Contractors dump Maynilad Water

Contractors of Maynilad Water Resources Inc. have suspended work on its network rollout program as the company faces serious cash problems, with over P500 million in arrears to contractors and suppliers.

As the company awaits the decision of the Cabinet on its proposal for a rate adjustment, Maynilad’s contractors have refused to continue with ongoing construction work since the company has not been able to meet its obligation with contractors and suppliers.

Contractors have even issued veiled threats of initiating legal action against Maynilad, unless the company is able to work out a solution to its problem.

Maynilad has roughly P14-billion worth of ongoing projects as part of its roll-out program for 2000-2001 under its concession agreement with the Manila Waterworks and Sewerage systems (MWSS).

The program includes the installation of some 1,000 kilometers of pipe and 200,000 new water service connections, new pumping stations, water, sewerage and sanitation facilities and support facilities such as offices and warehouses.

According to the Philippine Contractors Association (PCA), Maynilad owes up to P500 million to various contractors that have not been paid since the company fell into serious cashflow problems due to huge losses resulting from the depreciation of the peso against the dollar.

PCA executive director Manolito Madrasto said about 20 of its members, mostly large contractors, have suspended work on Maynilad projects due to the company’s inability to settle its obligations.

According to Madrasto, these contractors have sustained losses due to foregone profits on top of the amount owed to them by Maynilad. "This is a problem of both Maynilad and the MWSS," he said. "If the contractors are not getting paid, it‘s within their rights to stop construction."

"At first we were telling the contractors to keep working because the project is important but we didn’t like how Maynilad was handling the affair," Madrasto said. He declined to elaborate although he mentioned the failure of Maynilad to make sure that it was well covered when it signed the concession agreement.

By the time they signed the contract, the 1997 crisis had already set in," Madrasto said.

According to Madrasto, the only project still ongoing are those funded by official development assistance from the Asian Development Bank and the World Bank since there are funds available.

"Maynilad should even be thankful that contractors haven’t actually sued them yet," he said. "If the problem is not settled, it’s not entirely an unlikely possibility." The Cabinet has not replied to its request for a rate adjustment that will allow Maynilad to recover part of its losses due to the drastic depreciation of the peso against the dollar.

Because of the foreign exchange rate crisis, Maynilad sustained losses of up to P2.2 billion directly attributable to the depreciation of the peso. The company had asked that it be allowed to recover this unfactored loss through a currency exchange rate adjustment (CERA) but this would require an amendment of its concession agreement with the MWSS.

With the decision still pending with the Cabinet, Maynilad has been unable to secure either short or long-term financing, including some $350 million that Maynilad had applied for in November.

Under its concession agreement with the MWSS, Maynilad is not allowed to automatically recover currency exchange losses unlike other utility firms whose concession allow automatic CERA.

Contacted by The STAR, Maynilad president Rafael Alunan declined to comment, saying the company does not want to jeopardize the ongoing evaluation of the Cabinet committee headed by the National Economic and Development Authority and the Department of Finance.