June 2, 2016

 

The Freedom from Debt Coalition (FDC) called on the incoming Duterte administration to undertake a review of all government issued sovereign guarantees following recent reports that the Department of Finance (DoF) was preparing to pay Maynilad and Manila Water P82.4 billion in compensation for supposed losses they incurred due to the postponement of the increase in their basic charges.

“One of the first things the Duterte government should do once it assumes office is to look into all sovereign guarantees issued in the past in order to determine how much risk the public sector has taken on and whether these guarantees were really necessary,” FDC Secretary General Sammy Gamboa said. “In issuing sovereign guarantees government could potentially set itself up for large, unexpected future expenses for which it has made not made enough provisions. There is also the fundamental question of whether it is right for government to take on virtually all the risks in multi-billion peso projects while the private investor reaps all the profits.”

Maynilad demanded P3.44 billion from the DoF last year after the Metropolitan Waterworks and Sewerage System (MWSS) failed to implement an arbitration decision in its favor. Manila Water followed suit with a demand for P79 billion in compensation after it lost its own arbitration case.

“While we welcome recent reports that the Department of Justice (DoJ) advised the DoF to defer payment pending the Supreme Court decision on the matter, it still leaves the issue up to the DoF which could simply decide to preempt the SC. That would set a bad precedent and institutionalize a patently unjust set-up where the government loses its regulatory power to set water tariffs and the water companies are left free to do as they please,” Gamboa said.

FDC has been closely monitoring the issue since 2013 when the MWSS rejected both water companies’ request for another rate hike prompting them to file arbitration cases with the International Court of Arbitration.

“It is unfortunate that the government issued letters of undertaking in favor of the two water companies when Metro Manila’s water service was privatized but it should not be construed as a mechanism for automatically reimbursing their losses should they be barred from implementing rate hikes. Manila Water’s excessive claim for example, which computes projected losses all the way to the end of the concession, should be rejected outright,” Gamboa said.

FDC also called for the full disclosure of the contents of the letters of undertaking issued in favor of Manila Water and Maynilad so that public can see whether their interpretation of the provisions is valid.

“The water companies must prove that their claims fall within the provisions of the government issued guarantee. Barring this, government is well within its rights to reject the demands. Contrary to their assertions, therefore, the water companies cannot simply demand compensation and expect government to cough up the money without the benefit of reviewing whether there is in fact basis for the claims,” Gamboa added.

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