Europe-PH News

The current MWSS brings us back the pre-privatization era of the 1990s when the incompetence and mismanagement of the debt-riddled MWSS Metro Manilans to the brink of a severe water crisis.
by Ducky Paredes
After the Metropolitan Waterworks and Sewerage System (MWSS) arbitrarily slashed the proposed rate adjustments of its two concessionaires — Maynilad Water Services Inc. and Manila Water Co. – in 2013, Maynilad and MWC filed separate arbitration cases before the Internatioanl Chamber of Commerce (ICC) in Singapore to protest the blatant violation of their original 1997 concession deals.
ICC’s Appeals Panel ruled in favor of Maynilad’s proposed rate adjustment last Dec. 29. Despite the final and executory nature of arbitration rulings, MWSS put this order on hold, on the excuse that it would first await the international court’s decision on MWC’s case before acting on both to—in the words of MWSS chief regulator Joel Yu—“ensure consistency in implementation.”
In the meantime, Maynilad filed a separate arbitration case before the Appeals Panel in Singapore protesting MWSS’ inaction on ICC’s Dec. 29 order, demanding payment of P3.44 billion in losses from foregone revenues incurred by this concessionaire since the 2013 rate-rebasing period plus another P208 million each month starting January 2015.
Maynilad executives said earlier that their company was amenable to withdrawing this second arbitration complaint as soon as MWSS carries out the rate adjustment as ordered by the ICC in its Dec. 29 ruling.
Secretary Cesar Purisima of the Department of Finance (DOF) also assured that the government would abide by its financial obligation to this concessionaire, as stipulated in the state’s Letter of Undertaking or sovereign guarantee to its contractor.
But things took a turn for the worse after the ICC handed out a different decision last April 21 favoring MWSS over MWC in its rate-adjustment case, and MWSS flouted the ICC anew in fully implementing the decision on the MWC case right away but selectively enforcing the earlier one on Maynilad’s by allowing a partial adjustment way below the one approved by the Singapore-based panel.
Worse, MWSS now wants to drag the Supreme Court into this mess it created by seeking the SC’s opinion on these disparate ICC orders, even as the decisions of the arbitral tribunal are supposed to be final in keeping with global rules on Alternative Dispute Resolution (ADR).
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Because the ICC struck out the corporate income tax (CIT) payments passed on to customers in in the MWC case, MWSS on its own slashed last month the ICC-approved adjustment for Maynilad of P3.06 per cubic meter to only P1 per cu. m. after excluding the CIT from Maynilad’s charges even if such was not ordered by the Appeals Panel.
Justifying MWSS’ action, chief regulator Yu now wants to take this case to the SC to settle the CIT issue. “While we have two separate concession agreements, there’s only one MWSS charter and it’s a law that mandates us to set a rate that is just and equitable for the consumers.
“Maynilad’s rate will go up by only P1/cu.m” because “we will carve out the portion of the CIT,” Yu said. “We can do that without consulting the Appeals Panel that heard Maynilad’s case because the arbitration is already done. The implementation is up for our approval.”
As expected, Maynilad is going ahead on its second arbitration case before the ICC seeking compensation of P3.44 billion in losses plus P208 million more for every month since after the Appeal Panel’s Dec. 28 order.
Telling the SEC last April 23 that MWSS’ action contradicts the express provision of Maynilad’s Concession Agreement that any decision by the Appeals Panel is final and binding on the parties, MPIC said: “For being contrary to the Final Award as well as the provisions of the Concession Agreement, Maynilad will not implement the (MWSS) Resolutions.”
Maynilad has strong support from the business community on this second arbitration case protesting MWSS’ whimsical actions.The MWSS’ delayed and selective or partial enforcement of the ICC order on its case is the latest evidence of the government’s penchant for changing business rules that have unsettled foreign and local investors.
The surprise move by MWSS to get the High Tribunal involved by seeking the SC’s interpretation of the separate ICC rulings on the Maynilad and MWC cases is the kind of judicial intervention that the business community finds unsettling.
Arbitration proceedings are meant precisely for warring parties to settle their disputes outside the courts. So why bring the SC into the picture?
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“There is no reward for MWSS’ stance, which is an all-downside proposition, with the whole country paying the price,” said Estrellado. “When government officials seek new foreign investments, they will have to explain why a valid contract and a final and binding arbitral award are not respected by a government agency.”
“It was on a whim that this present issue on water rates started, with our contract being questioned and reinterpreted 17 years following its signing, and after we have fulfilled the MWSS mandate to improve the delivery of water services in the West Zone,” he said. “It must end with respect for the law and contracts.”
That arbitral award, Estrellado added, is final and binding, and the government itself has waived its right to appeal.
“This is Section 12.5 of our concession agreement. This again is another clear proof that MWSS does not honor its contract. We have a runaway regulator and the … government must step in to correct the situation,” he said.
Taking its cue from Maynilad, MWC is likewise seeking a damage claim from the DOF totaling P79 billion, or equivalent to its projected future financial losses from 2015 till the end of its concession in 2037, in keeping with a similar Letter of Undertaking by the government tucked in its concession deal.
“The position of MWSS,” according to MWC president Gerardo Ablaza Jr., “diverges from the original intent of the [concession agreement] and the representations of national government in 1997. We now claim against this primary obligation of the national government to account for the impairment caused by this change.”
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Many in the business community are hoping that amid the uncertainty spawned by MWSS’ surprise actions on the Maynilad and MWC cases, the government could somehow bring about a semblance of stability or order by making good on its previous assurance to honor its financial commitment to Maynilad.
“We have forwarded Maynilad’s letter to the Office of the Solicitor General (OSG). They’re the lawyers they’ll have to guide us on how to address legal issues,” said DOF Secretary Purisima earlier, in reference to Maynilad’s demand for a whopping P3.44-billion compensation on the strength of the government’s Letter of Undertaking or written promise under the agreement to compensate the concessionaire for rate adjustments that are put on hold or delayed by MWSS.
Government actually issued two performance undertakings in favor of Maynilad covering its concession for the metro’s West Zone—the first letter on July 31, 1997 and the second one on Mar. 17, 2010.
The sad thing is that MWSS regulators went “populist” in 2013 not really with the interest of consumers in mind but merely as a diversionary tactic to draw public and media attention at that time from news reports and complaints by employees on official graft involving their superiors.
“Sometimes it’s not fun to do business in the Philippines,” said PCCI Securities Brokers Corp. research head James Lago.
“The regulator wants to appear populist when it shouldn’t be that way,” he added. “It could implement the two opposing decisions since the dynamics of the two zones are different as manifested by the difference in rates. That’s the spirit of arbitration you submit yourself to.”
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Stalwarts of the business community as well as policy makers are on edge because MWSS’ decision to unilaterally change rate-rebasing rules in mid-concession and even defy a global court for trade and commerce like the ICC is all the more spooking investors already hesitant to put their money in the Philippines—despite the successive credit-rating upgrades under the Aquino presidency—owing to such deal-breakers as poor infrastructure, red tape, monster traffic, power shortage and foul-ups in the President’s pet program Public Private Partnership (PPP).
“First, the rules are changed midstream through a PPP,” according to Henry Schumacher, vice president for external affairs of the European Chamber of Commerce of the Philippines (ECCP), in an April 8 news report. “Second, the government does not even respect the decision to implement the arbitration ruling. Why would companies get involved in business here?”
John Forbes, a senior advisor at the American Chamber of Commerce of the Philippines (AmCham), said in the same news report that, “When a Philippine GOCC (government-owned and -controlled corporation) does not honor its contract even after an arbitration decision rules against its position, the investment climate of the country is harmed. This case is being watched closely as it affects investor confidence.
Management Association of the Philippines (MAP) president Francisco del Rosario Jr. said that if the rate adjustment would result to better supply and services, then Maynilad should be allowed to implement the rate hike, more so because the proposal had been approved already by the appropriate board.
Back in 2013, when this controversy broke out, Takashi Ishigami, president of the Japanese Chamber of Commerce and Industry of the Philippines (JCCIPI) said Japanese firms were wary of investing in the PPP partly because of concerns over MWSS’ tiff with its two concessionaires.
Japanese investors were naturally alarmed because two of their companies, Marubeni and Mitsubishi, are respective investors in Maynilad and MWC.
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In filing a second arbitration case, Maynilad invoked the Philippine government’s performance undertaking dated March 17, 2010 to “indemnify the concessionaire in respect of any losses” incurred by any delay in MWSS’ inaction on a rate adjustment beyond the scheduled implementation date in accordance with the rate rebasing or adjustment process due every third year of the original concession deal.
This is because Maynilad sought an average increase of P3.06 per cubic meter in its basic charge from the current rate of P31.28/cu. m. (during the rate rebasing talks in 2013) for the five-year period till 2017. However, MWSS-RO unilaterally re-interpreted the compensation scheme that Government itself defined and promised both concessionaires in the original contract that has been in effect for 17 years now, and ordered Maynilad to slash its basic charge by P1.46 to only P29.82 / cu. m.
Monthly bills were due for adjustment during the rate rebasing period in 2013, but in a radical departure from practice during the three previous adjustment negotiations since 1997, the MWSS-RO ordered Maynilad and MWC to cut water rates instead, prompting both to file separate cases before the Appeals Panel in Singapore in October 2013.
The Appeals Panel ruled in favor of Maynilad’s proposed rate adjustment last Dec. 29, but MWSS regulators, in yet another surprise move, thumbed their noses at the ICC, opting to freeze the order ostensibly while waiting for the same Singapore-based court to hand down its verdict on the separate MWC complaint.
The MWSS, as a government agency that is supposed to enforce the rules for water concessionaires, now finds itself at odds with both MWC and Maynilad and the ICC Appeals Panel. What a mess MWSS has created for us all!
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Consider these:ï‚ MWSS cannot on its own implement only what it likes about a particular ICC ruling and then discard whatever it feels like rejecting on a whim.
Also, MWSSt cannot amend the ICC order on Maynilad’s case by lifting a portion of the ICC ruling on the separate MWC complaint (which in this case has to do with the ICT component of the monthly charges paid by customers);
MWSS cannot argue that the ICC decision on MWC’s case is favorable to consumers, because this is like saying that the ICC order on Maynilad’s case is not good for customers.
That Maynilad is anti-consumer is totally false because ordinary customers stand to be the biggest losers of MWSS’ refusal to carry out the rate adjustment ordered by the Appeals Panel, as Maynilad’s ballooning losses—P3.44 billion since 2013 plus P208 million each month since January—will undermine its long-term expansion plan to service more water users.
Maynilad spends P10 billion each year on capital expenditures (capex) to better serve consumers, expand its customer base, and fulfill its obligations under its 1997 concession with MWSS.
The truth is MWSS’ capricious policy will impact negatively on poor and low-income consumers in faraway areas not yet served by the concessionaire and who are forced to source their daily water needs elsewhere at much higher cost.
A Philippine Institute for Development Studies (PIDS) study says that consumers who source their needs from other sellers likekariton vendors used to pay as much as 13 times more for their water; and
MWSS’ moves are contrary to the government’s water privatization program in Metro Manila, which has been recognized here and abroad as a showcase for the state’s disposition of its assets, and which has afforded consumers the world-class delivery of adequate and safe water.
The current MWSS brings us back the pre-privatization era of the 1990s when the incompetence and mismanagement of the debt-riddled MWSS Metro Manilans to the brink of a severe water crisis when consumers had to deal with the erratic, inadequate and expensive supply of potable water.
 

Source: Columns from Malaya and Abante