Water firms to drop compensation claims

MANILA, Philippines — The country’s two largest water concessionaires have agreed to drop more than P10 billion in compensation claims from the government as well as defer raising rates originally scheduled for early next year.

Top officials of Manila Water and Maynilad announced the decision at the joint hearing yesterday of the House committees on good government and on public accountability.

Their decision came in the wake of tongue-lashing from President Duterte, who accused the water concessionaires of fleecing the public through onerous contracts forged with past administrations.

“We are willing to cooperate and negotiate with the government, and we will not implement as well the rate increases come January 2020. We will also coordinate with the leadership of the Metropolitan Waterworks and Sewerage System (MWSS),” said Jose Rene Almendras, president and chief executive officer of the Ayala Group’s Manila Water.

“We’ll follow the wishes of the President, we’re responding to the call of President Duterte,” Almendres, secretary to the Cabinet during the Aquino administration, said in Filipino.

Maynilad chief executive officer Ramoncito Fernandez said they decided to abandon their arbitral claim right after President Duterte announced he would not honor it.

“When we were ignored, we did not insist. We’re no longer pursuing the award,” Fernandez said also in Filipino.

An arbitral court in Singapore ordered the Philippine government last month to pay Manila Water P7.4 billion in indemnification supposedly for lost revenues from an unenforced rate hike.

The same tribunal also ordered the government in July 2017 to reimburse Maynilad P3.4 billion for losses from March 2015 to August 2016, and ruled that Maynilad is allowed to recover its losses from September 2016 onwards.

Almendras and Fernandez made it clear during the hearing that the rate hike scheduled for next year would only be deferred, citing the billions of investments they had already made. But they are open to negotiation, they said.

“We are OK to defer it, we just need to resolve what exactly needs to be done. We need to talk with MWSS,” Almendras said.

“That supposed increase is a result – because there are projects that we need to do. We submitted projects and MWSS approved it and we were given ways to recover what we spent,” he added.

Last year, MWSS approved a rate rebasing effective until 2022 and which resulted in a total hike of P5.73 per cubic meter for Maynilad and P6.22 to P6.50 per cubic meter for Manila Water.

The increases were supposed to be implemented in four tranches, with the first one set in October 2018.

The second tranche supposedly should be in place by Jan. 1, 2020 – with Maynilad supposedly to raise its basic charge by P2.98 per cubic meter and Manila Water by P2 per cubic meter.

Based on the concession agreement, a rate rebasing determines the level of rates for water and sewerage services. It permits both concessionaires to recover over the life of the concession period its operating, capital maintenance and investment expenditures.

“An increase is a function of the additional facilities and plants that will be added to the system that we need to pay for. What is being asked from us, that’s what we do. That is the basis of the increase,” Almendras said.

Asked whether the concessionaires are losing money, both executives said they remain profitable.

“We are not losing money, as of this date, what we spent for the concession is much more than what we have actually collected,” Fernandez said.

“Everything that we have spent including capital expenditure, operating expenses, if you consider the last three years, Maynilad averaged P20 billion in income but we have spent P33 billion,” he added.

Apart from the rate rebasing, the MWSS Regulatory Office has also asked both concessionaires to defer the quarterly foreign currency differential adjustment (FCDA), which is supposed to take effect by Jan. 1.

FCDA is a tariff mechanism granted to utility companies to allow them to recover losses or give back gains arising from the fluctuating movements of the peso against other currencies, as the concessionaires pay foreign-dominated fees as well as loans to fund projects.

For the current quarter, Maynilad implemented an increase equivalent to P0.02 per cubic meter and Manila Water P0.17 per cubic meter of its basic charge.

No extension

The MWSS Board has also cancelled the concession contract extension of both water firms from 2022 to 2037.

Presidential spokesman Salvador Panelo said at a press briefing they are against the extension of the agreement.

“It has not even expired and yet there is already an extension. We have to file a case in court, this is one of the options being studied by the DOJ (Department of Justice),” he said.

It was in 1997 when former president Fidel Ramos solicited bids for concession agreements with MWSS to address the water crisis in Metro Manila spawned by the incapability of the MWSS to maintain viable operations due to technical inefficiencies and huge debts.

Even before the contract expires by 2022, it was already renewed and extended as early as 2009.

Manila Water already said it has received a letter from MWSS asking them to submit its comments and positions on certain provisions of the concession agreements with the MWSS.

Manila Water maintained it was the administration at that time that initiated an extension of the contract by 15 years so as to lower the impact of the tariff increases.

“If it was not extended, price of water at that time could have gone up to P37 from P16,” Almendras said.

Meanwhile, Panelo said the government can always rescind the contract if the agreement runs contrary to public policy and interest.

Asked who will take over if the contracts were revoked, Panelo said the government can do it and then offer it to the private sector through bidding.

“The President wants onerous provisions removed. If that can be done without going to the courts, then we have no problem but if not, we have to go to the court,” he added.

“The President wants to know why they allowed these provisions to be agreed upon by the principals. He does not want compromise with respect to the onerous provisions. He wants all those removed,” Panelo said.

‘Good news’

Rep. Mike Defensor, public accountability committee chairman, said the development was “good news for the Filipino people.”

House Deputy Speaker Prospero Pichay Jr. and Dasmarinas City Rep. Elpidio Barzaga Jr. moved to “subpoena” all the signatories to the allegedly onerous contracts both water concessionaires signed, including government lawyers.

The name of former solicitor general Florencio Hilbay cropped up, being the predecessor of incumbent Solicitor General Jose Calida who questioned the petition for rate hike of Manila Water. Hilbay represented the government in 2015.

Also mentioned was Roberto de Ocampo, finance chief during the Ramos administration.

Maynilad, originally of the Lopez Group, was eventually sold to the group of businessman-philantropist Manny V. Pangilinan in 2007.

Rep. Robert Ace Barbers of Surigao del Norte, chairman of the House dangerous drugs committee but who also sits as vice chairman of the Alvarado committee, advised his colleagues to refrain from interchanging the words “renewal” and “extension.”

“The two words are entirely different. Even if we check on the dictionary a renewal is totally different from extension,” he explained, as some lawmakers were vague about Manila Water’s franchise extension until 2037 even if it was not up for renewal yet.