The Consumer Gets The Burden Of Increased Rates and Charges

by Benjie Oliveros

Under the regime of privatization and deregulation, corporate-government disputes are occurring with increasing frequency, especially when consumers are able to force the hand of government to fight for its interests. For sure, these disputes would not occur without citizen pressure.

In the first place, the subjects of disputes are most often sweeteners granted by government to corporations to make the purchase of hitherto government owned and controlled corporations attractive such as sovereign guarantees, guaranteed rates of return on investment, rate increases, and allowable charges.

Second, governments do not normally act against corporate interests for fear of losing foreign investors.

Third, all presidents of this country, and even the heads of states of most countries for that matter, could not have won in elections without the financial backing of big corporations.

Fourth, it is against the essence of privatization and deregulation for the government to regulate the business activities of corporations. Government normally surrenders its regulatory functions and in its stead, legislates self-regulation (if there is really such a thing) for corporations.

Thus, it would take a lot of protest actions and exposés before government asserts its regulatory functions. And during the rare times that the government acts for the interest of consumers, companies run to the International Court of Arbitration on charges of breach of contract.

As readers most probably know already, there is a ton of difference between reconciliation or mediation and arbitration. The purpose of reconciliation is to arrive at a mutually acceptable agreement between the two parties in the dispute. In arbitration, the two parties to a dispute submit themselves to the decision of the arbitrator/s.

The other thing about the International Court of Arbitration is that it is under the auspices of the International Chamber of Commerce. Understandably, since it is under an organization of big corporations, it would take the viewpoint and standpoint of big business.

For example, in February 2015, the arbitration tribunal allowed the Bases Conversion Development Authority to boot out the CJH Development Corp. after the latter failed to pay its obligations to the government. But at the same time, the BCDA was ordered to pay CJH P1.4 billion ($30.4 million) in back rentals.

Just recently, in June 2015, DFNN, a technology solutions provider, filed and won in an arbitration case against the Philippine Charity Sweepstakes Office after the latter terminated its Equipment Lease Agreement with the former. DFNN is now seeking a P310 million ($6.7 million) damage award.

Maynilad and Manila Water often run to the international arbitration tribunal whenever the Metropolitan Waterworks and Sewerage System (MWSS) denies their petition for rate increases. For example, in September 2013, both water utility companies filed petitions for rate increases. The MWSS not only denied their petition but also ordered them to reduce their base rates after disallowing the inclusion of corporate income taxes in the computation of pass on costs of both companies. In October 2013, Maynilad filed for arbitration, and Manila Water followed suit a little later.

In December 2014, Maynilad got a favorable ruling, with the arbitration court allowing it to pass on to consumers its corporate income taxes and upholding its rebasing adjustment. In March 2015, the arbitration court, with a different panel hearing the case, denied Manila Water’s claim citing that it is a public utility. Manila Water is contesting this claiming that under the concession agreement, both water utility companies are deemed as agents and contractors of MWSS, which is the public utility (hair-splitting technical legalities).

Based on these decisions, Maynilad customers would be charged a higher rate while the Manila Water customers would get a rate rollback of P2.77 per cubic meter, which would be spread over two years.

However, Maynilad would be filing another arbitration case against the MWSS because the latter delayed compliance with the arbitration ruling, allowing for a rate increase, while awaiting the decision on the Manila Water case. Maynilad would be asking for P3.44 billion ($73.9 million) in losses from foregone revenues since 2013 and another P208 million ($4.5 million) each month beginning January 2015.

Manila Water, on the other hand, is seeking a damage claim from the Department of Finance (DOF) amounting to P79 billion ($1.52 billion), computed on the basis of its projected future financial losses from 2015 to 2037 resulting from the cut back and rollback in rates provided for by the decisions of the MWSS and International Court of Arbitration. Manila Water is basing its claim on the Letter of Undertaking issued by the government through the DOF in July 31, 1997. In the said Letter of Undertaking, the government commits to “indemnify Manila Water against any loss caused by any action on the part of MWSS resulting in the reduction of the standard rates ‘below the level that would otherwise be applicable in accordance with the Concession Agreement’ thereby denying Manila Water a rate of return ‘allowed from time to time to operators of long term infrastructure concession arrangements in other countries having a credit standing similar to that of the Philippines’ pursuant to Section 9A of the Concession Agreement.”

So whenever the companies gain in arbitration, consumers shoulder the burden of increased rates and charges; when the companies lose, consumers, through their taxes, bear the burden of paying the claims for damages emanating from the sovereign guarantees provided by the government.

Bayan Muna is right. The arbitration clause and sovereign guarantees provided for in concession agreements and Public Partnership Project contracts being entered into by the government are downright immoral and anti-people. (

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