Benpres defends deal on Maynilad

The patriarch of one of the country’s most powerful business clans denied any government bailout in Maynilad Water Services Inc., saying their business group even stands to lose its $80-million investment in the debt-ridden water utility firm.

"How can it be a bailout when the Lopez Group is completely writing off its equity investment of $80 million? If there was a political deal with the government, how come in addition to our loss in Maynilad, Meralco’s rates have remained unadjusted?" Oscar Lopez, chairman of Maynilad’s parent company Benpres Holdings Corp., said in a statement issued yesterday.

The Koalisyon ng Nagkakaisang Pilipino (KNP) charges that President Arroyo has struck a deal with the Lopez clan to help her win a fresh term in the May polls in exchange for business favors.

Mrs. Arroyo is facing a strong challenge from movie star and KNP candidate Fernando Poe Jr. Despite his lack of public office experience, Poe is expected to win because of his film stardom.

The Lopez clan heads a multibillion-peso business empire that includes Manila Electric Co. (Meralco), the country’s top power distributor, and ABS-CBN Broadcasting Corp., the nation’s largest network.

The family also has interests in water distribution, power generation, telecommunications, construction, property, and technology.

Under a settlement reached last week between government regulator Metropolitan Waterworks and Sewerage System (MWSS) and Benpres, Maynilad will return its concession to the government, which will take over the supply of water to half of Metro Manila.

Benpres will write off its $80-million investment in Maynilad. In addition, the MWSS will get $50 million in cash up front from Maynilad and paid $5.5 million a month in concession fees for the next 12 months.

Sources in the National Economic and Development Authority (NEDA) said the government will again privatize the concession probably within five years once its operation becomes financially viable.

"It would not be healthy for the government to assume Maynilad’s concession permanently," a NEDA source said, speaking on condition of anonymity. "Ultimately this would have to be privatized again."

The KNP claims the compromise settlement was a "sweetheart deal" with the Lopez clan in exchange for convincing popular former broadcast journalist Sen. Noli de Castro to run as Mrs. Arroyo’s vice presidential running mate and help her win in the May polls.

De Castro was formerly an ABS-CBN radio and television news anchor. He denies the allegation.

KNP vice presidential candidate Loren Legarda said: "At a time when the government is experiencing an enormous budgetary deficit, the government bailout of Maynilad to the tune of P8 billion is nothing less than criminal."

Sen. Manuel Villar said the Senate should scrutinize the settlement because "the amount involved in this deal is very big."

Presidential candidate Sen. Panfilo Lacson, an administration critic, called the agreement "unconscionable."

Asked to comment on the settlement, Mrs. Arroyo said there was no bailout because the government is not shelling out money. "So whatever money they discuss about, the money won’t go back to its owners but to the MWSS," the President told reporters during a ceremony launching a community water supply project in Novaliches, Quezon City yesterday.

Benpres has already made full provision for its Maynilad investment in its financial statements for 2003.

Lopez said the MWSS-Maynilad agreement took months to hammer out and involved not just Benpres but over 20 creditor-banks.

He also noted that the agreement has yet to be approved by the court and the duly appointed rehabilitation receiver for Maynilad.

Maynilad was forced to file a rehabilitation petition with the Quezon City regional trial court after it was ordered by a Paris-based arbitration panel to pay its overdue amount last year.

"It is pathetic that other vested interests have taken advantage of the election campaign season by injecting politics into purely business decisions, and in the process demonizing the Lopez family. Even the matter of an ABS-CBN talent like Dolphy, which is a purely show business concern, is being given political color. What a cheap political stunt," Lopez said.

He was referring to the reported decision of ABS-CBN to ax the television sitcom "Home along da Airport" starring Dolphy — Rodolfo Quizon in real life, the country’s top comedian.

The KNP claims ABS-CBN pulled the plug in reprisal for Dolphy’s support for Poe’s presidential bid. ABS-CBN neither confirmed nor denied the report. Dolphy, meanwhile, remained unavailable for comment.

Lopez said his family has too often been made convenient whipping boys for their participation in utilities.

"We have too seldom been recognized for the good that we have done. We are proud to have accomplished much in Maynilad in the last six and a half years. We are not leaving a desolate and financially unsound company as the misinformed wish to believe, and definitely there was no mismanagement of the water utility firm," he said.

Lopez said Maynilad could have taken the course of pursuing the rehabilitation case in court that could have dragged for years. But this, he said, would have risked the quality of water service delivery.

Instead, Maynilad agreed to reorganize to address both government and creditor issues, at the sacrifice of shareholder interest, Lopez said.

Maynilad’s viability was eroded by huge foreign exchange losses and the utility firm’s difficulty in getting MWSS approval to sufficiently raise its water rates.

The write-off of shareholder equity eliminated Maynilad’s accumulated losses and avoided the necessity to raise water rates drastically.

In addition to writing off Benpres’ equity investment to put Maynilad on healthy financial footing, Lopez said Maynilad had paid more than $200 million out of the $800 million concession loans assumed from the MWSS, before suspending payments in 2001.

Lopez said Maynilad also implemented P4.3 billion in capital projects, connected 194,098 new consumers to the network and improved water coverage to 85 percent of the population from 63 percent.

Under the compromise agreement, the government will take over Maynilad in lieu of unpaid concession fees of about P8 billion. It will receive a 61-percent stake worth almost the same amount currently held by Benpres. The remaining 39 percent is held by France’s Suez Group.

The plan calls for the reorganization of Maynilad to ensure settlement of all outstanding concession fees it owes to the government. It would reduce Maynilad’s liabilities from P19 billion to around P11 billion to 12 billion.

Local creditor banks, led by Metropolitan Bank and Trust Co. also agreed to convert P3 billion in debt to coupon-generating voting, convertible and redeemable preferred stock.

After the reorganization, the government will hold a 61-percent stake in Maynilad, Suez will own 30 percent, Metrobank will hold three percent and employees will own six percent.

The compromise agreement is expected to be finalized in 30 to 45 days.

Justice Undersecretary Manuel Teehankee, acting as the government corporate counsel, said the reorganization preserves the financial and public interest of the government while avoiding risks that might come if Maynilad’s concession is terminated.

These risks, he said, include the difficulty of locating a replacement operator to assume Maynilad’s concession along with its unattractive financial standing, the payment of the early termination amount to Maynilad as per concession agreement, which, net of the P6.6 billion concession bond, is insufficient to cover the annual debt service of concession fee loans. — With reports from Aurea Calica, Des Ferriols, Jose Rodel Clapano, Marichu Villanueva, Jess Diaz