Arbitrators up the stakes in Manila

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Maynilad water is probably a write-off, but the fight to stop further cash going into the failed project goes on.

The dispute between the west Manila concessionaire Maynilad Water Services and Metropolitan Water & Sewerage System, which represents the government side, showed no signs of abating this month after an arbitration panel refused to allow either side to terminate the contract.

Instead it insisted that the two sides sought a negotiated settlement, and raised the stakes significantly by ruling that MWSS can draw on a $120 million performance bond from Citibank guaranteed by Maynilad’s two backers, Benpres Holdings (60%) and Suez (40%), as well as pursue Maynilad for past due concession fees amounting to P6.77 billion ($122 million) within 15 days.

Maynilad responded by petitioning for corporate rehabilitation on 14 November (the equivalent of Chapter 11 Bankruptcy), and was granted a stay order by the courts restraining MWSS from pursuing the unpaid concession. MWSS then insisted that the Stay Order did not cover the Bond, and made a draw on the performance.

The Court clarified its order and stated that the Bond is covered by the protection and declared any draws on the bond void. The MWSS then went up to the Supreme Court alleging abuse of discretion from the judge and the case continues. The corporate rehabilitation court will have its first hearing on 7 January.

At the heart of the dispute is the refusal of MWSS to allow a tariff increase in line with the contractual provisions. MWSS has counter-claimed that Maynilad has not been paying its concession fees, failed to reduce non-revenue water and breached the concession agreement when it failed to maintain BNAQ-5 Aqueduct, construct BNAQ-6 Aqueduct and infuse $80 million in equity.

Maynilad accepts that it has not been paying the concession fees but rejects the assertion that it has not maintained the
BNAQ-5 Aqueduct and denies that it has to reduce non-revenue water, inject additional equity or build the BNAQ-6 Aqueduct under the concession agreement. It wants to terminate the concession.

Although Suez has written off its investment in the concession and is withdrawing its staff from the country, it is still exposed to $48 million of the performance bond and $53 million in credits to Maynilad, which are now being called by the banks.