No to paying P11 billion to Manila Water Co. and Maynilad Water Services Inc. Malacañang on Thursday took this stand as it rejected a ruling by an international arbitration court awarding the two private companies the huge amount as compensation for “losses and damages” that arose from their inability to charge higher water rates.
In Legazpi City, President Duterte said paying the amount would be foolish. “Just because they incurred losses? We won’t pay it.” he said on Thursday night during a visit to typhoon-ravaged areas.He said he wanted graft and plunder cases filed against the owners of the two companies for the 1997 water concession agreements found to be disadvantageous to the government.
“You duped the Filipinos of money. I will pursue this thing if this is the only thing I can achieve in this administration. I will hit you with economic plunder,” the President said.
Onerous contracts
Presidential spokesperson Salvador Panelo said the government would not pay the companies because their contracts to distribute water in Metro Manila and nearby areas were onerous.
Among the provisions in the concession agreements that the Department of Justice (DOJ) found to be disadvantageous to the government and the public pertained to prohibiting the government from interfering in setting water rates and indemnifying the companies for losses due to such interference.
The DOJ also deemed irregular the extension of the 25-year agreements up to 2037, or way beyond their original expiry year in 2022.
Former Solicitor General Florin Hilbay on Thursday cautioned the government against ignoring the ruling as doing so would cast the country in an unfavorable light
Hilbay said there were legal steps that the Duterte administration could take to contest the ruling, such as questioning its implementation before Philippine courts.
“That’s for them to decide if they want to take that kind of risk to be seen by other countries as not abiding by an international ruling,” he said in a phone interview.
Countries generally observe arbitral awards because they want to gain high investor confidence, Hilbay noted. Otherwise, investors would think that they won’t be able to rely on the Philippine legal system and that rules in the country are ignored, he said.
Justice Secretary Menardo Guevarra said the government was studying its legal options.
“But we’ll probably start with the drafting of a new version that excises all provisions in the concession agreement that we believe are contrary to law and public policy, as well as those that are highly prejudicial to the interest of the consuming public,” Guevarra said on Thursday.
He said the government was more interested in getting a new deal than in compromising on the arbitral award.
Guevarra was reacting to the overture of Manila Water, which said on Wednesday that it was “more than willing” to strike a “workable solution” with the government to settle the P7.4 billion awarded by the Permanent Court of Arbitration in Singapore last month for the company’s losses from June 1, 2015, to Nov. 22, 2019.
The court also ordered the government in 2017 to pay Maynilad P3.6 billion.
Manila Water and Maynilad started distributing water in Metro Manila and parts of Cavite and Rizal provinces in 1997 after they were awarded the east and west zones, respectively, following what was then dubbed the “world’s largest privatization.”Economic sabotageOn Tuesday, Mr. Duterte threatened to file economic sabotage cases against both companies over the 1997 agreements they entered into with the Metropolitan Waterworks and Sewerage System (MWSS).
Panelo on Wednesday said the President had ordered the filing of criminal, civil and administrative charges against the parties, including government lawyers and agents, who took part in crafting the water concession agreements.
Mr. Duterte blew his top upon learning that the arbitration court had directed the Philippine government to compensate Ayala-owned Manila Water.In a radio interview, Panelo said the President had the authority to rescind any government contract contrary to public policy and interest.
The dispute may even reach the Supreme Court if the parties are unable to reach an agreement after the government crafted a new contract, Panelo said.
“The President has ordered the crafting of new covenants or provisions in the contract. If not, we will not agree to it.” he added.Passing on corporate taxes
Panelo hinted at a possible collusion between the private water firms and government officials who prepared the contracts two decades ago, noting that it was only in the Philippines that the government is mandated to compensate water companies for lost revenue.
According to Hilbay, the government could bring the issue before local courts by questioning the arbitration award’s implementation and pushing its position that the concessionaires could not pass on corporate income taxes to consumers.He said the water concessionaires’ dispute that began with the Aquino administration was whether corporate income taxes could be passed on as an expense under the concession agreement.
The position of the MWSS then, Hilbay said, was that the companies should shoulder these. “If [the government] wants to take up the cudgels for the consumers, they would fight for this position,” said Hilbay, the solicitor general when the water concessionaires brought the case to the arbitration court.
He said the matter had been mostly handled by the Office of the Government Corporate Counsel, the law office of government-owned and -controlled corporations, including the MWSS.
‘Integrated solution’
Some Cabinet members want an “overhaul” of the existing concession agreements while others are “thinking of more drastic actions,” Guevarra said.The DOJ, he said, would come up with an “integrated solution” as ordered by the President.Guevarra said the government had legal basis to rewrite the agreement, citing a contractual provision on amendments to the deal.
“The state is not estopped by the mistakes of its agents, especially if the acts committed are constitutionally or legally infirm,” he reasoned out.
“The statute of limitations does not apply if the act sought to be set aside is void for being contrary to law or public policy. In any event, there is a standard separability clause that leaves other valid provisions effective,” Guevarra said.
Maynilad said it had not formally received any communication from the government concerning the proposed amendment to the company’s concession agreement with the MWSS.
“But we have heard the news reports and we are open to sitting down with government to address their concerns,” Randy Estrellado, Maynilad COO, said in a text message.
In the House of Representatives, two resolutions were filed on Thursday directing concerned committees to investigate the water concession agreements.
House Resolution (HR) No. 571 directs the House committee on government enterprises and privatization to look into the alleged “onerous” deals.
HR 572 asks the House to probe the P7.4 billion awarded to Manila Water by the arbitration court, the concession agreements and the country’s water resources management.—WITH A REPORT FROM RONNEL W. DOMINGO