opment for lenders, although it did not expect that Berkshire Hathaway would inject equity
to deleverage MidAmerican. It considered its consolidated leverage of 75 per cent of capital-
isation to be high for a company with a ‘BBB-’ rating. Limiting an upgrade for MidAmerican
at that time were its exposure to the California market through its Salton Sea project and con-
struction delays in the CE Casecnan project.
In July 2000 Standard & Poor’s reaffirmed its ‘BB+’ rating with a negative outlook for
CE Casecnan, noting that construction remained on target for completion by 31 March 2001.
It noted that since the beginning of the year MidAmerican and the EPC contractor had
installed new on-site management teams, and improved labour productivity. Reaffirming its
‘BB+’ rating once again in November 2000, the agency noted that because the project had
been 93 per cent complete as of September, the original completion date was still likely.
In December 2000 a partially completed vertical surge shaft collapsed because of a geo-
logical fault nearby. The EPC contractor evaluated whether the shaft could be repaired and
completed, but, for timing and economic reasons, chose instead to excavate a new 550-metre
tunnel and a new 140-metre vertical shaft. The work was expected to cause a five-month
delay, pushing the completion and startup date to the end of August 2001. Stone & Webster
Consultants, Inc. reviewed the revised construction schedule and budget, and concluded that
the revised completion target date was realistic, and that the remaining construction funds of
US$47.3 million plus approximately US$11.3 million of additional committed funds from
MidAmerican (US$4.6 million for debt service on 15 May 2001, and up to US$7 million for
construction and startup operating costs up to 1 September 2001) were reasonably sufficient
to complete the project.
In February 2001, following CE Casecnan’s public announcement of the tunnel collapse
and the consequent construction delay, Standard & Poor’s placed its ‘BB+’ rating on
CreditWatch with negative implications. Despite MidAmerican’s agreement to provide addi-
tional cash equity of US$11.6 million, the agency was concerned about the weakening of the
project company’s liquidity position, the prospective lack of any meaningful cash cushion at
startup, and the continuing construction delays. Moody’s placed its ‘Ba2’ rating of the pro-
ject’s senior secured notes on review for possible downgrade for similar reasons. The agency
cited the ‘repeated failure of the project to achieve important project milestones’ and the fact
that there was ‘little financial cushion against any further delays’.
By the spring of 2001 the advance tax payments made by CE Casecnan, which the
Philippine government was committed to reimburse, had built up to US$45.6 million. The
contract between CE Casecnan and the government stipulated that such reimbursement
could be made through an increase in the water delivery fees to be paid to the company by
the NIA, which would begin when the project was completed. CE Casecnan’s management
observed that this reimbursement obligation did not appear to be included in the Philippine
national budget and asked the NIA how the government intended to settle the obligation.
The NIA in turn consulted the Interagency Investment Coordination Committee, which had
responsibility for the government’s contingent liabilities. The government, under pressure to
keep expenses down, had to decide whether it was more economical to settle the full oblig-
ation in 2001, or amortise the liability with interest, in which case its ultimate payment to
CE Casecnan could amount to US$500 million or more.
On 12 October 2001 Standard & Poor’s noted that the project had reached mechanical
completion and would start generating electricity following that day’s inauguration cere-
mony. The company was expected to announce the beginning of commercial operations by
WATER AND POWER