HONG KONG - Pangilinan-led Maynilad Water Services Inc. is not against the development of the proposed P50-billion Laiban Dam project but only the take or pay scheme attached to it that is expected to jack up water rates in the metro, its officials said over the weekend.

The company is urging the Metropolitan Water Sewerage System (MWSS) to look into other proposals to develop new water sources other than Laiban in Tanay, Rizal.

"We had written the MWSS, voicing our concern. We’re happy they're looking for a long-term water supply. We are not against Laiban. What we're against is the take or pay provision. We're open to whatever arrangement MWSS wants provided it is not take or pay. It can be done," Maynilad president Rogelio Singson told reporters.

Last September, diversified conglomerate San Miguel Corp., through unit San Miguel Bulk Water Co. Inc., submitted an unsolicited proposal to build and operate the Laiban Dam, citing the urgent need to address a looming water shortage.

The project, which has been on the drawing board over the past 3 decades, seeks to become another source of potable water for Metro Manila aside from the Angat Dam. San Miguel had estimated that Laiban could supply about 1,900 million liters of water per day (MLD) or 22 cubic meters per second.

Outgoing socioeconomic planning secretary Ralph Recto was the first to voice out concerns over the project's controversial take or pay provision, a feature that binds the buyer of water from Laiban to pay for a specified volume of supply even if this is not consumed.

Several other groups, including Ayala-owned Manila Water Co., echoed the same concerns.

"Laiban is needed. We just think the proposal is not the right way to do it because it will result in high tariffs," Manila Water chief financial officer Luis Oreta said in an earlier interview.

MWSS should undertake new water

Singson said Maynilad and Manila Water had submitted a joint proposal to the MWSS for a new water source 2 years ago.

The proposal seeks that MWSS undertake the project with the two water concessionaires under a concession fee agreement where they will be able to spread the loan amortization that the regulator will be paying as against San Miguel's take or pay proposal.

Singson also pointed out that apart from San Miguel's dam project, the MWSS should look into the proposals of two other companies to source cheaper water from Sierra Madra and the Wawa rivers.

"In terms of protecting the interest of the constumers, the best scheme is not enter a take or pay. There are two other proponents who are saying they are willing to build additional source other than Laiban and I think they have presented it to MWSS," he said.

Higher rates, lower demand

Based from what they have heard, Singson said San Miguel's P50-billion project has a cost recovery period of only 7 years which could translate to an additional cost of P10 to the current average of P27 per cubic meter of water.

This by far exceeds the measly P0.89 per cubic meter additional cost under their proposed concession fee agreement, he added.

He said the higher cost may adversely affect their earnings because of the expected drop in water consumption as both industrial and residential customers may shift to alternative water supplies.

Aside from this, he noted that their main concern is the likely increase in illegal connections.

"It will affect us badly if we cannot collect," he said.

Ample supply

Singson said water concessionaires as of the moment do not need the water that will be provided by Laiban Dam since there is enough supply in the system.

He said Maynilad is losing 1,400 MLD in non-revenue water, which they can translate to additional supply.

"It is not a supply shortage issue but a reliability issue."

Both Maynilad and Manila Water have sought to extend their concession agreements by another 15 years to temper tariff increases and ensure sustained investments in the utilities sector.

Singson said Maynilad alone will shell out an additional P358 billion in its service area for expansion of network and sewerage and sanitation systems. He said part of their plan is to also develop a new water source for redundancy purposes.

Without the term extension, he said they could increase rates by as much as P15.25 as against P7 under a longer concession contract.

"The impact will be significant. Beyond 2012, there will no longer be rate rebasing but only adjustments based on consumer price index and foreign currency differential adjustment."