Benpres: Maynilad granted rate hike

The government, trying to lure Maynilad Water Services Inc. to continue with its concession, has granted its request for a rate hike — though at a much lower amount than it originally asked for — but Maynilad said its lawyers are studying the legal implications of such an increase.

Meanwhile, minor oil players TotalFinaelf (TFE) Philippines and Eastern Petroleum Corp. (EPC) will raise pump prices starting today by at least 40 and 60 centavos per liter for diesel and gasoline, respectively.

In a disclosure to the Philippine Stock Exchange, Maynilad’s mother company Benpres Holdings confirmed a newspaper report that said the Metropolitan Waterworks and Sewerage System (MWSS) allowed Maynilad an increase of P6.84 per cubic meter, to be implemented in two stages over the next four years.

Maynilad, however, is contesting the amount of the rate hike granted by MWSS and has not yet implemented the increase.

"The news article correctly captures the specific amount and timing of the rate hike granted by MWSS. However, the rate adjustment is one of several issues raised by Maynilad in its notice of early termination to the MWSS," the statement said.

On Dec. 9, Maynilad announced it was terminating its supply concession, arguing it was no longer viable because the MWSS had allegedly failed to fulfill terms of the agreement, which MWSS has denied.

Benpres added that its lawyers were "reviewing the impact of the rate hike implementation" but did not elaborate.

Maynilad earlier petitioned for a P13.08 per cubic meter increase in its rates, to bring charges to a flat P33 per cubic meter. On Dec. 5, Maynilad boycotted the public hearing called by MWSS over certain legalities, eventually leading to its filing of a notice of termination of the concession agreement on Dec. 9.

Based on its notice, the Lopez-owned water utility firm hit MWSS for reneging on their previous agreement which would have, among other moves, allowed Maynilad to exercise its option to implement a general rate rebasing last Jan. 1, 2003 and enter into agreements with MWSS on their action plan relating to service targets, the amount of rates to be implemented, and the issues to be addressed regarding the concerns of Maynilad’s creditors.

Maynilad also indicated that it would be willing to forgo a tariff increase for two years, provided that a similar waiver on the payment of their concession fees — which had run up to as much as $200 million over two years — be granted.

Under the notice of termination, the MWSS has 60 days from Dec. 9 to contest or challenge the arguments laid out by Maynilad, otherwise the concession reverts to the government.

The MWSS, after Maynilad officials boycotted the public hearing, approved an additional water rate hike of P6.84 per cubic meter for Maynilad’s west zone concession area. This brings its total charges to P26.76 per cubic meter from P19.92.

However, Maynilad is allowed to increase its tariff this year by only P4.4 per cubic meter, with the balance of P2.44 per cubic meter to be charged over the next four years. This is similar to the staggered rate hike earlier granted to Manila Water Co.

Last Dec. 13, the MWSS board approved a P7.03 per cubic meter rate increase for Manila Water. The Ayala-controlled firm started charging its customers P4.25 per cubic meter effect Jan. 1, 2003.

This increased Manila Water’s existing tariff rate from P9.97 to P14.22 per cubic meter. The balance of P2.78 per cubic meter will be spread until 2005.

MWSS Administrator Orlando Honrade said they have approved the rebasing adjustment of Maynilad’s rates to P15.76 per cubic meter.

Honrade said this latest increase is a far cry from Maynilad’s P4.96 per cubic meter rate in 1997. He added that the MWSS has been "very accommodating" to Maynilad.

"We have fully cooperated in all reasonable ways to ensure the viability of Maynilad for their recovery mechanisms and conduct of rate rebasing," Honrade said in a press release.

However, Daren Fernandez of the MWSS Regulatory Office said they are not aware of such a statement from Honrade or of the press release sent to The STAR.

"It is puzzling because neither the Regulatory Office nor the Public Information Department has a copy of such a release. I am not aware of such an announcement like that from the administrator," Fernandez said in a telephone interview.

Maynilad’s Corporate Affairs Office denied that they have sought an increase, claiming that they have sent out a notice of early termination last December.

"The issue is very strange because I don’t know of any petition of a water rate increase here," an employee from Maynilad’s Corporate Affairs said.

In the release, Honrade said that Maynilad has been increasing its rates significantly, ever since the major devaluation of the peso six years ago. Its unpaid concession fees have exceeded P4 billion.

Reports showed that Maynilad has been in a financial rut because of the peso-dollar fluctuations. The water concessionaire said in 2001 that they had to make some major changes in their rates or "close shop."

"The MWSS granted the P15.76 adjustment plus other charges for an all-in-tariff of P24.28 per cubic meter," Honrade said in the release.

He said that Maynilad actually wanted a rebased tariff of P34.60, according to its submitted business plan in May last year, but that the MWSS found it "too high." A revised plan was made and proposed in October 2002.

Maynilad was awarded the concession to supply water to the west zone of Manila in 1997. Manila Water Co., owned by the Ayala group, was given supply rights for the east zone.

Benpres, which also has interests in broadcasting, telecommunications and property, has around $600 million worth of debt that it is seeking to restructure.

War jitters

The increase in TFE Philippines’ pump prices — 40 and 60 centavos per liter for diesel and gasoline, respectively — can be attributed to the steep climb in the refined petroleum product prices of the Mean of Platts Singapore (MOPS), company president Jeff Atwood said.

"The company is trading under unusual times. The anxiety in the international oil market as a result of uncertainties in Iraq has pushed up world market prices," Atwood said.

He said while the percentage increase of the MOPS average from November 2002 to date is 12 percent for diesel and kerosene, and 17 percent for unleaded gasoline, local pump prices have only increased by one percent during this period.

With the scheduled price adjustment, Atwood said the average increase in local prices from November 2002 to mid-January 2003 will only rise to three percent for diesel and kerosene, and four percent for gasoline.

Fernando Martinez, EPC chairman and president of New Petroleum Players Association of the Philippines, said the company will also increase prices by 42 centavos for diesel and 60 centavos for gasoline effective Jan. 18.

"This latest increase is part of the effort to recover more than P1.60 in actual increase of gasoline products from the November 2002 price as against the Jan. 14 price, based on Singapore pricing. The diesel increase, on the other hand, is meant to recover part of P1.18 in actual increases from the world market of finished products bringing the total recovery of 89 centavos but still leaving 30 centavos in unrecovered cost of diesel products per liter," Martinez said.

Despite an earlier announcement by the Organization of Petroleum Exporting Countries (OPEC) that they will increase production to 1.5 million barrels daily effective Feb. 1, EPC said this has not influenced the market because of the strike in Venezuela and the continuing threat of war in Iraq.

"This will bring the pump price of diesel to P15. 43, which is still seven centavos below the P15.50 retail price which serves a the trigger point for granting fare hike petition," Martinez said.

He also predicted that petroleum prices will stabilize as soon as the Venezuelan crisis is resolved, and the Iraq standoff peacefully concluded.

As of press time, the big oil firms — Petron Corp., Pilipinas Shell Petroleum Corp., and Caltex Philippines Inc. — have yet to announce whether they will follow suit.

These oil price hikes, according to Energy Secretary Vincent Perez, may be inevitable after the OPEC decision to jack up production by 1.5 million barrels of oil per day failed to arrest soaring world crude prices.

The international oil market has not responded to market fundamentals such as the increase in production, Perez said. It has been affected by the continuous threat of a war led by the United States against Iraq, pushing prices up.

Local oil companies had warned they would be increasing prices within this month to reflect the impact of the Clean Air Act as well as the rise in crude oil prices.

Based on estimates, oil firms are likely to jack up prices anew by 50 to 60 centavos per liter. Last Jan. 3, oil companies raised the prices of their pump products and liquefied petroleum gas by 49 centavos and P1 per kilogram, respectively.

"It is unfortunate that market response shows that the Jan. 12 OPEC decision has failed to arrest the increasing trend of global oil prices," Perez said.

He added that the ongoing strike in Venezuela, which is on its 45th day, has exerted pressure on the price and supply of oil. Venezuela is the world’s fifth largest oil exporter.

"The world price of oil has recently become too erratic in response to different world events. Given this scenario, our local oil prices may not be isolated from global trends. We might see domestic oil prices follow the same trend of the international oil prices," Perez said.

He urged local oil companies not to take advantage of the situation and instead seriously study market conditions.

Perez added that the Department of Energy (DOE) will continue to closely monitor the developments in international and local oil markets.

In the last few days, world oil prices have soared with Dubai crude, the benchmark used in the pricing of oil in the country, now averaging $27.02 per barrel between Jan. 2 to 15, the highest in two years.

DOE data show that Dubai crude peaked to its highest on Jan. 15 to $27.89 per barrel from $27.30 per barrel the day before. — With reports from Donnabelle Gatdula, Reuters