When things go wrong at sea

The main players ... Cyril Peel (second from right) with Philippines military personnel in 1997.
The main players ... Cyril Peel (second from right) with Philippines military personnel in 1997.
"Illegal" deals ... Paul Salteri, the managing director of Tenix.

"Illegal" deals ... Paul Salteri, the managing director of Tenix.

It's after midnight in Manila. A black limousine idles outside the Prince Tower apartment building. The driver lowers his window and asks the security guard to rouse the resident of room 909.

Australian businessman Cyril Peel is asleep when his intercom buzzes. Unhappy about being woken, he tells the guard to tell whoever wants him that he's not home.

“I cannot do that sir,” says the guard.

“Why not?” Peel replies.

“It is Vice-President Estrada and your friend Mr Reyes, sir. They want to see you.”

It was early 1998 and Peel's friend Reyes was campaign manager for Joseph Estrada in the upcoming general election where the movie star-turned-politician was the favourite. The politician and his adviser had come to talk business.

Peel, a former professional Sydney rugby player turned licensed arms trader in Asia, had just won a major contract for Australia's biggest defence company, Tenix, to supply two search-and-rescue vessels to the Philippines.

He knew the score and got dressed to join the party-loving Estrada for a session at an exclusive city bar.

Peel had recently warned Tenix management in Australia that dealing with Estrada and his cronies would be a different matter to the formal negotiations that had taken place with the administration of Fidel Ramos, who was nearing the end of his term. Nevertheless, he believed he could control Estrada's men through his extensive network of political and military contacts in Manila.

But Tenix had other ideas and sacked Peel as its agent in September 1998, just weeks after the final contracts for the two vessels had been signed. The company, which was then owned by Sydney's wealthy Salteri family, decided its own executives could negotiate future deals with the Estrada administration.

Fourteen years later, the ramifications of Tenix's dealings with Estrada and his men are only beginning to be felt. In March, the Herald revealed that the Australian Federal Police were investigating whether Tenix's dealings in the Philippines, and elsewhere in Asia, included illegal bribes and donations to politicians and officials.

As police dig into Tenix's affairs, the taxpayer loans that underpinned its Philippines deals and its close relationships with respective federal Labor and Coalition governments are being scrutinised. The billions of dollars Tenix earned from Australian defence contracts and its reputation as a generous employer of retired politicians, diplomats and naval officers are also being examined.

Today, Peel, who delivered Tenix its first 1998 Philippines contract before being sacked, speaks publicly for the first time about how that deal was made and why Tenix's subsequent arrangements in the Philippines turned sour.

“I had warned the Salteris and their senior executives on many occasions in person and in writing that with Estrada becoming president things would change, the old Marcos days of kickbacks would return,” Peel told the Herald. (Peel is in a legal dispute with Tenix.)

“I knew Estrada well. I was close to the people at the forefront of his political campaign. I knew about the kickbacks they had received from other parties to push through contracts once Estrada took over from [former president] Ramos.”

Peel was not the only one worried about corruption in the Philippines in 1998. Australia's Foreign Affairs Department issued a report that year warning: “The nature of corruption makes it almost impossible to determine its level and extent. However, anecdotal evidence suggests that bribery does occur, principally to obtain major government projects."

For corruption to occur, however, there first needs to be a deal. The origins of Tenix's Philippines deals can be traced to the world's worst peace-time maritime disaster.

On December 20, 1987, the overcrowded Dona Paz ferry was making its way through Tablas Strait towards Manila when it collided with the MV Vector oil tanker, killing 4375 people.

The disaster exposed the woeful state of the Philippines Coast Guard. A year later a government inquiry recommended the acquisition of a new search-and-rescue fleet.

Peel, who was licensed by the Philippines government to supply weapons and ordnance,

met the senior bureaucrat in charge of the government's response to the ferry disaster and returned to Australia with the tender specifications for the search-and-rescue project.

In the early 1990s, he was signed as the exclusive Manila representative for Australia's biggest defence company, Transfield, which was later renamed Tenix. (Tenix grew out of an engineering firm set up by two Italian migrants, and was owned by the Salteri family until 2008, when it was sold to BAE Systems.)

Over several years, Peel and Tenix worked with people at the highest levels of government in Australia and the Philippines. In Manila, Peel and the Australian embassy lobbied the Philippines government to remove the coast guard from naval control and place it within the more politically benign transport department.

Australian law precludes aid money being used for military purposes.

Despite the sensitive political negotiations, Australia's interest in the Philippines Coast Guard project received little public attention until the election of John Howard's Coalition government in 1996.

The new government announced it would scrap the Development Import Finance Facility aid program that was to fund the Philippines' purchase of Tenix's vessels and several other projects in the region. It was a decision that almost cost the foreign affairs minister Alexander Downer his job and Cyril Peel his deal.

The outcry from the Philippines and elsewhere in Asia was immense.

The Asian governments felt double-crossed by Australia.

With the deal on the rocks, Peel arranged for Paul Salteri, Tenix's owner and managing director, to visit President Ramos in August 1996 and impress upon him the Australian company's commitment to the coast guard project.

As Salteri, Peel and the former diplomat-turned-Tenix consultant Richard Woolcott sat in the lobby at Manila's Shangri-la Hotel, Salteri produced a document from Australia's Foreign Affairs Department that showed the Philippines had put the search-and-rescue boats towards the bottom of its Australian foreign aid wish-list.

Peel knew the document to be a furphy. He had seen several official Filipino documents listing the Tenix vessels as the top foreign aid priority.

He took Salteri's document and called Ramos's office to request an urgent meeting. Peel told the Herald that as he sat in Ramos's office, the president telephoned his foreign affairs minister Domingo Siazon, and with his pen drew arrows to restore the search-and-rescue vessels to No.1 priority and signed the document.

Satisfied, Peel returned to the Shangri-la hotel and showed Salteri and Woolcott Ramos's changes. According to Peel, Woolcott called his son, Peter, who was stationed at the Australian embassy in Manila and asked him to join them. Peel says the younger Woolcott read the Ramos document and suggested it would cause a stir in Canberra. But within two days, the Australian government assured Ramos the promised financial aid would be delivered.

It took another two years for the final contracts between Tenix and the Philippines to be signed. But by mid-1998, the deal was done. Tenix would deliver two 56-metre search-and-rescue vessels to the Philippines Coast Guard and the Australian government would fund most of the project through a grant and a low-interest loan. With the contract signed, Peel told Tenix management he was taking a break for medical treatment.

But just as he was to go on leave a financial dispute emerged over fees he claimed Tenix owed him. Peel was told via fax that his time as the company's agent was over.

Nevertheless, Tenix was eager to sign a contract for a second order of coast guard vessels with the new Estrada administration.

This second deal has the potential to cost Tenix and Australia dearly – with the threat of criminal charges and loss of reputation.

On Mondays at Tenix's Sydney headquarters, the Salteris would often prepare an Italian meal for loyal staff.

“Tenix at the top was like a typical Italian family company," a former executive, who spoke on condition of anonymity, said. "The Salteris had their trusted inner circle and sometimes it paid not to ask any questions about what was going on.”

Former Australian officials aware of Tenix's dealings in the Philippines and former company executives say Peel's forced departure put the company out of its depth in Manila and cost them millions in lost opportunities.

In 2000, Tenix and the Estrada administration signed a contract for the delivery of another six search-and-rescue vessels, with a further 10 ships to come in a third order. The Australian government again supported the deal, guaranteeing a $109million ANZ loan to the Philippines.

Another variation of the same contract was signed in early 2001. According to sources aware of the deal, signing the second vessel contract with Estrada's men caused Tenix fresh problems.

A former Tenix executive says the company was under pressure to compensate certain politicians in return for them not making a fuss about the government's decision to buy the boats from Australia instead of building them locally.

“The second lot of ships is where the rot set in,” the former executive says.

When Gloria Arroyo became president in 2001 it was made clear to Tenix it should deal with someone from Arroyo's inner sanctum.

The lawyer Romela Bengzon, one of Arroyo's closest aides, was soon appointed president of Tenix's Philippine subsidiary.

She is understood to have received millions of dollars from Tenix. Police are investigating whether some of this money was used to pay bribes or make donations to local politicians.

Declassified Australian diplomatic cables released to the Herald this week show

that in 2005 the Australian embassy was told by a Philippines cabinet minister that the 2000-01 Tenix contract never received congressional budgetary approval; a prominent Filipino senator described it as an "illegal deal".

Although contracts had been signed by the Philippine's Finance Department, the Australian government, Tenix and ANZ in 2000 and 2001, the news that the deal had not received the appropriate approvals from the Philippine's Congress should have raised eyebrows in Canberra.

Instead, Tenix was rewarded with a 2005 special award by Austrade to mark its export success to countries including the Philippines. About this time the Philippines Senate suspended repayments to Tenix, citing the discovery the contracts had not received budgetary approval.

The Philippines eventually began repayments and the ANZ loan is due to be repaid soon. However, questions remain over how Tenix and the Australian government persuaded the Philippines to restart the loan repayment.

The Herald spoke to Bengzon earlier this year. She said she was aware of the police investigation but could not comment because of her role as a legal adviser to Tenix.

But she did offer one piece of advice: “Be careful, you could tread on some toes ... create a diplomatic incident.”

For Cyril Peel, the affair makes him wonder what could have been.

“The loser here was Australia, Australian industry and the Australian taxpayer. Tenix lost control trying to do deals with people they did not know,” he says. “When you put blood in the water the sharks will appear.”

Earlier this year a spokesman for the Salteris said an internal investigation had found no evidence of impropriety in its dealings in the Philippines or elsewhere. The Salteris sold Tenix's defence business to the British giant BAE in 2008. BAE referred Tenix's previous deals to the federal police in 2009 after coming across information that caused its management concern. The Salteris declined interview requests and did not answer written questions.

This story When things go wrong at sea first appeared on The Sydney Morning Herald.