06 October 2004
On the occasion of Mrs. Gloria Macapagal-Arroyo’s 100th day in office, the Freedom from Debt Coalition (FDC) expresses its outrage over her administration’s shameless patronage of Maynilad’s rehabilitation plan.
Maynilad’s revised rehabilitation plan (the company’s third version), just like its aborted predecessors, is demonstrably a government bailout of the mismanaged company from its self-inflicted bankruptcy. At this point, FDC denounces the Arroyo administration’s lack of political will to end the masquerade that has been causing unnecessary public anxiety.
What does the new bailout scheme hold?
One, the revised plan will allow the Metropolitan Waterworks and Sewerage System (MWSS) to receive upfront only 80% of the Php8.538 billion that Maynilad owes the government as of end 2003. This will be done through a full draw on Maynilad’s performance bond amounting to $120 million or Php 6.672 billion. Aside from that, only fractions of concession fees due and demandable for 2004 up to 2007 will be paid on time—50% in 2004, 65% in 2005, 70% in 2006 and 70% in 2007. The balances will be restructured at 9% yearly interest rate on a staggered basis starting 2008 to 2010.
This means, MWSS will again resort to new borrowings at a time when the nation is currently smarting from a looming fiscal crisis! Why? Concession fees are the sources of funding for MWSS debt service and for the operations of the MWSS Corporate and Regulatory offices. With the staggered payment of Maynilad on its accrued and accruing concession fees, MWSS will seek new loans to cover the amounts that Maynilad will only pay starting 2008. In fact, Maynilad’s nonpayment of its dues since 2001 has already forced the MWSS to be deeper in debt--$21 million in 2001, $260 M in 2003 and $150 M in 2004.*
Two, the plan intends to convert at least $60 M of Maynilad’s debts into equity for its bank-creditors. This will allow Maynilad’s French partner (Suez) and foreign creditors an 84% equity in the company—a clear violation of our Constitutional provision that companies operating public utilities should have a Filipino/foreign ownership ratio of 60:40.
Recently, FDC received reports that MWSS proposes to go around this legal impediment by using $60 M of what it will collect from Maynilad’s performance bond to buy 71% equity in the bankrupt company! MWSS itself admits that this move will create a negative balance of Php130.63 M for the agency in 2006.
Being majority owner of a debt-ridden company would also mean being liable to its creditors. Just up to what extent will the Arroyo administration go to save the Lopez-owned company?
In this light, FDC reiterates that the best way forward for the government through the MWSS, which remains a government-owned and controlled corporation, is to declare an early contract termination due to Maynilad’s fault.
The company’s move to rehabilitate itself is one of the grounds for Concessionaire Event of Termination, as stated in the Concession Agreement. MWSS knows that this is economically better than what is being proposed in the revised plan. An early contract termination will necessitate MWSS to pay Maynilad Php4.5 billion (75% of depreciated value of its assets)—a small amount compared to what it will lose when it blindly concurs to the rehabilitation plan. An early contract termination will mean that MWSS would own 100% of the west zone concession without assuming Maynilad’s liabilities.
FDC wonders why the government fails to uphold national interest in the water distribution sector. This remains one big crack in the Arroyo administration’s credibility. Worse, this fault is being downplayed and justified with the tired excuse of preserving the national privatization policy and avoiding disruption of water services to Maynilad consumers.
What is there to preserve when this is the root cause of the profit-driven evil that has been creating havoc in the lives of water consumers in Metro Manila? Seven years of corporate greed in our water distribution system led to a 400% increase in Maynilad’s water rates, postponed service expansion targets, cholera for Tondo and Malabon, and a series of new borrowings for the MWSS since 2001.
FDC opposes further subjecting the public to the ills brought by corporate-driven water privatization! FDC strongly urges the MWSS-Arroyo administration to uphold public interest now!
Undeniably, Maynilad’s rehabilitation is only designed to deliver Maynilad from its self-created financial misery and is, pure and simple, a government bailout.
To FDC, this is government treason in the highest order.