INSTEAD of approving the petition of water concessionaires to raise rates, government regulators are poised to announce next week cuts ranging from at least 98 centavos to P8 per cubic meter in water charges.
According to a reliable source in the Metropolitan Waterworks and Sewerage System (MWSS), the five-man MWSS Regulatory Office (RO) was supposed to pass a resolution reducing water rates today but decided to defer it until next week because “figures” still have to be settled.
“One thing is sure though, that the water rate hikes being sought by the water firms will be rejected and instead slashed. Rate cuts are in order but we have to be very careful so as not to be accused of being too stringent and later face arbitration, which could be costly” the source told The Manila Times.
The MWSS official explained that once the resolution is passed and subjected to arbitration, Maynilad Water Services Inc. and Manila Water Corp. may “hold consumers hostage” by abandoning ongoing and future projects.
“You know they might claim that because of the cuts imposed, future projects will be put on hold. That is what we are trying to avoid,” the source said.
“But we are resolved to end this predicament and impose the cuts next week and not a week longer,” he added.
According to him, a draft of the supposed resolution imposes a 98-centavo per cubic meter cut in Maynilad rates and a higher P5 to P8 per cubic meter cut in Manila Water’s.
The Times called up MWSS deputy administrator for customer service Vincent Yambao for a comment on the rate rollback, but he neither confirmed nor denied it. However, the official hinted that regulators are up to something that could “irk” Maynilad and Manila Water.
“Let’s just wait for the final decision. It is not an easy process. An amount as little as 5 centavos could mean a lot of difference,” Yambao said.
Rate hike petition
In June, Maynilad and Manila Water sought an increase in their basic charges, citing the need to recover past investments and fund future projects in wastewater management such as the cleaning up of polluted waterways.
Maynilad, which services 17 cities and towns in Metro Manila and nearby Cavite province, sought a per cubic meter hike of P8.58 while Manila Water, which services eastern Metro Manila, asked for P5.83.
If granted, Maynilad’s basic rates would increase by 25 percent to P42.55 per cubic meter. Manila Water asked for P34.12 per cubic meter hike.
The two companies are seeking to raise average water rates in the next five years as part of the MWSS rate-rebasing review, which is held once every five years. The review allows the concessionaires to recover past costs and make tariffs shoulder future improvement or expansion projects.
In a separate interview, Renato Reyes, secretary general of Bagong Alyansang Makabayan, which is a member of the Water for the People Network (WPN), said his group is confident the MWSS will bring down water rates.
“We believe there is strong basis to deny the proposals for a rate hike. There is sufficient basis to even reduce current rates. Our worry now is that a denial of the rate hike, or a lowering of rates, will be opposed by the two private water firms,” Reyes told the Times.
According to him, since the Concession Agreement (CA) between the government and the private firms allows for an international arbitration, this is “almost a certainty now.”
“The cost of arbitration will be shouldered by the consumers. It might be necessary for the courts and Congress to intervene if this is the case,” he added, noting that arbitration can cost hundreds of millions of pesos.
Reyes explained that once the rates were cut and arbitrated, it will “highlight the problems of privatization and the CA.”
“We are now waiting for the results of the rate rebasing and we call on water consumers to be vigilant,” he said.
Both the Times’ source and Reyes confirmed that cuts would be imposed since the regulators rejected in June the inclusion of income tax as pass-on charges to consumers.
“The board is one in the belief that income tax should not appear on water bills. Also, other expenses of the private firms that have nothing to do with water services,” the MWSS source said.
For his part, Reyes noted that the anticipated rate reductions would be based primarily on a resolution issued in June that disallowed pass-on charges.
“The basis for lowering of rates include the disallowance of corporate income tax as a pass-on charge and the disallowance of other expenses that do not have any relation to the delivery of water services. Our fear is that whatever positive decision is made by the RO, consumers may not benefit because the [CA] allows for international arbitration,” Reyes said.
On June 7, the MWSS-RO adopted Resolution No. 13-005-CA, which disallowed the inclusion of the corporate income tax of Manila Water and Maynilad in their tariffs. The resolution came at a time when government and the concessionaires will be determining the water rates for the next five years.
The resolution has reversed a previous ruling by the MWSS that income tax may be passed on to consumers.
“For the resolution to truly reflect the best interests of the consumers, the disallowance of income tax as a recoverable expense should now translate into lower rates. A refund is in order,” WPN said in an earlier statement.
The group has estimated that the tax passed on to consumers would reach P15.3 billion during a 5-year period. It stressed that the passing on of income tax as part of recoverable expenses of the private water companies was “truly unjust.”
The MWSS had conducted two rate-rebasing reviews since 1997 and both resulted in hefty hikes in water prices.
Besides rebasing, which accounted for 40 to 50 percent of the private firms’ rates increments from 1997 to this day, water tariffs are also adjusted annually due to consumer price movements and quarterly to factor in changes in the foreign exchange rate.
In 2004, the MWSS RO tried to apply a Supreme Court ruling on the case of the Manila Electric Company (Meralco) to compel water firms to refund the pass-on tax charges but the MWSS Board shot down the position of the regulatory unit, stating that unlike Meralco, the water concessionaires are not “public utilities” but are mere “agents.”
The Court held that Meralco as a public utility should not be allowed to include its income taxes in electricity rates. Its decision eventually forced the power distribution firm not only to reduce power rates but to refund up to P28 billion to customers.
The MWSS RO today, meanwhile, contended that contrary to the provisions of the CA, income taxes are not included as “recoverable expenses” in the term “Philippine business taxes” listed by the 1997 agreement.
They argued that since income tax is a tax on the privilege of earning income, it should be paid by the water firms who earned from the service.