Nepomuceno Malauan is the corporate secretary of Action for Economic Reforms.
The highly controversial case regarding the Maynilad rehabilitation plan is nearing its resolution. From the public interest perspective, the plan fails to address the concerns of consumers and taxpayers.
On 20 December 2004, the Rehabilitation Receiver submitted her Rehabilitation Receiver’s Report recommending the court approval of Maynilad's September 2004 Revised Rehabilitation Plan. On 28 January2005, Action for Economic Reforms and its co-parties filed a comment/opposition to the receivers report, raising the following issues:
The plan was a scheme to bail out Benpres Holdings Corporation of
The plan was grossly disadvantageous to the government, as it
The plan was unconstitutional, as a step in the transaction would
Given the Supreme Court ruling in the Piatco case, the plan was
The increase in tariff from P19.92 per cubic meter to P30.19 per
The plan provided only for a partial payment of concession fees
Aware of these criticisms, Maynilad submitted a new revised rehabilitation plan on 29 April 2005, with a debt and capital restructuring agreement already signed by Maynilad and all major borrowers, except the Development Bank of the Philippines whose board is still deliberating on the agreement. The MWSS through its Administrator, Mr. Orlando Honrade, signed the agreement, assisted by the government corporate counsel.
The court, in a hearing on 4 May 2005, has deemed the revised rehabilitation plan submitted for resolution. As far as Maynilad and its creditors are concerned, apart from the need for court approval, the execution of a few remaining conditions and the final documentation, the rehabilitation plan is a done deal.
Material Changes
The latest revised rehabilitation plan comes with certain material changes in response to the issues raised by AER. There has been a change in the valuation of the MWSS purchase price of the 84% interest in Maynilad, from US$60 million in the 2004 rehabilitation plan to US$22 million in the latest revised rehabilitation plan. The manner of payment has also changed. Instead of being taken from the proceeds of the performance bond draw, the payment will be through an offset of concession fees receivables, and in installments.
But the old purchase price comes with a simultaneous reduction of debt from the SBLC (stand-by letters of credit) banks and Suez. This time, the US$ 22 million purchase price is exclusively for the equity interest. The SBLC banks still get their up-front payment, but through a financial assistance facility from the MWSS to be taken from an MWSS loan from the World Bank. Suez still gets paid part of its credit through a debt-to-equity conversion.
The flow of the transaction has also changed. In the 2004 plan, equity will first pass from Benpres to the SBLC Banks, and finally to MWSS. This time the equity will be purchased directly from Maynilad by the MWSS, thereby avoiding the constitutional question.{mospagebreak}
The Bottomline
While we note the accommodation of material changes in the revised debt and capital restructuring, the bottom line remains unfavorable to MWSS, and consequently the taxpayers. To wit:
Benpres still walks away freed from its guarantees.
Suez retains the same ending exposure in Maynilad.
SBLC still gets its up-front payment, although a little less than in the 2004 plan.
The MWSS is left the task of footing the bill to get Benpres off its guarantees and ensuring that the SBLC banks and Suez get their up-front payments.
Specifically, it will put up a financial assistance facility. Further, while not touching the proceeds from the draw of the performance bond, MWSS will be constrained to forego receipt of concession fees to pay for the shares, and it will have to increase its borrowing only tore-lend to Maynilad. For its financial assistance to Maynilad, MWSS gets paid starting only in 2013 after all the debts from other creditors have been paid. In the meantime, it is obligated to service its debts to the World Bank.
The World Bank Role
It is deplorable that the World Bank – with all its rhetoric about efficiency, market discipline, and good governance – ends up facilitating the accommodation and rewarding bad private sector behavior. Maynilad president Fiorello Estuar’s testimony before the rehabilitation court to present Maynilad’s business plan is an admission of bad management, particularly:
Inadequate basic management processes
Business processes not directed toward viability and accountability
Inadequate technology
Lack of recognition of the nature of the business
Yet, the World Bank facilitates the accommodation in the comfort of sovereign guarantees. Lending should be by the International Finance Corporation directly to Maynilad, without the guarantee, and under the same repayment terms in the plan.
Anti-Consumer
Consumers take the biggest hit. They have already been paying the cost of rehabilitation through the tariff increase, even as the service obligations of Maynilad are downgraded under the plan. The tariff increase has been approved without the benefit of notice and hearing, in violation of the consumers’ rights under the administrative code. The tariff is also excessive, as it is based on a rebased rate with substantively different assumptions on operational expenditure, capital expenditure, and service obligation than those obtaining under the rehabilitation plan.