THE Metropolitan Waterworks and Sewerage System (MWSS) could be exposing itself and the government to undue financial risks under a negotiated deal with San Miguel Corporation to build the P52-billion Laiban dam. But the state agency tasked to evaluate the soundness of large-scale infrastructure projects has been unable to come to the aid of the MWSS – which may not even welcome such in the first place.
Like the rest of the public, the National Economic and Development Authority (NEDA) has been kept in the dark regarding the details of the proposed joint-venture agreement.
MWSS has yet to comply with the NEDA’s request for a copy of the proposed deal, according to a senior economic planning official who also sits in the joint-venture selection committee organized by the MWSS to evaluate San Miguel’s proposal. A private sector observer in the committee also said he was never shown or given a copy of the joint-venture agreement.
The deadline for initiating a challenge to the San Miguel proposal passed last July 8, but MWSS has refused to respond to questions about it. Efforts by the Philippine Center for Investigative Journalism (PCIJ) to get updates on the tender have also been thwarted by the absence of key MWSS officials who could speak on the matter.
MWSS engineering division manager Lerma del Rosario said that nobody other than “upper authority” officials is authorized to say anything about the ongoing tender. But these officials were either on leave or out of their office when PCIJ tried to contact them. (See sidebar)
No rival bids
Insiders privy to the deal, though, say that MWSS received no letters of intent from other proponents.
Still, it’s one thing for the MWSS to ignore the press. It’s another for it to do the same to NEDA.
Indeed, the MWSS action – perhaps the first for a large-scale infrastructure project – underscores the diminished role for NEDA and the inter-agency Investment Coordinating Committee (ICC) in approving big projects carried out through a joint-venture deal between state units and private investors.
The government last year approved new guidelines that effectively exempted joint venture projects from the close scrutiny of NEDA and ICC.
The draft guidelines prepared by NEDA in consultation with other agencies provided for ICC’s approval of joint-venture projects, treating them no differently from foreign-assisted projects and build-operate-transfer (BOT) and related schemes.
President Gloria Macapagal Arroyo, however, reportedly rejected the provision because the ICC approval process is said to be time-consuming. Instead, a NEDA representative was required to sit in the selection committees of government entities entering into joint- venture deals with private parties
The MWSS joint-venture selection committee, composed of water officials, representatives from NEDA and Office of Government Corporate Counsel, and observers from business or civil society groups, was tasked with evaluating the draft deal negotiated by the water agency and San Miguel, and make a recommendation to the MWSS Board of Trustees.
The committee submitted a resolution recommending approval of the negotiated joint- venture deal with San Miguel to the MWSS board in early June. But the value of that resolution is now coming under question because some members of the selection committee have not seen the agreement itself, making a thorough and intelligent evaluation of it virtually impossible.
Ruben Reinoso, NEDA Assistant Director-General for Infrastructure, Regulation and Contract Review Services and the planning body’s representative in the MWSS joint venture selection committee, said he did not sign the resolution because the water agency has not sufficiently addressed a number of questions about the soundness and fairness of the agreement. Neither was NEDA given a copy of the joint venture agreement, he added.
“We have been asking for that proposal since the start, since they convened the joint venture selection committee,” Reinoso recounted in an interview with PCIJ. “But they said it was confidential. They could not give it to us.”
A private sector observer who sits in the MWSS selection committee also said neither he nor his alternate had seen a copy of the joint-venture agreement. “We were just shown a power point presentation on the summary of the proposal but never the copy of the agreement itself,” Manolito Madrasto, executive director of the Philippine Constructors Association, told the PCIJ in a phone interview.
Reinoso, meanwhile, said that NEDA had a number of concerns and questions on sharing of risks between MWSS and San Miguel, and the role of the two private water concessionaries, Manila Water Co. and Maynilad Water Services Inc.
He said MWSS’s failure to address these issues kept him from signing the joint-venture selection committee’s resolution during a meeting on June 10.
Yet despite the absence of Reinoso’s signature on the resolution and NEDA’s pending questions, the MWSS board of trustees moved to firm up the dam deal with San Miguel.
On June 17, the trustees approved Board Resolution No. 2009-124 that pushed the process to the next stage: subjecting the negotiated joint-venture agreement with San Miguel to competitive challenge from other proponents.
In the meantime, having gotten unsatisfactory response from MWSS, NEDA took more explicit steps to communicate its concerns to the water agency. On June 26, Economic Planning Secretary Ralph Recto wrote to MWSS Administrator Diosdado Jose Allado to clarify NEDA’s position on a number of outstanding issues regarding the Laiban dam deal.
Foremost is a possible “take or pay” provision that could require MWSS or the two private water concessionaires to pay for raw water from the San Miguel-led joint venture regardless of whether they used it or not.
After all, similar provisions in power-purchase agreements of the National Power Corporation are blamed for the power company’s massive debts that were eventually transferred to the national government and for the country’s excessively high power rates that are the second highest in Asia.
Again, MWSS did not respond to, or address, the NEDA’s concerns. Instead, on July 2, it published a notice in a newspaper inviting proposals to challenge the agreement negotiated with San Miguel, giving potential bidders only five working days, or until July 8, to submit a letter of intent and buy bid documents for P1 million.
During meetings on July 7 and 9, the MWSS trustees – whose exceptional diligence in holding twice a week meetings is legendary perhaps because of generous per diem allowances – reportedly took up Recto’s June 26 letter but downplayed its importance, according to MWSS insiders.
NEDA officials may rightly begin to feel slighted by the MWSS snub. Some complain that the water agency provided its junior staff and consultants with copies of the San Miguel proposal but would not extend the same courtesy to more senior NEDA officials.
But the matter goes beyond bureaucratic relations and inter-agency courtesy. NEDA’s concerns about the joint venture deal negotiated by MWSS and San Miguel go right into the heart of the economic soundness and fairness of the agreement. The terms and conditions of the deal, and the manner it is being up for challenge, also have important implications for similar joint-venture agreements in the future.
Recto’s June 26 letter shows that the MWSS is acting on the basis of what NEDA believes is a misreading of the provisions of the build-operate-transfer (BOT) law on government guarantees, which are disallowed for unsolicited proposals. The bone of contention is whether a “take or pay” scheme constitutes a government guarantee or not.
The Office of the Corporate Government Counsel (OGCC), which advises the MWSS, believes that “take or pay” is not tantamount to a government guarantee because it does not explicitly guarantee debts of the private-sector proponents.
NEDA insists that it is. “In our review,” Recto said in his letter to Allado, “direct government guarantee does not only pertain to debt payments but other guaranteed undertaking by government as well, including but not limited to guaranteed payments for the output which may or may not be used by the government entity. Clearly market guarantee or guaranteed payments for specific volume of water can be construed as direct government guarantee with government guaranteeing market risks by the private proponent.”
Aware of the legally contentious nature of market guarantees, MWSS and San Miguel agreed to give themselves a year from the award of the joint-venture contract to firm up a “take or pay” arrangement, as well as to sign up Manila Water and Maynilad for a proposed bulk-water sales agreement.
San Miguel favored
But NEDA also raised a number of problems with the so-called “financial investment decision (FID)” period, pointing out, in effect, that it stacks the odds in San Miguel’s favor. For one, potential bidders may be discouraged from challenging San Miguel’s proposal by the uncertainty over the eventual status of the proposed “take or pay” provision, it said.
For another, NEDA added, if San Miguel is not challenged or prevails over a rival offer, the MWSS could be constrained to guarantee the purchase of the joint venture’s raw water output or risk the brewer backing out. Recto reminded MWSS in his letter that San Miguel has stated it will withdraw its proposal without the proposed “take or pay” provision. “Should San Miguel Bulk Water Co. win the bidding, this may already dictate the decision with respect to the ‘take or pay’ scheme, rather than its merits,” the NEDA chief warned.
Recto urged MWSS to settle all the outstanding issues “prior to the competitive challenge,” rather than postpone making the hard decisions a year from the award of the contract.
The big question is why the MWSS gave potential bidders only a week to begin a challenge and a month to come up with a full-blown proposal for a P52-billion project when it is allowing itself and San Miguel a year to resolve all the contentious issues.
But based on the water agency’s past and present actions, an answer is not likely forthcoming. – PCIJ, July 2009