Maynilad seeks new arbitration vs gov’t

MANILA, Philippines - Maynilad Water Services Inc. is seeking a new arbitration proceeding against the Philippine government, this time to claim sovereign guarantee for supposed loses it incurred in the postponement of the increase in its basic charge as awarded during a previous arbitration.

It’s major shareholder, Pangilinan-led Metro Pacific Investments Corporation (MPIC), announced in a regulatory filing yesterday that Maynilad had sent to the Department of Finance (DOF) last March 27, a notice for arbitration and statement of claim based on demand letters filed between February and March.

MPIC said that pursuant to the Letters of Undertaking issued by the government to Maynilad on July 31, 1997 and March 17, 2010, the government would compensate the concessionaire for loses caused by a delay in the implementation of the standard rate beyond the date of its implementation.

Maynilad is demanding compensation for loss of P3.44 billion in revenues from Jan. 1, 2013 to Feb. 28, 2015 because of the delay in the implementation of the increase in its base water rate as awarded on Dec. 29, 2014 after an arbitration proceeding presided over by the International Chamber of Commerce (ICC).

The company claims that it continues to lose revenues at an average of P208 million for every month of further delay of the implementation of its alternative rate rebasing adjustment.

Maynilad chief finance officer (CFO) Randolph Estrellado said the arbitration would be conducted in Singapore before a three-man panel that would be appointed subject to the 1976 rules of arbitration of the United Nations Commission on International Trade Law (UNCITRAL).

This, he said, is provided for under the concession agreement and the letters of undertaking.

 “We have appointed a nominee and expect the government to appoint its nominee within 30 days, so both may jointly agree to appoint a presiding arbitrator,” he said.

Should the two parties fail to appoint a presiding arbitrator, Maynilad said it would ask the ICC to nominate a presiding arbitrator.

The Metropolitan Waterworks and Sewerage Services (MWSS) maintains that the claim of Maynilad for a sovereign compensation has no merit.

MWSS chief regulator Joel Yu said Maynilad would not incur losses because it is allowed to recover its investments for the remainder of the concession agreement through succeeding rate rebasing that would be conducted in the years 2017, 2022, 2027 and 2032.

He said the delay in the implementation of Maynilad’s rate hike is not caused by the mere refusal of the MWWS to implement the rate increase but is due to a number of factors such as the conduct of the rate rebasing exercise itself and the arbitration proceedings.

The MWSS has put on hold the implementation of the awarded base water rate hike until the arbitration process for both metro water concessionaires-The other being Ayala-led Manila Water Company Inc.- have been completed.

Yu has said this is meant to prevent the occurrence of “inconsistencies” in the implementation of the concession agreement, chief of which is the treatment of the recovery of corporate income tax.

This stopped talks between the water regulator and Maynilad for the proposed three-year implementation of a 9.8 percent increase in its 2013 average basic water charge of P31.28 per cubic meter. This translates to an average increase of P3.06 per cubic meter in its basic charge.

In September 2013, the MWSS denied the petition of Maynilad and Manila Water to raise water rates in accordance with their five-year rate rebasing scheme as the two firms were unable to justify the need for higher rates based on their business and investment plans for the next five years.