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The Metropolitan Waterworks and Sewerage System (MWSS) said in a
press statement that the Laiban dam deal with San Miguel Corp. would
not require a direct government guarantee.
The statement ran counter to previous stories
published in The Manila Times that cited the National Economic and
Development Authority (NEDA), which expressed serious concerns about
the project.
According to the statement released Tuesday,
MWSS, citing the Office of the Government Corporate Counsel (OGCC),
said the proposed agreement for the $1.1 billion Laiban project does
not provide a direct government guarantee for the company that was
proposing to build the dam.
Assuring NEDA
The statement added that Government Corporate
Counsel Alberto Agra had assured Director General Ralph Recto of the
National Economic and Development Authority that “the take-or-pay
scheme under the draft Contract Documents for the: Laiban Dam
Project is not, strictly speaking, a ‘direct government
guarantee,’ as defined by law.”
In a July 20 letter to Recto, Agra explained
that only Republic Act 6957, or the Build-Operate-Transfer (BOT)
Law, as amended by Republic Act 7718, defines direct government
guarantee as the direct assumption of responsibility by government,
its agencies, or local governments for the repayment of debt
directly incurred by the project proponent.
Agra, the statement added, dispelled the fears
of Recto’s agency that direct government guarantee also covers
payments for output that may or may not be used by the government
entity. The Authority said in its June 26, 2009, letter to the
Office of the Government Corporate Counsel that “market guarantee
or guaranteed payments for specific volume of water can be construed
as direct government guarantee with government guaranteeing market
risks by the private proponent.”
The government counsel explained that the
Metropolitan Waterworks and Sewerage System exercised its
administrative discretion in proceeding with the Laiban project
under a public-private partnership setup using procedures outlined
under the 2008 joint-venture guidelines.
Several agreements cover the project,
particularly the contractual joint-venture agreement and the
financing project documents that cover eight components, including
the following: agreements with engineering, procurement and
construction contractors and suppliers of equipment and other
materials; project management, operation and maintenance adviser;
term loan agreements; bulk water sales agreement with MWSS;
watershed protection and co-management agreement for the Laiban
watershed; contracts with off-takers for the purchase by the latter
of electricity; agreements for land acquisition, land use and
resettlement, and appropriate insurance coverage for the facilities.
Not yet ready
In the statement, Agra emphasized that “the
gamut of contracts needed for the Laiban dam project to materialize
has not been finalized.”
“After a thorough reading of the draft
contractual joint-venture agreement, it is our considered view that
that the provisions found therein cannot be remotely considered as
espousing a direct government guarantee in favor of the project
proponent—the private sector participant and MWSS,” he added.
“Neither may the proposed take-or-pay scheme under the draft bulk
water agreement be considered as a direct government guarantee.”
The statement again cited the government counsel
chief as saying that the off-take agreements provide revenue flow to
the project and are divided into two types—take or pay and take
and pay.
Under the take-or-pay arrangement, the purchaser
must pay for products and services whether he takes delivery or not.
On the other hand, the take-and-pay arrangement calls for the
purchaser to pay only for whatever the company produces and
delivers.
Agra said, “Take or pay clauses have,
therefore, developed for the benefit of both purchasers and
suppliers. The supplier is guaranteed a regular income stream while
the purchaser commits to pay for a minimum quantity to guarantee
regular but flexible supply. In a nutshell, it is in this sense that
[the] take-and-pay clauses serve as quasi-guarantees for the cash
flow of the project. This arrangement protects the purchaser against
price rises and the supplier against price drops.”
He added, “There is no law that prohibits MWSS
from entering into an off-take contract, or in this case, a
take-or-pay agreement, especially since such an agreement has gained
wide acceptance insofar as the project finance community is
concerned. Like any contract, the parties must mutually agree upon
the specific terms and stipulations of a take-or-pay scheme, and
ensure that their agreements must not contravene laws, morals, good
customs, public order or public policy.”
House probe
On Wednesday, lawmakers called for a formal
investigation of the Laiban dam project.
Militant legislators headed by Anakpawis Rep.
Rafael Mariano and Rep. Joel Maglunsod filed House Resolution 1272,
which directs the House committees on oversight and the national
cultural communities to conduct the probe focused on the take-or-pay
provision that the National Economic Development Authority warned
would amount to a government guarantee. That agency argued that such
agreement would require MWSS to pay for raw water from San Miguel
Bulk Water Co., regardless of whether the water agency used it.
-- With Reports From Jomar Canlas
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