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Auditors barred from water deals

Groups blast Water Board for lack of transparency Consumer  groups and lawmakers on Sunday denounced the lack of transparency in the operations of the two private water concessionaires after the government barred the Commission on Audit from examining their books since 2004. The Water for All Refund Movement and the Water for the People Network on Sunday said the state-owned Metropolitan Waterworks and Sewerage System must account for every centavo paid by consumers since 1997 before it grants a rate increase to the two concessionaires, Manila Water Co. and Maynilad Water Systems. Manila Water wants to add P5.38 to its current rate of P38 per cubic meter, while Maynilad seeks to raise by P8.58 its rate of P48 per cubic meter. Rodolfo Javellana, president of the Water for All Refund Movement, said the government barred the COA from scrutinizing the two firms’ books after the auditors found that the Manila Water violated the law by breaching the 12 percent cap on profits. In 2000 the COA audit report showed that in 1999, the Manila Water raked in a total profit of 40.92 percent of its invested capital of P971.93 million, including its concession fee of P556.12 million. On the other hand, the Maynilad was well-within the cap with an actual rate of return of 7.71 percent in profit on its invested capital, inclusive of its concession fees for that year. Javellana said shortly after the Supreme Court issued a ruling in 2003 ordering the Manila Electric Co. to refund its consumers for passing on its income taxes to them , the MWSS Regulatory Office convened a technical working group to study whether the two private water concessionaires were public utilities. In 2004, the technical working group concluded that Manila Water and Maynilad were “mere agents and contractors” of the MWSS and were therefore not public utilities. “With those findings, the National Water Resource Board, which sets tariff regulations, ruled that the COA can no longer scrutinize the books of Manila Water and Maynilad,” Javellana said. The ruling barring COA to audit the two firms’ books came at a time when the Water for All Refund Movement exposed the COA report showed that one of them had breached the 12 percent cap on their rate on return imposed on public utilities. Sonny Africa of the Water for the People Network said there was no basis for a new round of increases since the concessionaires were granted by the Board of Investments a 10-year income tax holiday from 1997 to 2007, supposedly to recover their costs. Instead of absorbing the 30 percent corporate income taxes that form part of their “expenditures,” the two firms started passing them on to consumers in January 2008, raking in a total of P15 billion for the last five years, Africa said. Javellana’s group has asked the Supreme Court to issue a temporary restraining order to stop the two water companies from imposing their new rates. Javellana and Africa also demanded the immediate termination of the “onerous, immoral, illegal and criminal concession agreement.” Amid the public anger over the pass-on charges, the Palace has kept silent, saying only that it would wait for the MWSS to decide on the new rates. But ACT Teachers Rep. Antonio Tinio and Kabataan Rep. Terry Ridon said a congressional probe is in order to compel the government and the two firms to explain the onerous pass-on charges. “Water is imbued with public interest and it is paramount for the government to look after the interest of 2.2 million household-consumers over and above the profiteering of these water concessionaires,” Tinio told the Manila Standard. Tinio also demanded that government cancel all the private-public property contracts and cited the water issue as proof that privatization was a failure and only brought misery to the public by way of high cost in services. Tinio warned that this is likely to happen to President Benigno Aquino III’s plan to privatize 26 public hospitals nationwide. “We will most definitely file a House Resolution investigating the pass-on practices of business taxes of Manila Water and Maynilad,” Ridon said. In elementary taxation law, Ridon said, income taxes are not a form of business tax that can be passed on to consumers. In fact, it might even be an illegal provision of the concession agreement, as only Congress can grant or deny taxation privileges and not a mere regulatory party of public utilities. “This is not only fraudulent, but the height of economic injustice of an already suffering public,” Ridon said. Javellana and Africa said the two water firms had been passing on a total of P3.1 billion annually with Manila Water collecting P1.5 billion and Maynilad, P1.6 billion from consumers since 2008. Asked why the two concessionaires were seeking another round of increases when the consumers practically shouldered their losses, salaries and expenses while they kept their profit, Africa said the P5.83 per cubic meter being sought by Manila Water and P8.58 per cubic meter by the Maynilad were intended for “expansion projects.”
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