The Action for Economic Reforms (AER) yesterday expressed grave concern over the continuing failure of the Metropolitan Waterworks and Sewerage System (MWSS) to draw for the full amount the US$120,000,000.00 Performance Bond posted by the Maynilad Water Services, Inc. (Maynilad) in favor of MWSS. The Performance Bond is intended to secure, among others, the payment of Concession Fees by Maynilad, pursuant to its Concession Agreement for the management and operation of water and sewerage service in the West Service Area. It will be recalled that Maynilad unilaterally stopped paying Concession Fees to MWSS sometime in March 2001, and the unpaid Concession Fees have now ballooned to more than US$180,000,000.00. This amount now far outstrips the amount secured by the Performance Bond. An attempt to draw on the bond in November last year was prevented by an Order issued by Hon. Reynaldo B. Daway, Presiding Judge, Quezon City RTC Branch 90, declaring that the notice of draw issued by the MWSS was violative of a Stay Order it earlier issued in the Petition for Rehabilitation filed by Maynilad.
The Supreme Court removed such legal obstacle to the drawing on thePerformance Bond when it declared on 21 June 2004 the said Order asnull and void.
Lawyers at the Quevedo, Malaluan & Lumba Law Office, counsel forAER, Bantay Tubig, and individual consumers in the Maynilad concessionarea, said that the failure to draw on the bond contravenes the MWSSBoard of Trustees Resolutions No. 2004-189, 2004-190, and 2004-199. TheMWSS in Resolution No. 2004-189 dated 15 July 2004 resolved to exerciseits right to draw on the Performance Bond. This was made more specificby Resolution No. 2004-190 dated 21 July 2004, resolving to take allthe necessary steps to draw on the Performance Bond for the fullamount. Informed of the non-implementation of Resolution 2004-190, theBoard of Trustees on 28 July 2004 issued Resolution No. 2004-199ordering MWSS Administrator Orlando C. Honrade to draw on thePerformance Bond for the full amount on or before 30 July 2004, underpain of administrative charges for gross negligence of duty should thedirective not be implemented. Until now there is neither indication norconfirmation that these resolutions have been implemented and satisfied.
AER pointed out that the continuing failure to draw on the PerformanceBond to satisfy the unpaid Concession Fees of Maynilad has been causinggovernment and taxpayers undue injury. This, even as Maynilad continuesto benefit from billing and collecting from consumers for waterservices. AER’s lawyers noted that the Concession Fees were intendedfor the main part to pay MWSS debts. As admitted by MWSS in itsopposition to the Petition for Rehabilitation filed by Maynilad, thenon-payment of Concession Fees has unduly constrained the MWSS and theNational Government to advance the payment of the mostlydollar-denominated MWSS loans.
AER urged MWSS to reconsider its decision to continue accommodatingMaynilad’s request for continued “good-faith negotiations” for acompromise agreement in the Rehabilitation case before the RegionalTrial Court. AER said that such negotiations have in the past onlyresulted in a compromise agreement, the infamous Amendment No. 2, thatis grossly disadvantageous to government. Amendment No. 2 consequentlyfailed to get the endorsement of NEDA.
AER’s lawyers, in an earlier demand letter to the MWSS, have assertedthat Amendment No. 2 was unlawful for, among others, imposing anadjustment of water tariffs without benefit of notice and hearing,unexplainably limiting the draw on the Performance Bond toUS$50,000,000.00, and MWSS buying worthless shares through adebt-to-equity conversion.
AER expressed doubts that the ongoing negotiations can result in anagreement that will cure the substantive defects of Amendment No. 2.Its lawyers said that MWSS itself, in its opposition to the Petitionfor Rehabilitation, was of the opinion that the Petition forRehabilitation was “a thinly-disguised attempt by Maynilad to evadefulfillment of its obligations” and the MWSS expressed fear that thePetition could be used to “countenance a devious scheme or (as) a toolto perpetuate a wrong and prolong the agony of long-suffering partieslike the MWSS.” Indeed, the rehabilitation case has dragged for morethan nine months now, and the unsecured, unpaid concession feescontinue to grow by the day.
AER said that in addition to immediately implementing the MWSS BoardResolutions to draw on the Performance Bond for the full amount ofUS$120,000,000.00, the MWSS should now seriously consider otherremedies available to it outside of the rehabilitation case in order tostop its financial hemorrhage. AER refers specifically to the right ofMWSS under the Concession Agreement to initiate Early TerminationProcedures. AER’s lawyers note that MWSS itself is of the position thatthe Petition for Rehabilitation filed by Maynilad constitutes aConcessionaire Event of Termination under the Concession Agreement. AERsaid that the MWSS’ tentativeness in protecting its interest cannot betolerated at this time when the government is facing a very seriousfiscal problem. Starting in 2001 when Maynilad stopped paying itsconcession fees, Maynilad began to post deficits of P3.0 billion, P2.6billion, P3.2 billion, and P4.5 billion for the years 2001, 2002, 2003,and 2004, respectively.
Noted:
Filomeno S. Sta Ana III
Coordinator, Action for Economic Reforms
For questions/clarifications/additional information, contact:
Atty. Nepomuceno A. Malaluan
Quevedo, Malaluan & Lumba Law Office
Mobile: 0921-7429191E-mail: nepo@aer.ph
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