In what may yet prove to be the biggest scandal to tarnish the supposedly “straight path” administration of President Benigno Aquino 3rd—even though there is apparently no volume of public outrage large enough to oblige him to so much as comment on a matter when it involves close friends or key political supporters—details have been emerging in recent weeks of the incredible contractual privileges of Metro Manila’s two water concessionaires, Manila Water Co. Inc. and Maynilad Water Services Inc., which allow them to pass on virtually all of their operating expenses to their customers, including even corporate income tax payments, loan interest, and gifts and honoraria for consultants.
Both companies have responded to the criticisms with the corporate version of “we’re going to continue to rip off our customers and they’re going to like it, or else.” Since all the “pass-through” charges were included in the contracts the two companies signed with the Metropolitan Waterworks and Sewerage System (MWSS) in 1996 and confirmed by a ruling issued by the regulator in 2004, say the companies, they are legally authorized—even required, in a contractual sense—to collect those charges from their customers. Not only are Maynilad and Manila Water supported by the silence of the Aquino administration on the matter, Sen. Juan Ponce Enrile, who never met an ethical dilemma he couldn’t find a way to live with, this week quashed any idea of legislative action, saying Congress’ “hands were tied” by the contractual arrangement.
It was also revealed Thursday in a report published by The Manila Standard Today that apart from being able to charge virtually every operating and capital expense to their customers, both Maynilad and Manila Water were given free use of government-owned water treatment facilities, the P8.5-billion Putatan Water Treatment plant in Muntinlupa for Maynilad and the P608-million Pinugay Septage Treatment Project in Antipolo for Manila Water. According to documents reportedly obtained by the Standard, the government obtained loans for both these projects, but the loans were never transferred to the two concessionaires—who nevertheless began charging customers the nonexistent investment costs for the projects as early as 2008.
Because the details of Maynilad’s and Manila Water’s contractually endorsed financial chicanery are emerging so rapidly, the real picture of the legalized plunder being inflicted on Filipino consumers can be confusing. So to summarize it in as simple a way as possible:
• Both companies charge income tax liabilities to their customers as operating expenses. Customers already pay 12-percent value-added tax on the amount of water they purchase from the suppliers, which, although the morality of charging VAT on a basic and completely nondiscretionary commodity is debatable, is at least legally justifiable. Paying the income tax of the company selling them that commodity, however, amounts to double taxation, and that is not legally justifiable, regardless if it is permitted by a rapacious contract or not.
• Both companies pass on operating costs to consumers for expenses not directly related to the supply of the commodity the consumers are purchasing, such as food expenses for meetings and seminars, flowers and water used by the companies’ own facilities.
• Both companies have been reported to be amortizing government loans through charges to customers for the use of water treatment facilities, even though those loans are apparently still government liabilities which have not been transferred to the companies.
• On top of all that, both companies are granted an appropriate discount rate (ADR), or in other words, a guaranteed rate of return; this rate was 9.3 percent between 2008 and 2012. This means that the companies are permitted to adjust their rates to ensure this rate of return, a common arrangement for concessionaires in utility and other infrastructure projects in which recovery of the investment will take a long time. The insult to everyone’s intelligence being made by Manilad and Manila Water is that they are guaranteed an ADR against all their expenses, meaning that in effect they are extracting additional profit from charging taxes and gifts to consultants to their customers.
Maynilad and Manila Water may be the worst examples of officially endorsed consumer rape, but they are not unique. Manila Electric Co. (Meralco), who earned a record P16.3 billion last year thanks to what may be the world’s highest consumer electric rates—which are in turn the result of a cozy supply relationship with the distribution utility’s former owners, the Lopez group of companies—has dodged complaints of saddling unreasonable “pass-through” charges on its customers for years, including such imaginative solutions as counting the electricity used by its own offices against its allowed system loss percentage.
Meralco’s latest insult was an announcement several months ago that it intends to subsidize its still largely imaginary $40-million prepaid electricity program through a charge to its postpaid customers, a sort of “do it yourself” feed-in tariff.
ADRs and pass-through charges become popular concepts here during the presidency of Fidel Ramos, who needed incentives to present to investors in order to clean up the infrastructure mess left by the Cory Aquino administration, and while these kinds of incentives are potentially very effective, they have been allowed to be completely corrupted by well-connected plutocrats. The abuse of their captive markets by companies like Maynilad, Manila Water and Meralco is not only a government-sanctioned hardship for Pinoy consumers, the added costs are also primarily responsible for driving utility rates into uncompetitive territory as far as enterprise investors are concerned. Those considerations pale in comparison, however, to the government’s priority for keeping people with names like Ayala and Pangilinan happy. “Inclusive growth,” the Aquino administration’s new favorite buzz phrase, has now become even more cynical than ever—unless it has meant “everyone is included in contributing to the growth of a few” all along, in which case we should perhaps blame ourselves for not catching on sooner.