MWSS on water tax: Grossly unjust

Making customers pay for the income taxes of Maynilad Water Systems Inc. and Manila Water Co., the water concessionaires in Metro Manila and nearby areas, “is grossly unjust,” the Metropolitan Waterworks and Sewerage System (MWSS) said Thursday.

But the MWSS regulatory office said doing away with the practice would still have to be determined by next month, said a report posted on ABS-CBNnews.com.

Acting regulatory office chief Emmanuel Caparas told ANC that “the view of the regulatory office is that with respect to the income tax of the concessionaires, this is not a valid expense that should be passed on to consumers.”

But Maynilad and Manila Water will not be ordered immediately to stop making their consumers pay for the firms’ income taxes, Caparas said. “It will go through a long process.”

He said the regulatory office wanted to finish the process by July.”

“Should our opinion on the matter carry and be adopted, then you’re looking at an adjustment that is downward in direction,” he said.

Caparas said a refund for consumers would be considered.

The Water for People Network (WPN), an advocacy group, has said that both Maynilad and Manila Water included income tax payments in their operating expenses that amounted to P3.1 billion a year from 2008 to 2012 for a combined P15.3 billion.

Maynilad is majority-owned by Metro Pacific Investments Corp. and DMCI Holdings while Manila Water’s biggest shareholder is Ayala Corp.

Refund to customers

Sen. Ralph Recto, chairman of the Senate panel on ways and means, earlier said that the two concessionaires should refund consumers, like what Manila Electric Co. (Meralco), the country’s biggest power distribution utility, did.

Meralco returned P28 billion to customers after the Supreme Court ruled in 2003 that it could not pass on its income tax obligations to customers.

Recto, in a statement, said WPN’s findings cast doubt on the legitimacy of the two companies’ petition for a rate increase.

“What is now the compelling justification for approving a rate increase? If they are not practically paying income taxes and at the same time receiving some tax perks from the government, what’s the happiness in granting them a rate hike?” Recto said.

Systems loss, too

Manila Water is seeking an increase of P5.83 per cubic meter in its basic charge while Maynilad is asking for an P8.58 hike.

In addition to allowing the concessionaires to pass on the cost of corporate income tax to consumers, the MWSS authorized Maynilad and Manila Water to recover the cost of nonrevenue water (leaks) through consumer payments, the senator said.

“[The MWSS] should rescind this authority (of passing on the cost of income tax to consumers) before losses and other company expenses, such as travel and entertainment expense, are also passed on to the hapless water consumers,” Recto said.

Recto said he would initiate a Senate inquiry into the matter when Congress resumed session in July.

High court

Three consumer group coalitions have asked the Supreme Court on Wednesday to stop the planned water rate increases of Maynilad and Manila Water.

The Water for All Refund Movement, Water Watch Coalition Inc. and Alyansa ng Mamamayang Naghihirap Inc. claimed that the two concessionaires failed to justify the water rate increase during an earlier public consultation.

The groups asked the high court to declare Maynilad and Manila Water to be “public utilities subject to the rules and regulations of public service laws and the auditing powers of the Commission on Audit.”

They said Maynilad and Manila Water appeared to enjoy “sovereign power” in water infrastructure projects, which they used to justify raising water rates.

ERC-like agency

Sen. Francis Escudero is calling on the incoming 16th Congress to consider the creation of an agency similar to the Energy Regulatory Commission (ERC) that will review higher rates sought by water concessionaires before these are collected from consumers.

“The water utilities don’t have an agency like the [ERC in the power sector] before which the concessionaires should justify, explain and unbundle their costs,” Escudero told reporters in an interview.

“This should be looked into by the Senate when it resumes its sessions,” he added.

Escudero said all natural monopolies should be regulated by the government. “They shouldn’t be allowed to freely take advantage of us just because they are natural monopolies.”

Cozy relationship

Critics of the MWSS have noted the apparently cozy relationship between the state regulator and the concessionaires, especially during the latter part of the administration of former President Gloria Macapagal-Arroyo.

At the time, the MWSS relaxed its monitoring of Maynilad and Manila Water’s obligations to expand their services and improve sewerage facilities.

The two concessionaires were allowed to collect advance fees from customers for projects that they had yet to build and were awarded a 15-year extension of their concessions without any bidding (their 25-year agreements will end in 2022).

The MWSS had adopted generous bonus and compensation schemes for its officers and employees using funds from the concession fees, drawing flak from the then newly installed President Aquino.—With reports from Norman Bordadora and Dona Z. Pazzibugan