15 June 2004
Against the backdrop of the urgent need for the National Economic Development Authority to release its position on Amendment #2 as well as the deadline for Maynilad’s renewal of its Performance Bond, the Freedom from Debt Coalition reiterates its position not to approve the deal and for the genuine government takeover of Maynilad.
Even without the benefit of a thorough audit, Maynilad’s financial records already bear glaring marks of corporate mismanagement which strengthens FDC’s call for a government takeover.
• Maynilad’s progressively high debt-to-equity ratios indicate poor financial management of the water company. Maynilad’s Financial Statements from 2000 to 2002 show that debt-to-equity ratios of 1.7, 2.66 and 2.99, respectively, have breached the acceptable range of 0.5 – 1.5. As of December 31, 2002, the company’s total liabilities amounted to P15.9 billion while stockholders equity remained constant at P5.3 billion. This means that Maynilad’s debt has become thrice larger than its stockholders’ equity.
Why did Maynilad not arrest this negative trend? Surely its astute business managers clearly understand that high debt-to-equity ratios speak ill of Maynilad’s financial state. Had Maynilad not been a public-private partnership, would it have persisted with this unacceptable practice of overborrowing? Or, did Maynilad management think that the company can readily be abandoned if business went awry as it plans to do through Amendment #2.
• Maynilad failed to deliver the required capital expenditures (CAPEX) as per its financial model and business plan. Its CAPEX cannot bear the blame for its losses. In 2001, CAPEX should have accumulated to P10.537 billion, but actual figures only amounted to P 3.297 billion.
• Aside from Maynilad’s huge debts, the company also claims to have consistently incurred heavy losses contrary to its financial model that it should have already started earning in 2000, its third year operations. Audited financial statements indicate that Maynilad progressively incurred losses from 1997-2003. FDC also notes that compared to P469 million in losses in 2000, it wonders how losses almost tripled to P1.117 billion in 2001, given that Maynilad already started to default in its concession fee payments in same year. Where then did the money go?
• We see some answers in the anomalous prioritization of expenses as revealed in Note 10 entitled Capitalized Excess Costs and Expenses Over Revenues of the December 31, 2002 Maynilad Financial Statement. For example, out of the combined revenues from water and sewer services which amount to P2.54 billion, it spent 40% of these normal revenues for salaries, wages and benefits which total to P1.004 billion. This is questionable considering that water distribution is not labor intensive.
• The Thames financial consultancy report also fiercely criticized Maynilad for hiring expensive expatriate consultants and excessively paying the company’s top executives. Maynilad consequently responded by terminating its contracts with foreign consultants but has kept silent about the remuneration of top management.
• The same report reveals that 60% of Maynilad’s capital expenditure was allocated for paying exorbitant consultancy fees of its affiliate companies such as First Philippine Balfour Beatty and Meralco Industrial Engineering Services Corp. If Maynilad has already been in severe financial strain, better sense could have pushed it to undertake urgent belt-tightening.
• Note 12 entitled Related Party Disclosures, of Maynilad’s 2002 Financial Statement shows that Maynilad, in 2001 and 2002 made its related parties richer by almost P5 billion. Payments to these favored suppliers amounted to P909.835 million and P917.798 million, in 2001 and 2002, respectively. If we add the Maynilad’s payables to these related parties, total amounts that were earmarked amounted to P2.536 billion in 2002 and P2.109 billion in 2001. These two figures amount to P4.745 billion going to Maynilad’s related parties in 2001 and 2002.
• Maynilad corporate governance towards its customers is similarly questionable. Its huge collection P2.722 billion in Foreign Currency Differential Adjustment (FCDA) far exceeded combined revenues from water and sewer services amounting to only P2.122 billion in 2002. From any perspective, customers practically paid double for water service. Maynilad made no bones about imposing this heavy burden on the west zone consumers in the name of company survival.
That year too, Maynilad only paid P2.567 billion to MWSS declared as amortization of deferred FCDA. Again, where did the difference go?
Amendment #2 is clearly a bail-out of the Lopezes—a way for the Lopezes to get out of the mess it created with (mis)managing Maynilad. FDC asserts that NEDA should hasten its review and decide not to approve the deal. Amendment #2 is disadvantageous to the people, the government should genuinely take-over Maynilad!The National Executive Committee
Freedom from Debt Coalition