The Metropolitan Waterworks and Sewerage System (MWSS) administration has acted beyond its authority when it entered into an agreement to provide multi-million dollar “financial assistance” to one of its concessionaires, according to a Commission on Audit report obtained by a water advocacy group.

“To provide financial assistance is not within the acts of MWSS enumerated within its Charter and therefore constitute an ultra vires act by MWSS,” according to the Audit Memorandum for MWSS Administration Engr. Orlando C. Hondrade, dated October 25, 2005 and signed by supervising auditor Atty. Norberto D. Cabibihan.

The COA report stressed that the Debt and Capital Restructuring Agreement(DCRA), which was executed by both the Maynilad Water Services, Inc. (MWSI)and MWSS, is grossly disadvantageous on the part of the MWSS, or the government.

The advocacy group Freedom from Debt Coalition today said the DCRA forces the public to bear the cost of a mismanaged company's bailout.

“This bailout will not only sink the government deeper in debt, it will also legalize the company's fraud and abuse of hapless water consumers in the West Zone,” said FDC president Ana Maria Nemenzo.

Under the revised rehabilitation plan, the MWSS will attempt to pull a “heroic stunt” of saving the mismanaged water firm by using public funds, the group said.

About US$ 22 million worth of concession fees that are supposedly intended to service MWSS debts will instead be converted into 84 percent shares of ownership in the bankrupt company. After the debt-to-equity conversion, Maynilad also intends to pay its outstanding and future concession fees in installments—50 percent in 2004, 65 percent in 2005, 70 percent in 2006 and 70 percent in 2007. This means that MWSS will have to source out new money to fill up the funds needed to pay its maturing obligations that Maynilad's concession fees are supposed to shoulder.

The government water agency is currently arranging a new $125 million loan from the World Bank. Of this amount, about $31 million will be infused to Maynilad under the bailout plan as MWSS’ financial assistance to Maynilad in funding its operations.

However, according to the COA report, a WB senior water specialist hinted that the Bank would find difficulty in approving the MWSS loan because of the many possible questions that the WB executive director would ask in providing financial assistance to the debt-saddled Maynilad.

To date, MWSS has already incurred additional loans—$21 million in 2001, $260 million in 2003 and $150 million in 2004—because of the Lopez-owned company's unilateral decision to stop honoring its obligations to MWSS since 2001.

FDC vice president Francis Isaac stressed that the MWSS owes the public an explanation on why it entered into such a position injurious to the interest of the government and the people.

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