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More water costs bared

P140m passed on as mediation fees The two private water concessionaires have been passing on to consumers some P140 million in costs for arbitration to settle disputes in their contracts, a civil society group said Thursday. Even worse, said the Water for the People Network (WPN), the 2.2 million households they serve will also have to foot the bill when the two companies, Manila Water Co. and Maynilad Water Systems, Inc. contest a government bid to stop them from passing on their corporate income taxes and operating expenses to their customers. “As we speak, the two firms have hired consultants and lawyers, and like water, the meter is already running,” said Sonny Africa, WPN president. Africa said under the concessionaires’ contracts with the Metropolitan Waterworks and Sewerage System, all costs incurred related to arbitration begin during the preparation and even before the actual proceedings. The MWSS, which oversees the operations of the concessionaires, declared the pass-on charges “grossly unjust” on June 7, after the Office of the Government Corporate Counsel found them to be “illegal and without basis.” “The principle behind the inclusion of operating expenses in the determination of a just and reasonable rate is to allow the public utility to recoup the reasonable amount of expenses it has incurred in connection with the services they provide,” the MWSS resolution signed by chief regulator Raoul Creencia said. “It does not give the public utility the license to indiscriminately charge any and all types of expenses incurred without regard to the nature thereof, i.e., whether or not the expense is attributable to the production of services by the public utility,” Creencia said. The Palace, which has been silent on the water agreements, on Thursday declined to comment on the pass-on charges. Presidential spokesman Edwin Lacierda said it was best to wait for the new rates approved by the MWSS. “The MWSS is still studying the rate rebasing, so I cannot comment on all those things because we do not know yet what the final report of the MWSS will be,” Lacierda said. The two firms rejected have rejected the MWSS resolution and have demanded that it be revoked because it was contrary to their contracts and would impair the viability of their operations. They maintained they were not a public utility but a contractor and agent of the MWSS. So far, the Manila Water had the biggest arbitration cost passed on to consumers at a total of P132.8 million while Maynilad has passed on P7.2 million, Africa said. Under Section 12.2 of the concession agreement, all disagreements, disputes, controversies or claims arising out of or relating to the agreement shall be settled through arbitration in accordance with the arbitration rules of the UN Commission on International Trade Law. The concessionaires’ share of such costs shall be treated as an “expenditure,” which, along with the corporate income taxes, can be passed on to consumers as provided for in the contract. Based on the agreement, a copy of which was obtained by the Manila Standard, the MWSS and the concessionaires are entitled to name a representative to the panel, which would be called “Appeals Panel” but the chairman would be the named by the International Chamber of Commerce. The Appeals Chairman will be given a per diem to be determined by the chamber, while the other members of the panel are entitled to P2,500 each per day or portion of a day while in session or whatever amount to be determined by the panel. The panel may also use the secretarial and administrative support services of the Regulatory Office free of charge, the contract says. All consultants and experts, local or international, and lawyers that would be hired by the panel would be considered as an “expenditure.” “That’s the sad part of this arbitration. The consumers and the public cannot participate in the hearings with the chairman to be named by the International Chamber of Commerce, composed of private businessmen, and with the two firms as members,” Africa said. “Where is transparency here when the representative from the MWSS is already outmanned and outvoted, with the Appeals Chairman being named by the two firms’ fellow businessman-group?” Africa said. Africa said some P280 million in arbitration costs have already been incurred, with MWSS footing half the cost and the water concessionaires passing their half to the consumers. In 1999, he said, citing official documents, the arbitration cost P23.1 million over the dispute on the extraordinary price adjustment brought against Manila Water . Another dispute involving Manila Water occurred in 2003 over the notice of early termination that cost the consumers P109.7 million. Also in 2003, the Maynilad was involved in a dispute with MWSS over an extraordinary price adjustment that cost the consumers P7.2 million. Water consumers are expected to picket the MWSS office today along Katipunan Avenue in Quezon City to demand that the government revoke its contracts with the two companies, Africa said. A source from the MWSS who spoke on condition of anonymity said Thursday that regulators under the Arroyo administration were responsible for the onerous contracts. “The incumbent regulator and other officials were even the ones who were able to discover the irregularities,” the source told the Manila Standard. The concession agreement between MWSS and the two water concessionaires allow them to pass on “business taxes” to consumers through their monthly water bills. Previous Regulatory Office regulators had interpreted the phrase “Philippine business taxes” to include the cost of corporate income taxes, a paper signed by chief regulator Emmanuel Caparas said. With Rio N. Araja, Joyce Pangco Pañares and Macon Ramos-Araneta
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