Arbitration body orders Maynilad to post $150-M bond by June 15

To ensure that it would settle its obligations with the government, the International Arbitration Panel has ordered Maynilad Water Services Inc. to post a performance bond of $150 million not later than June 15 pending resolution of its dispute with the Manila Waterworks and Sewerage System (MWSS).

This was disclosed yesterday by Justice Undersecretary Manuel Teehankee, acting head of the Office of the Government Corporate Counsel.

Teehankee explained that Maynilad’s performance bond under the concession agreement is actually only $120 million but the appeals panel required the Lopez-owned water firm to post an additional $30-million bond in light of its current outstanding obligations in concession fees now estimated to reach P5 billion or $90 million.

The $120-million performance bond of Maynilad was due to lapse in July.

"That’s why in order to assure the government of sufficient security this has to be renewed on June 15," Teehankee said.

Teehankee explained that the bond will serve as security which ensures due payment to MWSS for every outstanding financial obligations that are not paid or that are overdue including concession fees.

The order came as the appeals panel continues its deliberation on whether Maynilad’s decision to terminate its concession agreement with the MWSS to supply water for the western half of Metro Manila is legal and valid.

Maynilad announced on Dec. 9 last year that it is ending the concession agreement with the MWSS after failing to get the rate increases the water firm was seeking.

The termination was supposed to take effect last Feb. 7 but a three-man international appeal panel, composed of Professor Allan Phillip of Phillip and Partners of Copenhagen, Denmark, former Supreme Court Justice Bernardo Pardo and Antonio Picazo, stopped Maynilad from terminating its 25-year concession agreement with the MWSS.

The panel will hear the dispute on the legality of Maynilad’s move along with other claims and disputes regarding Maynilad’s performance under the concession agreement.

The statement of claim submitted by the MWSS to the arbitration panel stated the various violations allegedly committed by Maynilad in its concession agreement with the government.

Among Maynilad’s alleged violations include the failure to comply with the agreement to infuse additional funding support from its stockholders amounting to US$80 million in equity; failure to make any progress in it’s non-revenue water (NRW) reduction program which it promised to reduce to 29.8 percent by 2002; failure to address the persistent serious wastage of water and non-payment of maturing debt service obligations.

If the panel finds out that Maynilad really violated the terms and conditions of the agreement, it will be ordered to pay the government for the breaches.