MANILA - Former senator and now economic planning secretary Ralph Recto is voicing out concerns over the now controversial P52 billion Laiban Dam project in Tanay, Rizal.

Recto has been focusing on the "take or pay" provision in the unsolicited offer of San Miguel Bulk Water Co., Inc, a unit of San Miguel Corporation, a food-turned-power and utilities conglomerate.

A "take or pay" provision--a feature of previous, and now controversial, contracts with independent power producers--binds the buyer of water supplied by Laiban dam to pay for a set minimum water supply. The buyer has to pay even for water supply it has not consumed if its own requirements are below the minimum level.

In his June 26 letter to Diosdado Jose Allado, the administrator of state-owned Metropolitan Waterworks and Sewerage System (MWSS), Recto expressed concern that the take or pay provision is actually a form of direct government guarantee. This position counters an opinion by the Office of the Government Corporate Counsel, which claimed that a take or pay agreement is not a direct government guarantee since it does not explicitly guarantee the debt of the private sector proponent.

"In our review, direct government guarantee does not only pertain to debt payments but other guaranteed undertaking by government as well, including but not limited to guaranteed payments for the output, which may or may not be used by the government entity," Recto wrote in his letter to Allado.

No NEDA-ICC role in joint venture deals

San Miguel Bulk Water is vying for a joint venture partnership with water utility regulator MWSS, which hastily conducted the bid for the joint venture project. MWSS gave bidders only 5 days, or until July 8, to submit their formal intention to contest San Miguel's bid. The haste in the scheduling and the information campaign to attract counter-bids has led critics to raise howl over a seeming effort to favor San Miguel Bulk Water.

If the joint venture of MWSS and San Miguel pushes through, the regulator stands to hold a 10 percent interest in the venture.

Concerns now raised by Recto, who also heads the planning agency National Economic and Development Authority (NEDA), may be too late.

The NEDA Board, a group of cabinet-level representatives of various economy- and finance-related state agencies, has approved the new guidelines for joint venture deals in April 2008. The new guidelines took away the oversight powers of the Investment Coordination Committee (ICC) of Recto's NEDA and gave this to the heads implementing agencies, which in this case is MWSS.

Recto was appointed to his NEDA post in July 2008--after NEDA-ICC was already stripped off its mandate to review and approve large infrastructure projects funded by official development loans, build-operate-transfer and joint venture schemes.

The P52 billion-worth Laiban dam project is said to be the first case for the implementation of the new guidelines for joint venture schemes.

Important water source

Laiban Dam, which has been on the drawing board over the past three decades, seeks to become the next source of potable water for Metro Manila. This could supply 1,900 million liters a day or 22 cubic meters a second, of water and to the metropolis.

A paper titled "Winning the Water War", which was prepared in 2004 by the Philippine Institute for Development Studies and the Philippine Council for Agriculture, Forestry and Natural Resources Research and Development cited the importance of Laiban Dam as the next source of water for Metro Manila.

It said expansion of the MWSS service area to serve the entire population of Metro Manila will roughly require an additional 25 cubic meters per second of raw water supply to the
current water demand of 46 cms.

"The Laiban Dam appears to be the best alternative water source and quite significant, because it is estimated to provide as much as 22 cms raw water supply," the paper said.

However, the paper cited estimates of the price of water from the Laiban Dam in the mid-90s at P13 to P15 per cubic meter. "Its present rate could already be about P19 to P22 per cubic meter," it said.