Incentives to water utilities not new, says Enrile, citing similar private investments

By: Ernie Reyes, InterAksyon.com http://www.interaksyon.com/business/65946/incentives-to-water-utilities-not-new-saysenrile-citing-similar-private-investments July 9, 2013 4:55 PM

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InterAksyon.com means BUSINESS MANILA, Philippines Senator Juan Ponce Enrile on Tuesday said granting tax incentives to water concessionaires is not new in the country, as the government had previously entered into such contracts for other public projects with private companies. "This problem of an agency of the government granting exemption from income tax to a concessioner is not new. This already happened in the case of Malampaya. Shell is being exempted by the government from paying income tax on its share of the proceeds of the Malampaya gas well, Enrile said, referring to the Malampaya Natural Gas Project in Palawan, which has proven beneficial to the economy. Enrile was reacting to protests raised by nongovernment organizations, citing terms of the concession agreement between regulator MWSS and two private companies, Manila Water and Maynilad Water Services Inc., which allowed the latter to pass on income taxes, besides other business expenses, to end-users. He also cited the case of power generators. They are governed in their pricing of
the power supply that they deliver to their distributor by their contract with that distributor. In the case of Meralco, they have a contract with this supplier of electricity, Enrile explained.

"Thats the same thing in the case of Manila Water and Maynilad. They have a contract with the franchise holder, MWSS, to supply water to the franchise area of MWSS under this contract and if they approved all of these charges then, they have to answer to the people, he added. Enrile said that both Maynilad and Manila Water cannot be blamed for charging corporate income tax and other expenditures to customers since such was stipulated in the contract entered into with the water regulator, the Metropolitan Water and Sewerage System (MWSS), in the name of the government. "So, what really governs the amount of collection that was allowable to be charged by Maynilad and Manila Waters to their customers will be that contract; and the problem here is, MWSS, the other contracting party that granted them the concession, is itself the regulator, Enrile said. Enrile said if the regulator, the MWSS, approved whatever charges the two

distributors wanted to collect from the customer to recover their investment during the concessionaire period, then, it means that they find it to be within the contract. Thus, added Enrile, anybody saying that this contract is unconstitutional must consider the constitutional provision that even Congress cannot impair the obligation of contracts. Let alone a contract, especially a contract entered into by the government itself, he said. Enrile, a top lawyer, finance expert and former justice minister, said Congress cannot pass a law disrupting the contract between MWSS and the water companies. Lawmakers bent on pursuing the matter have one recourse, he said: question the matter in court. There is no need to investigate this. If they really believe this is an erroneous contract entered into by the MWSS, then they should now get their lawyers and study it, and then file the case, he said. If contract unravels: what happens? If MWSS struck down the provision in the contract stopping the charging of the corporate income tax to consumers, such would constitute a violation of the contract itself entered into by the government with the private companies, Enrile said. No, they cannot (strike down provisions). A contract is a contract. Should the entire deal unravel, or parties decide to go back to the pre-privatization setup, then, Enrile said, They would have to pay for all the investments of Manila Water and Maynilad. Theyll have to take over this system and pay the corresponding investments plus their assumed profit at the end of the period they agreed upon. MWSS would also have to answer to these innocent contractors because they entered in good faith with the government to do the job of the government under the conditions spelled out in their contract with that government, he said. The consortium of Metro Pacific and DM Consunji won the bidding when MWSS re-privatized Maynilad following a courtsupervised rehabilitation plan that saw MWSS forced to take over from the failed original concessionaire Lopez Group. The MPIC-DMCI consortium subsequently assumed ownership, infused billions into Maynilad and operated under the same concession agreement that Maynilad entered into when it was under the Lopezes. This agreement included the ratesetting mechanism. Under the new owners, Maynilad exited court rehabilitation earlier, and, besides consistently paying concession fees to MWSS invested billions to expand the infrastructure in the West Zone, its

side of the water sector. The burden is on MWSS, having been the one agency of the government that entered into this contract. In effect, Enrile pointed out, it was government that granted this concession because the franchise granted by Congress to MWSS is an authority to put up a distribution system for water and subject to the terms and conditions of the franchise.

VIDEO | Congress can't impair water contracts - some lawmakers

By: Mae Anne Los Banos, News5 July 8, 2013 11:02 PM

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http://www.interaksyon.com/article/65884/video--congress-cant-impair-water-contracts---somelawmakers

InterAksyon.com The online news portal of TV5 MANILA, Philippines Not all lawmakers are inclined to support a congressional inquiry into the terms between the government and two private water firms, for two key reasons: the State had itself crafted the concession agreement it entered into, and it cannot impair the obligations in contracts while trying to lure foreign investors to fund more projects. In separate interviews, former Senate President Juan Ponce Enrile, Leyte Rep. Sergio Apostol and Isabela Rep. Rodito Albano said the burden of explaining the terms is in fact on the regulatory office, as it entered into the concession agreements with Manila Water and Maynilad Water Services Inc. Their views contrasted with those of Sen. Chiz Escudero, who said all natural monopolies must be closely tracked as they tend to abuse their market dominance. The lawmakers were reacting to calls by nongovernment organizations to revisit the concession agreements, which they claimed allowed the two private firms to pass on income taxes and other expenses to the water end-users. Some lawmakers support their call for a congressional inquiry. Enrile, a lawyer, said theres no need for Congress to join the fray. What can Congress do? They cant pass a law impairing the obligations between contracting parties. Apostol, a former Quezon City fiscal, agreed with Enriles view about the danger of sending a signal that impairing contracts is tolerated in the country. He said foreign investors may have second thoughts about investing here. Its changing the terms of the contract while its being implemented, said Apostol.

For his part, Isabela Rep. Rodito Albano said that when some government regulators take the line that some terms of the agreements are immoral, they put themselves in an awkward position because it implies they did not understand the contract they entered into. All actions legal, provided in agreement investor In the view of the Metro Pacific Investment Corp., a major investor in Maynilad, everything the company has done is provided for in the concession agreement. Its misleading for some groups to create the impression that Maynilad, for example, is pocketing everything, it said. Ang napupunta lang sa kanila [the only thing that goes to them] by way of recovering previous expenditures is only whats approved by the regulatory office, stressed Atty. Ray C. Espinosa, Head, Government and Regulatory Affairs for First Pacific Group. InterAksyon.com is the online news portal of TV5, which is also chaired by Maynilad chairman Manuel V. Pangilinan. According to Maynilad, when it submitted its business plan in 2008 after taking over from the original concessionaire the Lopez group, it based everything on the original 1997 concession agreement that government itself crafted when water was first privatized.