and approved by the CLF to introduce laborers from Thailand. According to the CLF, the Thai laborers should be introduced by the way of nation to nation, however, the KRTC changed it into authorizing entrusting agency to introduce and which was still approved by the CLF. Moreover, the KRTC applied budget for the construction by the standard of local laborers but hired foreign laborers whose pay is only half of the local laborers, and then benefited almost NT$2 billion. In other words, the CLF connived the KRTC to introduce foreign laborers illegally and deprived the working opportunities of local laborers. The entrusting agency that introduced Thai laborers exploited Thai laborers at the amount of NT$400 million. Unfortunately, both CLF and the Kaohsiung City Government failed to supervise the KRTC[14] from these illegalities. The process of introducing Thai laborers showed that the governance ability of the government is in question and lack of accountability mechanism to supervise the KRTC.
Although the KMRT is a so-called BOT project, the central government finances NT$110 billion, and the Kaohsiung City and county governments invest NT$40 billion. However, the KRTC injects only NT$30.49 billion, and about NT$20 billion was come from bank loan, and the remaining NT$10 billion was contributed by seven other private companies. As a whole, the government contributes more than 80% capital of the project, which violated the upper limit (20%) for the BOT project. According to the Promoting Private Participation in Public Works Law, if government investment goes beyond that of private investment, those works that were funded by the government should be contract out by government and supervised by government. The Kaohsiung City Government blinded to this rule and requested construction that were financed by the government excluded from applying to the Government Procurement Law, which therefore enabled the KRTC that contributes less than 10% to subcontract out those construction financed by the government. Moreover, the central government and the Kaohsiung City Government failed to appoint anyone on the KRTC’s board of directors to supervise the company’s operations. It is obvious that this arrangement is in favor of the KRTC. The DPP government never explained why such a project that the government financed more that 80% is still be categorized into BOT. Although most capital of the KMRT is come from government, it is hard to understand why the government still allowed it to be excluded from applying to the Government Procurement Law.
As for Chen Che-nan, the former Deputy Secretary General of the Presidential Office, who was the key person that involved in the KMRT scandal, was detained by prosecutors and indicated on corruption and breach of trust charges in the scandal. He allegedly used his high rank to illegally import Thai laborers for the KMRT. However, for all scandals that Chen Che-nan involved in, the prosecutors only proceed against the case that Chen accepted entertainment from private company by the name of mercenary rather than corruption. It seems that the prosecutors were under some kind of political pressure that made them failed to supervise the KMRT’s scandals.
Moreover, when the prosecutors started to investigate the KMRT scandals, the chief procurator was summoned by President Chen Shui-bian to inquire for the case. President Chen even commanded acting Kaohsiung City Mayor Chen Chi-mai to investigate this case in defiance of the prosecutor has started its investigation[15]. In this case, we find that the government system was confused and the judicial system was also abused by the political power.
The KMRT scandal not only reveals the government’s ungovernability and its problem on implementation, but also unmasks the terrible government-business relationship. On the one way, the Kaohsiung City Council failed to supervise the city government or the KMRT; on the other way, the judicial system was also incapable of investigating these scandals[16]. As a whole, the government, the private enterprise and the judicial system has become to be a comprehensive complex. If the Thai laborers against mistreatment and poor working conditions did not broke out in August 2005, the KMRT scandals might still unrevealed till now.
Vice President Annett Lu argues that the there is no problem for the KMRT to be implemented in the way of BOT, the problem is that the government financed more than 80% and the central as well as local governments can not supervise such a BOT project. The Kaohsiung District Prosecutor’s Office also argues that even former Kaohsiung City Mayor Frank Hsieh is not illegal, he still need to responsible for his mismanagement[17]. Since it was Hsieh’s decision that the KMRT should be excluded from the Government Procurement Law, and failed to appoint anyone on the KRTC’s board of directors to supervise the company’s operations, it seems that Hsieh should be accountable for the KMRT’s scandals.
3. Electronic Toll Collection (ETC)
At first, the highway Electronic Toll Collection (ETC) was authorized by the MOTC to the state run Chunghwa Telecom Company to responsible for technique research and system development. After the ETC system was developed and proved workable, the Chunghwa Telecom advanced its system equipment procurement budget by NT$1.6 billion. However, more than half Legislators opposed this budget and forced the Chunghwa Telecom to cancel the contract at June 21, 2002. The ETC was then changed into BOT after the Chunghwa Telecom withdrew. Legislator of the ruling party argued that the ETC was forced to be BOT under the pressure of Legislators. Finally, the Far Eastern Electronics Toll Collection Co. Ltd. (FETC) defeated all competitors and won the ETC bids. However, bribery, unfair bids, the high price of OBU etc., and the tough attitude of the FETC finally resulted in the serious resentment from customers (Chen, 2006).
In April 2005，the Taiwan Yu-Tung Information Technology Co, one of the candidates of the ETC bids raised an administrative lawsuit against the rights of the FETC to win the ETC bid. The Taipei High Administrative Court pronounced at February 24th that revoked the status of FETC as the "most qualified candidate" in the project should be annulled by the reason that the judge made by the Taiwan Area National Freeway Bureau (TANFB) of the MOTC “violates the principles of equality and justice”[18]. On August 3rd, the Taipei High Administrative Court voided the partnership between the MOTC and the FETC, and ordered that the MOTC must look for a new partner to operate the ETC system. For the Court, the MOTC unfairly favored the FETC during the selection process for the appointment of a partner in the ETC project. The process was unfair to two other bidders and must be nullified. Far Eastern Group, the major shareholder in FETC, finally announced that it would give all of its stockholding in the ETC firm to the government and completely withdraw from toll collection operations.
One of the problems for the ETC is that who made the decision to make it BOT? Lin Lin-san, Minister of the MOTC argued that it was the decision of the TANFB. However, both former Directors of the TANFB argued that is was decided by Minister Lin. Lin then passed the responsibility to his Deputy Ministers and claimed that the BOT of the ETC has no any relation with him. According to both former Directors of the TANFB, since the TANFB cancelled contract with the Chunghwa Telecom, they made a report to Minister Lin and one of the conclusion from Minister Lin was that inviting advisors to plan BOT for the ETC.
Further complicating the situation were allegations that FETC fabricated ETC test results to qualify for the bidding process. Three FETC executives were indicted by prosecutors on charges of fraud and breach of trust for falsifying the results[19]. The prosecutors indicted Soong Nai-wu, the secretary to former MOTC minister Lin Ling-san, for allegedly offering and taking bribes in the scandal involving the ETC system. Soong is suspected of accepting more thanUS$21,590 in bribes and of leaking the ministry's secret documents to FETC before the ETC bidding took place[20].Soong was sentenced to 12 years in jail for accepting bribes and acting without authority in handling the ETC project.
Although Lin denied his relation with the BOT of the ETC, in a document on the selection of consulting companies for the ETC system, Lin wrote that he agreed to the proposal in principle but that the procedures needed to be officially approved. According to Lin, Sung took this instruction and requested that the TANFB amend the bidding requirements. Lin insisted that he did not instruct to amend the bidding requirements. The idea of BOT is come from Liang Yueh, the former director of TANFB [21]. In this case, no any high rank officials would like to account to the ETC scandal. I t seems that there is no any accountability mechanism for the ETC project. For such a serious scandal, Soong Nai-wu, the secretary to former MOTC minister Lin, is the only official that was sued. No any high level officials step down for this scandal.
VI. Governance and Accountability of BOT in Taiwan
The former MOTC minister Lin Ling-san , after the KMRT scandal broke out, hold that it might be not suitable for Taiwan to adopt BOT at that time. Lin suggested to freeze all BOT projects that were in reviewing process and to abolish the Statute for Encouraging Private Sector Participation in Transportation Construction. Nevertheless, Lin also agreed that there is no problem for the system of BOT, the problem in Taiwan’s BOT project was resulted from implementation. Originally, the government was not expected to finance the THSR project. However, the government was captured by THSR to put in more and more capital in that project because it signed a triple contract and served as a guarantee for the THSR[22]. For this, the chairwoman of PCC suggested that once the Statute for Encouraging Private Sector Participation in Transportation Construction was replaced by the Promoting Private Participation in Public Works Law, controversy of the BOT project should not occurred again because the Law ruled that government finance in the BOT project can not surpass the private enterprises[23].
According to our investigation in this paper, the problem in BOT is not only how much the government financed, but also whether there is a capable government which can design an appropriate contract and accountability mechanism that can effectively supervise the implementing process. If the government is capable enough, there is no reason that it will sign such a contract that the government needs to finance tremendously and allowed private enterprises to dominate the BOT projects. We can hardly understand why the government financed more than 83% capital in the KMRT, and why Mayor Frank Hsieh demanded the KMRT should be excluded from applying to the Government Procurement Law? For the ruling Democratic Progressive Party which used to insisting anti-corruption and transparency, it is reasonable for us to expect it design an adequate accountability mechanism to supervise BOT projects. However, the THSR, KMRT and ETC scandals all showed that there were serious accountability problems.
Since the broke out of the THSR and KMRT scandals, a poll by Global Views Magazine showed that there were more than 54% foreign business in Taiwan recognized that Taiwan’s government should improve its efficiency and efficacy, and more than half recognized that the government is not free from corruption[24]. Besides, polled by the Control Yuan (CY) also showed that there were 49% people do not trust government’s investigation on the KMRT[25]. These statistics revealed that many people do not trust the government. The government is not only incapable, but also not free from corruption. Just like what Hal G. Rainey mentioned earlier, it is hard to obtain advantages from privatization if the operation of government were in question. Chen Che-nan, the former Deputy Secretary-General of the President Office, who was not only involved in the KMRT scandal, but also related to many other scandals simultaneously. These records showed that Chen’s integrity is in problem. Respecting Chen’s important role in the ruling party, he was even recognized to be a key player for high-level corruption structure[26]. In other word, Chen’s involvement in the KMRT scandal should not considered to be a personal case but a structural corruption. That’s might be the reason why Chen was blind to the existence of the Kaohsiung City Council as well as justice and trying to get illegal benefits from the KMRT[27].
The cases of THSR and KMRT showed that the success of BOT might need to fulfill the principle of private financing. The government financing should be restricted strictly and be refrained from investment. In the KMRT case, the government financed, invested, and helped the THSR to get finance and purchased land by almost US$110 billion. The government signed the triple contract to serve as guarantee for the THSR and therefore conditioned by the THSR and the banks. Nobody was asked for political or administrative accountability to the KMRT scandal till now. Moreover, the cabinet even blinded to the supervision of legislative organ and the LY can do nothing to effectively counterbalance the cabinet as well as those BOT projects and asked them to account for those scandals.
In the KMRT project, the government financed more than 83% and allowed the private enterprise which financed less than 20% to dominate the rights to construct and operate the KMRT. In this project, we found that the KRTC exploited the Thai laborers and tied the bids. We can hardly see there is any principle for officials to follow, and found that the local legislative organ and judicial system failed to successfully supervise the implementation of the KMRT. This showed that the government’s governance and accountability mechanisms were in serious trouble.
For the ETC project, it was designed by the state run Chunghwa Telecom Company. However, because this project involved big profits and caste big business greedy eyes on it, and then the LY deprived the right of the Chunghwa Telecom Company. Even when the secretary to former MOTC minister Lin Ling-san was sentenced to 12 years in jail for accepting bribes and Taipei High Administrative Court voided the partnership between the MOTC and FETC, and ordered that the MOTC must look for a new partner to operate the ETC system, the DPP government still allowed the FETC to keep operating the ETC. This led to the criticism that the government showed undue favor to the big business.
In the view of governance, there is no problem for the government to introduce public-private cooperation and market mechanism by the way of BOT. The key issue for BOT is avoiding opportunistic behavior, assuring efficiency and accountability, fulfilling public-private cooperation, avoiding public-private collaboration, and avoiding tie bids, waste and low quality. The THRS, KMRT and ETC projects showed that it is not a panacea to introduce private enterprise to construct public infrastructure. Accountability mechanism is still very important for the success of BOT. To assure the success of BOT, the government should provide a sound accountability mechanism for BOT to avoid its officials to shift off responsibility or allow the private enterprises to abuse the privilege through abnormal political-business relationship.
To assure its success, the announcement of BOT bids and the essence of government program should be clear and transparent. The main prerequisite for the success of BOT should be a clear risk share between the government and private enterprises. In other words, responsibility or definition of franchise should be very clear. One of the reasons that the THRS was in trouble is that the rule of game is unclear and changed repeatedly which made the government fell into unfair regulations. To assure the success of BOT, there is a need to establish transparent legal system, standardize process for contract and bids (Liu, 2005). If the contract of BOT is clear enough, the responsibility of the government or private enterprises will be quite clear and then could avoid government officials or private enterprises to make improper profits through BOT. If the BOT could design an adequate accountability mechanism, it should be able to avoid tie bids. Although the THSR and KMRT are BOT project in name, it’s not BOT project in essence. The contracts not only were unclear, but also went against the government. Moreover, those BOT projects not only lacked accountability mechanism, but also found officials help one another after the scandals broke out. Even the legislative organs and judicial system can hardly supervise those BOT projects. This result was according to what Woodhouse (1993) argued that the decline of congress power, a dominant executive, and an enlarged bureaucracy make legislative accountability weak and ineffective.
The ruling DPP faced unceasing scandals since 2000. The President and his family members, the secretary-general and two deputy secretary-generals of the President, the minister of MOTC, the mayor of Kaohsiung City and the Chairwoman of the CLA all were involved into political storms. Facing each kind of scandals, the government will deny at the first time, and then forced to admit after relative evidence was revealed. The BOT scandals we examined in this paper might be only part of the full story. Even so, it has revealed the fact that the government lacks the governance ability and failed to follow the principle of anti-corruption.
For J. Kooiman (1993), the indicators for good governance includes legality, clear responsibility, professional administrative ability, respect law and human rights, ability to correctly diagnose problems, ability to govern, ability to response and reasonable cost-benefit. In those BOT projects that we examined in this paper, we found the DPP government obviously lack most indicators Kooiman raised above. For the THSR and KMRT, the government illegally financed a great deal and failed to consider cost-benefit. The content of contract either unclear or went against the government which showed that the government lack professional administrative ability to handle BOT projects. Moreover, in these BOT projects we found so much illegal activities and power abuse, officials help each other, shirk responsibility, and crucify human rights of foreign labor. All these evidence showed that the DPP government failed to establish adequate accountability mechanism to supervise the implementing process of those BOT projects. Owing to its lack of governance ability and adequate accountability mechanism, that’s might be the main reason why the BOT project that originally should be conform to market mechanism failed to attain substantial effects of contract out construction.
In sum, the transparency of these BOT projects was not enough and involved serious government-business interest delivery. Although the LY made a resolution that restricted the government finance more on the THSR after the BOT scandals broke out, the government still trying to get round by asking those foundation or corporation which were dominated by it to invest THSR. Moreover, the LY could not effectively supervise the THSR scandal on account of its lack of investigation power[28].The Kaohsiung City Council also failed to counterbalance the Kaohsiung City Government and effectively supervise the KRTC. This evidence showed that the LY failed to supervise the THSR and the KMRT projects through counterbalancing the cabinet and its institutions. In addition, although the CY is authorized investigation power, however, owing to its member’s nomination failed to be passed by the LY, its function was came to a stop and therefore also unable to investigate any BOT scandal. The LY not only unable to supervise the executive branch from corruption, but also itself involved in the ETC interest redistribution which finally led to the ETC scandal.
The other organ that the executive organ should accountable to is judicial system. However, the performance of judicial system in these BOT projects scandals was turned sour. The judicial system’s investigation on these scandals was either plea bargaining or disappear for ever which alarming Taiwan’s judicial system[29]. Just like what Flinders (2001) mentioned that judicial inquiries are not completely independent from political processes that create them, it is obvious that judicial system in Taiwan is also not independent from political control even Taiwan has been transferred into a democratic country through party turn-over in 2000. As a result, it is hard to expect the judicial system to effectively supervise the executive institutions or those BOT projects. This might be the reason why those officials that involved in scandals ignored the existence of public authority.
Under the condition that the legislative organ, judicial system and the ombudsman failed to effectively supervise the government and the BOT projects, it’s the Thai laborers riot as well as the media continuously exposed the scandals and revealed more evidence that finally forced the judicial system to investigate those scandals. More and more people asked the DPP government to investigate these scandals and used their votes to teach the DPP a lesson in the following county’s magistrate elections. Although the DPP lose the county’s magistrate elections and President Chen’s public opinion support was fell to less than 18%, we still can hardly find the DPP government determined to face these scandals.
The DPP government could not bring itself to solve the officials corruption proved that it lack governance ability. The basic symptom for these corruptions is the political-business complex. This complex transferred into an accomplice structure owing to its lack of effective supervision from legislative organ, judicial system and the public. For such a government, we can hardly expect that it could effectively utilize the market mechanism to reach the targets of BOT. On the contrary, the BOT become to be a mechanism for the political leadership to reward his political supporters. Owing to the strong control of political leadership and the weak supervision from legislative organs, judicial system and ombudsman system, the executive organ and those three BOT projects were not under adequate supervision from relative accountability mechanisms. That’s might be the critical reason why those three BOT projects were fell into serious scandals.
Acronyms/Abbreviations
BOT Build/Operate (Own)/Transfer
CLF Council of Labor Affairs
CY Control Yuan (the Ombudsman)
DPP Democratic Progressive Party
ETC Electronic Toll Collection
EY Executive Yuan (the Cabinet)
FETC Far Eastern Electronics Toll Collection Co. Ltd.
FTC Fair Trade Commission
GIO Government Information Office
KMRT Kaohsiung Mass Rapid Transit System
KRTC Kaohsiung Rapid Transit Corporation
LY Legislative Yuan ( the Congress)
MOTC Ministry of Transportation and Communication
PCC Public Construction Commission
TANFB Taiwan Area National Freeway Bureau
THSR Taiwan High Speed Railway
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（本文發表於第2007六十七屆ASPA國際研討會）
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[1] See Weisskopf, 1992; Kaufmann and Siebelbaum, 1996; Tangri and Mwenda, 2001; and Chow, 2005.
[2] Cited from Younis & Mostafa, 2000.
[3] See Bache, 2003;A. Sloat, 2002; and Hu, 2004.
[4] See www.mcmullan.net/eclj/BOT.html.
[5] See http://taiwan-railway-club.com.tw/news/20030416225803.
[6] According to the THSR’s Position Paper, the government does not provide repurchase article. The reason that the government signed the triple contract is that the banks asked the government to do so in order to protect theirs creditor’s rights. See http:/www.thsrc.com.tw/0614ISSUE/HTML/leaglist05A.htm.
[7] Economic Daily News, 2005,9,29, A9.
[8] United Daily News, 2005,10,5,A6
[9] See http://www.taiwan-railway-club.com.tw/news/20051021062716.
[10] The government totally financed NT$412 billion on the THSR, more than 86.7％of the total investment. However, the Government Information Office (GIO) argued that it is different between investment and finance. Finance is a kind of government subsidy; the government is unable to get stock. However, investment made the government to be shareholder; the government can acquire seats in the board of directors and share the profits. The government financed NT$108 billion to collect land for the THSR andNT$240 billion of the bank finance come from the government long-term and medium-term capital and three government funds. In this part, the government only helps to provide capital resources and save it in the banks, it’s not government investment. See http://info.gio.gov.tw/ct.asp?xItem=20223&ctNode=1808. According the GIO’s explanation, it instead proved that the THSR has gone against the spirits of private building and operating. If the government has the capability to finance more than NT$350billion to help the THSR to purchase land and help the banks to provide loan capital, why the THSR adopted BOT model?
[11] United Daily News, 2005,11,30,A2。Chen S-yi, the former Deputy minister of MOTC and Ho Her-hsiung, the deputy mayor of Kaohsiung City ever suggested that the KMRT should apply to the Government Procurement Law. Chen also suggested part of the construction should be constructed by the government, and the others constructed by the government and private enterprises. In one of the 1999 proceedings of the Public Construction Commission (PCC), its officials also pointed out that finance from the private enterprise is too low. Lee Chen-chung, the vice chairman of PCC also put down his comments on a document that the KMRT make mistake repeatedly and predicted that the KMRT will break out more serious problem. See http://tw.news.yahoo.com/060411/15/30tc8.html。The KMRT obviously belong to what Item One of Article 8 in the Promoting Private Participation in Public Works Law regulated that constructed and operated by private enterprise, and its ownership should be transferred to the government when its operation right is expired. It is hard to understand why even the Kaohsiung City government insisted to construct the KMRT by the Statute for Encouraging Private Sector Participation in Transportation Construction, and the PCC need to approve that the Statute is a special law and its level is higher than that of the Government Procurement Law is a special law, so the KMRT need not to be regulated by the Government Procurement Law.
[12] United Daily News, 2005,9,30,A2.
[13] United Evening News, 2005,9,30,p.2.
[14] Economic Daily News, 2005,11,10,A2.
[15] United Daily News, 2005,10,16,A2.
[16] United Daily News, 2005,11,30, A2.
[17] See http://tw.news.yahoo.com/060304/15/2wn5a.html；http://tw.news.yahoo.com/060304/19/2wn7o.html
[18] The judge of Taipei High Administrative Court pronounced that the decision of the MOTC “violates the principles of justice.” The construction of ETC includes three different stages to arrange the fee rates. The MOTC and the Far Eastern Electronics Toll Collection Co. Ltd. (FETC) only finished the basic standard, the consumers still need to upgrade their machines and then affect their benefits. In terms of violating the principle of equality, the MOTC negotiated with the FETC only on the satellite fixing collecting fees. See http://tw.autos.yahoo.com/auto_information_article2/url/d/a/060227/3/plt.html
[19] Taipei Times, 2006,8,6.
[20] Taipei Times, 2006,3,18.
[21] Taipei Times, 2006,9,2.
[22] United Daily News, 2005,11,29, A1.
[23] Economic Daily News, 2005,12,9,A2.
[24] United Daily News, 2005,11,30, A10.
[25] United Daily News, 2005,10,22, A3.
[26] Editorial, United Daily News, 2006,4,9, A2
[27] It is said that the businessman utilized the frog hair to exchange for the construction and even one businessman donated NT$3 million to the ruling party’s candidate. See United Daily News, 2005,10,8, A3
[28] In 2004, the Grand Justice Council made the No.585 Interpretation which argues that “For the purpose of effectively exercising its constitutional powers, the Legislative Yuan may exercise certain power of investigation, which is inherent in its legislative powers, to take the initiative in obtaining all relevant information necessary to exercise its powers so that it can fulfill its duties as an elected body of representatives and bring its functions of separation of powers and checks and balances into full play by making informed and prudent decisions after adequate and sufficient deliberations. The Legislative Yuan’s investigation power is a subsidiary power necessary for the said Yuan to exercise its constitutional powers and authorities.” However, the Legislative Yuan failed to revise the “The Legislative Yuan Function and Power Law” till now so it does not own the legal base to investigate.
[29] Editorial, United Daily News, 2006,4,9, A2
There are several aims for privatization, which include reducing government involvement in industry, increasing government efficiency, reducing public sector borrowing requirement, curbing public sector union power, wilder share ownership and employee share ownership, and gaining political advantage (Marsh, 1991). However, corruption seems getting worse in developing countries following the implementation of privatization[1]. Kaufmann and Siebelbaum (1996) agued that privatization per se is not enough to prevent from corruption “because government have been unable or unwilling to honor these market-friendly arrangements or separate politics from business decisions.” (p.412). In sum, the reason for government to become corrupt might be resulted from the government’s incapable of supervision, or those who affiliates with the government trying to maximize their gains from privatization (Jan, 2006).
Taiwan recently broke out serious scandals on three major BOT cases, that is, the Taiwan High Speed Rail (THSR) Project, the Kaohsiung MRT (KMRT) Project, and the highway Electronic Toll Collection (ETC) Project. One of the main purposes to adopt BOT is that the government does not need to put up capital. However, for the first two of these three cases, we found that the Taiwanese government invest or put up capital in considerable quantities which obviously diverge from the principles of the BOT. Besides, the ETC was not planned BOT originally and was forced to changed into BOT under strong pressure from political-business coalition. In this paper, we are going to investigate why these three BOT projects fell into trouble by dealing with the governance mechanism and their accountability relationship to the government, the legislative organs, the court and the public.
I. Theoretical Reviews on Accountability
The privatization does not imply full transfer of accountability functions from the public to the private sector. Even a private company is subject to a variety of forms of state control. For many former nationalized industries, the process of privatization still involved a substantial degree of state regulation. Therefore, the assumption that privatization will lead to less state intervention is in question (Scott, 1993). In other words, the government still needs to play some role in supervising the privatized sectors.
To assure that privatization will serve the public interest, Goodman and Loveman (1991) emphasizes that accountability should be one of the main guiding lights for privatization. For Gilmour and Jensen (1998), effective public accountability scheme is also required for privatization. In other words, to assure the success of privatization, accountability mechanism is a required prerequisite.
As a matter of fact, the accountability of government has been paid much attention in recent years and was taken to be the legitimating foundation of a liberal democracy. R. Pyper argues:
Accountable government is deemed to be good government and carries with it connotations of advanced democracy. Governments which can be characterized as unaccountable or not properly accountable are likely to prove fertile ground for the cultivation of authoritarianism, totalitarianism and every type of abuse of power.”(Pyper , 1996: p.1)
Although accountability is so important for a liberal democracy and privatization, its concept is complex and multifaceted. Matthew Flinders (2001) defined accountability as “the condition of having to answer to an individual or body for one’s actions”. For Talib A. Younis and Iqbal M. D. Mostafa (2000), accountability means answerability for the discharge of duties or conduct, and the relationship between account-holder and accountor. The accountor or agent was under supervision from account-holder or principal. Richard Mulgan (2003) pointed out that four dimensions of accountability relationship provide a flexible framework of analysis. These dimensions answer to: (i) who is accountable, that is the accouters or agents. In this paper, those corporations which were in charged of BOT should be accountable for the performance of those projects. (ii) To whom are they accountable, that is, the account-holders or principals. In this paper, the account-holder of these BOTs should be the Ministry of Transportation and Communications and (MOTC), the Executive Yuan (EY, the Cabinet), the Legislative Yuan(LY, the Congress), the Control Yuan (CY, the Ombudsman), the court and the public. (iii) For what the agent is accountable, that is, the duty or function. In this paper, what people care is whether these BOT projects could reduce the constructing cost, shorten the construction time limit, promote the construction efficiency, reduces the finance burden of the government and accelerate the construction of public infrastructure, etc. (iv) How the agent is accountable, that is, the mechanisms of accountability. In this paper, we will investigate how the BOT projects accountable to the relative account-holders, and find out what’s wrong with their accountability mechanisms.
Accountability is not only a kind of mechanism, but also a process, by which the government discharges duties to specific targets that were required to account for their actions/inactions. Accountability refers to public interest, the formulation and implementation of public policies, the role of political leadership or administrators, and the exercise of power (Younis & Mostafa, 2000). Therefore, the creation of accountability mechanism is trying to meet certain targets, i.e., control of abuse, corruption and misuse of power; assurance that public resources are being used correctly and that public service values are being adhered to; improvement of the efficiency and effectiveness of policies; and the enhancement of the legitimacy of government (Pollitt,1999). However, in different situations, the goals of accountability will also be different. Different accountability mechanism can be applied depending on which objective(s) are given priority (Flinders, 2001). In this paper, we will examine the accountability mechanism for these three BOT projects and find out the factors that resulted in serious problems.
As a whole, accountability refers to the role relationships among political leadership, public officials, public policy and citizens. It can be a criteria used to evaluate conduct and performance. It concerns answerability, legality, responsibility, responsiveness and sanctions. Finally, it involves a number of interrelated internal controls. Therefore, accountability is very important in creating a performance-oriented, neutral civil service, and a responsive, accountable administrative system (Younis & Mostafa, 2000).
The benefits of accountability therefore includes: those who exercise power need to account for what they do, and accountable government will facilitate administrative competence. In addition, accountability requires effective supervision and therefore plays an important role in highlighting irresponsible actions and improper use of public resources, by utilizing sanctions to be imposed for failure to carry out responsibility. The sanctions might prevent the violation of rules and regulations. Under the efficient supervision and sanctions, the government will be less corrupt. Thirdly, accountability system need information on the progress-reporting system and therefore can improve the performance of government. Civil servants can serve the public and answerable to elected representatives. Fourthly, accountability prevents centralization of power and facilitates the devolution of authority which ensures popular participation, and delegate power to elected representatives. Moreover, accountability requires the politicians to serve the public and answer to the congress. Fifthly, accountability strengthens the rule of law and supports democratic legitimacy.
Finally, accountability facilitates more openness and transparency and prevents officials from hiding information from the elected representatives. Accountability also makes officials responsible for their actions (Younis & Mostafa, 2000). However, Flinders’s research finds that the mechanism of responsibility facilitates the distribution of blame rather than credit in the British system. Hence, officials paid more attention to avoid mistakes and protect their ministries than adopt innovative and potentially efficient practices (Flinders, 2001).
As for the types of accountability, according to Younis & Mostafa (2000), it includes: constitutional/political accountability, administrative accountability, judicial accountability, managerial accountability, consultative accountability, quasi-judicial accountability, procedural accountability, public corporation and accountability, professional accountability, decentralized accountability, and moral accountability. For constitutional/political accountability, there is a constitutional arrangement that both the political leaders and civil servants should accountable to the congress for their actions. Although Munishi (1988) argues that the constitutional/political accountability is more important than other accountability[2], Simon el al (1991) identify some limitations on it, i.e., the political independence of executives, the complexity of government, administrative initiative in legislation, legislative delegation, vagueness of legislative content, and the exception principle. Moreover, the decline of congress power, a dominant executive, the diminishing reputation of congress, the control of information by the executive, the growth of quasi-government and indirect control, blurred lines of responsibility for the public corporation and an enlarged bureaucracy make legislative accountability weak and ineffective (Woodhouse,1993).
If the function of political accountability has declined, whether alternative models of accountability can remedy the shortcomings? For judicial accountability, Flinders find that judicial inquiries suffer from the fact that they are not completely independent from political processes that create them. They are created by and report to the executive rather than the Parliament. For managerial accountability, Flinders also find that it does not and cannot replace political accountability. Conversely, it makes parliamentary scrutiny more important to monitor devolved management, prevent ministerial blame shift and compel the executive to release information. Moreover, the imposition of managerial accountability frustrates the government’s wider objectives, particularly cross-departmental interagency work and reduces risk aversion. In other words, alternative models of accountability have not evolved to remedy the ailments of political accountability (Flinders, 2001).
There is a correlation between democracy and accountability. Democracy supports strong accountability, weak accountability undermines democracy by allowing officials to ignore the people will. Where accountability is strong, individuals are able to criticize government’s policies. Opposition becomes very effective and can make the government accountable for non-democratic activities which might hamper the interest of the people. However, weak accountability will hurt people’s freedom of speech, freedom of association, political choice of electorate, universal suffrage, and rights of opposition, equal representation and public interest. In addition, one of the reasons for inefficiency is weak accountability of government. Government with weak accountability is more interested in using civil servants to consolidate power than in developing performance-oriented, neutral and trained civil servants. Moreover, national interest is placed below party, personal or group interest. Government is more interested in responding to a particular class, group or region to whom it owes its power or on whom its continued power depends. Weak accountability will also lead to concentration of power which leads to corruption ( Younis & Mostafa,2000). In other words, accountability could be a very useful indicator to measure a country’s degree of democratization. The more accountability a country has the more democratization it would be.
I1. Governance and BOT
Under the tradition concept of “government”, there is a set of organizations which manage public affairs through coercive power and responsible for its results. However, the concept of “governance”no longer emphasized the traditional hierarchical bureaucratic system. The network replace hierarchically dominated policy-making process, state investment on public infrastructure was cut, market incentive mechanism and private sectors management were introduced into government; the role of government was transferred from providing policy into promoting interaction among different interests; efficiency and responsibility were emphasized; and an equal cooperation between government and society as well as public and private. According to the logos of governance, the state is not the only power center, local government, community organization and private enterprise were all conferred power by the state. Through the cooperation among different roles and institutions to contend, define and reach policy target, the state can no longer dominate the policy-making process. The policy was made through problem solving rather than bargaining. The government was transferred into a coordinator for fusing public and private sectors, the line and responsibility between public and private is also blurred. The state is trying to promote its efficiency through private enterprises’ way, and pay much attention to the participation of those who were managed[3].
Under the concept of new governance, the subject of management was diversified and no longer dominated by the state; the means of management no longer emphasize coercion and were replaced by voluntary and equal cooperation. The exercise of power was no longer restricted to up-side-down one way control and two-ways or multi-ways coordination as well as communication was paid more attention. The citizens and social institutions therefore have more opportunity to participate in public affairs. Through change on governance, the government moves to market participation, i.e., privatization; and hierarchically bureaucratic system was also moved from centralization into decentralization (Hu, 2004)。
Jon Pierr and B. Guy Peters argue that governance should be regarded as an approach for considering state capacity, as well as the relationship between state and society. For political economy, exchange between public and private implies the concept of governance, the role of government was also defined to be economic coordination. There are four reasons that governance was paid attention: (i) since 1980, many states faced serious financial crises. People not only boycotted new tax, but also declined to cut public expenditure. This forced the state to bring in private sectors and coordinate/integrate the public-private resources to maintain the level of public service. (ii) 1980s was the time for President Reagan and Premier Thatcher, both believed that overregulation will hamper economic development. The ideology changed into individualism, market and deregulation, and the necessity to construct public-private coordination and cooperation becomes more obvious. (iii)Under the trend of economic globalization, the capacity of government to guide economy and society was weakened; there is a need to develop a new governance model to integrate public-private sectors. (iv) The failure of big government means that state can no longer effectively manage societal-economic system. Moreover, state gradually developed into a part of economic system or market, or a part of civil society or organized interest groups. The phenomenon of state failure contributes to the new governance which emphasizes public-private sectors compensation and mutual shares of resources (Pierre & Peters, 2000).
Under the new governance model, the role of state gradually moved from power command to power confers and paid more attention to public-private cooperation (Stone, 1989). The Taiwan High Speed Rail (THSR) Project, the Kaohsiung MRT (KMRT) Project, and the highway Electronic Toll Collection (ETC) Project were all activities that the government transferred power to private enterprises, and trying to achieve its goals through private enterprises. However, these BOT projects which in essence conformed to the principles of governance fell into serious problems. In this paper, we are going to investigate the accountability mechanisms behind them and reveal the factors that resulted in these problems.
The BOT projects are public infrastructure projects which employ a particular form of structured financing and a consortium of interested groups (typically including a construction group, an operator, a financing institution, and other various groups) which prepares the proposal to construct, operate, and finance, the particular project. The sponsor may take the form of a company, a partnership, a limited partnership, a unit trust, an unincorporated joint venture or a combination of one or more. Such projects are complex by virtue of the number of parties involved and the corresponding number of contracts, which must all interlock. Furthermore, each party is dependent upon the performance of not only its counterpart, but also the performance of all parties to the project. As a whole, BOT projects require all parties to share the risks of the project[4]. BOT means build, operate and transfer, or build, own and transfer. It’s a product of privatization which trying to utilize market forces to promote the efficiency of public infrastructure and operation. Under the principle of BOT, there is a public-private partnership relationship that might help the government to promote public infrastructure through the private sponsors’ participation and financing.
Generally speaking, BOT could produce many benefits which include: (i) seek assistance of private finance, innovation and management knowledge, reduce the constructing cost, shorten the time limit for a project and promote the construction efficiency. (ii) Reduce the debt of the government and accelerate the construction of public infrastructure. (iii) Share the risk and responsibilities of the projects with private sponsors. (iv) Under the circumstance that finance burden of the government is not increased, the private sponsors not only could have reasonable profit, but also could provide good quality public service. (v) Government still could command the project when its franchise has expired, which is better than those privatization through stock transfer. (vi) Through the participation of private financing sponsors, its conscientious and careful examination on the particular project will assure its feasibility (Hu, 1999).
Taiwan started to launch its privatization since 1989. The Statute for Encouraging Private Sector Participation in Transportation Construction was enacted in 1994, and the Executive Yuan authorized the ”Advance Domestic Infrastructure By BOT”project in 1995, the THSR and other 21 BOT items were under this project. Furthermore, the Executive Yuan (EY, cabinet) passed “Point for Attention of Application and Examine Operations for Civil Participation in Transportation and Communication Construction” in 1998，set up open, transparent and responsible system for private participation. In February, 2000, the Legislative Yuan (LY, the congress) passed the Promoting Private Participation in Public Works Law. The THSR Project, the KMRT Project, and the ETC Project all were BOT projects regulated by this law. In other words, these projects should be invest, build and operate by private; when the operate period is terminate, the ownership of the project should be transferred to the government.
However, under the BOT policy, it will be hard to decide the bids just according to the bid price owing to the reason that information are not complete and uncertain. For those opportunistic corporations, they might try to win the bid first, and then try to change the franchise conditions. If the corporation that won the bid has good political-business relationship, the public sector might be forced to match up the private enterprise’s demands (Hu, 1999). In addition, when the private enterprise participate in public works, it might face some risks like: obtaining land, environment, finance, finish project (finish project behind time, serious overspend, serious defect of finish project), operation, policies and force majeure, which make the finance institutions either ask for comprehensive guarantee or reduce the amount of finance. However, if the government serves as a guarantor for the BOT, the finance institutions’ incentives of evaluation and supervision will be reduced. The government could provide policy finance to strengthen confidence of those finance institutions, or share risks through government investment. If government provide finance guarantee, it should design a comprehensive and strict mechanism to supervise the trade of franchise corporations ( Hu, 1999; Su, 1998). In the THSR and KMRT BOT projects, the government either provide finance guarantee or directly and considerably invest or finance, however, it seems that there is no suitable accountability mechanism for supervising private corporations and therefore resulted in serious problems.
As a whole, the BOT project should adhere to the goal of new governance, i.e., cut public expenditure, bring in market mechanism and private sector management; emphasize efficiency and cooperation as well as interaction between government and society, public sectors and private sectors. However, for those who opposed BOT, they argued that public service should not be provided by untrustworthy and selfish private corporation. The BOT project was even recognized to be pseudo-privatization. It not only failed to draw the benefits of high efficiency, but also failed to prevent from tying bids, expenditure in excess and worse construction quality. Besides, fixed years of operation will also worsen the construction quality so that the quality of the construction and its operating plan were designed according to that fixed years (Su, 1998). For Hal G. Rainey, only government which works perfectly can enjoy the benefits of privatization (Rainey, 1996). In other words, if the government works terrible and its public management capacity is low, the BOT project will be also in trouble. Therefore, if the accountability mechanism of government is in problem, we can hardly expect that the BOT project will be implemented successfully.
III. THSR, KMRT and ETC
The THSR, KMRT and ETC were the most important BOT projects for the ruling Democratic Progressive Party (DPP) government after 2000. To be a party which emphasized transparency, honest and upright all the time, the DPP won a victory over the ruling Nationalist Party in 2000. This party turn-over is a very important symbol for Taiwan’s democratization, and the new government was expected to be more capable and accountable than the old government. However, to get the opposite of what one wants, the DPP failed to satisfy the needs of Taiwanese people. Through the investigation of the BOT projects in this paper, they provide us a good opportunity to examine the new government’s governance and accountability mechanism. Before we review the DPP government’s designs on accountability mechanism, Let’s examine the implementing processes of these three projects first.
1. Taiwan High Speed Rail (THSR) Project
The Taiwan High Speed Rail (THSR) is a BOT project driven by the Statute for Encouraging Private Sector Participation in Transportation Construction in 1996. The Taiwan High Speed Rail Union acquired priority right to negotiate with government by the terms that “zero government capital”, and then was approved to sign contract with government in June 1996.
However, many controversies were occurred in the process of fulfilling this contract. The THSR announced in September 2005 that the launch of the service will be delayed for one year owing to delay of achieved percentage of scheduled progress in construction. The THSR has been encountering difficulties in raising funds and then looking for help from the government on several occasions. This has been criticized by the pubic repeatedly, as the THSR is a BOT project and should not involve government funds or taxpayers' money. However, the government has already pumped NT$12.5 billion into the project through various state-run enterprises, including Taiwan Sugar Corp, the Bank of Taiwan and the Land Bank of Taiwan. The most recent example was that the THSR secured nearly NT$3.2 billion from China Steel Corp, in which the government holds a controlling stake. Furthermore, the original shareholder request government to put up capital at times by the reason that they are incapable of putting up capital and forced government put up more capital from the Labor Pension Fund and public enterprises. According to the Statute for Encouraging Private Sector Participation in Transportation Construction and the Promoting Private Participation in Public Works Law, the investment upper limit for the public enterprises on the THSR is 20%, however, the LY made a resolution in 2004 that “public enterprise should not invest the THSR again” which should restrain the government from putting up more capital on the THSR although capital from government and public enterprises’ on THSR was only 14.5 billion New Taiwan Dollar(NT$) (18.86%)[5].
According to the contract signed by the government, the THSR and the banks, if the THSR failed to raise capital in accordance with the contract, the government should purchase the THSR[6]. It seemed that it’s this article that forced the government to put up more capital to the THSR to avoid purchase the THSR.
In terms of the contract, the THSR has to raise 7.5 billion NT$ special stock certificate before September 2005. However, the original stockholder again turns to government for help. The THSR chairwoman Nita Ing visited Premier Frank Hsieh to ask for help. Hsieh said that the government will study the terms of the legislature's limit on government investment in the THSR, and allowing state-run enterprises to invest more if the legislation allows. Hsieh also said that the government's ultimate responsibility is to buy out the company if it fails to raise enough funds to complete construction. In that scenario, the government may need to spend NT$300 billion (US$9 billion) on the buyout. Hsieh argued that it’s not necessary for government to buy the THSR, but government could be the biggest stockholder of the THSR[7]. Through the intervention of the Executive Yuan, the China Aviation Development Foundation under the MOTC modified the foundation’s regulation that allows it to invest in major national construction projects other than the aviation industry. The foundation raised approximately NT$4.5 billion to inject into the THSR construction. In addition, the China Technical Consultants, Inc. Foundation which is funded by government raised another NT$3 billion to inject. Therefore, the THSR could then obtain loans from banks and solve its financial crisis. However, the government becomes the biggest stockholder of the THSR which controlled more than 30% of the shareholding[8].This not only violate the related statues, but also not conformed to the principle of BOT. Premier Hsieh convened the meeting for the THSR emergency and decided to add two official directors rather than three for the THSR to avoid the result that government may controlled more that half seats in the THSR board of directors[9].In name the THSR is still maintain BOT, in essence it has changed into a quasi-public enterprise. Through the investment of judicial persons, the Executive Yuan not only avoided supervision from the LY, but also avoided the regulated upper limit of related statues.
The THSR promised the terms that “zero government capital”and then acquired the priority right to negotiate with government. However, the THSR repeatedly requested government to put up more capital after the contract was signed[10].This revealed that the THSR is planning to get the contract first and then trying to change the franchise conditions later. Moreover, Nita Ing , the Chairwoman of the THSR is also Advisor to the President which might be one of the main reasons that the Executive Yuan was forced to try its best to satisfy the demands of the THSR. As a whole, we found that the government not only failed to supervise the THSR, but also help the THSR to avoid the supervision from the legislative organ. In other words, the government has been captured by the THSR and the accountability mechanism in this project was totally collapsed.
2. Kaohsiung MRT (KMRT)
The Kaohsiung MRT broke out violent protest from Thai labors in September 2005, and accidentally ignited the KMRT scandal which resulted in the resignations of the Chairwoman of the Council of Labor Affairs (CLA) and the Acting Mayor of Kaohsiung City.
In November 4th 1998, just eve of the vote for mayor of Kaohsiung City, following the direction from the Executive Yuan that the KMRT should be build by the way of BOT, Deputy Mayor Huang Chun-In summit a report to the EY and suggested that those parts invested by government should invite private enterprises to conduct and advocate that the Ministry of Audit handle this project‘s auditing activities by Article 12 of the Audit Law. The EY replied to the Kaohsiung City Government in February 8th 1999 and instructed it to study what government should do in this project and planned well. However, the new Mayor Frank Hsieh replied to the EY that the Kaohsiung City Government still suggested that those parts invested by government could invite private enterprises to conduct. This suggestion was finally approved by the EY at June 4th (Wu, 2005), and the Kaohsiung City Government reported to the Public Construction Commission (PCC) for its approval to exclude the KMRT from applying to the Government Procurement Law. This suggestion was approved by the PCC[11]. Although the Statute for Encouraging Private Sector Participation in Transportation Construction is a special law, its level is higher than that of the Government Procurement Law, it seems not rational to exclude those construction which were financed by the government from applying to the Government Procurement Law, especially when the government capital occupied more than 80% of the total BOT project. The exclusion of the Government Procurement Law in the KMRT seems weakening its accountability mechanism from the government.
The KMRT project was finished by Mayor Hsieh from drafting, approving by the city council, choosing private enterprises, signing contracts and starting construction. In other words, Mayor Hsieh should responsible for the performance of the KMRT. Unfortunately, the KMRT came about many scandals which showed that the KMRT also lack adequate accountability mechanism which can effectively supervise the quality of this construction. For example, the six public bids’ floor price was questioned disclose, bids were dominated by specific companies and changed the sequence of bids illegally which caused the government to pay extra NT$270 million for this project. Although the Kaohsiung District Prosecutor’s Office gets the report on the guilt, it concluded this case by the reason that it’s the coordination among private companies rather than dominating by specific companies[12]. In addition, the Kaohsiung Rapid Transit Corporation (KRTC) ruled that all companies participate in the bid for concrete mix in advance need to be examined first except those companies owned by the vice president of the KRTC. This case was fined NT$6 million by the Fair Trade Commission (FTC) of the Executive Yuan by the reason that it violated the Fair Trade Law. However, the Chairman of the FTC put this resolution by one side[13].In this case, we found that the prosecutor was blind to the KMRT scandal and the chairman of the FTC even leave aside the penalty, which showed that there is no accountability mechanism which can supervise the KMRT from scandals.
As for the recruitment of foreign laborers, the CLF announced at May 10th 2001 that it will terminate the application for foreign laborers for those new bids on major construction after May 16th 2001, and turned back the KMRT’s application for foreign laborers. However, the CLF changed its position at June 26th 2003 under the request of the THSR to recover the right of applying foreign laborers for those BOT project which was approved before May 16th 2001. The KRTC therefore applied again and approved by the CLF to introduce laborers from Thailand. According to the CLF, the Thai laborers should be introduced by the way of nation to nation, however, the KRTC changed it into authorizing entrusting agency to introduce and which was still approved by the CLF. Moreover, the KRTC applied budget for the construction by the standard of local laborers but hired foreign laborers whose pay is only half of the local laborers, and then benefited almost NT$2 billion. In other words, the CLF connived the KRTC to introduce foreign laborers illegally and deprived the working opportunities of local laborers. The entrusting agency that introduced Thai laborers exploited Thai laborers at the amount of NT$400 million. Unfortunately, both CLF and the Kaohsiung City Government failed to supervise the KRTC[14] from these illegalities. The process of introducing Thai laborers showed that the governance ability of the government is in question and lack of accountability mechanism to supervise the KRTC.
Although the KMRT is a so-called BOT project, the central government finances NT$110 billion, and the Kaohsiung City and county governments invest NT$40 billion. However, the KRTC injects only NT$30.49 billion, and about NT$20 billion was come from bank loan, and the remaining NT$10 billion was contributed by seven other private companies. As a whole, the government contributes more than 80% capital of the project, which violated the upper limit (20%) for the BOT project. According to the Promoting Private Participation in Public Works Law, if government investment goes beyond that of private investment, those works that were funded by the government should be contract out by government and supervised by government. The Kaohsiung City Government blinded to this rule and requested construction that were financed by the government excluded from applying to the Government Procurement Law, which therefore enabled the KRTC that contributes less than 10% to subcontract out those construction financed by the government. Moreover, the central government and the Kaohsiung City Government failed to appoint anyone on the KRTC’s board of directors to supervise the company’s operations. It is obvious that this arrangement is in favor of the KRTC. The DPP government never explained why such a project that the government financed more that 80% is still be categorized into BOT. Although most capital of the KMRT is come from government, it is hard to understand why the government still allowed it to be excluded from applying to the Government Procurement Law.
As for Chen Che-nan, the former Deputy Secretary General of the Presidential Office, who was the key person that involved in the KMRT scandal, was detained by prosecutors and indicated on corruption and breach of trust charges in the scandal. He allegedly used his high rank to illegally import Thai laborers for the KMRT. However, for all scandals that Chen Che-nan involved in, the prosecutors only proceed against the case that Chen accepted entertainment from private company by the name of mercenary rather than corruption. It seems that the prosecutors were under some kind of political pressure that made them failed to supervise the KMRT’s scandals.
Moreover, when the prosecutors started to investigate the KMRT scandals, the chief procurator was summoned by President Chen Shui-bian to inquire for the case. President Chen even commanded acting Kaohsiung City Mayor Chen Chi-mai to investigate this case in defiance of the prosecutor has started its investigation[15]. In this case, we find that the government system was confused and the judicial system was also abused by the political power.
The KMRT scandal not only reveals the government’s ungovernability and its problem on implementation, but also unmasks the terrible government-business relationship. On the one way, the Kaohsiung City Council failed to supervise the city government or the KMRT; on the other way, the judicial system was also incapable of investigating these scandals[16]. As a whole, the government, the private enterprise and the judicial system has become to be a comprehensive complex. If the Thai laborers against mistreatment and poor working conditions did not broke out in August 2005, the KMRT scandals might still unrevealed till now.
Vice President Annett Lu argues that the there is no problem for the KMRT to be implemented in the way of BOT, the problem is that the government financed more than 80% and the central as well as local governments can not supervise such a BOT project. The Kaohsiung District Prosecutor’s Office also argues that even former Kaohsiung City Mayor Frank Hsieh is not illegal, he still need to responsible for his mismanagement[17]. Since it was Hsieh’s decision that the KMRT should be excluded from the Government Procurement Law, and failed to appoint anyone on the KRTC’s board of directors to supervise the company’s operations, it seems that Hsieh should be accountable for the KMRT’s scandals.
3. Electronic Toll Collection (ETC)
At first, the highway Electronic Toll Collection (ETC) was authorized by the MOTC to the state run Chunghwa Telecom Company to responsible for technique research and system development. After the ETC system was developed and proved workable, the Chunghwa Telecom advanced its system equipment procurement budget by NT$1.6 billion. However, more than half Legislators opposed this budget and forced the Chunghwa Telecom to cancel the contract at June 21, 2002. The ETC was then changed into BOT after the Chunghwa Telecom withdrew. Legislator of the ruling party argued that the ETC was forced to be BOT under the pressure of Legislators. Finally, the Far Eastern Electronics Toll Collection Co. Ltd. (FETC) defeated all competitors and won the ETC bids. However, bribery, unfair bids, the high price of OBU etc., and the tough attitude of the FETC finally resulted in the serious resentment from customers (Chen, 2006).
In April 2005，the Taiwan Yu-Tung Information Technology Co, one of the candidates of the ETC bids raised an administrative lawsuit against the rights of the FETC to win the ETC bid. The Taipei High Administrative Court pronounced at February 24th that revoked the status of FETC as the "most qualified candidate" in the project should be annulled by the reason that the judge made by the Taiwan Area National Freeway Bureau (TANFB) of the MOTC “violates the principles of equality and justice”[18]. On August 3rd, the Taipei High Administrative Court voided the partnership between the MOTC and the FETC, and ordered that the MOTC must look for a new partner to operate the ETC system. For the Court, the MOTC unfairly favored the FETC during the selection process for the appointment of a partner in the ETC project. The process was unfair to two other bidders and must be nullified. Far Eastern Group, the major shareholder in FETC, finally announced that it would give all of its stockholding in the ETC firm to the government and completely withdraw from toll collection operations.
One of the problems for the ETC is that who made the decision to make it BOT? Lin Lin-san, Minister of the MOTC argued that it was the decision of the TANFB. However, both former Directors of the TANFB argued that is was decided by Minister Lin. Lin then passed the responsibility to his Deputy Ministers and claimed that the BOT of the ETC has no any relation with him. According to both former Directors of the TANFB, since the TANFB cancelled contract with the Chunghwa Telecom, they made a report to Minister Lin and one of the conclusion from Minister Lin was that inviting advisors to plan BOT for the ETC.
Further complicating the situation were allegations that FETC fabricated ETC test results to qualify for the bidding process. Three FETC executives were indicted by prosecutors on charges of fraud and breach of trust for falsifying the results[19]. The prosecutors indicted Soong Nai-wu, the secretary to former MOTC minister Lin Ling-san, for allegedly offering and taking bribes in the scandal involving the ETC system. Soong is suspected of accepting more thanUS$21,590 in bribes and of leaking the ministry's secret documents to FETC before the ETC bidding took place[20].Soong was sentenced to 12 years in jail for accepting bribes and acting without authority in handling the ETC project.
Although Lin denied his relation with the BOT of the ETC, in a document on the selection of consulting companies for the ETC system, Lin wrote that he agreed to the proposal in principle but that the procedures needed to be officially approved. According to Lin, Sung took this instruction and requested that the TANFB amend the bidding requirements. Lin insisted that he did not instruct to amend the bidding requirements. The idea of BOT is come from Liang Yueh, the former director of TANFB [21]. In this case, no any high rank officials would like to account to the ETC scandal. I t seems that there is no any accountability mechanism for the ETC project. For such a serious scandal, Soong Nai-wu, the secretary to former MOTC minister Lin, is the only official that was sued. No any high level officials step down for this scandal.
VI. Governance and Accountability of BOT in Taiwan
The former MOTC minister Lin Ling-san , after the KMRT scandal broke out, hold that it might be not suitable for Taiwan to adopt BOT at that time. Lin suggested to freeze all BOT projects that were in reviewing process and to abolish the Statute for Encouraging Private Sector Participation in Transportation Construction. Nevertheless, Lin also agreed that there is no problem for the system of BOT, the problem in Taiwan’s BOT project was resulted from implementation. Originally, the government was not expected to finance the THSR project. However, the government was captured by THSR to put in more and more capital in that project because it signed a triple contract and served as a guarantee for the THSR[22]. For this, the chairwoman of PCC suggested that once the Statute for Encouraging Private Sector Participation in Transportation Construction was replaced by the Promoting Private Participation in Public Works Law, controversy of the BOT project should not occurred again because the Law ruled that government finance in the BOT project can not surpass the private enterprises[23].
According to our investigation in this paper, the problem in BOT is not only how much the government financed, but also whether there is a capable government which can design an appropriate contract and accountability mechanism that can effectively supervise the implementing process. If the government is capable enough, there is no reason that it will sign such a contract that the government needs to finance tremendously and allowed private enterprises to dominate the BOT projects. We can hardly understand why the government financed more than 83% capital in the KMRT, and why Mayor Frank Hsieh demanded the KMRT should be excluded from applying to the Government Procurement Law? For the ruling Democratic Progressive Party which used to insisting anti-corruption and transparency, it is reasonable for us to expect it design an adequate accountability mechanism to supervise BOT projects. However, the THSR, KMRT and ETC scandals all showed that there were serious accountability problems.
Since the broke out of the THSR and KMRT scandals, a poll by Global Views Magazine showed that there were more than 54% foreign business in Taiwan recognized that Taiwan’s government should improve its efficiency and efficacy, and more than half recognized that the government is not free from corruption[24]. Besides, polled by the Control Yuan (CY) also showed that there were 49% people do not trust government’s investigation on the KMRT[25]. These statistics revealed that many people do not trust the government. The government is not only incapable, but also not free from corruption. Just like what Hal G. Rainey mentioned earlier, it is hard to obtain advantages from privatization if the operation of government were in question. Chen Che-nan, the former Deputy Secretary-General of the President Office, who was not only involved in the KMRT scandal, but also related to many other scandals simultaneously. These records showed that Chen’s integrity is in problem. Respecting Chen’s important role in the ruling party, he was even recognized to be a key player for high-level corruption structure[26]. In other word, Chen’s involvement in the KMRT scandal should not considered to be a personal case but a structural corruption. That’s might be the reason why Chen was blind to the existence of the Kaohsiung City Council as well as justice and trying to get illegal benefits from the KMRT[27].
The cases of THSR and KMRT showed that the success of BOT might need to fulfill the principle of private financing. The government financing should be restricted strictly and be refrained from investment. In the KMRT case, the government financed, invested, and helped the THSR to get finance and purchased land by almost US$110 billion. The government signed the triple contract to serve as guarantee for the THSR and therefore conditioned by the THSR and the banks. Nobody was asked for political or administrative accountability to the KMRT scandal till now. Moreover, the cabinet even blinded to the supervision of legislative organ and the LY can do nothing to effectively counterbalance the cabinet as well as those BOT projects and asked them to account for those scandals.
In the KMRT project, the government financed more than 83% and allowed the private enterprise which financed less than 20% to dominate the rights to construct and operate the KMRT. In this project, we found that the KRTC exploited the Thai laborers and tied the bids. We can hardly see there is any principle for officials to follow, and found that the local legislative organ and judicial system failed to successfully supervise the implementation of the KMRT. This showed that the government’s governance and accountability mechanisms were in serious trouble.
For the ETC project, it was designed by the state run Chunghwa Telecom Company. However, because this project involved big profits and caste big business greedy eyes on it, and then the LY deprived the right of the Chunghwa Telecom Company. Even when the secretary to former MOTC minister Lin Ling-san was sentenced to 12 years in jail for accepting bribes and Taipei High Administrative Court voided the partnership between the MOTC and FETC, and ordered that the MOTC must look for a new partner to operate the ETC system, the DPP government still allowed the FETC to keep operating the ETC. This led to the criticism that the government showed undue favor to the big business.
In the view of governance, there is no problem for the government to introduce public-private cooperation and market mechanism by the way of BOT. The key issue for BOT is avoiding opportunistic behavior, assuring efficiency and accountability, fulfilling public-private cooperation, avoiding public-private collaboration, and avoiding tie bids, waste and low quality. The THRS, KMRT and ETC projects showed that it is not a panacea to introduce private enterprise to construct public infrastructure. Accountability mechanism is still very important for the success of BOT. To assure the success of BOT, the government should provide a sound accountability mechanism for BOT to avoid its officials to shift off responsibility or allow the private enterprises to abuse the privilege through abnormal political-business relationship.
To assure its success, the announcement of BOT bids and the essence of government program should be clear and transparent. The main prerequisite for the success of BOT should be a clear risk share between the government and private enterprises. In other words, responsibility or definition of franchise should be very clear. One of the reasons that the THRS was in trouble is that the rule of game is unclear and changed repeatedly which made the government fell into unfair regulations. To assure the success of BOT, there is a need to establish transparent legal system, standardize process for contract and bids (Liu, 2005). If the contract of BOT is clear enough, the responsibility of the government or private enterprises will be quite clear and then could avoid government officials or private enterprises to make improper profits through BOT. If the BOT could design an adequate accountability mechanism, it should be able to avoid tie bids. Although the THSR and KMRT are BOT project in name, it’s not BOT project in essence. The contracts not only were unclear, but also went against the government. Moreover, those BOT projects not only lacked accountability mechanism, but also found officials help one another after the scandals broke out. Even the legislative organs and judicial system can hardly supervise those BOT projects. This result was according to what Woodhouse (1993) argued that the decline of congress power, a dominant executive, and an enlarged bureaucracy make legislative accountability weak and ineffective.
The ruling DPP faced unceasing scandals since 2000. The President and his family members, the secretary-general and two deputy secretary-generals of the President, the minister of MOTC, the mayor of Kaohsiung City and the Chairwoman of the CLA all were involved into political storms. Facing each kind of scandals, the government will deny at the first time, and then forced to admit after relative evidence was revealed. The BOT scandals we examined in this paper might be only part of the full story. Even so, it has revealed the fact that the government lacks the governance ability and failed to follow the principle of anti-corruption.
For J. Kooiman (1993), the indicators for good governance includes legality, clear responsibility, professional administrative ability, respect law and human rights, ability to correctly diagnose problems, ability to govern, ability to response and reasonable cost-benefit. In those BOT projects that we examined in this paper, we found the DPP government obviously lack most indicators Kooiman raised above. For the THSR and KMRT, the government illegally financed a great deal and failed to consider cost-benefit. The content of contract either unclear or went against the government which showed that the government lack professional administrative ability to handle BOT projects. Moreover, in these BOT projects we found so much illegal activities and power abuse, officials help each other, shirk responsibility, and crucify human rights of foreign labor. All these evidence showed that the DPP government failed to establish adequate accountability mechanism to supervise the implementing process of those BOT projects. Owing to its lack of governance ability and adequate accountability mechanism, that’s might be the main reason why the BOT project that originally should be conform to market mechanism failed to attain substantial effects of contract out construction.
In sum, the transparency of these BOT projects was not enough and involved serious government-business interest delivery. Although the LY made a resolution that restricted the government finance more on the THSR after the BOT scandals broke out, the government still trying to get round by asking those foundation or corporation which were dominated by it to invest THSR. Moreover, the LY could not effectively supervise the THSR scandal on account of its lack of investigation power[28].The Kaohsiung City Council also failed to counterbalance the Kaohsiung City Government and effectively supervise the KRTC. This evidence showed that the LY failed to supervise the THSR and the KMRT projects through counterbalancing the cabinet and its institutions. In addition, although the CY is authorized investigation power, however, owing to its member’s nomination failed to be passed by the LY, its function was came to a stop and therefore also unable to investigate any BOT scandal. The LY not only unable to supervise the executive branch from corruption, but also itself involved in the ETC interest redistribution which finally led to the ETC scandal.
The other organ that the executive organ should accountable to is judicial system. However, the performance of judicial system in these BOT projects scandals was turned sour. The judicial system’s investigation on these scandals was either plea bargaining or disappear for ever which alarming Taiwan’s judicial system[29]. Just like what Flinders (2001) mentioned that judicial inquiries are not completely independent from political processes that create them, it is obvious that judicial system in Taiwan is also not independent from political control even Taiwan has been transferred into a democratic country through party turn-over in 2000. As a result, it is hard to expect the judicial system to effectively supervise the executive institutions or those BOT projects. This might be the reason why those officials that involved in scandals ignored the existence of public authority.
Under the condition that the legislative organ, judicial system and the ombudsman failed to effectively supervise the government and the BOT projects, it’s the Thai laborers riot as well as the media continuously exposed the scandals and revealed more evidence that finally forced the judicial system to investigate those scandals. More and more people asked the DPP government to investigate these scandals and used their votes to teach the DPP a lesson in the following county’s magistrate elections. Although the DPP lose the county’s magistrate elections and President Chen’s public opinion support was fell to less than 18%, we still can hardly find the DPP government determined to face these scandals.
The DPP government could not bring itself to solve the officials corruption proved that it lack governance ability. The basic symptom for these corruptions is the political-business complex. This complex transferred into an accomplice structure owing to its lack of effective supervision from legislative organ, judicial system and the public. For such a government, we can hardly expect that it could effectively utilize the market mechanism to reach the targets of BOT. On the contrary, the BOT become to be a mechanism for the political leadership to reward his political supporters. Owing to the strong control of political leadership and the weak supervision from legislative organs, judicial system and ombudsman system, the executive organ and those three BOT projects were not under adequate supervision from relative accountability mechanisms. That’s might be the critical reason why those three BOT projects were fell into serious scandals.
Acronyms/Abbreviations
BOT Build/Operate (Own)/Transfer
CLF Council of Labor Affairs
CY Control Yuan (the Ombudsman)
DPP Democratic Progressive Party
ETC Electronic Toll Collection
EY Executive Yuan (the Cabinet)
FETC Far Eastern Electronics Toll Collection Co. Ltd.
FTC Fair Trade Commission
GIO Government Information Office
KMRT Kaohsiung Mass Rapid Transit System
KRTC Kaohsiung Rapid Transit Corporation
LY Legislative Yuan ( the Congress)
MOTC Ministry of Transportation and Communication
PCC Public Construction Commission
TANFB Taiwan Area National Freeway Bureau
THSR Taiwan High Speed Railway
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（本文發表於第2007六十七屆ASPA國際研討會）
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[1] See Weisskopf, 1992; Kaufmann and Siebelbaum, 1996; Tangri and Mwenda, 2001; and Chow, 2005.
[2] Cited from Younis & Mostafa, 2000.
[3] See Bache, 2003;A. Sloat, 2002; and Hu, 2004.
[4] See www.mcmullan.net/eclj/BOT.html.
[5] See http://taiwan-railway-club.com.tw/news/20030416225803.
[6] According to the THSR’s Position Paper, the government does not provide repurchase article. The reason that the government signed the triple contract is that the banks asked the government to do so in order to protect theirs creditor’s rights. See http:/www.thsrc.com.tw/0614ISSUE/HTML/leaglist05A.htm.
[7] Economic Daily News, 2005,9,29, A9.
[8] United Daily News, 2005,10,5,A6
[9] See http://www.taiwan-railway-club.com.tw/news/20051021062716.
[10] The government totally financed NT$412 billion on the THSR, more than 86.7％of the total investment. However, the Government Information Office (GIO) argued that it is different between investment and finance. Finance is a kind of government subsidy; the government is unable to get stock. However, investment made the government to be shareholder; the government can acquire seats in the board of directors and share the profits. The government financed NT$108 billion to collect land for the THSR andNT$240 billion of the bank finance come from the government long-term and medium-term capital and three government funds. In this part, the government only helps to provide capital resources and save it in the banks, it’s not government investment. See http://info.gio.gov.tw/ct.asp?xItem=20223&ctNode=1808. According the GIO’s explanation, it instead proved that the THSR has gone against the spirits of private building and operating. If the government has the capability to finance more than NT$350billion to help the THSR to purchase land and help the banks to provide loan capital, why the THSR adopted BOT model?
[11] United Daily News, 2005,11,30,A2。Chen S-yi, the former Deputy minister of MOTC and Ho Her-hsiung, the deputy mayor of Kaohsiung City ever suggested that the KMRT should apply to the Government Procurement Law. Chen also suggested part of the construction should be constructed by the government, and the others constructed by the government and private enterprises. In one of the 1999 proceedings of the Public Construction Commission (PCC), its officials also pointed out that finance from the private enterprise is too low. Lee Chen-chung, the vice chairman of PCC also put down his comments on a document that the KMRT make mistake repeatedly and predicted that the KMRT will break out more serious problem. See http://tw.news.yahoo.com/060411/15/30tc8.html。The KMRT obviously belong to what Item One of Article 8 in the Promoting Private Participation in Public Works Law regulated that constructed and operated by private enterprise, and its ownership should be transferred to the government when its operation right is expired. It is hard to understand why even the Kaohsiung City government insisted to construct the KMRT by the Statute for Encouraging Private Sector Participation in Transportation Construction, and the PCC need to approve that the Statute is a special law and its level is higher than that of the Government Procurement Law is a special law, so the KMRT need not to be regulated by the Government Procurement Law.
[12] United Daily News, 2005,9,30,A2.
[13] United Evening News, 2005,9,30,p.2.
[14] Economic Daily News, 2005,11,10,A2.
[15] United Daily News, 2005,10,16,A2.
[16] United Daily News, 2005,11,30, A2.
[17] See http://tw.news.yahoo.com/060304/15/2wn5a.html；http://tw.news.yahoo.com/060304/19/2wn7o.html
[18] The judge of Taipei High Administrative Court pronounced that the decision of the MOTC “violates the principles of justice.” The construction of ETC includes three different stages to arrange the fee rates. The MOTC and the Far Eastern Electronics Toll Collection Co. Ltd. (FETC) only finished the basic standard, the consumers still need to upgrade their machines and then affect their benefits. In terms of violating the principle of equality, the MOTC negotiated with the FETC only on the satellite fixing collecting fees. See http://tw.autos.yahoo.com/auto_information_article2/url/d/a/060227/3/plt.html
[19] Taipei Times, 2006,8,6.
[20] Taipei Times, 2006,3,18.
[21] Taipei Times, 2006,9,2.
[22] United Daily News, 2005,11,29, A1.
[23] Economic Daily News, 2005,12,9,A2.
[24] United Daily News, 2005,11,30, A10.
[25] United Daily News, 2005,10,22, A3.
[26] Editorial, United Daily News, 2006,4,9, A2
[27] It is said that the businessman utilized the frog hair to exchange for the construction and even one businessman donated NT$3 million to the ruling party’s candidate. See United Daily News, 2005,10,8, A3
[28] In 2004, the Grand Justice Council made the No.585 Interpretation which argues that “For the purpose of effectively exercising its constitutional powers, the Legislative Yuan may exercise certain power of investigation, which is inherent in its legislative powers, to take the initiative in obtaining all relevant information necessary to exercise its powers so that it can fulfill its duties as an elected body of representatives and bring its functions of separation of powers and checks and balances into full play by making informed and prudent decisions after adequate and sufficient deliberations. The Legislative Yuan’s investigation power is a subsidiary power necessary for the said Yuan to exercise its constitutional powers and authorities.” However, the Legislative Yuan failed to revise the “The Legislative Yuan Function and Power Law” till now so it does not own the legal base to investigate.
[29] Editorial, United Daily News, 2006,4,9, A2