Manila Water seeks international arbitration on P79-B reimbursement

MANILA, Philippines - The Manila Water Co. Inc. has filed a notice of arbitration with the Permanent Court of Arbitration in Singapore to make the government pay for claims that will reach approximately P79 billion.

It has decided to seek arbitration after the Department of Finance (DOF) did not honor its Notice of Claim last April 23, the Ayala Corp. unit said in a statement.

Through this notice of claim, Manila Water called upon the government’s Letter of Undertaking to reimburse its losses in operating revenues arising from a significant diminution in the rate of return committed in its concession contract. 

These losses are expected to be reimbursed as they are actualized for each remaining year of Manila Water’s concession and which are currently estimated to amount to P79 billion for the entire period of 2015 to 2037.

In the Letter of Undertaking, the government undertook to indemnify Manila Water against any loss caused by any action on the part of the Metropolitan Waterworks and Sewerage System resulting in the reduction of the standard rates “below the level that would otherwise be applicable in accordance with the Concession Agreement.”

Thus, it denies the company a rate of return “allowed from time to time to operators of long term infrastructure concession agreements in other countries having a credit standing similar to the Philippines” pursuant to Section 9.4 of the Concession Agreement.

“Even if Manila Water continues to pursue its claim, it started to implement the new rates set by MWSS in June 2015 which incorporates a reduction of P1.66 per cubic meter in the basic charge,” the company said.

Under the terms of the concession agreement with the MWSS entered into on Feb. 21, 1997, Manila Water was granted exclusive rights to service the east zone as an agent and contractor of MWSS.

MWSS granted Manila Water the use of its land and operational fixed assets.

The agreement also granted the company the exclusive right to produce and treat raw water, distribute and market water and collect, transport, treat, dispose and eventually re-utilize wastewater, including reusable industrial effluent discharged by the sewerage system for the east zone.

In 2009, Manila Water was granted the renewal of the concession agreement for another 15 years, thereby extending the term from May 2022 to May 2037.

The Manila Water Co. Inc. provides sewerage and sanitation, distribution services, pipe works and management services to a broad range of residential, commercial and industrial customers.

The company is a joint venture among Ayala Corp., United Utilities Pacific Holdings, BV and Mitsubishi Corp. until it became a subsidiary of Ayala Corp. in 2010.