Court Rules Against Suez, Benpres Holdings in Philippines

Nov. 10, 2003

French water company Suez and Benpres Holdings of the Philippines have lost a nine-month fight to abandon their unprofitable water service franchise in Manila, after an arbitration court ruled today that the companies had no grounds to terminate the contract.

The court also that ruled Maynilad Water Services, the venture owned by Paris-based Suez and Manila-based Benpres, must pay 7 billion pesos, or $126 million, to the government for overdue concession fees and other charges, Macra Cruz, deputy administrator at Manila Waterworks and Sewerage System, the agency that owns the assets, told Ian C. Sayson of Bloomberg News.

"This is a vindication because Maynilad was accusing us of not doing our part," Cruz said after the International Chamber of Commerce's three-member International Court of Arbitration disclosed its ruling. Suez owns about a fifth of Maynilad, which has a 25-year franchise to provide water to half of metropolitan Manila.

Maynilad canceled the contract in February, six years after winning the franchise, alleging the government was not allowing the venture to raise rates, a measure it said was necessary to become profitable.

"Maynilad and its shareholders are studying available options," the chairman, Oscar Lopez, said after the unanimous decision from the Paris-based court.

Maynilad halted concession payments in March 2001 after President Gloria Macapagal Arroyo's government, pushed by a public outcry, reneged on an agreement to phase in rate increases that would have allowed the venture to recover foreign-exchange losses.

The venture said in December that it had lost 5 billion pesos since 1997 as the cost of servicing the $800 million of debt assumed with the franchise rose following the peso's decline against the dollar during the 1997-98 Asian financial crisis.

Maynilad served notice of termination in December and asked for arbitration to end the dispute, hoping to recover the $303 million it had invested since 1997.

"There is very limited ground to appeal or seek annulment of an arbitration decision," Justice Undersecretary Manuel Teehankee said.

The court decision came as a major setback to Benpres, which is asking creditors to reorganize $553 million of debt.

Source: Bloomberg News