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Water firms face P43-b refund bid

Group exposes overcharging, tax holiday perks THE Water for All Refund Movement and water consumer Marcelo Tecson have petitioned the Supreme Court to compel the two private water concessionaires to refund consumers some P43 billion after they discovered that the two firms collected some P7.2 billion while enjoying a six-year income tax holiday granted by the Board of Investments in 2000 and overcharged the consumers by P3.71 per cubic meter. The P7.2 billion in collected income taxes from water consumers were not remitted to the national government, said the consumer group’s president, Rodolfo Javellana Jr., who demanded that the two concessionaires open their books for accounting and audit. The firms were also granted a one-year income tax holiday bonus after the six-year holiday expired, he said. In their petition, Javellana and Tecson told the Supreme Court that after the income tax holidays expired, the Manila Water Co. and Maynilad Water Services continued to pass on their 30 percent corporate income taxes to consumers, a practice they have continued until this day. Javellana and Tecson said apart from the P7.2 billion, the two firms also collected P1.5 billion each from the tax holiday bonus and some P15.3 billion in corporate income taxes for the past five years or a total of P31.9 billion. The rest of the amount that must be refunded came from the “advance collection” for unimplemented and abandoned projects and other expenditures, and the automatic P1 per cubic meter for foreign exchange losses, they said. Javellana and Tecson said the water firms also “over-billed” consumers by P3.71 per cubic meter since 1997. They said the technical regulation office of the Department of Agriculture issued a memorandum to the Manila Waterworks Board of Trustees on April 12, 2005 that the applicable tariff for charging should have been P26.48 per cubic meter instead of P30.19 per cubic meter or a difference of P3.71 per cubic meter. Javellana and Tecson said the overcharging and pass-on charges helped Maynilad post a net income of P2.824 billion in 2009 when the company was barely solvent in 2007. “In October 2009, the term of the Concession Agreement with Manila Water was prematurely extended for an additional 15 years, or until 2037, despite the absence of a water crisis that justified any exercise of emergency police powers by the President to extend the term of the Concession Agreement with Manila Water and in spite of the glaring fact that the Concession Agreement was more than 12 years away from expiring,” Javellana and Tecson said. “Aside from the question of circumventing mandatory bidding requirements, this unilateral extension had the effect of expanding the valuation of the total asset base in RORB exercises, because, instead of dividing the costs over a 25 year-period, costs would now be spread out over a longer, 40-year period. The 15-year extension should have produced the result of lowering water tariff rates and consumer water bills, but the outcome was the opposite— there was no lowering of tariff rates, and general water rates remained high, if not higher,” they said. On April 22, 2010, the term of the Concession Agreement with Maynilad was also extended for an additional 15 years, or until 2037, “again despite the glaring fact that the Concession Agreement was more than 12 years away from expiring,” they said. Days after his took office or on July 21, 2010, President Benigno Aquino III instructed Public Works and Highways Secretary Rogelio Singson to put on hold “all new ventures and loans of MWSS,” including concession fee projects, such as the development of the Laiban Dam complex, the Angat Dam rehabilitation, and the Wawa Dam rehabilitation. Javellana and Tecson said the construction of the Laiban Dam and other projects were supposed to commence in 2010 and be completed in 2015, to be financed by a loan contracted by MWSS but which would be paid by the two concessionaires through concession fees. The National Economic and Development Authority estimated in 2007 that project cost of the Laiban Dam was P48 billion. But even before construction had begun, Javellana and Tecson said, the two firms already started charging the supposed expense in advance, or as early as 2008. “Just for the Laiban Dam Project alone, the concessionaires obtained a net collection of P3,659,340,000.00—for a project that “failed,” the petitioners told the Supreme Court. They said the Commission on Audit also found that the Manila Water had violated the rate of return or profit cap of 12 percent after it posted 40.92 percent or 28.92 percent more than the allowable return cap in 2003. Maynilad posted a return of 7.7 percent that year. But Maynilad was also allowed a rate adjustment of P4.21 per cubic meter during the period covering Oct. 15, 2001 to Dec. 31, 002, to recover the foreign exchange losses incurred from Aug. 1, 1997 up to Dec. 31, 2000. On Oct. 12, 2001, the MWSS board, citing the financial crisis and the devaluation of the peso, allowed the concessionaires to raise water tariffs by P1 per cubic meter, allegedly to recover foreign exchange losses, the petitioners said. The two companies were also allowed a rate adjustment for foreign currency differentials (FCDA) with respect to present and even future foreign exchange losses or gains, including all accruals and carrying costs, from Jan. 1, 2002 to the expiration date of the concession agreement. Javellana and Tecson said this paved the way for the MWSS board to amend the concession agreement between MWSS and Manila Water. They asked the Supreme Court to issue a temporary restraining order to stop the two water concessionaires from overbilling their customers and passing on their income taxes and other costs to consumers. Last month, Javellana’s group also asked the Supreme Court to issue a temporary restraining order to stop rate hikes sought by Manila Water and Maynilad. The petitioners said that despite an order from President Benigno Aquino III to put on hold all new ventures and loans of the MWSS, and because of overcharging practiced by the two concessionaires, water rates have not been reduced.
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