Not even Congress can stop the practice of water concessionaires of passing on the cost of income tax payments to consumers if this is provided for under the contract they entered into with the Metropolitan Waterworks and Sewerage System (MWSS), Sen. Juan Ponce Enrile said.
Enrile, a former secretary of justice under the Marcos administration, said the government could renegotiate its deal with the concessionaires.
Another option, he said, was to let the courts decide on the matter.
Enrile made the remarks amid the public uproar over Manila Water’s and Maynilad’s recovery of the cost of income tax and even entertainment expenses through fees collected from their customers.
The Water for the People Network said the two concessionaires passed on to customers in Metro Manila and nearby areas not only P15.3 billion in income taxes from 2008 to 2012 but also the cost of such expenses as entertainment, recreation, corporate donations and even flowers.
Stakeholders and lawmakers have called for a congressional inquiry into this practice.
“I don’t know if Congress has the power to intervene, because it’s very clear that you cannot impair the obligation of contracts. Now, the only remedy here of the government would be to renegotiate the contract if, the parties agree,” Enrile said in a TV5 interview, a transcript of which was given to Senate reporters.
Told that the MWSS as a regulator had already moved against the pass-on provision in connection with the concessionaires’ income tax, Enrile said: “How can they do that? They are in effect violating their contract.”
“The government itself was the one who entered into a contract with these concessionaires. They have to renegotiate it,” he said.
On June 7, the MWSS Regulatory Office revoked a resolution issued in 2004 during the administration of then President Gloria Macapagal-Arroyo, which allowed Manila Water and Maynilad to recover income tax expenses through customer fees.
However, the new resolution still needs the approval of the MWSS board.
The five-member MWSS Regulatory Office adopted Resolution No. 04-006CA in July 2004 that recognized the concessionaires not as public utilities but as mere agents of the MWSS.
If Manila Water and Maynilad were public utilities, they could not include income tax in their computation of operating expenses that could be recovered through tariffs.
Manila Water is seeking an increase of P8.58 per cubic meter in its basic charge, while Maynilad wants an increase of P5.83 per cubic meter from 2013 to 2017. Manila Water currently charges P38 per cubic meter and Maynilad, P48 per cubic meter.
Enrile said the two companies made a proposal to the government when they entered the concession agreements “that they’ll invest money, they will reduce the water losses. I think at that time, if I remember correctly, the losses from deliverable water supply was something like, 50 percent or thereabouts.”
“So, if they were successful in refurbishing the system and introducing investment, I do not know how much investment they have introduced. They have the right to recover that investment only within the concession period,” he said.
The MWSS privatized the then inefficient water distribution system in Metro Manila and nearby cities and towns in 1997.
Since then, water services have improved tremendously.
Romeo Bernardo, a former finance undersecretary who sat on the MWSS board in the 1990s, said: “Manila Water’s early achievements in slashing nonrevenue water, raising water deliveries by over 2.5 times, doubling the number of customers and at a 24-hour water availability service level are, most importantly, meeting health standards which I understand is being replicated in the west zone since the entry of Metro Pacific [in Maynilad] in late 2006.”
Bernardo said that “(i)n a span of six years to 2012, Maynilad has also reclaimed 600 mld (million liters per day) of water by reducing nonrevenue water from 66 percent to 43 percent, raising volume of water deliveries from 629 to 1,200 mld, and serving eight million customers (from six million) with 24/7 water availability, including some 1.7 million in poor communities.”
Messy legal situation
He said the improvements in service delivery came after the two concessionaires poured in a combined P105 billion in investments (P60 billion for Manila Water from 1997 to 2012 and P45 billion for Maynilad) to expand and upgrade the water and sewerage network.
“So, if the government entered into that contract under those conditions, how can they now vary the contract? It is going to be a messy legal situation,” Enrile added.
Pressed if there was nothing wrong with passing on the cost of income tax to consumers, Enrile said, “If it’s in the contract just like in the Malampaya contract of the government.”
“This already happened in the case of Malampaya. Shell is being exempted by the government from paying income tax on its share of the proceeds of the Malampaya gas well,” Enrile said.
He said he would have disallowed the pass-on of the income tax cost if he were the one negotiating the contract for the MWSS.
“But if they agreed, the government agreed, then that means the government was holding the concessionaires harmless from all taxes,” Enrile said.
Asked if the issue merited an inquiry by Congress, Enrile said: “What can Congress do? They cannot pass a law to impair the obligation of the contract between the contracting parties. Eventually, they will have to bring it to the court. Those who are interested legislators, they will have to file a case in court.”
“There is no need to investigate this. If they really believe that the MWSS entered into this erroneous [contract], they should now get their lawyers and study it, and then, file the case,” Enrile said.
Enrile said only the courts could make a final judgment on the matter of the passed-on charges like taxes that many believed were onerous.
“I’m sure Maynilad and Manila Water will go to court and resist that unilateral decision of the other party to rehash the terms and conditions of the contract. In effect, that is what they are doing. You cannot just obviate from the contract without the consent of the other,” Enrile said.
He said the people were enjoying a very efficient water distribution system but he noted that the consumers’ gripes about cost were legitimate.
“Now you can put all these high-rise buildings. And you can get water up to the top floor efficiently. So, maybe the people are beginning to say, “Why are we paying so much for water?” Which of course, is a legitimate question to the consumer,” Enrile said.
“But it’s the government that must solve this problem itself. Because it is the government that entered into these contracts and if they were erroneous at the time they were entered into, then some people must answer for it,” he said.
“But if at that time, they were considered reasonable, considering the amount of investment envisioned to be, as put up by the concessionaires, that will depend upon the courts to decide,” Enrile added.
Bernardo noted that the water bill of Metro Manila residents—an average 3 percent of household income—remained within international standards of affordability at 5 percent of income.
He said that despite the massive capital infusion and superior operational metrics like a 24-hour water availability and low nonrevenue water, the two concessionaires’ water charges were also among the lowest in major cities in the country.
“For example, a 30-cubic-meter consumer in the east zone is billed P458 for his water consumption compared with the same volume water bills in Metro Cebu (P463), Iloilo (P509) or Baguio (P1,137). The differences are even starker for those consuming up to 10 cubic meters, even while the service quality in these areas are more like those of preprivatization MWSS,” Bernardo said.
He added that Manila Water rates compared well with those in other Asian cities.
“Based on a 15-cubic-meter consumption, Manila Water dollar rate (0.26/cubic meter) falls in the middle of Jakarta (0.59), Beijing (0.47) Bangkok (0.27), New Delhi (0.19), Hanoi (0.19), Kuala Lumpur (0.18) and Phnom Penh (0.16). Few of these have achieved close to the performance standards of Manila Water—the reason the company has received mandates to run and introduce the same kind of improvements in three of these countries in collaboration with local partners,” Bernardo said.