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Manila Water presses for indemnity

Posted on December 11, 2015

THE CURRENT ADMINISTRATION is winding down with still another contractual dispute under adjudication, this time as Manila Water Company, Inc. said yesterday that it has gone to an international arbitration court to compel the government to pay it P79 billion for losses projected from 2015 to 2037 resulting from recently approved lower-than-sought tariffs.

“In relation to our disclosure letter, dated April 23, 2015, please be informed that the Manila Water Company, Inc. has filed a notice of arbitration with the Permanent Court of Arbitration in Singapore,” the company said in a Dec. 10 letter to the Securities and Exchange Commission (SEC) and the Philippine Stock Exchange, Inc. (PSE) that was attached to a disclosure yesterday.

Manila Water cited as basis the April 23 notice of claim it submitted to the Finance department (DoF) that called for implementation of the July 31, 1997 Letter of Undertaking that guaranteed the obligations of the Metropolitan Waterworks and Sewerage System (MWSS) under their Feb. 21, 1997 concession agreement.

“In the Letter of Undertaking, the Republic, through the DoF, undertook to indemnify Manila Water against any loss caused by any action on the part of the Republic and/or the MWSS, resulting in the reduction of the standard rates ‘below the level that would otherwise be applicable in accordance with the concession agreement,’” according to the letter that was signed by Manila Water Chief Legal Counsel Jhoel P. Raquedan.

Manila Water’s main concession area covers the Metro Manila cities of Makati, Mandaluyong, Pasig, Pateros, San Juan, Taguig, Marikina; most parts of Manila and Quezon City; as well as some parts of Rizal province. It has also expanded operations to cover Boracay, Clark in Pampanga and parts of Cebu. Outside the Philippines, it holds substantial stakes in Thu Duc Water BOO Corp. and in Kenh Dong Water Supply Joint Stock Co., which are both water suppliers in Vietnam.

Last Apr. 21, an appeals panel ended a year-long government-Manila Water dispute over the latter’s tariff for the 2013-2017 rate-rebasing period. Manila Water originally proposed a P5.83-per-cubic meter (/cu.m.) increase in its 2012 basic water charge of P25.07/cu.m., but MWSS instead ordered the company in September 2013 to cut tariffs by P7.24/cu.m. after excluding tax payments from tariff computation. That regulatory decision prompted Manila Water -- which argued it was entitled to such treatment under its concession deal -- to take its case to the International Chamber of Commerce that same month for arbitration. The final award resulted in an 11.05% cut -- about P2.77/cu.m. -- to the basic water charge.

“As a result of certain actions by the MWSS and the Republic, which are covered by the provisions of the Letter of Undertaking, the company demanded indemnification from the Republic by reimbursing its losses in operating revenues to be realized for each remaining year of the concession as such losses are realized, which losses are estimated to amount to P79 billion for the period 2015 up to 2037,” Manila Water explained in its letter. “Since the filing of the Notice of Claim on Apr. 23... the Republic has not responded... which prompted the company to avail of its remedy under the Letter of Undertaking; hence, the Notice of Arbitration in the Permanent Court of Arbitration in Singapore.”

In its filing with the Singapore court, the company said that even as it continues to pursue its claim, it has started to implement the new rates set by MWSS that “incorporates a reduction” of P1.66 per cubic meter in the basic charge.

The latest move on this matter by Manila Water -- whose shares yesterday lost 55 centavos or 2.15% to end P25 apiece, compared to a 0.40% drop each of the PSE index and of the industrial index to which the firm belongs -- comes in the wake of similar action by Maynilad Water Services, Inc. that holds the concession for Metro Manila’s so-called “west zone”. Maynilad last March 27 haled the government before the International Chamber of Commerce to compel payment of P3.44 billion for estimated losses -- covering the first two months of this year -- from deferred implementation of a tariff increase it won under arbitration. Maynilad had said then that it continued to incur “revenues losses averaging P208 million for every month of of additional delay in 2015.”