Government wins concessions from Maynilad in new water deal

Ian Nicolas Cigaral - Philstar.com
The revised agreement signed with regulator Metropolitan Waterworks and Sewerage System (MWSS) on Tuesday would see Maynilad serving a portion of Metro Manila and nearby areas until July 31, 2037.
The STAR / Edd Gumban, File

MANILA, Philippines — Price hike limitations were imposed and the state's future liabilities were reduced under a new government contract signed by Maynilad Water Services Inc., which would nevertheless stay in business as one of Metro Manila’s water providers.

The revised agreement signed with Metropolitan Waterworks and Sewerage System (MWSS), the water regulator, on Tuesday would see Maynilad serving a portion of Metro Manila and nearby areas until July 31, 2037, according to details of the new deal that the company disclosed Wednesday.

The extension period that Maynilad secured was the same as that of Ayala-led Manila Water Company Inc., the other water provider that signed a new contract with MWSS in March. True to what Justice Secretary Menardo Guevarra disclosed to reporters the prior day, provisions of Maynilad and Manila Water’s contracts are “essentially the same.”

But investors seemed underwhelmed by the news. On Wednesday, shares in Metro Pacific Investments Corp., which holds a controlling stake in Maynilad, lost 4% while DMCI Holdings Inc., another parent of the company, ended flat from previous day. Both companies bucked a slight upswing in the main index.

Specifically, the water agreements removed the non-interference clause that in the original version, prevents a government agency apart from water regulators in opposing rate hike applications. This means that should Maynilad decide to petition for a rate hike in the future, any government office may challenge it, potentially lengthening rate adjustment proceedings. 

That said, any increase would have to wait until the end of next year when a tariff freeze stipulated in the new contract would have already expired. Even after then, Maynilad would stay as tightly regulated in terms of increasing prices. 

For one, the Pangilinan-led firm is limited to factoring in only 2/3 the prevailing inflation in the its hike requests, which means soaring consumer prices would be insufficient grounds to drastically jack up prices. More broadly, future rate increases for water and sewerage services would be regulated by a cap of 1.3x and 1.5x, respectively, of the previous standard rate.

The new deal also prohibits the company from passing on costs incurred from paying corporate taxes to customers. The impact of this provision, however, may be more subdued at least this year given that the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act enacted last March lowered corporate levies to 25% from 30% for big firms like Maynilad. 

Ultimately, the new water deals culminated a rocky road to renegotiations between the government and Metro Manila's long-time water distribution firms set off by President Rodrigo Duterte’s attacks to Maynilad and Manila Water during a water shortage in Metro Manila during the dry season of 2019.

Tensions eventually escalated when the two companies won arbitration proceedings that ordered the government to pay up P11 billion in charges supposedly representing unrealized earnings from rate hikes that were never enforced. Duterte refuses to honor the arbitral ruling, and in Maynilad's new deal now, the company has formally dropped those claims. 

The firebrand leader then unilaterally canceled Maynilad and Manila Water’s contracts, prompting them to drop their claims.

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