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Water firms wallow in P34-billion profit

Watchdog: Combined earnings in next 25 yrs —P152.4 b Private concessionaires Manila Water Co. and Maynilad Water Systems Inc. stand to earn a staggering P76.5 billion and P75.92 billion in profits respectively over the next 25 years if they are allowed to continue passing on their income taxes, operating expenses and maintenance costs to the public, a civil society group projected Tuesday. The Water for the People Network said Manila Water and Maynilad had already earned profits of P16.9 billion and P17.1 billion or a total of P34 billion, as a result of these pass-on charges from 2007 to 2011, and they stand to earn much more, according to the business plans they submitted to the Metropolitan Waterworks and Sewerage System, said Sonny Africa, the group’s lead convenor. But Virgilio Rivera Jr., corporate strategy development director of Manila Water, said it was the “vested rights” of the firms to pass on the charges as provided for by the contract. “Since the execution of the concession agreement in 1997, the regulatory office (MWSS) has consistently allowed the concessionaires to include income taxes as part of their expenditures,” Rivera said. “To suddenly deny them this mechanism at this point, when there is no legal of compelling reason to do so, would be to impair this vested right,” Rivera said, in reply to the MWSS June 7 Resolution and the June 4 legal opinion of the Office of the Government Corporate Counsel, which found the pass-on charges to be “grossly unjust” and “illegal and without basis.” “Neither the MWSS nor its regulatory office has the power to impair MWCI’s vested rights, neither do they have any legal justification to do so,” Rivera said. Maynilad president Victorico Vargas said the Office of the Government Corporate Council failed to cite any particular law supporting its view that corporate income taxes and operating expenses were not included in the “Philippine Business Taxes” that can be passed on to consumers. “If the intention of these provisions were to exclude income taxes from the purview of ‘Philippine Business Taxes,’ then these provisions should have been so worded as to explicitly exclude income taxes,” Vargas said. Vargas invoked Article 9, Section 9.4 of the 67-page concession agreement, which provides that, “It is the intention of the parties that after the second rate rebasing date, the rates for water and sewerage services provided by the concessionaire shall be set at a level that will permit the concessionaire to recover over the 25-year term of the concession (net of any grants from third parties and any possible expiration payment) operating, capital maintenance and investment expenditures efficiently and prudently incurred, Philippine Business Taxes and payments corresponding to debt service on the MWSS loans and concessionaire loans incurred to finance such expenditures, and to earn a rate of return (referred to herein as the “appropriate discount rate”) on these expenditures for the remaining term of the concession in line with the rates of return being allowed from time to time to operators of long term infrastructure concession arrangements in other countries having a credit standing similar to that of the Philippines.” “The parties further agree that the maximum rates chargeable for such water and sewerage services shall be subject to general adjustments at 5-year intervals,” the contract says. The 25-year contract was supposed to expire in 2022 but the two firms were able to negotiate an extension of another 15 years up to 2037. The Office of the Government Corporate Council said in its June 4 memo that Philippine Business Taxes does not include income taxes and operating expenses, and included only value added taxes, excise taxes, documentary stamp taxes, percentage taxes and realty taxes. “We note that in arriving at its opinion, the OGCC has not cited any particular law supporting is view. We disagree. The term ‘Philippine business taxes’ was used in the provisions of the concession agreement in a generic way as in fact it was not specifically defined and restricted to refer only to such business taxes such as value-added tax, excise tax, percentage tax and documentary stamp tax, as the OGCC suggests in OGCC Opinion No. 116,” Vargas said. He said it was “surprising” that after 16 years, the government would belatedly claim that the concession agreement did not include income taxes in the cxpenditures that may be recovered by the concessionaires. In a forum over the weekend, Emmanuel Caparas, acting chief regulator of the MWSS, said their hands were tied because of the contract and were awaiting word from the Palace as to how to go about the controversial pass-on charges . Africa said the civil society groups belonging to the WPN would press President Benigno Aquino III to rescind the “immoral and unjust” pass-on charges. On Tuesday, the Supreme Court has deferred taking action on the appeal for a restraining order against the impending increase in the water rates to be imposed by Manila Water and Maynilad. Court spokesman Theodore Te said the justices deliberated the petition filed by Water for All Refund Movement, Water Watch Coalition Inc. and Alyansa ng Mamamayang Naghihirap Inc. during their en banc session Tuesday, but did not act on the petitioners’ plea for the immediate issuance of temporary restraining order. “There was no action taken on the request for a TRO (temporary restraining order),” Te said, in an interview. However, the tribunal ordered the respondents – Manila Water, Maynilad and the MWSS – to file their comments on the petition within 10 days before the Court would act on the TRO petition. Without the TRO, the two water concessionaires may for now proceed with their planned water hike increases. In their petition, the groups said Maynilad and Manila Water conducted public consultations with various groups on the proposed water rate hike but did not present data to justify the increase. They also asked the Court to “declare that respondents are public utilities subject to the rules and regulations of public service laws and the auditing powers of the Commission on Audit.” The groups alleged that the two firms seemed to have been given too much “sovereign power” in water infrastructure projects, which they allegedly use to justify higher water rates, through a concession agreement the companies signed in February 1997 with the MWSS. They also criticized the water concessionaires for their “overbilling or advance collections” to fund water infrastructure projects whose construction has yet to be completed or had been mothballed. With Rey E. Requejo
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