Is a win-win solution on the horizon in the controversy over the concession agreements of Metro Manila’s two water service providers?
That appears a likely possibility with the willingness of Manila Water Co. (MWC) and Maynilad Water Services Inc. (Maynilad) to arrive at a mutually acceptable “workable solution” with the national government. This came after a Singapore-based arbitral court favored the two contractors and ordered the Philippine government to indemnify them for breach of contract that took place during the previous administration.
Last week, MWC said it is "more than willing and have started to work with the incumbent administration to come up with a workable solution” to the ruling of the International Chamber of Commerce (ICC) arbitral tribunal. The ruling ordered the government to pay the firm P7.39 billion in revenue losses arising from the non-implementation of water rate increases under the previous government in violation of the rate rebasing provision of their original CA signed with the Ramos administration in 1997.
Maynilad obtained a similar favorable ruling last year from the Singapore court, which ordered the government to indemnify the company P3.4 billion, also because of the revenue losses it incurred after the Metropolitan Waterworks and Sewerage System had put its rate adjustments on hold during the past administration in a breach of its original CA with the past Ramos administration.
As far as Maynilad is concerned, it is willing to discuss a workable solution with the Duterte administration that would benefit all the parties concerned.
The two water concessionaires had in fact sought the opinion of Finance Secretary Carlos Dominguez III on finding ways to arrive at a “mutually acceptable manner of implementing the arbitral award“ even before the arbitral ruling was made public.
It is understandable that the Duterte administration does not want to shoulder the financial burden decreed by the arbitral ruling, since the total P10.79 billion asked for by the two water concessionaires was due to the negligence of its predecessor.
The provisions in the CAs that the Department of Justice now says were disadvantageous to the government and consumers were drawn up during the Ramos administration.
It was the Ramos administration that turned over the water supply delivery and sewerage service from the MWSS to private contractors under the 1997 privatization program. This was in response to the sad state of the water distribution system at the time because of what was believed to be the mismanagement and inefficiency of the MWSS.
The huge task of improving the water distribution system and setting up wastewater treatment facilities to ensure the delivery of clean, adequate and 24/7 water to Metro Manila consumers required hundreds of billions of pesos in investments by the would-be concessionaires.
Since 1997, for instance, Maynilad says it has spent P46.7 billion on wastewater treatment facilities alone but has collected only P38.07 billion in sewage fees from its West Zone customers over the same period. This means it still has to recover P8.6 billion of its investments in wastewater projects.
As part of its responsibility under the Clean Water Act, Maynilad has also allocated P200 billion to build 26 new sewage treatment facilities (STPs) and install 425 kilometers of new sewer lines from 2019 to 2037. Maynilad says it will be unable to recover its investments without any adjustments in the rates it charges its West Zone customers, By the same token, MWC will also be unable to recoup its investments without any corresponding adjustment in the rates for its East Zone customers.
The 1997 concession agreements with the two water service providers contained a rate rebasing process, or a procedure for the periodic adjustment of water rates in accordance with the MWSS Charter. Under this rate rebasing process, the concessionaires and MWSS review their rates once every five years to determine the most suitable water rates in order for MWC and Maynilad to recover their investments. Both MWC and Maynilad ran to the Singapore arbitral court during the Aquino administration because MWSS decided to unilaterally ignore the rate adjustments based on the rate rebasing process.
I imagine that what the two water concessionaires would raise during the forthcoming negotiations with the government would be a reasonable rate increase at this time. The question is: How much is reasonable, and therefore acceptable to both the concessionaires and consumers? We'll have to wait and see.
ernhil@yahoo.com