POSTSCRIPT / July 12, 2009 / Sunday


Philippine STAR Columnist

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MWSS set to award $2-B deal sans bidding

LAIBAN LEAKS: Like water trickling out of an old pipe, details of a gigantic contract to be awarded without competitive bidding have started to leak from the Metropolitan Waterworks and Sewerage System in what looks like another unfolding scandal.

The leaks pertain to a $2-billion project involving the building in six years of a dam in Laiban, Tanay, Rizal. It will augment the water supply for Metro Manila, raise the rates from the present P31-P33 per cubic meter to P45, and displace around 4,000 families.

Insiders tell us that the bulk water supply contract is being tailored for a favored firm without benefit of public bidding under terms that allegedly violate or disregard the Build-Operate-Transfer law requiring competitive bidding to draw better offers.

Under a “take-or-pay” arrangement, MWSS is committed buy over 710 million cubic meters of water for 25 years at a cost of over P391 billion with Philippine government guarantee. This assures the contractor a return on its investment of over 20 percent.

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JOINT VENTURE: The project cost is so staggering that then Director General Romulo Neri of the National Economic and Development Authority reportedly hesitated to approve the project some years back.

The cost was originally $1 billion, but for reasons that MWSS administrator Diosdado Allado may want to explain, the amount has ballooned to $2 billion without increasing the deliverable volume. The infamous $329-million NBN-ZTE deal pales in comparison.

The contract reportedly requires government financial guarantees for the project. This means that any outstanding obligation resulting from revenue shortfall will be shouldered by taxpayers, including even those not using a drop of the water.

How could this come to pass? The NEDA board chaired by President Gloria Arroyo reportedly concocted another business mode outside the BOT law to award the Laiban contract: By joint venture.

The morality and legality of this method of awarding contracts for existing (not new) projects like Laiban dam is expected to be challenged.

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IPP-TYPE DEAL: The private proponent of the project who looks well on its way to bagging the contract said it is capable of supplying MWSS 1,900 million liters of raw water per day. This capacity has been described as exaggerated.

The catch is that whether or not that volume of water is actually supplied or used, once the deal is sealed, the government must pay the contractor the total peso value of the agreed capacity.

This arrangement resembles the onerous “take-or-pay” contracts entered into with independent power producers (IPPs) by the Ramos administration then anticipating an electric supply crisis in the 1990s.

Captive consumers are now paying for electricity that they did not use or that the IPPs did not actually deliver. The same unfair billing is expected to be copied in the proposed Laiban deal and the burden passed on to consumers.

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GOV’T GUARANTEES: As executing agency, MWSS may have to bear the financial risk resulting from insufficient water. The project lenders and investors can be expected to demand payment even if not enough supply is generated.

Since MWSS has no solid credit standing, it must rely on government sovereign guarantees to support its potential obligations.

Aside from Laiban in Tanay, there are actually other potential sources of cheaper water for Metro Manila. In the spirit of transparency, Allado should explain the choice of Laiban over the other sources.

Another angle that legislators and policy-makers may want to check is this: Since MWSS is also the buyer of water from source, there is a potential conflict of interest. As a regulatory body, the agency also pegs the price of water.

With the MWSS having been privatized, there should be a regulatory authority independent of the agency. However, this was not done and the regulator now reports to the MWSS board of trustees!

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OTHER SOURCES: The plan as leaked out will have the MWSS buying untreated water from the favored supplier at a staggering P18 per cubic meter, way above the price at which the existing two concessionaires (Manila Water and Maynilad) buy raw water.

The Asian Development Bank has considered financing any of the MWSS projects tapping other sources of potable water: Wawa reservoir, Laguna Lake (although the lake has been excluded because of pollution), Angat rehabilitation, and Sierra Madre.

The ADB was about to allocate more than $3 million to study and finance the project, but plans were shelved when the Arroyo administration entered into controversial deals with the Chinese government that included the NBN-ZTE deal and the Northrail project.

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OLD NUMBERS: The MWSS seems to have accepted the contractor’s assurance that it can deliver 1,900 million liters per day of additional raw water from Laiban. This figure was based, however, on a study reportedly conducted before World War II!

Fears have been expressed that Laiban can produce now only half of that estimated capacity. In such a situation, consumers will end up paying for 100-percent delivery but getting only half of what they paid for.

At present, the two concessionaires — each servicing a sector of the franchise area — are improving the situation by fixing leaks and minimizing theft so that 4,000 million liters per day of water can be delivered.

Looking ahead, Mega-Manila will need more than 5,000 million liters per day to serve also the southern fringes of Metro Manila and Rizal province.

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(First published in the Philippine STAR of July 12, 2009)

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