5 Pampanga water districts losing revenues under private firm – COA
MABALACAT CITY, Pampanga, Philippines — The Commission on Audit (COA) advised five local water districts here to renegotiate their respective joint venture agreements (JVA) with a private water company to address their declining income and correct provisions in the contracts that are disadvantageous to the government.
In its latest audit observations and recommendations, the COA said the annual net incomes of the Mabalacat City Water District (MCWD), the City of San Fernando Water District (CSFWD), Floridablanca Water District (FWD), Guagua Water District (GWD) and Lubao Water District (LWD) have declined significantly since they allowed Primewater Infrastructure Corp. to take over their respective operations.
Under the agreements, Primewater assumed operational control over the utilities, the management of their water supply and their septage management systems.
In a report sent to MCWD on April 29, the COA said the utility “was generating more profit from its operations before it entered the JVA.”
Efforts to reach Primewater’s officials for comment failed.
The COA report said MCWD’s net income before the Primewater takeover was P61.296 million in 2018 but it dropped to P35.343 million in 2019 after Primewater took operational control on May 16 of the same year.
In 2020, the water district’s net income plunged deeper to P4.758 million, which MCWD attributed to depreciation expenses and the increase of employees’ wages.
Data on the number of MCWD employees was not immediately available but the COA said the water district spent P54.254 million for personnel services in 2019. This went down to P11 million in 2020.
In the COA’s audit report for 2019, MCWD spent P85.445 million for personnel services in 2017 and P95.564 million in 2018. This showed the water district had spent more on the salaries, wages and benefits of its officials and employees before Primewater’s takeover.
Under MCWD’s JVA with Primewater, the latter shall pay P40 million yearly as its fixed revenue share, which will increase by P1 million every five years. MCWD is also entitled to annual payments for Primewater’s use of the water district’s facilities.
But the COA said MCWD should have included depreciation and other noncash expenses when it negotiated the Primewater deal.
According to state auditors, MCWD’s failure had placed the water district “in a disadvantageous position of incurring further decrease in income for the ensuing years.”
The utility should “urgently revisit” the revenue sharing provisions of the JVA and “renegotiate an increase on annual revenue share” or come up with an additional provision in the contract that would restore its good financial performance, the COA said.
In the case of CSFWD, a COA report it received on Feb. 24 noted that the water district’s average net income “continuously diminished after it entered into a JVA with Primewater” so a contract renegotiation must be considered.
Soon after Primewater took control of CSFWD on Dec. 16, 2016, its net income plummeted to an average of P6.8 million between 2017 and 2020, state auditors said.
The CSFWD had an annual net income from P15.144 million to P33,774 million between 2013 to 2016 but it saw a net loss of P48.6 million after Primewater’s takeover in 2017, according to the COA.
Although CSFWD claimed the decrease was due to depreciation, the COA said it did not jibe with the 74-percent decrease of its total operating income and the 87-percent drop of its expenses.
CSFWD reported a net income of P36.849 million in 2018, P27.336 million in 2019, and P11.6 million in 2020. But the COA found that the significant rise in 2018 and 2019 incomes was due to the P75-million loan granted by the Philippine National Bank to CSFWD during these years.
In Floridablanca town, FWD’s revenue also dropped after Primewater took over control on Dec. 1, 2016, with income down to P5.468 million in 2020. FWD’s net income in 2016 was P8.339 million.
In Guagua town, GWD’s average income was only P730,000 from 2018 to 2020, a huge drop from its average income of P13.534 million from 2015 to 2017 before Primewater took over on Nov. 3, 2017.
In Lubao town, LWD also suffered an income decline since Primewater took over in September 2018.
The COA said LWD had an average yearly income of P32 million from 2015 to 2018. In 2019, the first full year of Primewater’s operation, the water district’s net income fell to P10.5 million, which plunged further to P6.4 million in 2020.
LWD said a decline in income was anticipated even if it had not made a deal with Primewater, as it had taken out a P25-million loan for two water treatment facilities. But the COA said the utility had the capacity to fulfill its obligations without Primewater.