A long list of expenses, including those for foreign trips, entertainment and recreation as well those for advertising, gifts, flowers and other tokens for all occasions, had been passed on to customers of the two water concessionaires in Metro Manila and nearby areas, according to a consumer advocacy group.
The Water for the People Network (WPN) said these expenses were on top of the P15.3 billion in income taxes that Maynilad Water Services Inc. and Manila Water Co. had passed on to consumers from 2008 to 2012.
WPN said the two concessionaires “have effectively turned water service into a profitable business while consumers shoulder the burden of onerous charges and taxes.”
Sonny Africa, executive director of Ibon Foundation, one of WPN’s convenors, called on regulators to disallow the recovery from consumers of such expenses and to thumb down proposals for rate increases.
“We are sure these same items are included in the business proposals of Maynilad and Manila Water for the next rate rebasing (cycle),” Africa said.
Maynilad wants a P5.83 per cubic meter increase in its basic charge while Manila Water plans to raise its rates to P8.58/cu. m. from 2013 to 2017. The concessionaires are allowed to seek an increase every five years.
Maynilad currently charges P48/cu. m. and Manila Water, P38/cu. m.
The Metropolitan Waterworks and Sewerage System (MWSS) allowed the recovery of income tax through tariffs in a resolution issued in 2004.
In a new resolution adopted last month, the MWSS Regulatory Office (RO) moved to strike down the 2004 resolution after the Office of the Government Corporate Counsel issued an opinion that concessionaires should not be allowed to recover income tax expenses from consumers.
However, the MWSS RO resolution still needs the approval of the MWSS board.
Asked for comment, Maynilad said the concession agreement of 1997 provided for the recovery of business-related taxes by the concessionaires.
“This helps ensure the concessionaires’ capability to undertake massive investments despite their gradual recovery of these investments,” said Cherubim Ocampo-Mojica, head of corporate communication at Maynilad.
Mojica said countries like the United Kingdom, Chile and Peru were using similar tax-expense recovery frameworks in water service concessions with favorable results.
“We believe this is for the mutual, long-term benefit of the consumers and the concessionaires,” she added.
Manila Water did not respond to Inquirer messages asking for the concessionaire’s side.
Income tax payments and other expenses are part of the operating expenses listed in the business plans of Maynilad and Manila Water that regulators approved in 2008.
The operating expenses include those for advertising, training, representation, transportation and travel, and special events management.
The concession agreement with the MWSS provides that the concessionaires may recover during the full concession term “operating, capital maintenance and investment expenditures efficiently and prudently incurred.”
The agreement also allows the recovery of “Philippine business taxes and payments corresponding to debt service on MWSS loans and concessionaire loans incurred to finance such expenditures.”
Maynilad’s business plan shows that operational expenses include personnel costs; supplies; light and power used in its plants, facilities and offices; repairs and maintenance of those facilities and offices as well as vehicles and equipment; and the company’s annual contribution to the maintenance and operating expenses budget of the MWSS’ regulatory office and corporate office.
Aside from these, there are “other expenses” that include a performance bond premium set at $30 million in 2008, outside services, rentals, insurance and professional fees for consultants.
For WPN, what is most irksome is the inclusion of expenses like those for advertising, promotion and recreation.
Maynilad said these expenses were enhancing and promoting (the company’s) image; developing harmonious relations with local governments; establishing rapport with the tri-media; advertisement and publication of notices in newspapers and magazines of general circulation, TV/radio broadcast and website; and public consultations on the ground; and cost of sponsorships.
These expenses also cover athletics, recreational and annual cultural celebrations.
The WPN cited an item for training, workshops, seminars and conferences. This includes expenses for the conduct of training for the development, enhancement, and furtherance of employee skills, competencies and potentials.
Also covered are professional fees, honoraria and gifts for resource persons and facilitators; training/seminar/enrollment fees, training materials, giveaways and transportation expenses incurred by an official or employee in attending such training and other incidental expenses.
Still another item found in the business plan was that for representation and transportation, including expenses incurred by the various officers of the company in promoting, establishing and maintaining a good public image and relations.
The item includes gifts, flowers and other tokens for all occasions, food expenses during meetings, seminars and conferences, and official entertainment either by company officers or their authorized representatives.
There is also an item for transportation and travel, which refers to the cost of fuel, including brake fluids and oils, consumed by the company’s transportation equipment in the normal course of business operations.
Airfare, toll, hotel
This item also pertains to expenses of officers and employees while traveling on official business within the country or abroad (including the cost of airfare, hotel accommodations and other travel-related expenses in connection with regional visits). The cost of tolls and parking expenses are also covered.
Maynilad’s other expenses include “utilities” or the cost of communication, including expenses for telephone, cellular phone including cell cards, handheld two-way radio transceivers, frame relay, wireless and cable charges and tolls, postage charges, messengerial and courier services and other expenses incurred in operating and maintaining the communication system of the company.
Utilities expenses include water and sewer services used in the company’s facilities like branch offices and warehouses.
Under Maynilad’s business plan in 2008, “other expenses” would cost P7.07 billion for the five years to 2012.
Similarly, Manila Water’s business plan identified “major cost centers” of its operating expenses like personnel, power, chemical, wastewater, repair and maintenance, and premises.
Manila Water also identified outsourcing costs, which refer to expenses on call center services, collection, bill distribution, deep well maintenance, meter reading, facilities and building maintenance, and special events management.
Manila Water placed its operating expenses for 2008 to 2012 at P24 billion.
However, for both concessionaires, there was no available data to show whether actual expenses were lower or higher than those listed in the business plans.