Deal may allow SMC to charge for unused water

MANILA, Philippines - San Miguel Corp. (SMC) may yet repeat history. If a draft agreement between its water unit – San Miguel Bulk Water Co. Inc. (SMBWCI) – and the government is approved, the food conglomerate may do for the water sector what power plant owners did for electricity way back in the 1990s. San Miguel’s water unit may either charge government and/or consumers for unused water under a “take or pay" provision that is reportedly contained in a draft agreement submitted to the Metropolitan Waterworks and Sewerage System (MWSS). The said provision is the very same arrangement that allowed independent power plants (IPP) in the 1990s to charge consumers for electricity they didn’t use. Under its proposal filed in February, SMBWCI would construct the Laiban Dam in Tanay, Rizal through a joint venture with the MWSS. Besides addressing Metro Manila’s long-term water requirements, the P48 billion project also intends to “provide stability and security to the water supply source," San Miguel said in its proposal. The project, which will develop a raw water dam and other structures, is expected to produce 1,830 million liters daily, serving the needs of 5.5 million people. But here’s the catch. The contract’s “take or pay" provision may be passed on to government, a condition that the country's socioeconomic planning body isn’t about to allow just yet. The “take or pay" provision would be tantamount to a “government guarantee," the National Economic and Development Authority (NEDA) said in a June 26, 2009 letter to the MWSS. “In our review, the undertaking [pertains] to guaranteed payments for the [project’s] output which may or may not be used by the government entity," the letter said. It was signed by NEDA director general Ralph G. Recto and addressed to Diosdado Jose M. Allado. “Guaranteed payments for specific volume of water can be construed as direct government guarantee with government guaranteeing market risks by the private proponent," Recto said. Moreover, the joint venture agreement requires the endorsement of concessionaires Manila Water Co. Inc. and Maynilad Water Services Inc. – which serves Metro Manila’s east and west zones respectively – since both are expected to be the recipients of the project’s water offtake. The draft agreement also allows San Miguel to sell/transfer its interest to another party after a given period upon the MWSS’ written consent, Recto said. The transfer of interests should be to a qualified party that has, at the minimum, similar experience on the operation of water supply/dam projects, he added. Under the draft agreement, SMBWCI also proposed to build access roads and facilities worth P6 billion covering the two barangays in the watershed area. To ensure that the barangays will not unduly spoil the watershed area, an annual allocation for watershed management has also been made. Meanwhile, a separate plan – called the Daruma Land Acquisition and Resettlement Plan (LARP) – proposes the relocation of three barangays, two of which are located within the watershed area and the other one at the dam’s downstream, for a total cost of about P12 billion. “SMBWCI confirmed, however, that in terms of present net value, the Daruma proposal is more cost-efficient. SMBWCI also confirmed that they were not able to establish during their due diligence whether said barangays are willing to be relocated or not," Recto added. In February, San Miguel has announced that its subsidiary is seeking to partner with the government for the development of a dam project seen to supply future water needs of Metro Manila. It added that its subsidiary's proposal is in line with San Miguel's direction to invest in strategic industries such as power, oil and gas, and water. San Miguel Corp. has recently agreed to sell its beer brands, intellectual property rights, and real estate to its beer unit, San Miguel Brewery Inc., for P38.8 billion. The company has been very aggressive in venturing out of its core food and beverage business. Besides acquiring 27 percent of Manila Electric Co. for P30 billion, it has also agreed to purchase majority stake in Petron Corp., the Philippines' largest oil refiner, for P32.2 billion. It is also planning to enter the telecommunications industry through a venture with Qatar Telecom. - With Cheryl M. Arcibal, GMANews.TV