Moody’s reviews CE Casecnan rating

Moody’s Investors Service announced yesterday that it was reviewing the credit rating of CE Casecnan Water and Energy Co. Inc. for a possible downgrade, a move that would affect the company’s $288-million worth of debt securities.

Moody’s said it has placed CE’s Ba2 senior secured notes rating after the National Irrigation Authority (NIA) initiated legal proceedings to void the company’s project agreement.

According to Moody’s, it was worried about the growing unpredictability of government agencies that have joint-projects with private entities.

"Moody’s is increasingly concerned that the unpredictability of actions by government-related agencies is becoming inconsistent with our ratings approach," Moody’s said.

Moody’s analyst David Howell explained in a statement that Moody’s had previously attached significant benefit to off-take arrangements with government -supported entities. But recent developments were forcing it to reconsider this approach.

NIA had filed an answer and counterclaim March 31, 2003 and subsequently a Supplemental Counterclaim last April 23, 2003 to the existing arbitration proceedings with CE.

The legal tussle was initiated by CE itself in August 2002, alleging that NIA failed to reimburse taxes that the company paid during the construction of the project, but NIA responded by seeking to junk the project agreement. If the agreement could not be voided, NIA said it should be reformed instead.

According to Moody’s, its review would focus on the "increasing political risk in the electricity sector in the Philippines." According to the credit rating agency, it was concerned with the factor that the entire sector was exposed to "significant ongoing volatility" and the likelihood of success of NIA in its counterclaims.

CE is a privately-held Philippine corporation formed in 1994 to develop, own and operate a multipurpose irrigation and hydroelectric power facility with a capacity of 150 megawatts. The plant is located in Casecnan, a township north of Manila.

The company is a subsidiary of MidAmerican Energy Holdings Co. with headquarters in Des Moines, Iowa.

The Casecnan project has been controversial from the start, located in a watershed forest reserve covering 57,930 hectares of land within the Bugkalot ancestral domain distributed in two major watersheds: the Casecnan and Taan rivers.

The project had been declared not economically viable by the National Economic and Development Authority (NEDA) during the Ramos administration but it pushed through with the participation of Mid-American Holdings Co. that was reported to have connections with Ramos‚ former associates at West Point.

The bulk of the project cost was funded out of borrowings, including the $288- million worth of debt securities now being reviewed by Moody’s.