Gov’t in danger of losing $120-M performance bond of Maynilad

The government will lose the $120-million performance bond posted by the Lopez-controlled Maynilad Water Services Corp. (Maynilad) if the courts do not allow its use before the bond expires at the end of July.

The Manila Water and Sewerage System (MWSS) warned that the bond would expire on July 31, but the government has been unable to draw from the facility because of a temporary restraining order issued by the court in favor of Maynilad.

Maynilad services the west zone of the old service area of the MWSS, including Tondo and parts of Manila, Makati and Quezon City and the whole of Malabon, Navotas, Muntinlupa, Caloocan, Pasay, Parañaque, Las Piñas, Valenzuela and Cavite.

Maynilad is 59-percent owned by Benpres Holdings Corp., the flagship project of the Lopez family, and 40-percent by Ondeo Philippines, which is affiliated with French firm Suez Lyonnaise des Eaux.

According to MWSS administrator Orlando Hondrade, the international arbitration court allowed the government to draw on the performance-bond, but Maynilad was able to secure the TRO and the government’s appeal is still pending before the Supreme Court.

Hondrade said that if the courts would hand down a decision at all, it would have to be today or at least anytime within the week to give time for the government to process the documentations required for the release of the funds.

"So this issue has to be resolved immediately or we will lose the bond," Hondrade said.

According to Hondrade, the bond was covered by different letters of credit from 13 different banks. He said the bond could be renewed, but it was unlikely that Maynilad would agree to and neither would banks since they know that government would cash it in almost immediately.

A proposed swap arrangement was proposed shortly before the May elections, but neither party has made a final decision on whether they could accept the terms.

The agreement would have allowed the government to initially draw $50 million from the $120-million performance bond posted by the consortium.

This amount was intended to be spent on Maynilad’s operating expenses, debt service and preparations for the anticipated water crisis due to declining water levels.

In December last year, Maynilad announced that it was ending its contract with the MWSS, accusing the government of failing to help the company recover from its losses.

Under the original contract, Maynilad was supposed to assume the $800-million loans of MWSS from the Asian Development Bank and World Bank.

With the privatization of MWSS in 1997, Maynilad won a 25-year concession contract to distribute water to the western half of the metropolis. The Ayala group’s Manila Water Co. won the right to service the eastern section.