Thursday, July 30, 2009

Water cost to shoot up?

An average Juan dela Cruz gets his minimum wage, buys food for his family, saves enough for his monthly rent, pays for his electric bill, now, is he willing to pay more for water?

Regulator keeps Laiban ternder details secret even from NEDA

Business World article on Laiban

Abante Tonite Editorial regarding Laiban anomaly

Every Filipino people deserves to know.


This article is by Delfin Mallan Jr. dated July 12, 2009

Friday, July 24, 2009


No Public Bidding

Under express instructions of President GMA, MWSS is rapidly proceeding under extreme secrecy to implement the US2 billion Laiban water supply project, at more than six (6) times the cost of the ZTE Broadband project, without public bidding,

Proposed JV Structure Has Dubious Legal Basis

MWSS Administrator Atty. Diosdado Jose Allado, previously General Counsel of PAGCOR is about to announce MWSS approval of a joint venture to implement the project. The Laiban project is planned to be implemented under guidelines issued by NEDA in April 2008 permitting government and private sector joint venture for infrastructure and other projects. However these guideline appear to be legally dubious as they circumvent provisions of the BOT Law, especially in regard to public tender.

Project Too Large and Costly, No Comparison For Best Source

When implemented this project will create a monopoly in supply of bulk drinking water to Metro Manila for decades to come, and will have great impact on the cost of water. MWSS studies indicate that the Laiban project will increase by 50% the supply for raw water at a cost of P18 per cubic meter, before inflation, amounting to least P12.5 billion yearly. After adding the cost of treatment and delivery, the total cost per cubic meter of this new supply will be substantially above P18 per cubic meter.

Both Manila Water and Maynilad have expressed grave concern on the adverse impact of this project to price of water to the public. They have stressed to MWSS that any new water supply project must be chosen on the basis of the best source and lowest cost, taking into account the requirements of the MWSS system for additional water.

Both Manila and Maynilad still have potential to reduce system leakages, and generate water to supply customers. The success of Manila Water in reducing non revenue water (NRW) from 60% to less than 20% currently, has provided some 400 million liters per day of water, previously lost to leakages, for their customers. Similarly Maynilad still has a large NRW problem of 60%. Leak reduction is a main priority, and this will also provide some 1000 MLD of water to its area. However, despite these concerns on wasted capacity and high cost, MWSS appears hell bent to proceed with the Laiban project as quickly as possible, without public bidding, in view of imminent end of the Arroyo administration.

High Project Risk. Feasibilty study done in 1970’s And ADB Loan to Update Study Cancelled By MWSS.

The ADB which has been a major source of financial and technical assistance to MWSS, approved a US$3.26 million loan in October 2003 to help MWSS in selecting the best water sources for its long term supply. The loan was suppose to finance the updating of the technical and other studies of the various water projects including the Laiban project. The study would help MWSS determine how to source long term needs for water on the most economical and technically and environmentally sound basis.

This was necessary since the feasibility study of Laiban dam, one of the most important sources of new water, was conducted in 1979 .The Laiban project was partly implemented by the Marcos administration in the early 1980’s, but construction was suspended in 1989

However, following an offer by China in late 2007 to provide long term funding for infrastructure projects including ZTE, Northrail and the Laiban dam, MWSS cancelled the loan component of the ADB loan related to Laiban dam review and updating, and to proceed with the Chinese financing without such review.

A key element of the ADB study would have been updating the hydrological basis of the Laiban dam. The project’s water flow estimate was mainly based on data obtained in 1936 to 1948. High assurance of sufficient and stable water is the main basis for the viability of a dam project. Confirmation of the accuracy of water flow measurements, with current information as well as changes in climate and weather patterns would be key elements in the review to establish project supply capacity. Without such review the risks of proceeding with the project are extremely high.

MWSS Will Assume Project Risk

As executing agency, MWSS may have to bear the financial risk of insufficient water for this multibillion dollar project, as the project lenders and investors would require payment even if water is not produced. Such a risk could be in the billions annually over the contract period.

Cost of Stranded Capacity

The other issue clearly spelled out by the concessionaires is the possible excess capacity, which could result in stranded costs experienced in the power sector which has made Philippines the second highest power cost country in Asia, next to Japan.

The environmental issues especially taking into account the close to 5,000 families or over 100,000 people now living at the dam site as well as the inundation of 8 barangays in Rizal, and various significant sites such as the sta Ines falls also were elements in the proposed study.

No Public Bidding In Violation of BOT law

MWSS planned to implement Laiban project using the China Eximbank funding without public bidding under the supposed executive agreement, similar to Northrail and the ZTE Broadband projects. With the cancellation of the Chinese financing due to the ZTE controversy, MWSS will proceed with the project without public solicitation and bidding, under the NEDA guidelines dated April 8 2008 which promote a government and private sector joint venture arrangement. However these guidelines likely violate the provisions of the BOT Law which require priority government infrastructure projects to undergo public tender. NEDA had approved the Laiban project in April 2007 as a priority project in anticipation of the China Eximbank financing. Furthermore the NEDA guidelines issued under E.O 423 related to R.A. 9184 The New Procurement Act,. This law pertains to government procurement which essentially involves government ownership and financing of projects. As proposed by MWSS, the project would be implemented by a nominated private company which will own and finance the project. The legal basis for the NEDA guidelines appears to be extremely dubious as it establishes a new scheme which is neither provided for under RA 9184 and nor the BOT Law. The proper framework to be pursued ought to be the BOT law since they involve private sector participation in infrastructure projects.

MWSS Conflict of Interest, Implementing Agency and Regulator

The MWSS is confident that it can move ahead as it is proceeding under the instructions and full support of GMA. Furthermore, unlike the power sector, MWSS is both the contracting party and regulator. MWSS can enter into, and approve the water supply contract without public bidding, and have it implemented by the concessionaires, without any third party review of the legality and merits, as well as taking into account public interest., as it is its own regulatory authority.

This clear conflict of interest, is against government policy. One of the elements in the MWSS privatization was supposed to be the establishment of a regulatory authority independent of MWSS. However, this was not implemented and the regulator reports to the MWSS board of trustees.

MWSS Will Proceed With Project On Grounds of National Security

Despite all these issues, MWSS believes that it can justify the project on the grounds of national security, as there is need to have an alternate supply to Angat, which is the sole source of supply for Metro Manila.

MWSS Achilles Heel

However, apart from the many technical, and legal issues, MWSS biggest Achilles heel is that it has no credit standing and must rely on government financial guarantees to support its potential obligations under the agreement. Under this agreement, MWSS will be the buyer of the water, and must agree to pay for the supply under a take or pay obligation. With the reluctance of the concessionaires to support the project, MWSS MWSS cannot proceed on its own without Department of Finance undertaking or government support. The Department of Finance headed by Secretary Teves has an established policy and has resisted issuing any guarantees or undertakings for infrastructure projects. This is more so as a project proposed under the NEDA guidelines and without bidding cannot be provided a government guarantee or undertaking.

On July 3, 2009 the MWSS published “ AN INVITATION TO APPLY FOR ELIGIBILTY AND TO SUBMIT PROPOSAL”. In the Terms Sheet of the Bulk Water Sales Agreement between MWSS and the Private Sector Participant, MWSS agreed on a “ Take or Pay” arrangement on guaranteed volume of 1950 MLD and further committed to submit a Republic of the Philippines performance undertaking to secure performance of its obligations.

Both provisions in the Terms Sheet are violations of the BOT Law and of the Government Procurement Act in that in cases of unsolicited proposals no government guarantee can be given.

Furthermore, a priority project so declared by NEDA can not be the subject of an unsolicited proposal. The Laiban Dam project was declared a priority project by NEDA in 2007.