The Appeals Panel rendered its Final Award in favor of MWSS and the Regulatory Office disallowing the recovery of corporate income tax (CIT) by Manila Water.
In its Final Award dated 21 April 2015, the Appeals Panel confirmed the determination of the Regulatory Office that CIT is not recoverable because the concessionaire is a public utility and that CIT is not one of the expenditures that the Concession Agreement allows to be recovered.
The Appeals Panel, by majority, ruled that “CIT is not an allowed expenditure under the Concession Agreement by virtue of the application of the principles enunciated in the Meralco case to the effect that the people of the Philippines should not be burdened directly or indirectly with CIT which has to be paid by the Claimant as a result of the profits made from its business operations.”
The disallowance of the recovery of the income tax translates to a Php2.77per cu.m. downward adjustment or 11.05% of Manila Water’s 2012 average basic charge of Php25.07 per cu.m.
The adjustment is to be implemented in 5 equal tranches of negative 2.21% per charging year starting 2013, pursuant to the Concession Agreement.
Upon the implementation of the Final Award, average basic charge in the East Zone is expected to go down by 2.42% or an average of Php0.63 per cu.m. This incorporates the implementation of the suspended annual adjustment due to inflation and nets out the 3.2% provisional increase that was implemented in 2013.
MWSS estimates that lifeline customers consuming less than 10cu.m. per month will have Php1.98 reduction in their monthly bills. Those consuming 10cu.m. per month will have Php3.29 decrease; 20 cu.m. per month a Php7.32 reduction and those 30cu.m. per month will have a decrease of Php14.86.
On 12 September 2013, the MWSS Board of Trustees approved and confirmed the resolution of the Regulatory Office for a downward adjustment in the basic charge, effectively denying the petition of Manila Water to raise average water rate in the next five years as part of the periodic rate rebasing.
For the first time in 17 years, the MWSS ordered a reduction in water rates in its coverage areas. The past two rate rebasing exercises with its Concessionaires resulted in significant increases in water rates.
MWSS to partially implement Maynilad’s arbitral award
The Appeals Panel in the arbitration with Maynilad earlier rendered a decision that CIT can be recoved by the concessionaire.
In its Final Award dated 29 December 2014, the Appeals Panel decided that Maynilad “is entitled to include its Corporate Income Tax in its Future Cash Flows for each year of operations.”
The Appeals Panel approved an increase of Php4.06 per cu.m. or 13.41% of the 2012 average basic charge of Php30.28 per cu.m.
Maynilad proposed a staggered implementation of the arbitral award. Together with the implementation of the suspended annual rate adjustments due to inflation, Maynilad recommended an increase of Php3.46 per cu.m. or 11.07% rise over the prevailing average basic charge.
MWSS suspended the implementation of the Award pending the resolution of the arbitration with Manila Water. The Regulatory Office finds it prudent to hold the implementation of the rate adjustment to ensure consistency in tariff setting.
With the conclusion of the arbitration with Manila Water, MWSS decided to partially implement the arbitral award. The Regulatory Office resolved to implement an adjustment with respect to the other items not related to CIT.
The partial implementation translates to an adjustment of Php0.64 per cu.m. or 2.11% of its 2012 average basic charge of Php30.28 per cu.m. The CIT represents Php3.42 per cu.m. of the Php4.06 per cu.m. tariff adjustment awarded to Maynilad by the Appeals Panel.
Incorporating the annual inflation adjustment for 2014 and 2015, and the provisional 3.2% adjustment in 2013, the average basic charge of Maynilad is estimated to increase by Php2.00 per cu.m. or 6.39% of the prevailing basic charge of Php31.25 per cu.m.
With the discontinuance of CERA (Currency Exchange Rate Adjustment) of Php1.00 per cu.m., the adjustment in the average water charge is reduced to a net increase of Php1.00 per cu.m. on Maynilad’s prevailing rates.
The Regulatory Office maintains that it has to be consistent in the exercise of its regulatory mandate under the Concession Agreement. Dr. Joel C. Yu, Chief Regulator of the Regulatory Office, stated that the Office “has the moral and the legal obligation to uniformly apply the General Rate Setting Policy under the Concession Agreements.”
“As a government entity, the Regulatory Office has the overriding duty to protect and defend the constitutional guarantee to equal protection.”
“The identical issues raised by Concessionaires involve matters of law and public policy.”
“The MWSS has the plain legal duty under its Charter to set just and equitable rates.”
Manila Water services customers in the East Zone which covers parts of Makati City and Quezon City, the southeastern parts of Manila, cities of Mandaluyong, Pasig, Pateros, San Juan, Taguig, Marikina and Rizal province.
Maynilad services customers in the West Zone which covers parts of Manila, Pasay, Paranaque, Caloocan, Muntinlupa, Las Pinas, Valenzuela, and parts of Makati and Quezon City, including the municipalities of Navotas and Malabon. Its franchise area also covers Cavite City, and its municipalities of Bacoor, Imus, Kawit, Noveleta, and Rosario.