On July 24 the three-member International Chamber of Commerce (ICC) arbitral tribunal in Singapore unanimously
upheld the validity of the claim of Maynilad Water Services for compensation for the delayed implementation of its relevant tariffs for the rebasing period 2013 to 2017.
The ICC ordered the government to pay through the Department of Finance (DOF) the amount of P3.42 billion to Maynilad.
It also ruled that its July 24 decision will not preclude Maynilad from taking further action to recoup losses from January 2013 to March 2015 and from September 2016 onward.
This ICC decision is significant because, first, it affirmed the rate-rebasing mechanism under Maynilad’s original Concession Agreement (CA) with the Manila Waterworks and Sewerage System Authority (MWSS), which compels the government to honor its contracts; and, second, it ensured the financial sustainability of Maynilad’s multibillion-peso maintenance and expansion programs for the benefit of half of Metro Manila’s water consumers.
The decision should not be surprising at all because even our Supreme Court had already pointed out in one of its rulings that private companies are entitled to reasonable profits for them to recoup their investments.
The High Court noted that “while the interests of the public are ideally to be accorded primacy in considering government contracts, the reality on the ground” is that big-ticket projects cannot be realized without investments from the private sector, which, naturally, would expect its “usual share of profit”.
The two water concessionaires, Maynilad and Manila Water, have been spending billions of pesos each year to modernize the water distribution system servicing some 15 million water consumers in Metro Manila. Their investments involve upgrading antiquated water piping systems and expansion projects to ensure that Metro Manila and nearby areas have access to a steady and sufficient supply of potable water. These investments are for the long term, stretching for several decades.
In a bid to attract investors, the Ramos administration allowed tariff and rate adjustments when it decided to privatize Metro Manila’s deplorable water distribution system in the late 1990s. In the case of Maynilad and Manila Water, their concessions limited them to a fixed after-tax profit. The government provided a clause in their contracts that defined the allowed profit after tax. Under this provision, if corporate tax rates drop, the price of water will go down but the profits of the water concessionaires will remain the same.
The truth is that water distribution services in Metro Manila have improved tremendously since the two water concessionaires took over in 1997. Before the privatization of water services, low-income consumers were forced to source their daily water needs mostly from itinerant vendors who were charging consumers by as much as 13 times higher than the MWSS rate.
The ICC ruling benefits both the water concessionaire and consumers as this will lead to a steady revenue stream for Maynilad’s maintenance and expansion projects intended to provide a sufficient and regular supply of potable water for West Zone’s over 9 million consumers.
The MWSS, now headed by Reynaldo Velasco as administrator, has been working on a stronger partnership with its concessionaires Maynilad and Manila Water, which will benefit National Capital Region’s over 15 million water consumers.
Velasco has, in fact, cited privatization as a major factor in the vastly improved water services in Metro Manila. He described the two concessionaires as “partners in the water service”, which the MWSS was willing to work with closely in their bid to strengthen their wastewater treatment plants to help reduce water pollution and protect our water resources.
Maynilad’s capital-expenditure (capex) program will help the administration realize its aggressive infrastructure program while, at the same time, accelerate government initiatives to protect the environment.
Maynilad is behind the “Plant for Life” program, a multisite reforestation and afforestation program that covers the areas along the coastlines of Laguna de Bay and Manila Bay and the watersheds in Angat, Ipo and La Mesa dams.
Maynilad also keeps a greenhouse gas and air pollutants inventory that monitors and reports its emissions. Through this system, the company quantifies and validates carbon emissions from its operations and the effectiveness of its environmental programs.
These efforts have earned for Maynilad recognition as one of the “Top Green Companies in Asia” during the Asia Corporate Excellence & Sustainability (ACES) Awards 2016 held earlier this year in Singapore. The ACES Awards “recognizes successful companies and individuals in Asia across two main domains; leadership and corporate social responsibility”.
Maynilad bagged the award along with four other companies from Thailand and Indonesia for operating “with minimal negative impact on the environment, community, and society while remaining financially viable”.
On top of its green projects, Maynilad is setting aside P35 billion in the next five years for its capex. For 2017 alone, Maynilad will be spending P13.2 billion for its water and wastewater infrastructure projects.
E-mail: ernhil@yahoo.com.