Water rate dispute worries Japanese business group

Published on October 9, 2013 06:39 by Water Network Research, Official research team of The Water Network in Business

The Japanese Chamber of Commerce and Industry of the Philippines (JCCI) backed local investors' concerns on the negative effect of the water rate rebasing dispute that prompted Maynilad Water Services Inc. of the Pangilinan-Consunji group to seek international arbitration. "We view the (Metropolitan Waterworks and Sewerage System) MWSS' unilateral and arbitrary act of changing the terms or interpretation of the concession agreement, in total disregard of the contractual rights and intent of the parties, with grave concern," the JCCI said in a letter to the Department of Trade and Industry.
International commercial lenders and international financial institutions share that concern, the JCCI said.
Particularly alarming, the JCCI said, was the MWSS' decision to disallow the recovery of corporate income tax in determining the tariff "contrary to the parties' consistent understanding, agreement and practice." The JCCI cited documents for the 1996 bidding of the water concessions, the rebidding of the West service area (served by Maynilad) in 2006, the mechanism used in previous rate rebasing exercises and the practice employed in similar public-private partnership projects (PPP) overseas, such as in the United Kingdom.
"Since any change in the rate of corporate income tax is beyond the control of the concessionaire, it should be allowed to recover the same so that the concessionaire does not have any unnecessary buffer or margin in the tariff that is allowed to charge," JCCI said.
Maynilad on Friday filed a dispute notice with Paris-based International Chamber of Commerce (ICC) against regulator MWSS for ordering water rate cuts over five years instead of allowing proposed rate increases which were meant to recover service investments. Ayala-led Manila Water Co. earlier said it was filing a separate dispute notice. The two companies also said there would be no rate adjustment while arbitration is ongoing.
In the meantime, the enforcement of contracts is among the many points that the National Competitiveness Council (NCC) wants to improve, noting that foreign investors seek stable regulatory and business environments, especially when exploring infrastructure projects. The DTI is the public sector co-chair of the NCC.

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