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By Claire-Ann Marie C. Feliciano, Senior Reporter

Second water rate hike awaits users

Posted on January 06, 2015

ANOTHER water rate hike looms for customers of Maynilad Water Services, Inc. with the conclusion of the utility’s dispute with Metropolitan Waterworks and Sewerage System (MWSS) that took over a year to resolve.

Maynilad sought arbitration with the International Chamber of Commerce (ICC) in October 2013 after MWSS rejected the utility’s petition to hike its water rate by 28.3%, equivalent to P8.58 per cubic meter (/cu.m.), under the rate rebasing process for 2013-2017.

The water regulator instead ordered the utility to cut its tariff by P1.46/cu.m.

Maynilad’s parent companies -- DMCI Holdings, Inc. and Metro Pacific Investments Corp. (MPIC) -- separately disclosed yesterday that the Appeals Panel composed of representatives of Maynilad, MWSS and the ICC resolved the case late last year.

“In a decision dated 29th December 2014, the Appeals Panel... upheld the alternative rebasing adjustment of Maynilad,” both disclosures read.

“This will result in a 9.8% increase in the 2013 basic water charge of P31.28/cu.m., inclusive of the P1 currency exchange rate adjustment (CERA) which the MWSS has now incorporated into the basic charge.”

The decision translates to an average increase of P3.06/cu.m. on Maynilad’s water rates, according to the disclosures.

Randolph T. Estrellado, Maynilad chief finance officer, noted that each user’s “water tariff is dependent on the volume of water consumed per month.”

Mr. Estrellado said the 9.8% increase will result in a P2.66/cu.m. hike for households using 30 cu.m. each month -- the average among Maynilad’s residential customers.

Those consuming 10 cu.m. and 20 cu.m., meanwhile, will see P0.42/cu.m. and P1.68/cu.m. increases, respectively.

Mr. Estrellado also noted that the approved increase was lower than the one originally sought by Maynilad.

“It is already lower than the original application because we submitted an alternative business plan for arbitration, as allowed under the rules,” he said. “We already took into consideration the [MWSS] Regulatory Office’s reduction in capital expenditures and disallowed expenses.”

In their disclosures, DMCI and MPIC acknowledged the two-year delay in adjusting the basic water charge.

While the concession agreement between Maynilad and MWSS provides for a one-time implementation of the rate rebasing adjustment, the utility said it is “willing to implement the increase on a staggered basis to mitigate the impact... on its customers in the west zone of Metro Manila...”

“Since we are offering to stagger the increase, the implementation details are not yet final,” Mr. Estrellado emphasized.

Even with a decision from the Appeals Panel, he noted that “the whole implementation -- whether staggered or not -- has to be approved by the MWSS Board for publication of the new rates.”

While Mr. Estrellado could not give an implementation timetable, he said: “We hope to come to an agreement with MWSS on staggering and publication as soon as possible.”

We need to publish the notice of rates 15 days prior to any implementation,” Mr. Estrallado added.

Rate rebasing, as provided under the concession agreement, involves a review process for the determination of water service tariffs and an appropriate market-based rate of return for the utility.

Victorico P. Vargas, Maynilad president and chief executive officer, said in the disclosure that the decision of the Appeals Panel “confirms that the concession agreement works, and restores investor confidence in the public-private partnership program of the government.”

“This also ensures the continued implementation of Maynilad’s capital expenditure projects that are intended to benefit further our customers.”

Besides Maynilad, the other water concessionaire of MWSS also initiated an arbitration process in 2013.

Manila Water Company, Inc., which proposed a P5.83/cu.m. increase in its basic water charge of P24.57/cu.m, was ordered to reduce tariffs by P7.24/cu.m.

Gerardo C. Ablaza, Jr., Manila Water president and chief executive officer, said last November that the utility expected a decision early this year.

Yesterday, the utility’s Head for Corporate Communications Jeric T. Sevilla, Jr. said the Appeals Panel has yet to arrive at a decision on Manila Water’s case.

Asked if it is still expected the decision early this year, Mr. Sevilla replied: “We are hoping, but it really depends on the Appeals Panel.”

The looming rate increase of Maynilad and the potential adjustment of Manila Water’s tariffs will come on top of another rate hike approved by the MWSS last month.

Maynilad and Manila Water yesterday started implementing higher water rates to cover the foreign currency differential adjustment (FCDA). The adjustments will be reflected on the customers’ February bills.

Under the concession agreements of the utilities with MWSS, the FCDA is a tariff mechanism “to recover or compensate for fluctuations... in foreign exchange rates.” Gains and losses can arise from payment of utilities’ concession loans and foreign currency-denominated borrowings used to improve services.

Maynilad’s Mr. Estrellado noted that FCDA is different from CERA since the latter, as provided by concession agreements, covers “the P1 add-on to the basic tariff.”

MWSS has said that CERA covers recovery of foreign exchange losses prior to the utilities’ takeover of MWSS’ operations as a water service provider in the east and west zones of Metro Manila.

“So CERA does not regularly adjust with the foreign exchange, unlike FCDA,” Mr. Estrellado explained.

Maynilad has started charging a 1.12% FCDA on its basic charge or an increase of P0.38/cu.m. This means that customers with 30 cu.m. monthly consumption will have to pay P864.51 every month, which is P9.12 more from P855.39 prior to the FCDA implementation.

On the other hand, Manila Water imposed 1.32% or an increase of P0.36/cu.m. Households with 30 cu.m. will have to pay P625.23 for their monthly bills from the previous P604.99.

Ayala-led Manila Water provides water and wastewater services primarily to the east zone concession area covering the cities of Makati, Mandaluyong, Pasig, Pateros, San Juan, Taguig and Marikina. It is also in charge of the southeastern parts of Quezon City and Sta. Ana and San Andres in Manila. In Rizal province, the utility services the municipalities of San Mateo, Rodriguez, Cainta, Taytay, Angono, Baras, Binangonan, Jalajala; as well as the city of Antipolo.

Maynilad provides water and wastewater services to residents in most of Manila, parts of Quezon and Makati cities, as well as the cities of Caloocan, Pasay, Parañaque, Las Piñas, Valenzuela, Navotas and Malabon in Metro Manila. Its franchise area also covers the cities of Bacoor and Imus and the municipalities of Kawit, Noveleta and Rosario in Cavite province.

MPIC and DMCI hold 52.8% and 25.24% interests, respectively, in Maynilad. Japanese firm Marubeni Corp. holds a 20% stake in the utility, while the balance is held by other shareholders.

Yesterday, shares of MPIC gained five centavos or 1.09% to end P4.65 apiece from P4.60 on Dec. 29; those of DMCI shed eight centavos or 0.51% to close P15.62 each from P15.70, while those of Manila Water gained 15 centavos or 0.52% to finish P29.15 per share from P29.

MPIC is one of three key Philippine units of Hong Kong-based First Pacific Co. Ltd., the others being Philex Mining Corp. and Philippine Long Distance Telephone Co. (PLDT). Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has a majority stake in BusinessWorld.