NEDA seen to back plea for increase in water rates

The National Economic and Development Authority (NEDA) is likely to support the proposed increase in water rates in certain parts of Metro Manila and Cavite, saying that user charges should reflect the cost of investments in utilities.

A top NEDA official said that while it is always "politically unpleasant" to increase utilities rates, these adjustments are a necessary consequence of privatizing private utilities since it is only natural for private corporations to want to recover their costs.

According to the official, the only way to avoid a rate adjustment is for government to subsidize the cost, which the official said defeats the purpose of privatizing utilities.

The official also said that if the claim of Maynilad Water Resources Inc. which was granted the West Zone concession is indeed true that it is ready to shelve the project if it is not allowed to increase user charges, then government would be in a less likely position to take the concession back and fund its completion.

The only check against uncontrolled increases in user charges for public utilities, according to the NEDA official, is already in place since private utilities companies are required to clear any user charge adjustment with the relevant regulatory agency.

Specific to Maynilad, the official said there was no way that anyone could have ancitipated the magnitude of the peso depreciation that the Philippine economy suffered since the Asian financial crisis three years ago.

Maynilad officials themselves said that their assumptions for estimating the development cost of their West Zone concession area was based on the peso-dollar exchange rate ranging from P26 to the dollar up to P30 to $1.

"When we made the bid for this zone, the highest exchange rate we contemplated was P30 to $1," said Maynilad project finance director Giles B. Puno. By the time the concession area was turned over, the exchange rate was P40 to $1.

If the depreciation had been gradual, Puno said Maynilad might have been able to absorb the difference without having to pass it on to consumers.

"But it was so big and so sudden," Puno said. "Meanwhile, we continue to service the loans we inherited from the MWSS."

Maynilad, however, is opposed to the idea of elevating its petition for resolution by the Cabinet instead of the MWSS board.

Maynilad officials said MWSS was already in the position to make the decision since it was the regulatory agency responsible precisely for making this decision. – Des Ferriols