Tag Archives: water rate hike

Economy, Oil deregulation, Privatization

“Red October” Day 1: What’s destabilizing the Duterte regime?

(Photo from AP/Bullit Marquez/The Philippine Star)

It’s “Red October” Day 1. Who or what is destabilizing the Duterte government today?

The oil companies. Oil firms announced that they will be implementing another round of oil price hikes starting Oct 1. Pilipinas Shell is hiking its LPG (liquefied petroleum gas) price by about Php2.36 per kilogram (kg) while Petron Corp. will also increase by Php2.35. These translate to an increase of almost Php26 for an 11-kg cylinder tank usually used by households. Including the previous increases since Pres. Duterte took over, LPG prices have already ballooned by an estimated Php216 to Php246. Further, starting Oct 2, oil firms will also implement a big-time price hike for diesel, gasoline and kerosene. Oil companies already announced that they will hike the price of diesel by Php1.35 per liter; gasoline, Php1.00; and kerosene, Php1.10. This will be the eighth straight week of unabated oil price hikes and would be the 28th overall for the year. Since Duterte became President, the price of diesel has already soared by more than Php20 per liter (Php13.50 this year alone) and gasoline by more than Php19 per liter (Php13.37 this year). (Read more on the latest oil price hikes here.)

The private water concessionaires of the MWSS (Metropolitan Waterworks and Sewerage System). Starting Oct 1, Maynilad Water Services Inc. will be billing its customers an additional Php0.90 per cubic meter for its basic charge under its rebased rates approved by the MWSS-Regulatory Office. This is on top of the Php0.11 per cubic meter increase due to the quarterly foreign currency differential adjustment (FCDA). Manila Water Corp.’s basic rates will likewise increase by Php1.46 per cubic meter due to rate rebasing while it will charge an extra Php0.02 per cubic meter due to the FCDA. Both rate rebasing and FCDA are mechanisms created under the privatization of MWSS that allow the private water concessionaires to adjust rates in order to pass on to the consumers all the costs of running the water services system and at the same time guarantee their profits. The rate hikes this “Red October” under the rate rebasing are just the first in four installments of increases with the three others to be implemented in Jan 2020, Jan 2021 and Jan 2022 – the second half of the Duterte presidency (that is if he is still in power).

Earlier, the Department of Economic Research of the Bangko Sentral ng Pilipinas (BSP) has estimated that inflation for September could reach 6.8%, with a range of 6.3% and as high as 7.1 percent. If the central bank’s forecast happens, this would be the ninth straight month of accelerated inflation and will be the highest in nine years. Pres. Duterte’s economic managers have repeatedly assured the public that inflation will ease in the latter part of 2018. But with the continued climb in oil prices, water rates, food prices (made worse by the impact of typhoon Ompong that destroyed almost Php27 billion worth of crops) and other basic goods and services, this appears to be a very optimistic forecast.

Rising prices and the inability or outright refusal of the Duterte administration to reverse current policies that allow unabated price hikes such as oil deregulation and water privatization, as well as its continued insistence on additional taxes under the TRAIN (Tax Reform for Acceleration and Inclusion) that further bloat prices are fueling social unrest and instability. The latest Pulse Asia survey showed that rising prices are the most urgent concern of Filipinos along with other economic concerns such as increasing workers’ pay, reducing poverty and creating more jobs.

As it hunts for “Red October”, the Duterte administration should look at itself instead, and not at the communists and their supposed co-plotters. Apparently, its own economic policies – together with its repressive schemes – are the ones destabilizing and isolating the regime. ###

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Consumer issues, Economy

Inflation surges for 5th straight month since TRAIN law

Inflation as of May 2018There is no end in sight for high prices under President Duterte.

Inflation rate has reached a new 5-year high this May at 4.6 percent. It has been continuously accelerating every month since the TRAIN Law took effect in January 2018.

Even Duterte’s economic managers could not say whether inflation has already peaked. This means that the public should brace for more surges in prices of basic goods and services in the months ahead.

By the second half of the year, for instance, we are looking at big-time increases in water rates in Metro Manila (earlier reports indicated a basic charge hike of Php8+ to Php12+ per cubic meter) as well as in LRT-1 fares (Php5-7) thanks to privatization. Public transport fares will likely increase too amid deregulated oil price hikes.

The poorer families obviously are the hardest hit but even middle-income households are also not spared.

Transport service Grab has been hiking their rates with impunity, taking advantage of the lack of a reliable mass transport system. Meanwhile, some 170 private schools in NCR have jacked up tuition by 5-15% this school year, which will hit monthly household budgets as most pay on installment basis.

Duterte’s economic managers assure the public that inflation will eventually taper off later in the year. What this means is that prices will continue to increase although at a slower pace than they are doing today. This assumes that global oil prices and foreign exchange rates will move favorably, which is difficult to bank on amid worsening geopolitical uncertainties.

Further, because the downstream oil industry is deregulated, government does not have the needed policy tool to ensure that the public and the economy are protected from sudden and drastic and often speculative increases in global oil prices. Not to mention that the industry remains monopolized and the prices dictated.

Oil continues to be one of the biggest drivers of high inflation in the country. According to the joint DBM-NEDA-DOF statement, oil price increases contributed 0.70 percentage points to the 4.6% May inflation. But increasing petroleum prices also pushed up food prices, with fish and seafood and bread and cereals, for instance, significantly contributing as well to the May inflation with 0.65 and 0.56 percentage points, respectively per NEDA data.

What is certain is that the impact of the additional taxes on consumer prices under the TRAIN law is permanent unless they are removed. Including the latest (June 3) oil price adjustments, the TRAIN law accounts for 29.3% of the total increase in diesel prices this year; gasoline, 32.6%; and kerosene, 34.4 percent.

Blog 08 Table OPH TRAIN

Amid all these, people do not simply complain but make concrete policy proposals that could at least provide immediate relief, such as removing the additional taxes under the TRAIN law.

But typical of the Duterte administration, we get responses ranging from the arrogant (e.g., Budget Sec. Benjamin Diokno’s crybaby remark) to the ludicrous (e.g., Finance Sec. Carlos Dominguez’s claim that the public’s supposed wasteful spending of their additional income under TRAIN is further driving prices up). #

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Consumer issues, Privatization

Maynilad says 65% of rate hike will be used to pay for its income tax

 

Manny Pangilinan and his foreign backers and financiers, who have interests in LRT, MRT and Maynilad, must be grinning widely right now.

With the public still reeling from the huge LRT/MRT fare hike, Maynilad Water Services Inc. announced that it will soon implement a significant increase in its basic charge. The average increase is P3.06 per cubic meter. What makes this rate hike as awfully unjust as the LRT/MRT fare hike is that 65% of the increase (about P1.99 per cu. m) will be used to recover the income tax of Maynilad. This was disclosed by the water firm’s Chief Finance Officer as quoted in a news report.

This means that hapless consumers will continue to pay for the corporate income tax of a highly profitable big business that has been cashing in on a basic service. In 2013, Maynilad reported a core income of P7.53 billion. (See chart below) Since 2010, its core income has been growing by more than 16% annually. Maynilad’s rising profits are mainly pushed by ever increasing water rates due to periodic and automatic adjustments allowed in its Concession Agreement with the Metropolitan Waterworks and Sewerage System (MWSS). Since taking over in 1997, Maynilad’s water rates have already ballooned by more than 500 percent. Since 2010, its all-in tariff (basic charge plus other charges) has jumped by more than 40 percent, which could further go up when the higher basic charge is implemented.

Image from Metro Pacific

Image from Metro Pacific (Core earnings represents earnings associated with business operations, and exclude earnings from goodwill, gains or losses from nonrecurring items, pension gains, legal settlements or employee stock options; source: Investopedia)

But while it has been earning billions of pesos from onerous and skyrocketing water rates, Maynilad wants to further milk the consumers dry by passing on their obligation to pay income tax to their customers. How does Maynilad justify this patently scandalous practice? A direct statement from its Chief Finance Officer: “Siyempre ang negosyante, ini-invest niya ‘yung pera niya para may return. So ang usapan dito, magkano ba ang tubo na dapat kitain ng pera na ‘yun. Importante ‘yung computation ng taxes kasi kailangan natin malaman magkano ‘yung net na iuuwi.”

To recall, the MWSS-Regulatory Office (RO) disallowed Maynilad and Manila Water Co. from including income tax recovery in their computation of the basic charge. Maynilad and Manila Water separately challenged the decision through arbitration led by the International Chamber of Commerce (ICC), a dispute resolution mechanism established by the Concession Agreement. Manila Water is still awaiting the result of its own arbitration case as of this posting.

More than eight million Maynilad customers are supposed to enjoy a reduction in their monthly water bill. In its decision last September 2013, the MWSS-RO ordered Maynilad to cut its basic charge by P1.46 per cu. m (which shall be distributed in five tranches at P0.29 per cu. m. per year) Now instead of a rollback, consumers are faced with a big rate increase. (Download the MWSS-RO resolution here)

The income tax is actually just one of the various issues raised by the MWSS-RO against Maynilad and Manila Water. Another is the P1 per cu. m. currency exchange rate adjustment (CERA), which the regulators ordered Maynilad to discontinue charging to its customers since a similar recovery mechanism – the foreign currency differential adjustment (FCDA), which recently also pushed water rates up – is already being imposed by Maynilad. But apparently, because of the arbitration, the CERA will remain in Maynilad’s water bill, and is now tucked in the basic charge.

Arbitration further exposes the privatization of MWSS, the region’s largest public-private partnership (PPP) deal in the water sector, as greatly anti-people and contrary to public interest. The Maynilad case clearly shows that effective public regulation is a sham in a program like PPP that is heavily biased to private corporate interests. The MWSS privatization was designed precisely to undermine government regulation as decisions are ultimately made by an arbitration panel where the concessionaire and a representative of foreign business interests have a say. ###

For background/additional information and discussion:

PNoy and the Big Water monopolies

Water arbitration: Issues and implications

Water rate hikes: Maynilad, Manila Water want P153B in future income tax passed on to consumers

Manila Water, Maynilad’s multi-million “pa-pogi” also charged to consumers

Maynilad, Manila Water ads further expose anti-consumer MWSS privatization

PH water rates among Asia’s highest

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Consumer issues, Privatization

Water arbitration: issues and implications

It's not enough that there are well-meaning regulators who will monitor the water companies. The long-term solution is to reverse MWSS privatization. (Photo from the Water for the People Network)

Arbitration shows that it’s not enough that there are well-meaning regulators who will monitor the water companies. The long-term solution is to reverse MWSS privatization. (Photo from the Water for the People Network)

Updated, first published as IBON Features

Last 24 September, Manila Water Co. Inc. officially filed a dispute notice before the International Chamber of Commerce (ICC) questioning the decision of the Metropolitan Waterworks and Sewerage System (MWSS) – Regulatory Office (RO) to reduce water rates. Maynilad Water Services Inc., meanwhile, will also file soon its own dispute notice that shall set off arbitration proceedings.

(Download a PowerPoint presentation on the arbitration process here)

What does this mean and what are the implications?

One is that aside from paying the costs of arbitration, consumers may have to wait as much as three months (90 days) or possibly even longer to enjoy the lower water rates ordered by regulators. That, of course, optimistically assumes that the lower rates will be implemented at all. There is the possibility that the lower rates could even be reversed after arbitration.

Another is that even when the lower rates are finally upheld, there is no guarantee that the money amassed by the water firms during the delay in its implementation and charging more than what they should have will still be returned to the consumers. The new rates are supposed to have taken effect beginning January 1, 2013 but there is still no mechanism for how to treat the overcharging at current higher rates by water firms since the start of the year.

Consider further that arbitration of a Rate Rebasing dispute should be decided by not later than September 30 of the year in which the dispute is referred to the panel per the Concession Agreements (CA) between the private concessionaires and the MWSS. A decision in so short a time is unlikely to happen though.

(Download a copy of the Concession Agreement and related documents here)

Already greatly exposed as being contrary to public interest, the privatization of Metro Manila’s water system is further being bared as exceedingly anti-people with the concessionaires’ push for arbitration.

It also belies claims that privatization can benefit the public if only strict regulation is applied. In contrast, the current controversy shows that there can be no effective regulation under privatization. In the case of MWSS, the privatization contract or CA was designed to undermine government regulation as decisions are ultimately made by an Appeals Panel where the concessionaire and a representative of foreign business interests have a say.

Appeals Panel

Arbitration is a dispute resolution mechanism provided under Section 12.2 of the CA. It is the last resort for concessionaires and the MWSS to settle disagreements, which could no longer be resolved through negotiation, on the interpretation and implementation of the CA. Arbitration proceedings under the CA are in accordance with the United Nations (UN) Commission on International Trade Law.

An Appeals Panel handles the arbitration proceedings. According to Section 12.3 of the CA, its members include one representative each designated by the concessionaire and the MWSS-RO. A third member acts as the Chairman of the Appeals Panel and his or her appointment depends on the nature of the dispute.

For major disputes such as the ongoing controversy arising from the Rate Rebasing exercise, the President of the ICC will appoint the Chairman. For minor disputes, the representative of the concessionaire and the RO in the Appeals Panel will designate the Chairman. Foreigners can be appointed as members of the Appeals Panel, including as Chairman.

Among those being eyed to represent the RO in the Appeals Panel are former Supreme Court (SC) Chief Justice Reynato Puno, former SC Associate Justice Jose Vitug, and University of the Philippines (UP) College of Law Dean Danilo Concepcion.

But the RO representative is easily outnumbered by the two representatives from the private sector, i.e. the concessionaire and the Chairman appointed by the ICC. Being from the business sector, the ICC representative could be presumed to be more partial to the interest of the concessionaires than of the public. Decisions by the Appeals Panel need not be through consensus but by a simple majority vote.

Moreover, consumers are not represented in the Appeals Panel. They also do not have access to the proceedings which are done behind closed doors.

Also, under Section 12.5 of the CA, government regulators and the concessionaires agreed to waive their right to appeal the decision of the Appeals Panel through any court, judicial or regulatory body. This illustrates how, under MWSS privatization, government has abdicated its sovereign power to regulate and set policies to protect the public interest.

RO resolution

To recall, the RO denied the rate hike applications of Maynilad (Php8.58 per cubic meter) and Manila Water (Php5.83 per cu. m.). Instead, the regulators ordered the concessionaires to reduce their basic charge by Php0.29 (Maynilad) to Php1.45 (Manila Water) per cu. m. every year until 2017.

(Download a copy of the RO resolutions: Maynilad, Manila Water)

The concessionaires’ rate hike proposals and the subsequent RO decision form part of Rate Rebasing. It is an exercise to determine water rates that will allow the concessionaires to recover their expenses and assures them of a profit rate. Rate Rebasing is done every five years throughout the 40-year lifespan of the CA.

While still falling short of correcting and reversing the 16 years of abuse and oppression of consumers under MWSS privatization, the RO’s decision is still a welcome development and would not have been possible without strong public pressure. It affirmed many of the issues long being raised by anti-MWSS privatization advocates. Aside from the highly controversial income taxes (additional data and discussion here), the RO resolution also covered other questionable items being charged to consumers such as the cost of unimplemented projects, donations and advertising, and bloated costs of projects, among others.

On top of these disallowed items, the RO also ordered the concessionaires to stop charging the Php1 per cu. m. Currency Exchange Rate Adjustment (CERA). Thus, the immediate impact of the RO resolution on water bills by October should be a reduction of Php1.29 per cu. m. for Maynilad customers and Php2.45 for Manila Water’s.

Derailing the rate cuts

But such rate cuts will only become effective if the RO resolutions are not derailed by the arbitration proceedings. The concessionaires argue that arbitration means that the lower rates will not be implemented yet. And worse, it may even be reversed in case the Appeals Panel decides in favor of Maynilad and Manila Water.

In a paid ad (see image below), Maynilad cited Section 7.1 of the CA. This section pertains to MWSS’s obligation to “cooperate with the concessionaire” on, among others, the implementation of changes to standard rates as instructed by the RO or by the Appeals Panel. According to Maynilad, the said provision means that the Appeals Panel will have the final say on the new rate in case the RO-determined rate is brought to arbitration. Thus, current rates will continue to apply until the Appeals Panel has made a decision.

maynilad paid ad - 16 sep

Regulators are questioning such interpretation of the CA. But if the concessionaires were right, consumers will continue to pay water bills bloated by the income taxes of and other onerous charges imposed by the water firms. Section 12.4 (vi) of the CA says that unless stated otherwise the Appeals Panel has 90 days to make a decision from receipt of a dispute notice. But it can also opt to extend the proceedings if mutually agreed by the disputing parties although a decision should be made not later than September 30 of the year in which the rebasing dispute is referred to.

On top of all these is the issue of arbitration costs which under Section 12.6 of the CA shall be all shouldered by the public sector – i.e. government through the MWSS and the consumers through the pass-on charges that can be imposed by the concessionaires. Arbitration costs include the fees and expenses of panel members and legal, economic or technical consultants retained by the Appeals Panel. In its 16-year history, arbitration proceedings have been conducted thrice with the total cost reaching P140.04 million.

Clearly, it is not enough that there are well-meaning regulators who will monitor the water companies. By design, MWSS privatization was meant to protect the interests of the private investors, making effective regulation practically impossible. As water advocacy groups like the Water for the People Network (WPN) assert, lower water rates can only be realized through effective state control. IBON Features

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Consumer issues, Privatization

Manila Water, Maynilad’s multi-million “pa-pogi” also charged to consumers

Maynilad donates to Pablo victims

Photo from Maynilad website

Last year, Maynilad donated P2 million and potable water to victims of typhoon Pablo in Mindanao. The West zone concessionaire of the Metropolitan Waterworks and Sewerage System (MWSS) also donated P1.82 million to help construct 1,500 houses for informal settlers in Parañaque. Meanwhile, Manila Water has been funding the Manila Water Foundation which had a budget of P14.82 million in 2012. The East zone concessionaire’s foundation implements livelihood programs, community disaster relief operations and even researches.

There is no issue with profitable companies like Manila Water and Maynilad being “charitable” and donating funds for mass housing and disaster relief. I can even forgive them for staging such acts of supposed kindness to boost their corporate image and reap brownie points in the process. But what is unforgiveable is when these pa-pogi campaigns worth hundreds of millions of pesos by the billionaire-owners of the concessionaires are still being charged to us, poor consumers. What is even more revolting is that they even profit financially from their purported acts of altruism.

These highly questionable expenses have been included in the calculations of Manila Water and Maynilad’s current basic rate hike proposals of P5.83 per cubic meter (cu. m.) and P8.58, respectively.

P279-M in donations, advertising

The various donations made by the MWSS concessionaires do not come from the pockets of Manny Pangilinan, the Consunjis and the Ayalas. They collect it from us through our monthly water bills. We don’t just pay for their income tax; we also pay for their charity work. Also part of their pa-pogi campaigns is advertising and promotion, the costs of which are also passed on to consumers. All in all, Manila Water and Maynilad passed on not less than P279 million of their advertising and promotion expenses and donations from 2008 to 2012.

Like the estimated P15.31 billion in passed-on income tax during the same period, the costs of advertising, promotion and donations have been inserted in the basic charge being imposed by Manila Water and Maynilad as recoverable costs under their operational expenses (Opex). While the amount pales in comparison with the huge sum of income taxes passed on to consumers, it is nonetheless as unconscionable and unjust. And again, like the income tax, the MWSS concessionaires did not simply pass on these expenses but even gained profits through a guaranteed rate of return on their recoverable expenses.

Out of the P279 million, advertising and promotion expenses of Manila Water represent P97 million, and for Maynilad, P140 million, based on documents from the MWSS – Regulatory Office (MWSS-RO). Maynilad also listed P42 million in donations that they included in their Opex while there’s no available data for Manila Water and probably tucked the said item under “Other expenses”. The regulators should conduct a further audit on this; they can begin with the annual budget of the Manila Water Foundation.

(See images below)

Mla Water advertising costs 2

Maynilad advertising costs 2

What exactly are advertising and promotion expenses? Maynilad described the said item, thus: “This pertains to the cost of enhancing and promoting the image of Maynilad, developing harmonious relations with different local government units, establishing rapport with tri-media, advertisement and publication of notices in newspapers and magazines of general circulation, TV/Radio broadcasts, website, public consultations on ground and cost of sponsorships. It also includes athletic, recreational and annual cultural celebrations.” Clearly, such expenses do not have anything to do with the provision of water services and passing the costs to us is blatantly anomalous and unreasonable.

Arbitration costs, too

The MWSS-RO has already declared that they will disallow the income taxes and donations as Opex items that Manila Water and Maynilad can recover from consumers. This is welcome news. Sadly, under the Concession Agreements entered into by MWSS with the concessionaires, the MWSS-RO has no real power to impose its decisions like real regulators. Manila Water and Maynilad can question the decisions of the MWSS-RO through the process of arbitration.

(Download a copy of the Concession Agreement and related documents here)

Under Article 12.2 of the Concession Agreement, all disagreements, disputes, controversies or claims that cannot be resolved through consultation and negotiation shall be settled through arbitration proceedings. The arbitration will be presided by a three-member panel composed of one representative each from the MWSS-RO, the concerned concessionaire and a chairman who shall be jointly appointed by the regulators and the concessionaire.

Meanwhile, Article 12.6 of the Concession Agreement states that the “Costs incurred by the Appeals Panel in connection with any proceeding (including the fees and expenses of panel members and legal, economic or technical consultants retained by the Appeals Panel), shall be apportioned between the parties as the Appeals Panel shall direct and the Concessionaire’s share of such costs shall be treated as an Expenditure”. (Emphasis added)

In other words, Manila Water and Maynilad can recover their expenses in the arbitration proceedings by passing on the costs to consumers as part of their expenditure. Since 1997, there have been three arbitration proceedings with the total expenses reaching more than P140 million. (See Table)

arbitration costs

It is important to emphasize that the MWSS-RO is just merely a creation of the Concession Agreement and is in fact being funded by Manila Water and Maynilad. The Concession Agreement’s Article 11.2 mandated the MWSS to allocate a portion of the concession fees paid by the concessionaires to fund the operation of the RO.

PPP contract

The Concession Agreement is a form of a public-private partnership (PPP) or privatization contracts that the MWSS entered into with the concessionaires in 1997 and will expire in 2037. The framework and model of setting water rates that allowed Maynilad and Manila Water to pass on highly questionable charges to consumers including their past and future expenses covering income tax, projects (many of which have never been implemented), as well as advertising, promotion and donations, among others.

Shall the 14.2 million consumers of Manila Water and Maynilad suffer 24 more years before our policy makers or Malacañang rescind this patently onerous and anomalous PPP contract? (End)

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Consumer issues, Privatization, Water crisis

Water rate hikes: Maynilad, Manila Water want P153 B in future income tax passed on to consumers

water protest 1

Income tax is not a form of investment and is in fact an obligation of Manila Water and Maynilad. Yet, they charge it on consumers and even profit from it.

Manila Water and Maynilad are not only charging consumers the costs of unimplemented and future projects. They are also passing on the costs of their income tax to us, including those that they will have to pay for in the future. Worse, the water firms are even profiting from such practice because they are allowed to apply a certain rate of return on their operating expenses (Opex), which include income tax.

This unconscionable practice of Manila Water and Maynilad was disclosed by the Water for the People Network (WPN). According to the group, from 2008 to 2012, the amount of income tax being passed on to us by the concessionaires of the Metropolitan Waterworks and Sewerage System (MWSS) could reach P3.1 billion a year. We paid for it through our monthly water bills. Out of the P3.1 billion, Manila Water customers shouldered P1.5 billion; and Maynilad customers, P1.6 billion.

(Read the WPN statement here.)

Incidentally, Maynilad enjoyed an income tax holiday during the period. Thus, its collected income tax from consumers had been retained by the company as extra profits. Add to this the approved rate of return, called appropriate discount rate (ADR), of 9.3% enjoyed by Maynilad and Manila Water, which they can apply on their income tax (as part of Opex) and other expenses.

In the ongoing rate rebasing (an exercise that adjusts water tariffs based on past and future expenses and a guaranteed ADR), Manila Water wants to pass on an estimated P76.96 billion in income tax from 2013 until the end of its Concession Agreement (CA) with the MWSS in 2037. Maynilad, meanwhile, wants to pass on an estimated P75.92 billion during the same period of its own CA.

That’s a total of P152.87 billion worth of future income tax – or about P6.11 billion a year until 2037 – that they want us to shoulder starting today. They also want an ADR of 8.9% applied on these expenses. These amounts are included in their proposed rate hikes – P5.83 per cubic meter (cu. m.) for Manila Water and P8.58 for Maynilad.

The WPN called this practice “parasitic”. Imagine, income tax is not even a form of investment and is in fact an obligation of the concessionaires. Yet, they charge it on us and even profit from it. Parasitic indeed!

From 2008 to 2012, Manila Water has accumulated a net income of almost P20 billion and Maynilad, around P22 billion, due to rising water rates. Manila Water’s profits have been growing by about 18% annually and Maynilad, more than 40%, in the last five years. And they did not shell out a single centavo to pay for their income tax obligations. We, the consumers, paid it for them. And again, we will shoulder the tax on their future corporate income if their proposed hikes will be approved by the MWSS-Regulatory Office.

While they amass billions of profits, the water concessionaires invest very little and assume practically no risk. Consumers pay for the impact of inflation on their operation. Consumers pay for the impact of foreign exchange losses on their foreign-denominated loans. Consumers pay for any event that will affect their income, from calamities to changes in our laws. Consumers pay for the cost of protecting the environment from possible hazards of the concessionaires’ operations. Consumers pay for their past (including unimplemented) and future capital expenditures (Capex). Consumers pay for their past and future Opex, including income tax.

The concessionaires justify their action of passing on their income tax by arguing that they are not public utilities and that the Meralco ruling does not apply on them. In April 2003, the Supreme Court (SC) issued a ruling that prohibited the Manila Electric Co. (Meralco) from including income tax as a recoverable operating expense.

(Read the SC decision here.)

Following is the pertinent portion of the SC decision:

“Income tax, it should be stressed, is imposed on an individual or entity as a form of excise tax or a tax on the privilege of earning income. In exchange for the protection extended by the State to the taxpayer, the government collects taxes as a source of revenue to finance its activities. Clearly, by its nature, income tax payments of a public utility are not expenses which contribute to or are incurred in connection with the production of profit of a public utility. Income tax should be borne by the taxpayer alone as they are payments made in exchange for benefits received by the taxpayer from the State. No benefit is derived by the customers of a public utility for the taxes paid by such entity and no direct contribution is made by the payment of income tax to the operation of a public utility for purposes of generating revenue or profit. Accordingly, the burden of paying income tax should be Meralco’s alone and should not be shifted to the consumers by including the same in the computation of its operating expenses.”

But for Manila Water and Maynilad, they are not public utilities and are merely “agents” of the MWSS, which in the concessionaires’ distorted logic remains the public utility. It’s pretty obvious that such argument is garbage. When the MWSS was privatized in 1997, it turned over all its functions as a public utility to Manila Water and Maynilad – from operating and improving the water service system to charging and collecting tariffs from consumers.

For the sake of argument, however, let us accept that MWSS is the public utility and Manila Water and Maynilad are just its agents. It therefore follows that as mere agents, the concessionaires derive their authority and functions from the MWSS. But by insisting that they are not covered by the SC ruling on income tax, which only supposedly covers the MWSS as the public utility, Manila Water and Maynilad have put themselves in a more privileged position than their supposed principal.

A similar case can be raised on the issue of 12% limit on the return on rate base (RORB) for public utilities. The rate base is computed by adding up the value of all the assets used in the operation of the public utility and from it, the allowed rate of return is calculated. A cap is imposed to prevent user fees from soaring too much because a public utility provides an essential service. The concessionaires claim that they are not covered by the cap, again because supposedly they are not public utilities. So, the 12% RORB applies to MWSS only as the public utility but not to its agents, again making the concessionaires more privileged than MWSS.

And there’s more. If you look further at their Opex, you’ll find items such as Advertising, Promotions and Recreation. This is how Maynilad described the said item: “This pertains to the cost of enhancing and promoting the image of Maynilad, developing harmonious relations with different local government units, establishing rapport with tri-media, advertisement and publication of notices in newspapers and magazines of general circulation, TV/Radio broadcasts, website, public consultations on ground and cost of sponsorships. It also includes athletic, recreational and annual cultural celebrations.”

As part of the Opex, it’s passed on to us. So we’re paying to enhance and promote the image of Maynilad? We’re paying so that they can have harmonious relations with LGUs and media? We’re paying for public consultations stage-managed by the concessionaires to justify their onerous rate hikes and where critical consumers are not allowed to participate? And what exactly are sponsorships, athletic, recreational and cultural celebrations and what do they have to do with the provision of water services?

All of these highlight the fundamental problems of MWSS privatization and the concept of public-private partnership (PPP), especially on key infrastructure and services like water. Big business will squeeze every centavo from consumers, pitilessly bloating our water bill and draining our pockets. Private profits don’t have a concept of public interest and public accountability. This oppression and injustice must stop. (End)

More on MWSS privatization:

PNoy and the Big Water monopolies

PH water rates among Asia’s highest

Water shortage in Metro is beyond El Nino

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Consumer issues, Privatization, Water crisis

PH water rates among Asia’s highest

Don’t be surprised if soon we will not just have the most expensive electricity rates in the region but the most exorbitant water rates as well (Photo from gmanetwork.com)

Because of privatization, don’t be surprised if soon the Philippines will have not just  the most expensive electricity rates in Asia but the most exorbitant water rates as well (Photo from gmanetwork.com)

We already know that power rates in the Philippines are the most expensive in Asia. What we do not know yet which will certainly make our collective blood pressure rise is that water rates in the country are also among the highest in the region. Using the same 2011 survey conducted by the Japan External Trade Organization (JETRO) on power rates in major Asian cities, I found out that the water rates in Cebu City and Manila rank fourth and fifth, respectively behind Sydney, Singapore and Jakarta. Yes, we are paying more expensive water than more developed cities like Hong Kong, New Delhi, Beijing, Seoul and others. (See Chart 1, click on image to enlarge) (Download the JETRO survey here)

ph water rates - chart 1

I bring this up after hearing the news that the private water concessionaires of the Metropolitan Waterworks and Sewerage System (MWSS) have been allowed again to jack up their rates next year. A report by the BusinessWorld said that by January 2013, the ordinary customers of Maynilad Water Services Inc. or those with a monthly consumption of 30 cubic meters will see their bill increase by ₱22.52. Meanwhile, the customers of Manila Water Co. Inc. with the same level of monthly consumption will bear a ₱6-spike in their water bill. What a way to greet the New Year for some 13.3 million people in Metro Manila and nearby provinces who get their water from Maynilad and Manila Water.

Prior to these latest increases, Maynilad has already increased its average tariff from ₱4.96 per cubic meter when it first took over the MWSS’s west zone service area in 1997 to ₱32.92 this year. During the same period, Manila Water which services the east zone has hiked its average tariff from ₱2.32 per cubic meter to ₱27.44. This means water rates have already ballooned by 564% to 1,083% since the MWSS was privatized 15 years ago. (See Chart 2, click on image to enlarge)

ph water rates - chart 2

Like in the case of the power sector, privatization and the numerous anomalous perks granted to corporations are behind the incessant rise in our water bills. The concession agreement between the MWSS and the private water concessionaires allows automatic adjustment to protect the profits the Manny V. Pangilinan group (Maynilad) and the Ayala group (Manila Water). In case you did not know, these big business groups with close ties to President Benigno Aquino III do not only control our cellphone networks, roads, electricity, hospitals and soon our LRT and MRT, but also our water.

Anyway, what are some of these automatic adjustments? Take the case of the most recent water rate hike. Maynilad and Manila Water are increasing their basic charge to reflect the movement in the inflation rate as provided under their respective concession agreements with the MWSS. The said agency’s Regulatory Office allowed a 3.2% adjustment in the consumer price index (CPI) to be applied to the private water concessionaires’ current basic charge. What does this mean? It’s a double whammy. Inflation rises because the costs of basic goods and services like food and utilities have gone up. And then water rates will further rise because of higher inflation. Another is the foreign currency differential adjustment (FCDA), which covers fluctuations in the exchange rate and affect the foreign-denominated loans of the concessionaires.

That’s what the water privatization contract stipulates. It doesn’t make sense to us poor consumers but it makes perfect sense for the Pangilinans and the Ayalas. Just look at their soaring profits to see why. In the first nine months of the 2012, Maynilad has amassed more than ₱5 billion in profits (13% higher than last year) while Manila Water has raked in ₱3.9 billion in profits (26% higher than last year).

Meanwhile, the water distribution system in Cebu City which has the fourth most costly rates in Asia is being managed by the Metro Cebu Water District (MCWD). Though not yet privatized, MCWD like the rest of the other 860 water districts nationwide has also been under constant threat of privatization. This was the intention of Senator Edgardo Angara’s Senate Bill (SB) 2997. Fortunately, the proposal has been effectively derailed by the strong campaigning of the Water System Employees’ Response (WATER), a national federation of water district employees. But the bill will certainly be revived after the midterm elections.

In the meantime, the water privateers continue to make inroads through other means. Earlier this year, the provincial government of Cebu has privatized its bulk water system through an agreement with guess who? Manila Water. Manny Pangilinan Manila Water has been on a buying spree of potable water systems around the country. Aside from the MWSS east zone and the Cebu bulk water project, his group it also controls the Boracay Island Water Co., the Laguna Water Co. (servicing the towns of Biñan, Cabuyao and Sta. Rosa) and the Clark Water Corp. in Pampanga.

The bad news is that the buying spree of our potable water systems and even water resources itself by the Pangilinans, the Ayalas, etc. and the consequent soaring user fees and marginalization of the poor will not end any time soon. In fact, the direction is the further expansion and consolidation of wealth and power of these big business groups through more privatization under the public-private partnership (PPP) of Mr. Aquino.

Just recently, the PPP Center announced that the administration’s first PPP water project – the New Centennial Water Source Project – is already in progress. This mega-project costs about ₱25 billion and is seen to provide an additional water source for Metro Manila. Needless to say, a project this big to be undertaken by a profit-oriented consortium will translate to even higher user fees for us under the privatization principle of full-cost recovery. Government has lined up a total of 14 PPP projects that could affect our access to water including four multi-purpose projects or the construction of dams for hydropower, irrigation and domestic water uses which cost some ₱50.75 billion; three hydropower projects, ₱39.24 billion; and three projects for potable water; ₱26.47 billion. The costs of the four other PPP projects have yet to be determined. (See Table at the end of this article)

These are big-ticket items that will surely provide a bottomless well of profits for those who will bag them, which are most likely the same elite families and their foreign funders and partners that have been taking advantage of past privatization projects and Aquino’s current PPP program. For us, it simply means even further exploitation and marginalization as most of us will find it increasingly harder to afford our basic human right to water for domestic use, for our livelihood and decent living.

Don’t be surprised if soon we will have not just the most expensive electricity rates in the region but the most exorbitant water rates as well. ###

Click on table to enlarge

ph water rates - table

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Consumer issues, Cronyism & patronage, Privatization, SONA 2012

Sona and high prices

Issues that matter to ordinary folks such as how Meralco and other big companies owned by Aquino’s super-rich relatives and friends are oppressing the people with skyrocketing fees were left unarticulated in the Sona (Photo from Pinoy Weekly)

The third State of the Nation Address (Sona) of President Benigno “Noynoy” Aquino III lasted 1 hour and 39 minutes. It was his longest Sona so far. But the 8,890-word speech never made reference to the perennial problem of consumers – the ever rising costs of electricity, petroleum, water and other basic goods and services. In fact, the issue of high prices and what his administration plans to do to address it has never been a topic in Aquino’s annual Sona.

Read the full transcript of Sona here and the English translation here

The non-mention of the problem of high prices was made more conspicuous by the almost simultaneous increases in electricity rates, water rates and oil prices just days before the Sona. The Manila Electric Co. (Meralco), the country’s largest power distributor, hiked its distribution charge by 29.1 centavos per kilowatt-hour (kWh) and its generation charge by 32 centavos; private water concessionaires Manila Water Co. and Maynilad Water Services Inc. increased their rates by 39 centavos and 89 centavos per cubic meter, respectively. Oil companies, meanwhile, have increased the pump price of unleaded gasoline by ₱4.35 per liter and diesel by ₱3.10 after three straight weeks of price hikes this month, including the latest round hours after Sona.

Costs have been unjustly increasing since long ago due to programs initiated by Aquino’s predecessors, namely the deregulation of the oil industry in 1996-1998 and the privatization of the Metropolitan Waterworks and Sewerage System (MWSS) in 1997 under former Pres. Fidel Ramos, and the privatization of the National Power Corp. (Napocor) in 2001 under Mrs. Gloria Arroyo.

However, Aquino is still accountable for continuing these programs and not even bothering to at least review them despite their harmful impact on consumers. In fact, the President even made these programs the centerpiece of his development plan such as the public-private partnership (PPP) scheme.

And if you were wondering why the triple whammy of power, water and oil price hikes did not merit even a single sentence in Aquino’s Sona, or why addressing the issue of high prices has never been an agenda of the President, for that matter, this previous post might help enlighten you.

Indeed, the families running the country’s largest utilities and burdening the consumers with exorbitant prices are among the closest allies and long-time cronies of the Aquino clan. Petron, the biggest oil firm in the Philippines, is majority-owned by San Miguel Corp. (SMC) of Aquino’s maternal uncle Eduardo “Danding” Cojuangco Jr. while the Ayalas are connected with Pilipinas Shell; Meralco is controlled by SMC, the Lopezes and Manny V. Pangilinan’s group; and Manila Water is controlled by the Ayalas while Maynilad is co-owned by Pangilinan and the Consunjis.

Aquino’s longest Sona yet mentioned many indicators to highlight the supposedly improving economy such as credit rating upgrade, stock exchange performance, and growth in the gross domestic product (GDP), among others. But these indicators are not only abstract for the ordinary folks; they also do not mean increased economic opportunities. They are, however, indicators of how big business is enjoying a favorable environment under Aquino, reaping whatever little wealth is being squeezed from the pre-industrial economy.

Meanwhile, the issues that matter to us such as how Meralco, Petron, Shell Maynilad, Manila Water and other big companies owned by Aquino’s super-rich relatives and friends are oppressing us with skyrocketing prices and rates were left unarticulated by the landlord President.

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