Manila Water and Sewerage System administrator Diosdado Jose M. Allado considers the Laiban dam project in Tanay, Rizal that is estimated to reach $2 billion as a pro-active government initiative to address the water demand of Metro Manila in 2015.

This is in preparation for what he calls the inevitable deterioration of the only source of water for Metro Manila, the 41-year-old Angat Dam reservoir in Bulacan,” he states. The original cost was $1 billion as approved by the Asian Development Bank (ADB) San Miguel Bulk Water Co. Inc (SMBWCI), a unit of San Miguel Corp. (SMC), was unchallenged when it won the proposed Laiban contract in joint venture with MWSS.

The joint venture seems to be the best option for the government as the MWSS can no longer obtain loans from other sources because of the old loans it had incurred when it was still Metro Manila’s sole water distributor.

MWSS deputy administrator Isaias P. Bongar Jr., however, clarifies that MWSS can still negotiate for new contract terms even after the project is finally awarded.

Nonetheless, the MWSS promises to seek an opinion from the Office of the Government Corporate Counsel (OGCC) if an invitation to challengers to the SMBWCI can be put out again.

OGCC head Alberto C. Agra feels that although the SMBWCI is the only company left to negotiate with, the deal would still be “subject to evaluation.” Socioeconomic Planning Secretary Ralph Recto is still waiting for the MWSS to communicate with the National Economic and Development Authority (NEDA) since the MWSS Laiban project will need NEDA approval because of the size of the project, and the bidding process.

NEDA also needs to be clarified whether the joint project proposal will be done under the build-operate-transfer (BOT) scheme.

Recto explains that there cannot be will be any government guarantee unless via public tender is done.

The Laiban project, construction of which began and was stopped in the early 80’s by MWSS, was approved as a priority project by NEDA in April 2007.

Recto has misgivings about a take-or-pay provision in the proposed agreement that is similar to the contracts with independent power producers in the 1990s under which the state generator was obliged to buy power produced by the IPPs even if these would not be used.

It may virtually mean that government would be “guaranteeing the market risks of the private proponent,” advises Recto.

The Laiban project involves the construction of a dam in Tanay, Rizal. It will also involve the relocation of more than 4,000 families once the project commences.

The MWSS has committed to buy over 700 million cubic meters of water for 25 years, whether the water is sold or needed under a take or pay clause.

San Miguel Bulk Water Co. expects a return of over 20 percent on its investment. Annually MWSS will pay San Miguel Water, over P15.5 billion, or at least P391 billion over the 25-year contract period, excluding inflation adjustment. MWSS has also committed the national government to guarantee its obligation to San Miguel Manila Water Co.

Last February, San Miguel Water submitted an unsolicited proposal to construct the dam, on a joint venture basis, which the MWSS said would “not require a single centavo from government.”

The dam, when finished, will provide an average 1.893 billion liters of water a day for some 5.5 million residents of Metro Manila and surrounding provinces by 2015. The project would also include a hydropower plant to supply 25 megawatts of electricity.

Under the Swiss challenge form of public procurement, a government agency which has received an unsolicited bid for a public project or services to be provided to government, to publish the bid and invite third parties to match or exceed the unsolicited proposal.