Lopez Holdings


Backgrounder on Arbitration Panel rules on MWSS-Maynilad dispute
On November 7, 2003, the arbitration panel, consisting of Mr. Alan Philip, a known arbitrator from Copenhagen, Justice Bernardo P. Pardo, a retired Supreme Court justice, and Atty. Antonio Picazo, a renowned corporate lawyer in the Philippines, issued a decision on the arbitration proceedings between Metropolitan Waterworks and Sewerage Systems (MWSS) and Maynilad Water Services, Inc. (Maynilad).

MWSS commenced the arbitration proceedings on January 7, 2003, when it filed a Dispute Notice to question Maynilad's Notice of Early Termination of the Concession. MWSS insisted that Maynilad had no right to terminate the Concession Agreement dated February 21, 1997 (Concession Agreement), and instead, it is MWSS that had the right to terminate the Concession Agreement. To support its claim, MWSS maintained that Maynilad stopped paying concession fees, failed to reduce non-revenue water, and breached the Concession Agreement when it failed to maintain BNAQ-5 Aqueduct, construct BNAQ-6 Aqueduct and infuse Million in equity.

In its defense and counterclaim, Maynilad denied that it was obligated to reduce non-revenue water and to infuse Million by way of equity. It claimed that it had in fact, performed its obligation to maintain and repair BNAQ-5 and that it had no obligation to construct BNAQ-6 since the need for the construction of the said aqueduct was the poor construction of BNAQ-5, a responsibility that fell on the shoulders of MWSS. Maynilad admitted that it had not been paying the concession fees but that such payment has been postponed to the extent of MWSS' delay in the performance of its undertakings under the Amendment No.1. Maynilad countered that MWSS breached the Concession Agreement which prevented Maynilad from performing its obligations under the Concession Agreement, resulting in an MWSS Event of Termination. Maynilad alleged that MWSS failed to conduct a fair and objective rate rebasing exercise when it did not consider the viability of the Concession, among others, that the failure to reach an agreement with Maynilad regarding service targets and lenders' concerns was attributable to MWSS's failures.

The arbitration panel decided that neither MWSS nor Maynilad can terminate the Concession Agreement. The panel ruled that Maynilad could not be held to be in breach of its obligations with respect to BNAQ5, that Maynilad is not in breach of its obligation to provide US Million in funding support, and that Maynilad's NRW can hardly be characterized as mismanagement or breach of the Concession. It ruled against MWSS on three out of the four issues it invoked against Maynilad, but ordered Maynilad to pay the concession fees which Maynilad admitted to be payable subject to its defenses. With regard to Maynilad's claims, the arbitration panel held that since it had no basis for criticizing the negotiation process that took place between the parties, it could not decide in favor of Maynilad with regard to the issues on the service target adjustments and the concerns of Maynilad's lenders. As to the rate rebasing process, the arbitration panel agreed with Maynilad that there was a mistake in MWSS' interpretation of the phrase "cash flows" which led to an erroneous disallowance of a substantial amount that Maynilad should have been allowed to recover.

The arbitration panel concluded that there is neither a Concessionaire nor an MWSS Event of Termination. The panel stated that the parties undoubtedly have problems in their internal relations but they have to find extrajudicial solutions to them. 

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Lopez Holdings Corporation 
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