Submitted to the MWSS Regulatory Office and the MWSS Board of Trustees
14 December 2008
15 December 2008
The Freedom from Debt Coalition submits this petition to the MWSS-Regulatory Office and the MWSS Board of Trustees to call for a rejection of the proposed P10.96 tariff increase to be implemented by Maynilad Water Services Inc. beginning January 1 2009.
As the government bodies directly accountable and publicly responsible for the delegation of Metro Manila’s water distribution services to two private concessionaires, the MWSS-RO and the MWSS Board of Trustees are hereby called upon to exercise their responsibility with utmost regard of the following considerations: 1. The rate base increase proposed by Maynilad of P10.96 per cubic meter, and any rate increase for that matter, is unconscionable in the midst of the global financial crisis, as it takes into consideration only the financial viability of the private concessionaire without regard for the economic vulnerability of common consumers.
With an extra daily cost of P7.10 for each average household consuming 30 cubic meters per month, the impact of the said increase cuts heavily against a consumer population that already balks at lesser rate hikes in the transportation sector. Household consumers totaling more than 600,000 and comprising 80% of Maynilad’s total service base, will be hard hit by the proposed increase regardless of whether it will be applied using a staggered mechanism or not. There are currently more than 150,000 households belonging to depressed communities in Maynilad’s service zone, and these households will be hardest hit by the proposed increase, vulnerable as they already are to the still-escalating effects of the global financial crisis.
Proceeding with the rate increase for the simple reason that the rate-rebasing exercise has been scheduled and mandated in the concession contract is unacceptable. Contractual provisions in the concession agreement have hardly been treated with strict compliance, particularly when compliance amounted to inconveniences on the part of the concessionaires. Service performance targets from the original contract have been lowered to better suit the concessionaires’ actual performance. The payment of Maynilad’s concession fees has previously been delayed for years and later restructured to accommodate Maynilad’s financial distress. When the previous Asian financial crisis hit us in 1997, the said crisis was accepted as a reasonable cause for amending the agreement and allowing the concessionaires to immediately recover their foreign exchange losses within a shorter period than what was provided for in the contract. All these have been contrary to the original provisions of the concession agreement, yet the contract has been amended and made flexible in order to accommodate the financial viability of the concessionaires.
As contractual provisions have been previously relaxed for the benefit of the concessionaires, then there is no salient reason why they cannot be relaxed as well for the benefit of consumers. This only requires political will on the part of MWSS and sincerity on the part of Maynilad to abide by its avowed principle of corporate social responsibility. This is not the time to proceed with business as usual, and business as scheduled.
Allegations that deferring the increase will result into a failure to provide access to 3 million consumers hold little weight beyond emotional blackmail. The difference between Maynilad’s capital expenses for 2008 and 2009, for one, amounts to less than a billion pesos, thereby negating any notion that the proposed increase is due to their proposed infrastructure projects. Furthermore, expected infrastructure costs for the next coming years need not be recovered immediately from consumers, nor do they need to be recovered entirely from consumers. Further study and review of the actual infrastructure requirements and costs must be conducted in search of other viable solutions beyond the convenient solution of immediately burdening consumers with the proposed rate increase. 2. Anomalies concerning the computation of the proposed rate base and the actual rate-rebasing process mar the validity of the proposed rate increase.a. Absence of genuine public consultations on the proposed rate hike.
Public consultations on the proposed rate hike mandated to be conducted prior to the final approval of a rate-rebasing increase failed to meet its purpose of properly presenting the details of the proposed increase to the general public. In the two “public consultations” of November 28 and December 4, no breakdown of the actual tariff increase or the projected expenditures was provided to the public, nor were we provided any option to reject or oppose specific expenses that were to be shouldered by the consumers.
During the said consultation, only a wholesale presentation of the proposed rate was provided alongside a presentation of Maynilad’s proposed projects, thereby creating an immediate impression to the general public that the rate increase of 10.96 is directly and exclusively resulting from the proposed projects. Such a set-up invalidates the entire consultation process as it fails to truly lay down the breakdown of expenditures, much of which are not actually related to the proposed infrastructure projects, such as operating expenses including business taxes, concession fees and debt interest payments.
While assurances were given by the MWSS-RO that sufficient diligence was exercised to include only prudent and efficient expenses, the current practice of holding the consultations only to garner crowd applause for Maynilad’s proposed projects defeats the entire purpose of holding a public consultation prior to the approval of a rate increase. With such a set-up, necessary decreases in the proposed rate cannot be quantified as the public is not provided the means or opportunity by which to pinpoint specific expenses that they may not be willing to shoulder. Any public approval would thereby constitute a blind approval of unrevealed expenses and defeat the entire purpose of holding the public consultation in the first place. Decreases in the proposed hike would only be emotionally estimated to pacify random public displeasure. If assurances are to be held as sufficient, then the provision mandating public consultation prior to approval would be without teeth nor consequence.b. Inclusion of questionable expenditures in the computation of projected expenditures.
Related to the absence of genuine public consultations is the inclusion of expenditures that may not be publicly approved had they been publicly revealed. The inclusion of corporate taxes, for one, in the expenses to be shouldered by consumers deserves much concern. Although the concession agreement provides for the recovery of business taxes, it is within the power of the board to negotiate an amendment of such a provision particularly in the light of the Meralco ruling disallowing the inclusion of corporate taxes in the expenses to be borne by consumers of public utilities. This has been a long-standing concern that should have warranted a review prior to the approval of any rate increase that includes corporate taxes among its projected expenditures.
The inclusion of debt and interest payments for projects identified as questionable and illegitimate such as the Umiray-Angat Transbasin Project has also been left unrevealed along with financing costs for previous loans. The allowance and disallowance of such as the Umiray-Angat Transbasin Project has also been left unrevealed along with financing costs for previous loans. The allowance and disallowance of such expenses that are automatically shouldered by consumers should be revealed. c. Application of the same ADR applied to Manila Water despite blatant discrepancies between the performances of the two concessionaires.
The Appropriate Discount Rate, which effectively translates into the revenue rate of Maynilad is supposed to be set through negotiations with the MWSS-RO, taking into account the actual service performance of the concessionaire. It is questionable, therefore that the same ADR of 9.3 arbitrarily approved for Manila Water’s rate-rebasing exercise last year has been summarily applied to Maynilad’s rate-rebasing exercise this year. The service performance for the past ten years of the two concessionaires vary tremendously from each other in almost all service indicators from non-revenue water management, sewer service coverage, to water coverage. The application of the same ADR to Maynilad despite its blatantly inferior performance negates the function of the ADR as a reward incentive for good performance. With the said ADR already applied in the computation of the proposed rate increase, the proposed rate increase becomes questionable as being unjustly overpriced without regard for the apparent under-performance of Maynilad’s service obligations. 3. Unresolved legal controversies concerning Maynilad’s present rates preclude any moral ground to demand further increases.
In 2005, several civil groups and concerned consumers filed a case with the National Water Resources Board questioning the legality of Maynilad’s new rates which had hiked up to P30.19 per cubic meter despite procedural anomalies in the approval of the said rates.
Should the said complaint be determined to be legally founded, this would mean that Maynilad has in effect been overcharging consumers since it began the implementation of the 30.19 rate more than three years ago. The resolution of this legal controversy demands immediate concern as it in effect may conclude that rates should be lowered instead of increased as what is presently being proposed. Instead of hastening the determination of the said case in order to provide validation for its present rates, however, Maynilad’s protracted appeals to strip the NWRB of any judicial power over Maynilad have resulted in the stalling of the actual case.
While the said legal controversy remains unresolved, proposals to further increase Maynilad’s water rates lack moral ground and cannot be allowed in good conscience. Questions concerning Maynilad’s over-collection in many other items including the past controversy on AEPA overcharges and inappropriate metering charges must be adequately addressed and resolved with finality prior to any proposed rate increase.
From the points laid above, we in the Freedom from Debt Coalition believe that an approval of Maynilad’s proposed increase will only merit a deluge of further questions already piling up concerning the regulation of MWSS’ concessionaires and the protection of consumer interests. The integrity of the MWSS Regulatory Office and the MWSS Board of Trustees may be protected through transparency mechanisms which must begin with a deferral of the proposed increase and further direct and genuine consultations with the concerned public. Efforts to address the economic vulnerability of consumers at this time of crisis and alternative solutions beyond the framework of the concession agreement and the entire privatization scheme must be explored and examined hand in hand with concerned civil groups.
Thus we call on the MWSS-RO and the MWSS Board of Trustees to disapprove and defer the proposed rate increase pending further consultations and study of alternative mechanisms to address the global financial crisis. The concession agreement and the effectiveness of the rate-rebasing exercise in equitably balancing the interests of the public consumers and the private concessionaire must be reviewed with earnest.
(Signed)MILO N. TANCHULINGSecretary General
Freedom from Debt Coalition