Mananga Phase 2 Dam -Johan Bhd (MCWD)

By Violeta P. Corral, November 2004

Public Services International Research Unit www.psiru.org

The Mananga River rehabilitation project involved the construction of the 79-meter high dam
including transmission lines and a water treatment plant. It was aimed at increasing water supply
for Cebu, the Philippine's second largest commercial and industrial centre. It was expected to
yield an additional 100,000 cu.m. of water per day for Metro Cebu upon its completion in 2007.
Mananga River is in Barangay Maghaway, Talisay.

In 1995, Malaysian firm Johan Holdings Bhd first proposed to undertake the project under the
build-operate-transfer (BOT). Johan took two years to prepare the feasibility study and the
detailed engineering design; the 1997 Asian financial crisis, however, stalled further progress.
Johann submitted two revised offers after the crisis; both were rejected because of the higher
costs involved.1

In December 1998, Johan and George Kent Bhd proposed to the Department of Finance (DOF)
that they would pump in 5.3 billion pesos (M$530 million); 3.7 billion pesos would be sourced
from debt financing with French bank Banque Paribas as the underwriter and financial adviser.
The two Malaysian firms, however, had asked the DOF to provide a financial guarantee cover
should the Metro Cebu Water District (MCWD) default on the payment of the project costs,
which the DOF did not want to extend. In asking for support from the national government, they
noted that MCWD alone could not guarantee the project in that its assets amount to only 2.1
billion pesos. 2

In January 1999, Johan Holdings angled for a "buy-back" guarantee if it could not get a full
guarantee from Malacanang. Under the guarantee, the national government would buy the entire
facility if the MCWD could not pay the cost of water demanded by Johan Holdings. 3

By July 2000, MCWD decided to conduct an open bidding for the Mananga project after it
rejected the proposal of Johan Holdings, ending negotiations that ran for nearly four years. While
MCWD was still negotiating with Johan, the base price (of water from the facility) was a little
over P17 per cubic meter. The price escalated each year; MCWD preferred a BOT scheme so that
it would not be encumbered with running and maintaining the facility. 4

A US Trade Development Agency (USTDA) grant reviewed the feasibility study of the Mananga
dam to determine any changes in the cost of the project. The earlier study had been conducted in
1991 by Electrowatt Engineering which was conducted on the assumption that the dam will be
built through ODA. If the project would be implemented under a BOT scheme, the facility will

1
CEBU FACES WATER SHORTAGE IF DAM PROJECT IS DELAYED, ASIA PULSE, August 07, 1997.

2
TWO MALAYSIAN FIRMS EYE WATER VENTURE IN PHILIPPINES, Malaysia Economic News, BERNAMA
(Malaysian National News Agency), December 29, 1998.

3
MALAYSIA'S JOHAN ASKS BUY BACK GUARANTEE FOR PHILIPPINE DAM, ASIA PULSE, January 07, 1999.

4
US AGENCY TO REVIEW PHILIPPINES PROPOSED MANANGA DAM, ASIA PULSE, July 24, 2000.
be operated by a private firm, and MCWD would have to pay the firm the cost of water supplied
daily by the facility.5

In November 2001, a hydrological study showed that the Mananga watershed could no longer
deliver the expected 100,000 cu.m. of potable water daily. Instead of a proposed high dam, a weir
that could deliver only up to 50,000 cu.m. a day was then considered by MCWD. "If a high dam
is constructed despite decreased capacity, the raw cost of water will become an astronomical P62
per cu.m," said Josephine A. Booth, a member of the board of the European Chamber of
Commerce of the Philippines (ECCP). 6

The Mananga Phase 1 project was funded by a P850 million loan from Asian Development Bank
(ADB) to MCWD in 1994, thru the Local Water Utilities Administration (LWUA). 7 In May
1999, ADB’s appraisal mission gave a high rating to the project. The ADB mission cited the
lower actual cost incurred; actual project cost was $ 21.23 million (P50 million), 33% lower than
the estimates. The Managa Phase 1 water supply project was designed to produce an additional
33,000 cubic meters of water per day. The project was also credited with enabling the MCWD to
almost double its residential service connections from 35,000 in 1990 to more than 69,000 at
present.8

MCWD services Metro Cebu comprising 8 areas – Talisay City, Cebu City, Mandaue City, Lapu-
Lapu City, cordova, Consolacion, Liloan and Compostela. By 2020, MCWD estimates that it
could supply 70% of the projected 300,000-400,000 cu m daily requirements.

5
US AGENCY TO REVIEW PHILIPPINES PROPOSED MANANGA DAM, ASIA PULSE, July 24, 2000.

6
Mananga watershed capacity not sufficient for Cebu's need, BusinessWorld, November 8, 2001, Thursday, Marites S.
Villamor.

7
Cebu Water supply project, EXPORT OPPORTUNITIES, Journal of Commerce, U.S. Dept. of Commerce, November
2, 1995.

8
ADB GIVES HIGH RATING TO PHILIPPINE WATER PROJECT IN CEBU, ASIA PULSE, May 18, 1999