Moody’s said the downgrade in CE’s prospects came after the National Irrigation Administration (NIA) decided not to pay the monthly invoice for water and electricity fees that fell due last May 28.
The invoice amounted to $10.8 million, of which $3.6 million was for the tax compensation portion of the water delivery fee.
"The B2 rating reflects the tight liquidity at CE, and that CE might experience difficulty in honoring its debt service obligations this coming November if NIA does not honor its payment obligations to CE," Moody’s said.
CE is a privately-held Philippine corporation formed in 1994 to develop, own and operate a multi-purpose irrigation and hydro-electric power facility with a capacity of 150 megawatts.
The Casecnan project has been controversial from the start, located in a watershed forest reserve that covered 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 economically unviable by the National Economic and Development Authority (NEDA) during the Ramos administration but it eventually pushed through with the participation of Mid-American Holdings Co.
"While MidAmerican Energy Holdings Co. (MidAmerican) has provided support to CE in the past, we understand that MidAmerican is under no formal obligation to provide such support and it is uncertain at this stage if any support will be rendered," Moody’s said.
"The lack of transparency of the contract renegotiation process and the increase in the political risk is particularly worrisome," Moody’s said. "Continued abrogation of payment obligations by NIA, success of NIA in its counterclaims, lack of support from MidAmerican or further adverse developments in the power sector reforms may pressure the rating of CE."
"Moody’s is increasingly concerned that the unpredictability of actions by government related agencies is becoming inconsistent with our ratings approach," it said.
NIA had filed an answer and counterclaim last March 31 and subsequently a supplemental counterclaim last April 23 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.