Government mulls support for P52-billion Laiban Dam project

MANILA, Philippines - The government may issue a performance undertaking for the proposed P52-billion Laiban deal between state-owned Metropolitan Waterworks and Sewerage System (MWSS) and San Miguel Corp. (SMC), Finance Secretary Margarito Teves said the other day.

“If it is both legally and economically justifiable, why not?” said Teves when asked if the Department of Finance (DOF) is willing to provide a performance undertaking for the multi-billion dollar transaction.

However, Teves stressed that there is no request yet from the MWSS to issue a performance undertaking for the deal.

He said the DOF would weigh the consequences of such an undertaking once there is a request.

As a matter of policy, Teves said, the government can issue a performance undertaking if it is justifiable.

A performance undertaking is essentially a government commitment that the state agency involved in the project will comply with all its obligations to the contractor.

If the agency involved in the project fails to meet its obligations, the government would have to assume the debts or allot huge budget subsidies to that agency.

This could mean bigger financial risks for the government if the project fails.

The DOF is the agency that issues performance undertakings for projects, upon the recommendation of the interagency Investment Coordinating Committee (ICC).

The ICC is chaired by the DOF while the National Economic and Development Authority (NEDA) is the secretariat.

The Department of Budget and Management (DBM), for its part, said it would also have to study the planned joint venture deal.

“It would have to go through the DBM if it needs government guarantee,” Budget Secretary Rolando Andaya said.

The proposed joint venture deal between SMC and MWSS supposedly contains a take or pay provision which virtually meant that government would be guaranteeing the market risks of the private partner.

The Laiban Dam project involves the construction of a dam and water treatment facility in Tanay, Rizal, aiming to address a projected water shortage in Metro Manila by 2015.

SMC, through its unit San Miguel Bulk Water Co. Inc. (SMBWCI) has submitted an unsolicited proposal for the project.