MWSS, Maynilad start ‘good faith’ talks

The government and the majority shareholders of the Lopez-controlled Maynilad Water Services Inc. have commenced "good faith" discussions for the possible settlement of issues comfronting the troubled water utility firm.

In a disclosure to the Philippine Stock Exchange, Benpres Holdings said the discussions, while very preliminary, are comprehensive and consider all possible options including a possible debt-to-equity swap. Maynilad is 60 percent controlled by Benpres while the balance is held by Ondeo Waters, an affiliate of French conglomerate Suez Lyonnaise des Eaux.

Benpres said any agreement becomes final only when all appropriate approvals from the government are obtained.

Earlier reports said the discussions would center on the Metropolitan Waterworks and Sewerage System (MWSS) buying 30 percent of Maynilad for $20 million through a debt-for-equity swap. This, as the Suez group was reportedly considering pulling out of Maynilad.

While negotiations are still ongoing, it was agreed that MWSS would not draw down from Maynilad’s $200 million performance bond.

The water utility was ordered by an international arbitration court to pay $109 million in dues to the government to maintain its 25-year concession agreement.

However, sources said Ondeo is reportedly not interested in holding on to its interest in Maynilad and the MWSS will be forced to take over the holdings since it is Maynilad’s primary creditor.

Under the BOT (build-operate-transfer) Law implementing rules and regulations, Maynilad’s contract with the government could be reopened "where it is necessary due to conditions beyond the control of the parties involved and in times of extreme, unforeseeable conditions."

"The parties to the contract will agree on the specific conditions that will necessitate or result in a re-negotiation and modification of some or all of the substantial provisions of the contract," the rules stated.

Sources said the debt-for-equity swap would be effective immediately or at least before the end of the year while the concluding portion would be undertaken in 2004.