The Permanent Court of Arbitration (PCA) in Singapore ruled that the Philippine government must indemnify the Manila Water Co. P7.39 billion for losses incurred because the government disallowed rate hikes over the past four and a half years.
“The tribunal ruled that Manila Water has a right to indemnification for actual losses suffered by it on account of the (government’s) breach of its obligation,” the water concessionaire said in a disclosure.
Finance Secretary Carlos Dominguez III said “we will await the Solicitor General’s briefing” on the matter.
Rethink concession
But the Bagong Alyansang Makabayan (Bayan) said the indemnity would ultimately be shouldered by consumers who have been suffering from water shortages.
The government should rethink its concession to the water firm, Bayan said.
“The amount will be shouldered by taxpayers just so Manila Water can maintain its billions in net revenues,” Bayan secretary-general Renato Reyes Jr. said.
“This legal setback should make government rethink and review the concession agreements with private concessionaires (because) consumers, as well as taxpayers in general, are clearly disadvantaged,” he added.
‘Notice of arbitration’
In 2015, the Ayala group company filed a “notice of arbitration” with the PCA after the Aquino administration failed to honor the “notice of claim” it filed in April of that year.
Manila Water had called on the government to reimburse its losses—tagged at P79 billion—because of a significant reduction in the agreed rate of return in its concession contract.
Parties involved in cases heard at the PCA are committed to keep the proceedings confidential, but Manila Water spokesperson Jeric Sevilla said the decision was related to whether the company could pass on corporate income taxes to consumers.
The company said the indemnity covers losses Manila Water suffered from June 1, 2015, until Nov. 22, 2019.
Also the arbitral panel ruled that the government pay Manila Water the cost of the arbitration, and 85 percent of other costs that the company is claiming.
“Manila Water will work with the (government) for an orderly and managed satisfaction of the award,” the company said.
In March 2012, the company asked the Manila Waterworks and Sewerage System (MWSS) to allow the firm to increase its rates to P5.83 per cubic meter for the next five years but the regulator rejected the idea and instead ordered rate reduction of P1.48 per cubic meter per year for five years.
Ordered to cut rates
This led to the east water concessionaire’s decision to file a notice of arbitration with the International Chamber of Commerce but the arbitrator ruled in favor of MWSS, declaring Manila Water a public utility and ordering it to cut rates by P2.77 per cubic meter.
In the same month, Manila Water asked the Department of Finance to indemnify the losses it would incur from 2015 to 2037 estimated at over P79 billion but the DOF rejected the claim.