Resolve Maynilad rate dispute in consumers’ favor

IT is no small matter to encourage anyone to willfully disregard the law. In the case of Maynilad Water Services Inc. and its long campaign to pass its corporate tax obligations on to its customers, however, calling on regulator Metropolitan Water and Sewerage Services (MWSS) to do precisely that is a moral and patriotic imperative.

MWSS must not permit Maynilad to take unfair advantage of Filipino consumers, even if it means ignoring rulings that give Maynilad the legal right to do so.

The rate dispute between Maynilad and MWSS began in 2013, when the regulator rejected an application for a rate hike by the West Zone water concessionaire for 2013 through 2017. MWSS, instead, ordered Maynilad to reduce its rates to customers, in part because Maynilad included recovery of its corporate income taxes in its rate calculation.

The MWSS also rejected the rate hike application and ordered a similar rate reduction by Maynilad’s East Zone counterpart concessionaire Manila Water Inc., prompting both companies to seek relief through arbitration at the Singapore-based International Chamber of Commerce (ICC). The arbitration mechanism was provided for in the two companies’ concession agreements implemented in 1997.

Maynilad was awarded its rate increase, although one that was slightly lower than what it had originally requested, by the ICC tribunal in 2014. One of the key determination that Maynilad was not a public utility, and was, therefore, entitled to recover its corporate tax expenses from its customers.

The MWSS at the time refused to honor the ruling, This prompted Maynilad to demand P3.44 billion in compensation from the government in March 2015 for losses incurred due to MWSS’ inaction. When this was not forthcoming, Maynilad sought another ruling from ICC, in the Philippines ruled in Maynilad’s favor, saying that the government was contractually bound to honor the arbitral decision and compensate Maynilad.

The government at that point decided to cut its losses and pay Maynilad, but the entire issue has reemerged with the rate recalculation for the 2018- 2022 period. Maynilad again included its corporate taxes among costs to be recovered from customers, and MWSS again rejected that, sending Maynilad back to Singapore to seek another favorable ruling through arbitration. In all likelihood, the ruling will be exactly the same as before, as the precedent has already been established.

It is a precedent that is dead wrong, however, and is based on a gross disadvantage accepted by the Ramos administration in 1997 in order to solve the then-desperate situation of Maynilad is a public utility: It provides an essential public service under conditions of a natural monopoly, and, therefore, has advantages that other kinds of private enterprises do not. The universal convention under those circumstances, which even the ICC acknowledges, is that corporate income taxes should not be recoverable.

The ICC’s ruling seems to display bias in favor of corporate interests over the public good. If it rules again in the same way on Maynilad’s new claim, the government may not honor it.

solution. Dishonoring a contract in an extreme case is one thing, but establishing that as policy by not doing anything to prevent it from happening again is quite another. For that, Congress must act to clarify what is and is not a public utility, so that proper regulation of this country’s essential services is not subject to the pro-business whims of an unaccountable, foreign third-party body.