Inter-agency body to study SMC's Laiban offer

MANILA, Philippines - An inter-agency joint venture selection committee (JVSC) is set to start evaluating today the various submissions of San Miguel Corp.’s wholly owned subsidiary San Miguel Bulk Water Co. Inc. (SMBWCI) to determine the feasibility of its proposal to undertake the controversial Laiban Dam project, which based on latest estimates, will now cost at least P65 billion to construct.

In an interview with The STAR, deputy administrator Isaias Bongar of the Metropolitan Waterworks and Sewerage System (MWSS) revealed that SMBWCI officially became the only party interested to undertake the multi-billion peso joint venture project with the MWSS after no other group submitted a bid for Laiban when the 30-day bidding period of the challenge stage ended last Aug. 7.

Bongar explained the JVSC which he chairs will need at least two months beginning today to complete the evaluation of SMBWCI’s compliance with the conditions precedent as required by the NEDA guidelines for entering into joint venture agreements, after which the committee will either make a favorable or unfavorable recommendation to the MWSS board to enter into a contractual joint venture with the SMC subsidiary for the Laiban project.

He said that MWSS board will have to make a decision before the end of the year because of the urgency of undertaking a water project that will address an impending water shortage in Metro Manila.

The Laiban Dam project was conceived as the next water supply source for Metro Manila. The projected water demand by 2015 is 5,600 million liters per day. However, the current and only source of water for Metro Manila which is Angat Dam can only produce 4,000 MLD, resulting in an expected deficit of 1,600 MLD by 2015.

MWSS officials have explained that relying on Angat Dam as the only water supply source for Metro Manila is risky because of its age and the presence of the West Valley fault in the vicinity of the dam.

It is expected that during the two-month deliberations of the JVSC that the NEDA will vote unfavorably against the proposed joint venture between SMBWCI and MWSS on the Laiban project. NEDA Director General Ralph Recto has been vocal with his concern about the supposed “take or pay” provision in the agreement on Laiban which he said is tantamount to a government guarantee.

This despite an opinion from the Office of the Government Corporate Counsel (OGCC) to the effect that there is no legal prohibition against a “take or pay” clause and that a performance undertaking does not amount to a government guarantee.

MWSS Administrator Diosdado Allado told The STAR that it is too early to speculate about the implications of a “take or pay” clause because everything is still being negotiated.

Under a “take or pay” contract, the purchaser agrees to make payments for the capacity whether or not the project company actually generates the goods or service.

For his part, SMC president Ramon Ang has said that whether it will be a “take or pay” or a “take and pay” agreement is still the subject of negotiations.

A “take and pay” contract provides that the purchaser agrees to pay for whatever the project company produces and delivers.