RESOLUTION NO. 41
Series of 2006

WHEREAS, on 17 September 2003, a Memorandum of Agreement was entered into by and between LWUA and the Development Bank of the Philippines (DBP) mainly, for the latter to finance water supply projects of Creditworthy WDs and secondarily, to refinance existing WD loans with LWUA;

WHEREAS, it has been observed that, presently, DBP's thrust and main objective has shifted from project financing [has become a minor issue] to 100% refinancing of existing LWUA loans to WDs;

WHEREAS, while refinancing gives LWUA immediate access to cash from reflows of existing loans to finance on-going water supply projects and solving the short-term problem of liquidity, there is developing the problem of profitability in the long-term, considering that the cash from reflows will be relent to Less Creditworthy WDs, where LWUA's return on investment is at a very risky level;

WHEREAS, LWUA generates 70% of its total revenues from Creditworthy and Semi Creditworthy WDs and if relegated to Less Creditworthy WDs, LWUA will lose its significant good payors in its revenue base and will weaken its future cash flows and profitability;

WHEREAS, to tactfully address the delicate situation, there is the need to limit the amount of existing LWUA loans to WDs that may be allowed to be refinanced by the DBP or any other Private or Government Financial Institutions to a maximum of 49%;

WHEREAS, with the minimum 51% majority stake in the WDs still in favor of LWUA, future regulatory problems that may arise in some WDs which loans are 100% borrowed from DBP will be avoided;

WHEREAS, Management has recommended the adoption of the policy to limit to a maximum 49% the amount of a WD outstanding loans with LWUA that can be refinanced by DBP or any other Private of Government Financial Institutions;

NOW, THEREFORE, BE IT RESOLVED, as it is hereby resolved, to approve the adoption of the policy to limit to a maximum Forty-Nine percent (49%) the amount of WD outstanding loans with LWUA that can be refinanced by the Development Bank of the Philippines (DBP) or any other Private or Government Financing Institutions;

RESOLVED, Further, to adopt rates of premium, in addition to the total amount to be refinanced or in case of loan take-out by Private Investors or LGUs, based on the following schedule:

RESOLVED, Finally, LWUA to discuss with the Oversight Committee headed by the Department of Finance the resolution of the current disparity in the relending scheme being offered to Creditworthy WDs by DBP.