MWSS freezes water rate increase

Published by rudy Date posted on January 16, 2009

There will be no increase in water rates in the greater Metro Manila area this year, the Metropolitan Waterworks and Sewerage System (MWSS) announced yesterday.

MWSS administrator Diosdado Allado said the board had rejected the petitions of two water utility companies asking for rate increases.

Allado told a briefing at Malacañang yesterday that a special board meeting was held last Wednesday to discuss the petitions of Manila Water Company Inc. of the Ayala Group and the Maynilad Water Services Inc. of Metro Pacific, the two water utilities serving the greater Metro Manila area.

Both firms have filed petitions for rate increases to finance their capital expenditures.

Maynilad wants an increase of P10.20 per cubic meter while Manila Water is asking for P6.90 per cubic meter.

According to Allado, the board unanimously resolved that there would be no rate increases throughout 2009.

“There will be no increase in the rates in all the service areas covered by the MWSS at least for this year,” Allado declared.

He said the board took two issues into consideration, namely the impact of the prolonged global financial crisis on consumers and the doubts raised about the need of the two water utility firms to hike rates.

Allado explained the timing of any rate increase for a basic service such as water at this time would be “socially irresponsible and insensitive.”

Maynilad handles the west concession area while Manila Water runs the east zone.

Under the concession agreement of the two utilities, they are entitled to a rate review every five years since there would be need for some improvements in the service that would require financial support.

The two firms have already submitted their business plans for 2008 to 2012 and the rate increases they are seeking would support the capital expenditures for the period.

Allado said a review was made by the MWSS of the previous business plans of the two utilities to determine if they were able to comply with the commitments made at the time.

A project management committee was formed to conduct the review and was allowed three to six months to complete the process.

“We have to see if the old plans have already been complied with,” he said.

Allado said the two firms have to justify the need for a rate increase and that if they are found to have failed in fulfilling their previous commitments, then a refund for the customers would probably even be required.

The two firms have already asked the MWSS for some consideration in its decision to freeze the rates for the entire year.

Violation of agreement

Maynilad, on the other hand, accused MWSS of violating the concession agreement on its decision to defer the rate increase.

Maynilad president and CEO Rogelio Singson warned that a delay in the implementation of any rate increase would affect the firm’s capital investments programmed for this year, which could result in higher rates next year.

“We were surprised by the recent decision of MWSS to defer tariff adjustments this year,” Singson told a hastily called news conference.

“We have worked for the rate re-basing for more than a year. We followed the process and this is what we get,” he said.

Singson explained the context of their proposed P10.96 per cubic meter tariff adjustment, which was eventually reduced to P10.20/cu.m.

He said the “real impact” of the rate adjustment means a P3.39/cu.m. adjustment for Maynilad’s low-income consumers.

Singson pointed out the P10.20/cu.m. suggested rate increase is the average price from residential to industrial customers.

He said the amount would have an impact only on larger or commercial consumers.

Of the total Maynilad customers, Singson said 20 percent comprise those who consume 10 cu.m./month and that 64 percent, or the majority, are those who use up 30 cu.m./month.

He added the deferment of the P10.20/cu.m. tariff adjustment would result in a 25 percent reduction in Maynilad’s revenues, or P3 billion in a year, which consequently means delay in the improvement of service in its concession areas.

Maynilad has a total of nine million customers, of which three million are yet to be connected to the tap.

In the next few years, Maynilad targets to deliver water service to all nine million customers.

“We appeal to MWSS to be a little bit more considerate with Maynilad being a viable entity. This (proposed rate adjustment) is a socialized price that (would not) impact much on low-income customers,” Singson said. “We don’t think we are being unreasonable for seeking such tariff adjustment.”

Singson warned any delay in the tariff adjustment today would result in much higher water rates next year.

Striking a balance

On the other hand, Allado defended the MWSS in its decision to postpone the tariff adjustment “indefinitely.”

“That’s their opinion (if they think that the deferment is a violation of the agreement)… maybe they have consulted their lawyers,” he said.

Allado said he was tasked by the MWSS board to seek a dialogue with the water concessionaires to strike a balance between the need to maintain their financial viability and the requirements of the consuming public.

“We are also exploring the extension of the agreement as another measure that would favor them and the people (as I was) also tasked by the MWSS Board to review their capex (capital expenditures) in the past, if they were really able to comply based on the pledges they made before,” he said.

Allado said the issue at hand is to strike a balance between “what is good for the consumer and what is necessary to maintain the financial viability of the concessionaires.”

“We can’t be one-sided on this,” he added.

Allado said the two firms have proposed that a selective increase should be implemented to allow the lower income bracket to benefit from the rate freeze.

The industrial users represent the bigger portion of the income of the utilities so they would still be able to push through with their capital expenditures while protecting the small users.

He said Maynilad would listen to the proposals in the spirit of fair play.

However, he noted the two firms are in the black so they should be able to live with the present rates they are charging.

“But we will be conducting dialogues with both concessionaires,” Allado said. –-Marvin Sy with Katherine Adraneda

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