• Water firms ‘lied about unrecovered investments’

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    The claim of water concessionaires Maynilad Water Services Inc. and Manila Water Company that consumers should pay them billions of pesos worth of “unrecovered investments” in the next five years is, at the very least, a lie, according to the group Water for All Refund Movement (WARM).

    Maynilad is claiming P67 billion and Manila Water P41 billion in unrecovered investments and wants the Metropolitan Waterworks and Sewerage System [MWSS] to include those amounts in its rate rebasing period from 2013 to 2017.

    “Here they go again, both concessionaires are lying through their teeth,” said WARM President Rodolfo “RJ” Javellana.

    Javellana said it was impossible for the water firms to come up with those figures because “there has been no audit” to support their claims.

    “How come? There was no audit presented by the deputy regulator for technical regulation if those capital investments or other things of value are ‘operating efficiently in place’,” he pointed out.

    Javellana said an audit is very important and a vital feature in the responsibilities and functions of the MWSS.

    “WARM is asking for those audits during public consultations including the basis of computation as required by the Concessionaire Agreement [CA], by MWSS Board policy prior to any adjustment approval,” he said.

    At the same time, Javellana said the firms have been following a rate of return of more than the limited 12 percent of rate base. This means that the companies have been collecting more than what they are allowed by law.

    He said Maynilad and Manila Water’s rate of return should not exceed the rate provided in their concession contracts with the MWSS.

    He cited Article 9, sub-article 9.1, of the CA, which provides that “the standard water rates shall be subject to Section 12 of the MWSS Charter [RA No. 6234], which in turn sets the maximum 12 percent return on rate base.”

    The firms have been invoking the “sanctity of contracts” in justifying the passing on of income tax to consumers.

    Javellana said the same sanctity of contracts should also be invoked in limiting the water concessionaires’ rate of return to 12 percent of rate base.

    Monopoly
    If the same principle is to be followed, the National Water Resources Board’s May 16, 2005 ruling that the two water concessionaires are mere agents or contractors of MWSS cannot amend and override the rate of return limitation explicitly set in the agreements, he said.

    “To begin with, the ruling that the two water concessionaires are not public utilities are anchored merely on their lack of congressional franchise—which deficiency can be considered cured by the grant to them by a government regulatory agency, MWSS, of concession contracts. By the nature of their operations, they are in substance public utilities or public service providers—which sell their product to the public, not to MWSS, and receives payment from the public, not from MWSS,” Javellana said.

    Maynilad and Manila Water could be considered a monopoly that provides “the captive-market public a most essential product [with inelastic demand or without suitable cheaper substitute], which has to be purchased on a no-choice basis regardless of cost,” he added.

    Excessive pricing is exemplified by the maximum 12 percent rate of return provided in R.A. No. 6234, as well as in Section 19 of the Constitution, which mandates regulation of monopolies imbued with public interest.

    “No such regulation is complete or in compliance with the Constitution if it does not include the most essential feature of regulation—cap in rate of return. Allowing unbridled rate of return to public service monopolies, including their agents or contractors acting in their behalf, is certainly in violation of the Constitutional mandate to regulate monopolies clothed with public interest,” Javellana said.

    He noted that allowing water concessionaires more than the 12 percent maximum allowable rate of return “is a form of corruption.”

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