The government and the Ayala Group’s Manila Water Co. Inc. have signed a new concession agreement.
Before the Holy Week break, Justice Secretary Menardo Guevarra revealed the Metropolitan Waterworks and Sewerage System (MWSS) and Manila Water have inked a revised concession agreement.
Manila Water, in a disclosure on Monday, bared the salient points of the new accord with the government that will take effect until July 31, 2037.
Under the deal, Manila Water will no longer be allowed to recover corporate income taxes and the foreign currency differential adjustment (FCDA).
It also lowers the inflation factor to two-thirds of the consumer price index adjustment and
imposes caps on increases in standard rates for water (1.3 times the previous standard rate) and wastewater (1.5 times the previous standard rate).
“Instead of a market-driven appropriate discount rate, Manila Water shall now be limited to a 12-ercent fixed nominal discount rate,” said the listed utility.
But the rate rebasing mechanism as stipulated in the original concession agreement is retained.
“Thus, the rates for water and sewerage services provided by Manila Water shall be set at a level that will permit it to recover over the term of the concession expenditures efficiently and prudently incurred and to earn a reasonable rate of return,” it added.
FCDA is a quarterly-reviewed tariff mechanism that allows concessionaires to recover losses or give back gains arising from fluctuations in foreign exchange (forex) rates, as payments are made for foreign currency-denominated loans that are used to fund the expansion and improvement of water and sewerage services.
FCDA is a corrective mechanism formulated by the MWSS Regulatory Office to avoid under recovery or over recovery caused by forex movements.
On the other hand, rate rebasing, which occurs every five years, is the process of determining charges of concessionaires for their water and sewerage services based on their performance, expenses, earnings, unrecovered investments, and service improvement plans.
Moreover, a tariff freeze will be in place until December 31, 2022, aligned with the government’s efforts to assist the disadvantaged sector and to contribute to the recovery of the economy after the coronavirus pandemic.
The Undertaking Letter of the Republic is retained but to exclude the noninterference clause. It now applies only to contracts and obligations existing at the time of execution of the revised concession agreement.
The new concession agreement was largely fashioned after the joint venture agreement for the development of water and wastewater infrastructure in New Clark City in Pampanga.
To recall, in 2019, both Manila Water and Maynilad Water Services Inc. came under fire after President Rodrigo Duterte lambasted their concession contracts with the government.
Duterte then ordered the Department of Justice to review the deals with the two water service providers first signed in 1997, which he said contained “onerous” provisions.
This stemmed from the water supply crunch in March 2019 and the rulings of a Singapore arbitration court that ordered the government to pay Manila Water and Maynilad more than P10 billion in damages.
MWSS is yet to seal a new deal with Maynilad.
Maynilad head of corporate communications Jennifer Rufo said in a message that “we have yet to meet with government to discuss.”