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QUASI-REORGANIZATION OF MAYNILAD PAVES WAY FOR COMMERCIALLY VIABLE, STABLE WATER SERVICE…AGREEMENT BENEFITS ALL STAKEHOLDERS
March 19, 2004
The Metropolitan Waterworks and Sewerage System (MWSS) and West Zone concessionaire Maynilad Water Services, Inc. have agreed to a plan for the quasi-re-organization of Maynilad that ensures settlement of all outstanding concession fees owed MWSS and continuous service provision to water consumers by a financially healthier Maynilad.
The quasi-reorganization plan, as agreed upon, will be submitted to the Securities and Exchange Commission as well as to the court hearing the rehabilitation petition of Maynilad. The plan calls for the write-off of the shareholder equity of, and receivables due to, Maynilad shareholders Benpres Group and the Suez Group to cover accumulated losses, a partial conversion of debt to equity, debt restructuring and a partial draw against the performance bond.
Department of Justice Undersecretary Manuel Teehankee, who supervised the Office of the Government Corporate Counsel, as legal advisor to MWSS, said, "This re-organization preserves the financial and public interest of the Government, as represented by MWSS, while avoiding any of the risks associated with terminating a concessionaire and taking over Maynilad." These risks include:
- -the difficulty of locating a qualified replacement operator to assume the concessionaire under the unattractive financial circumstances of Maynilad:
- -the payment of the "Early Termination Amount" to Maynilad as per Concession agreement, which, net of the P6.6 billion Concession Bond, is insufficient to cover the annual debt service of Concession Fee loans;
- -takeover costs, including the assumption of debt service by MWSS, and the Government
- -potential service disruption;and
- -potential immediate, unpredictable increases in the water tariff.
Undersecretary Teehankee added, "this re-organization calls for all stakeholders to share the pain - either writing off existing equity or converting debt to equity- for the greater good of assuring continued services by MWSS and Maynilad. It also sends a clear message on the responsibility and accountability of private sector participation in Philippine infrastructure, while keeping the national privatization policy on track."
The extra-judicial solution was sanctioned by the International Arbitration Panel that earlier heard the case for the concession's termination. In 2003, the Panel concluded, "there is neither a Concessionaire nor an MWSS Event of Termination" and that "the parties undoubtedly have problems in their internal relations but they have to find extra-judicial solutions to them."
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