Manila Water Co. has sought payment of P79 billion from the government for losses incurred after the Metropolitan Waterworks and Sewerage Systems (MWSS) denied its petition for rate increases and an arbitration panel rejected its intention to pass on its income tax to consumers.
Quoting the international appeals panel, an arbitration body based in Singapore, Manila Water said in a disclosure to the Philippine Stock Exchange the company is bound to incur losses from 2015 up to 2037 because it is a public utility firm that cannot pass on its income tax to customers.
“We now claim against this primary obligation of the National government to account for the impairment caused by this change,” said Gerardo Ablaza Jr., president and chief executive officer of Manila Water.
The government rejected Maynilad and Manila Water’s application for rate increases in 2013, which prompted the two water concessionaires to elevate the case for arbitration before the International Chamber of Commerce.
In the case of Maynilad, the arbitration panel allowed the company to pass on income taxes to consumers and upheld its alternative re-basing adjustment. Maynilad had sought P3.44 billion payment from the government.
Ablaza said the government should indemnify losses in its operating revenues for each remaining year of the concession, which was estimated to be over P79 billion from 2015 to 2037.
In the Letter of Undertaking executed in 1997, the government should indemnify Manila Water against any loss caused by any action on the part of MWSS resulting in the reduction of the standard rates “below the level that would otherwise be applicable in accordance with the Concession Agreement.”
With the reduction of the standard rates, Manila Water was denied a rate of return, which is “allowed from time to time to operators of long term infrastructure concession agreements in other countries having a credit standing similar to that of the Philippines.”
While the company is pursuing its claim, the company is committed to implement the new rates set by MWSS, Ablaza said.
Manila Water said it would implement a reduction of 11.05 percent on the average basic charge of P25.07 per cubic meter or an equivalent decrease of P2.77 per cubic meter for three trances, he said.
For this year, the rate reduction will be P1.66 per cubic meter, 55 per cubic meter in 2016 and in 2017.
This was less than the MWSS’ order to reduce basic charges by 29.47 percent or P7.24 per cubic meter, but the reduction will be partly offset by an inflation adjustment.
With the inflation adjustment, it works out to a 58 centavo cut this year, while the inflation adjustments for 2016 and 2017 will be determined later.
For its part, Maynilad Water Services Inc. has expressed dismay on the hard-stance of MWSS in ignoring and reinterpreting deals with water concessionaires.
Maynilad described MWSS’ position as “quite discouraging to private companies in terms of working with the government.”
Both Maynilad and Manila Water asked MWSS for an increase in water rates that include passing the income tax burden to consumers.