MANILA,Philippines — President Rodrigo Duterte did not order the rescission of the water concession agreements allowing Maynilad Water Services Inc. and Manila Water Co. Inc. to distribute water in Metro Manila and parts of Cavite and Rizal provinces, which he claimed were disadvantageous to the government, Malacañang said on Sunday.

The Palace made the clarification as it learned that the two private companies had been charging customers not only for corporate income taxes but also for a long list of operating expenses, including those for flowers, gifts, concerts, advertising, sports fests and foreign trips.

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Presidential spokesperson Salvador Panelo said Duterte merely wanted to remove the “onerous”provisions of the contracts that the Ramos administration had entered into with the two companies in 1997, when the water distribution function of the Metropolitan Waterworks and Sewerage System (MWSS) was privatized.

Arrest saboteurs

“Didn’t he say ‘correct those contracts because those contacts were erroneous?’”Panelo said over Radyo Inquirer.

“It means that they should talk [with the government]. If they agree, then there’s no problem. If not, then they will be charged,”he said. “The two companies said they were willing to negotiate. That should be OK.”

In a strongly worded speech last week, the President threatened to arrest officials of Maynilad and Manila Water and sue them for economic sabotage for allegedly operating the water distribution system in Metro Manila in a way that put the government at a disadvantage.

He ordered the filing of criminal, civil and administrative charges against the parties, including government lawyers and agents who took part in drawing up the water concession agreements.

Duterte also stated that the government would not pay the huge amounts awarded by the Permanent Court of Arbitration in Singapore to Manila Water and Maynilad.

The President made the threats after Justice Secretary Menardo Guevarra said in a Cabinet meeting that the water concession agreements awarded to Maynilad and Manila Water contained 12 onerous provisions.

Guevarra said these included the “prohibition against government interference in rate-setting, and the provision on indemnity for possible losses in the event of such government interference.”

The justice secretary said these two provisions were the reasons why the Singapore-based arbitration court recently directed the Philippine government to pay P7.4 billion to Manila Water “as compensation for losses or damages.”

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The losses arose from the company’s inability to raise water rates by P5.85 per cubic meter between 2013 and 2017.

In 2017, the court also ruled that the government pay P3.6 billion to Maynilad.

In response, the President said he had ordered Solicitor General Jose Calida and Finance Secretary Carlos Dominguez III to draft a new water concession contract that would be favorable to the government.

Highly profitable“This is the amended contract, accept it or nothing to it,”Duterte said.

The Department of Justice also found irregular the extension of the 25-year agreements up to 2037, way beyond their expiry in 2022.

Sen. Christopher “Bong” Go, the President’s longtime aide, said it was just right for the government to fight for a more favorable water concession agreements.

“The Filipinos are already hard up. They should not further make the situation more difficult for us. The contracts should be fair for every Filipino,”he said.

Despite the forgone revenues of Manila Water and Maynilad as a result of the higher rates that the government rejected for the rate-rebasing for 2013-2017, both companies remain highly profitable.

From 2013 to 2018, their combined cumulative profits stood at P82.43 billion (P36.71 billion for Manila Water and P45.72 for Maynilad).

Manila Water’s biggest shareholder is Ayala Corp. while Maynilad is largely owned by Metro Pacific Investments Corp. and DMCI Holdings.

Refund proposal

Former Solicitor General Florin Hilbay said on Thursday that the government could question in Philippine courts the implementation of the arbitration award and the concessionaire’s corporate income taxes being shouldered by customers.

A consumer advocacy group, Water for the People Network, has claimed that Manila Water and Maynilad passed on to consumers a total of P15.3 billion in corporate income taxes for 2008-2012 alone. The group said the two companies included income tax payments in their operating expenses.

As early as 2013, Sen. Ralph Recto proposed that the two concessionaires refund customers just like what power distribution utility Meralco did.

Meralco was forced to pay back P28 billion to its customers after the Supreme Court ruled in 2002 that it could not pass on its income tax obligations to its customers.

A resolution of the MWSS Regulatory Office recognizes Manila Water and Maynilad as the regulator’s mere agents, not as public utilities.

Should the concessionaires be considered public utilities, they cannot include income tax in their operating expenses that could be recovered through tariffs, following to the 2002 Supreme Court decision. —With a report from Marlon Ramos and Inquirer Research

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