MWSS strikes down controversial resolution

MANILA, Philippines—The Metropolitan Waterworks and Sewerage System (MWSS) Regulatory Office has stricken down a 9-year-old resolution issued in 2004 that allows Manila Water Co. Inc. and Maynilad Water Service Inc. to recover income tax expenses through customer fees.

However, a new MWSS Regulatory Office resolution superseding the old one still needs approval and confirmation from the MWSS board of trustees.

The consumer advocacy group, Water for the People Network (WPN), claims that Manila Water and Maynilad passed on corporate income taxes to consumers a total of P15.3 billion in taxes from 2008 to 2012.

The regulatory office rescinded the 2004 resolution on June 7 amid reports that the water concessionaires in Metro Manila and nearby areas were also passing on to consumers other expenses like donations.

The five-member MWSS Regulatory Office moved to adopt Resolution No. 13-005-CA, replacing Resolution No. 04-006-CA issued in July 2004, which recognized Manila Water and Maynilad not as public utilities but as mere agents of the MWSS.

Being considered a public utility means that the concessionaires cannot include income tax in their computation of operating expenses that could be recovered through tariffs, pursuant to a 2002 decision of the Supreme Court involving Manila Electric Co.

The 2004 MWSS Regulatory Office resolution was based on a report of a technical working group composed of representatives of Manila Water and Maynilad. In turn, the MWSS board of trustees approved and confirmed the resolution the same day that the latter was issued.

In the new resolution issued last month, regulators also decided to exclude income tax streams in the concessionaires’ cash flows and in computing the so-called appropriate discount rate—both of which are taken into account in rate rebasing.

Regulators took their cue from an opinion that the Office of the Government Corporate Counsel (OGCC) issued on June 4.

The OGCC was acting on a request from the MWSS regulators in connection with advice from a rate rebasing consultant that if the MWSS, as principal and a public utility, could not recover income tax payments and pass these on to consumers, neither can the concessionaires because they are agents of a public utility.

The OGCC concurred with the consultant in saying that income taxes were neither included in the term “Philippine business taxes” nor considered operating expenses that could be recovered from the MWSS consumers’ base.

“While the concessionaires are not public utilities (since only the MWSS has the franchise), they are nevertheless bound by the same laws and rules applicable to their principal, the MWSS,” the OGCC said.

Consumers have been shouldering P3.1 billion in taxes for Manila Water and Maynilad yearly over the past five years, according to the WPN, which claims some 100 member organizations nationwide.

“Manila Water accounts for about P1.5 billion annually and Maynilad around P1.6 billion,” said Rosario Guzman, head of research at Ibon Foundation. The figures are based on documents obtained by Ibon, one of WPN’s convenors.

Guzman said that income taxes made up a significant portion of the two firms’ proposed new rates for the next five years.