• The arbiters of confusion

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    Ben D. Kritz

    Ben D. Kritz

    IF there is anything to appreciate about how the long-running water rate dispute is shaping up, it is only the mild schadenfreude of seeing some of the shine scrape d off Singapore’s reputation for institutional excellence.

    One of those excellent institutions located in Singapore is the International Chamber of Commerce, which through its International Court of Arbitration offers dispute resolution services.

    The ICC-ICA, which was founded in the aftermath of World War I, is, along with the World Bank Group’s International Court for the Settlement of Investment Disputes (ICSID) in Washington, a popular choice for dispute resolution mechanisms in investment deals. Unlike the ICSID, which behaves more like an actual court than an arbitration body, the ICC, being a business organization, pursues arbitration in textbook form; its rules and procedures serve as model for other arbitration programs all over the world, including here in the Philippines.

    Global reputation
    The ICC is staffed by experts in every field from all over the globe, and it has a sterling reputation for probity and competence in arbitration proceedings; even though it has no real enforcement power, its decisions are almost always (albeit with the inevitable grumbling from the loser) carried out immediately and with little question, because they are almost always very obviously fair and practical.

    That reputation for excellence compensates for the opacity of the ICC-ICA’s proceedings. Because it is a part of a business-driven organization, it firmly maintains private-sector sensibilities toward matters of confidentiality and defines those very broadly; the lack of public information is not really a problem, however, as long as the decisions rendered by the ICC-ICA’s arbitration panels make sense.

    Unfortunately, the Philippines must now grapple with the consequences of one of the rare times an arbitration decision out of Singapore does not make sense. Back in September 2013, Manila Water and Maynilad both made rate hike requests to the Metropolitan Waterworks and Sewerage System (MWSS), which not only rejected the requests but instead, ordered the two water concessionaires to reduce their base rates after disallowing a number of costs—in particular, corporate income taxes —that the two companies had used to calculate their proposed rates. Both Maynilad and Manila Water filed for arbitration at the ICC-ICA, as stipulated in their concession agreements; Manila Water filed almost as soon as the 30-day notice period expired in October 2013, while Maynilad filed its claim a bit later.

    Contradictory decisions
    Maynilad won a favorable ruling at the end of December 2014; the claim of Manila Water, even though it had been filed earlier than Maynilad’s, was still pending at the time, so MWSS deferred implementation of Maynilad’s newly-won rate hike, much to the company’s annoyance. MWSS, however, had a solid position; since the cases brought by the two concessionaires were essentially the same, differing only in monetary amounts and other minor details, and since they were questions about the accounting framework applied by Philippine law to concession agreements, rather than contract terms specific to the companies involved, any discrepancies between Maynilad’s award and the not yet received decision on Manila Water would have to be resolved before a rate hike could be finally determined and implemented.

    That decision has apparently come; it has been available in little bits and pieces since the beginning of this month. In a complete departure from the direction taken by Maynilad’s arbitration panel, the panel handling the Manila Water case denied the company’s claim. The ICC cited Philippine law and a Supreme Court ruling in a case involving Meralco, designating such companies as public utilities and specifically proscribing them from passing on tax costs to customers.

    How could two arbitration panels, drawn from the same pool of expertise, following the same rules, and conducting their respective hearings on precisely the same basic issues, arrive at two completely opposite conclusions? And what exactly should the affected parties do to resolve the mess Singapore has handed them?

    Even though Maynilad takes a legally correct and to some extent logical position that, “We won our case, whatever is going on with Manila Water is their problem, not ours,” MWSS is also right not to simply accept that – especially not if honoring Maynilad’s rate-hike award would mean violating Philippine law.

    Who cleans up the mess?
    Somebody in Singapore blew it, and every indication is that it was the arbitration panel in the Maynilad case. All three parties now have more unresolved issues than they did before the decisions were rendered: MWSS now has grounds to appeal Maynilad’s award; Maynilad has grounds to seek a judgment against MWSS for not honoring the decision in its favor; and Manila Water has grounds to appeal its unfavorable decision, based on Maynilad’s award.

    However, all that will finally be resolved and when is anyone’s guess. If there’s one thing the water regulator and its two concessionaires should agree on, though, it’s that the ICC ought to bear the costs of sorting it all out. Philippine businesses and consumers should not be obliged to bear millions more in legal and administrative expenses because of a stupid decision made in Singapore.

    ben.kritz@manilatimes.net

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    1 Comment

    1. There should have been 3 arbitration panels – one for purely Maynilad issues, one for Manila Water complaints, and a third for common issues. It should have been anticipated that 2 panels separately deciding on the same items may arrive at different conclusions. But this has become a landmark case – who will resolve it and how? It has also brought to fore an obvious need – the 2 firms’ concession agreements must be thoroughly reviewed and revised.