Anti-consumer, anti-poor

This government never ceases to amaze – what with the never-ending stories of incompetence, corruption, insensitive remarks, and government officials working in different directions in the pursuit of their own agenda and away from a goal that will benefit this country.

Take for instance the defiance by the Metropolitan Waterworks and Sewerage System (MWSS) of the order from the International Chamber of Commerce (ICC) Appeals Panel on the long overdue upward adjustments in water rates.

No less than the Department of Finance which oversees the MWSS has rebuked the water agency, saying that its refusal to recognize the ICC arbitral award is not only baseless but will be costly for government.

The DOF, in two confidential documents addressed to President Aquino said there was no basis for MWSS to delay or defy the ICC ruling because not only are arbitral decisions final, but this particular decision if ignored will compel the national government to pay Maynilad Water Services Inc. over P5 billion in corporate losses since the regular rate-rebasing process began in January 2013, plus P208 million for every month since the ICC court handed out its verdict on Dec. 29, 2014, in keeping with the sovereign guarantee to compensate the water concessionaire for whatever financial losses arising from MWSS’ non-compliance with or breach of the original concession agreement that both parties signed in 1997.

The finance department added that it would hurt the Philippine government’s credibility before the international community, and, in the process, hurt confidence in President Aquino’s privatization thrusts and investment-generation programs like the public-private partnership (PPP) program.

After the MWSS-Regulatory Office (RO) ignored the Dec. 29 order by the ICC Appeals Panel for it to grant the rate adjustment of Maynilad that was due in 2013, the concessionaire went back to the Singapore court five months ago to file a second arbitration complaint seeking P3.44 billion in damages to cover its ever-increasing corporate losses resulting from MWSS’ defiance and continued inaction.

It is not surprising therefore that the MWSS is 58th among 64 government agencies and state-run firms in terms of satisfaction ratings in the latest Makati Business Club Executive Outlook Survey, the first time the MWSS has joined the list of worst performers in the public sector.

It was the Bayan Muna bloc led by House Reps. Neri Colmenares and Isagani Zarate that leaked to the press the Feb. 20 and March 4 memoranda by Finance Secretary Cesar Purisima submitted to President Aquino which discussed the implications of the separate arbitration cases that Maynilad and the Manila Water Co. (MWC), the water concessionaires in Metro Manila’s west and east zones, had filed before the ICC Appeals Panel.

Maynilad and MWC had to go to arbitration after MWSS reduced water rates, instead of granting the two companies upward adjustment petitions at the end of the 2013 rate-rebasing process.

In the Feb. 20 memo, Purisima said “a call on the undertaking letter may result in a drop in our credit rating as ratings agencies increase the assumed probabilities of our contingent liabilities being called. The DOF chief was referring to the sovereign guarantee that the national government would have to assume owing to MWSS’ inaction on the rate-adjustment petition, contained in the letters of Undertaking that the government issued in 1997 and in 2010 as part of the concession agreements with Maynilad and MWC.

Meanwhile, in the March 4 letter to the President, Purisima said the DOF disagrees with MWSS’ position and that Maynilad’s call upon the performance of the undertaking might result in the payment of about P5 billion for Jan. 1, 2013 to Jan. 31, 2015, plus P208 million for every month of delay in payment.

He pointed out that the undertaking letters “clearly guarantee against delays in legitimate rate increases and do not foresee recovery of delays over the concession period,” and that “non-compliance with the arbitral award will reverse significant gains made by [the Aquino] administration in inspiring confidence in both privatization efforts and the public-private partnership program.”

In connection with the second arbitration case filed by Maynilad, Purisima told legislators recently that Maynilad and MWSS have yet to agree on the third member of the three-member ICC panel.

Budget Secretary Florencio Abad said that if the petition for damages is resolved against the government, an item in the national budget may be tapped given available funds. He explained that a P30-billion unprogrammed item called risk management program is part of the proposed 2016 GAA that can cover such payments, but this budget outlay was not created particularly for the Maynilad case.
The arbitral tribunal of the ICC ruled in favor of Maynilad last Dec. 29, and ordered MWSS to grant this West Zone concessionaire a rate increase equivalent to P3.06 per cubic meter (cu. m.).

But rather than carry out the ICC order, MWSS refused to grant the rate increase and instead wanted to further slash contract-allowed corporate expenses passed on to consumers, based on a subsequent ICC ruling on the separate MWC arbitration case.

This prompted Maynilad last March to file a second arbitration complaint before the ICC demanding payment of damages totaling P3.44 billion. MWC has also filed a separate complaint last April to demand recovery of estimated losses totaling P79 billion till 2037.

As if the two concessionaries woes weren’t enough, Bayan Muna led by Colmenares and Zarate asked the Supreme Court last week to stop government from paying the damage claims of Maynilad and MWC.

The group specifically petitioned the SC to declare as unconstitutional among other things, Article 12 of the concession agreements, which provide for the submission of disputes to arbitration and the State’s express waiver of its right to appeal, as well as the letters of undertaking by government which provide for the sovereign guarantee to compensate the concessionaires for losses stemming from MWSS’ contract infringements.

This move by Bayan Muna is actually anti-consumer. If these concessionaires, who were promised certain rates of return for their billions of pesos in investment, are not able to recover, then what would stop stem from adopting a wait-and-see attitude and putting on hold, if not totaling scrapping,their planned expenditures and expansion programs?

Maynilad chief finance officer Randy Estrellado has pointed out that of the P3.06/cu.m. increase they have now, about P2 accounts for the recovery of income tax, adding that they still have roughly P60 billion that they need to recover and that doesn’t include future investments.

Other than the income tax recovery, he said the rate increase would cover unfinished projects such as sewerage coverage expansions and improvement of water pressure in households.

Estrellado added that while they have complied with their yearly obligations to set aside over P10 billion in capex, “it is rather difficult to fulfill our commitments if the contract is not followed.”
Meanwhile, Metro Pacific Investments Corp. (MPIC) CFO David Nicol was quoted as saying that MPIC could lose P2 billion in net income this 2015 owing to the government’s continued denial of subsidiary Maynilad’s tariff rate hike.

MPIC chairman Manuel V. Pangilinan himself has warned that increasing regulatory risks, of which tariff adjustments are the principal but by no means the only component, may eventually degrade the level of services, “a prospect we ourselves wish to avoid.”

Foreign businessmen are worried. European Chamber of Commerce of the Philippines (ECCP) vice president Henry Schumacher was quoted as saying:

“First, the rules are changed midstream through a PPP. Second, the government does not even respect the decision to implement the arbitration ruling. Why would companies get involved in business here?”

For his part, John Forbes, a senior advisor at the American Chamber of Commerce of the Philippines (AmCham), noted that “when a Philippine GOCC does not honor its contract even after an arbitration decision rules against its position, the investment climate of the country is harmed. This case is being watched closely as it affects investor confidence.”

Takashi Ishigami, president of the Japanese Chamber of Commerce and Industry of the Philippines (JCCIPI), has also said before that Japanese firms were wary of investing in the PPP partly because of concerns over MWSS’ cases with its two concessionaires. Japanese companies Marubeni and Mitsubishi are respective investors in Maynilad and MWC.

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