Quantcast

Corporate Securities Info

Sanctity of contracts

By |

The bashing that Manila Water Co. and Maynilad Water Services Inc. went through recently in connection with their concession agreement with Metropolitan Waterworks and Sewerage System illustrates the difficulty of doing business with the government.

The two concessionaires were criticized for passing on to their customers “illegal” charges, e.g. income tax obligations, representation expenses and other special operational costs.

Although these billings have been in place for almost 16 years, they drew public attention only in the course of the hearing of the companies’ petition for an upward adjustment of their tariffs.

In response to the criticisms, the companies placed full-page advertisements in the broadsheets stating that these charges were agreed to by MWSS in the concession agreement it signed with them in 1997.

Thus, in consideration for multi-million peso investments for the improvement, development and operation of Metro Manila’s water and sewerage systems, the concessionaires were authorized to collect, in addition to the usual water tariffs, the questioned billings.

The agreement, which is effective up to 2022, also provides for a rates review mechanism every five years to enable the concessionaires to get a fair return on their investments.

Concessionaires

Surprise, surprise, after all these years, the MWSS suddenly found something wrong with those charges. Its chief regulator, Emmanuel Caparas, said passing on the companies’ tax liability to the customers was illegal and that the operational expenses included in the computation of the rate basis were inappropriate.

The belated expression of concern for the welfare and interests of the water customers is comical, to say the least.

Until some so-called public interest groups demonized the charges as exploitative, MWSS considered them fair, equitable and consistent with generally accepted practices in developed countries.

It did not find any reason to question them, or rock the boat, so to speak, because the concessionaires were ably performing the mission it was supposed to undertake under the law that created it.

It also helped that the two companies were regularly remitting concession fees to MWSS that enabled it to continue to operate and sustain the cozy lifestyle of its officers and employees until President Aquino put an end to the allowance-giving spree of its former board of trustees.

The billings that were earlier considered to be in the best interests of water-starved Metro Manila residents metamorphosed into unconscionable financial impositions on the hapless wards of MWSS.

Negotiations

What was in the mind of MWSS when it planned the privatization of its facilities? Did it think it was in a strong bargaining position? Or did it feel it was obliged to quickly turn over its system to the private sector?

In the auction or bidding of government projects or assets, the government has the upper hand. Subject to existing laws or regulations, it can dictate the terms and conditions (or Terms of Reference) of the planned sale or auction.

Bidders or participants can be disqualified outright if they do not meet the pre-qualification standards set by the government office overseeing the activity. Until the award is signed, that office has complete control over the proceedings to make sure the bids submitted meet the objectives of the whole exercise.

If in 1997 MWSS believed it was negotiating from a position of strength and, that early, felt the questioned charges were illegal, it could have made that matter clear in the Terms of Reference or, if the bidders asked for it, turned them down pronto.

On the other hand, if MWSS was under pressure from the administration then to privatize its facilities as soon as possible to deflect criticisms about its failure to meet the water needs of Metro Manila residents, it had no choice but accept the demand of the concessionaires to include the questioned charges in the concession agreement.

Agreement

It is not uncommon that, due to external pressure or instructions from the higher ups, some public officials are forced into agreements that, although legally defensible on its face, contain morally questionable provisions. As the legal adage goes, not everything that is legal is moral.

The fear of displeasing the powers-that-be often motivates public officials into looking the other way or being less circumspect in their actions. They sometimes take solace in the thought that “in case anything goes wrong with the transactions he entered into, it would be his successor’s headache, not his.”

Whatever may be the reason behind entering into an agreement, a contract freely entered into must be dutifully complied with by the parties. That is the norm in civilized societies.

The present board of trustees of MWSS has to decide whether or not it will respect the terms and conditions of the concession agreements entered into by its 1997 predecessor in regard to the questioned charges.

Unless the concessionaires agree to their deletion or a competent court declares them illegal, MWSS cannot, in the exercise of its regulatory authority, disallow their collection.

Neither will the threat of some publicity-seeking senators to investigate the matter be of any consequence to the legality of those agreements. The inviolability of contracts freely entered into by the parties is protected by our Constitution.

Doing business with the government can sometimes be a pain in the neck.

For comments, send your e-mail to rpalabrica@inquirer.com.ph.


Follow Us







Recent Stories:

Complete stories on our Digital Edition newsstand for tablets, netbooks and mobile phones; 14-issue free trial. About to step out? Get breaking alerts on your mobile.phone. Text ON INQ BREAKING to 4467, for Globe, Smart and Sun subscribers in the Philippines.

  • Mark Mandanas

    Why is duress even being mentioned here? Do one was forced into this contract. The exemption from income taxes was based on the rate of return guaranteed by the government to the concessionaires. You remove the tax exemption and this will just be adjusted in the ADRs. ANY investor local or foreign, needs a rate of return on their investment otherwise what’s the point.

    • eight_log

      “if MWSS was under pressure from the administration then to privatize
      its facilities as soon as possible to deflect criticisms about its
      failure to meet the water needs of Metro Manila residents, it had no
      choice but accept….”

      • Mark Mandanas

        It did have a choice. They were just inept at providing basic services to the people. No one pointed a gun to their heads. That is not duress. We have been paying for a service that was non-existent for years. At least now, we HAVE water.

      • eight_log

        Everyone has a choice … faced with a carrot and a stick (could be equivalent to millions and an armalite … who knows what transpired then) … for sure one will bite the bullet and take the millions!!!!

      • Mark Mandanas

        This makes no sense whatsoever.

      • eight_log

        Of course, what make sense to you is how you profit … what does not make sense to people like me is how on earth it has come to the point that I … a consumer … have to pay the govt tax levied by the govt on my goods/service provider!!!!!

        I can think only of a defective contract and/or erroneous interpretation of such!!! But to think that those parties involve were people of great mind … product of the best universities … how such contract be signed or even interpreted erroneously???? Unless of course one of the parties was blinded!!!!

      • eight_log

        We have water now …. but we had water then even if only drips of it now and then but people survived … all that was needed then were people to properly run the GOCCs … perhaps people like you but not concessionaires that will levy their tax to the vat paying consumers … isn’t that double taxation of some kind?????

        The money many people intend to use for their children food, clothing and schooling is being used to pay water. Could high-pressured water send theri children to school????

        It will be safe to assume that the cash dole out by the govt to the poor … a certain percentage of it goes to pay their water bill!!!!

      • Mark Mandanas

        No, it isn’t double taxation. I’m a lawyer so please don’t use words like duress in statements you have very little understanding of. You seem to espouse nationalism which has proven to have failed several times over. I posed this question many times before as to which government run corporation has ever succeeded. I rest my case. Again. Water concessionaires are not allowed to generate returns beyond what is necessary to recover cost and make a little ROI. Their returns are regulated so they can’t make any more than what is guaranteed.

      • eight_log

        So … duress maybe too strong a word … was it undue influence then? By the way, Pnoy, in his SONA, mentioned two agencies as having posted positive incomes. MWSS was one of the two. It only shows that under good hands GOCCs will make profits!!!!

    • eight_log

      Since when did tax exemption mean that the consumers will have to pay it? It you think it is not viable to do this business of distributing water … just give it back to the government … I am sure the govt will not penalize you for doing so!

      • Mark Mandanas

        Of course the government won’t penalize us. They’re using OUR money and they don’t even invest it properly.

      • eight_log

        And you think making consumers pay your corporate tax a good investment?

      • Mark Mandanas

        Simply put.” Water concessionaires are not allowed to generate returns beyond what is necessary to recover cost and make a little ROI.” You can go on espousing outdated communist/Marxist models and it will never be logical.

      • eight_log

        Your ROI is guaranteed by the government …. but was it stipulated in your contract that consumers will pay for your tax to arrive at such ROI??? I am sure you are adjusting your ADRs as well to further maximize your profits. You are even making consumers pay for your CAPEX … complaining is not communism nor marxism… but what you are doing is plain thievery and of course with the help of corrupt politicians!!!!

  • eight_log

    There exist no sanctity when a party representing a group enters a contract with another party when the former signed the contract knowing fully well that the contract was highly injurious to the party it represented!!!!

    The contract is devoid of sanctity when the other party bribed the other party into signing such contract!!!!!

    Is there sanctity when one party is under duress to sign???

  • Norman Quiambao

    So IBON, WPN et.al. would have us believe that the charging of income tax by the concessionaires to the public was something heretofore unknown. Well, it speaks poorly of the vigilance of these ‘people’s watchdogs’ if they failed to catch something in a public document. But I don’t think they were negligent at all. Their announcement is clearly timed with the impending rate increase to elicit the maximum indignation from consumers, lending this standard practice an air of illegality and shadiness. If you can’t use the truth and logic, there’s always drama and sensationalism (aided and abetted by an MWSS head who apparently did not know either what went down in his own department).

  • Gail Fabian

    These NGOs are stupid trouble makers who do not know the whole story. Maynilad and Manila Waters naturally will welcome any incentives because thats business. MWSS is the one who are answerable signed the contracts gave the incentives. and now our govt wants to change the rules again?, so paano na tayo pagkakatiwalaan ng mga gustong mag negosyo sa bansa natin niyan pabago bago nanaman? I dont know what will happen to our economy if our govt listen to these groups. hayy..

  • jaketajonera

    The of course, agitation came from the usual suspects of: Ibon Foundation, KMU, Anakbayan, Akbayan etc., through a new front ‘the water for the people network’ that was attacking “privatization” in principle. Did you notice that the Communists have all these fronts made of different causes but pushing the same ideology? The Communist and Socialists Left want “nationalization” of course to replace privatization and mind you not just of PUBLIC utlities because their Marxist-Maoist ideology stipulates that the State can run everything better than private enterprise (which is capitalist by nature).



Copyright © 2014, .
To subscribe to the Philippine Daily Inquirer newspaper in the Philippines, call +63 2 896-6000 for Metro Manila and Metro Cebu or email your subscription request here.
Factual errors? Contact the Philippine Daily Inquirer's day desk. Believe this article violates journalistic ethics? Contact the Inquirer's Reader's Advocate. Or write The Readers' Advocate:
c/o Philippine Daily Inquirer Chino Roces Avenue corner Yague and Mascardo Streets, Makati City, Metro Manila, Philippines Or fax nos. +63 2 8974793 to 94
Advertisement
Advertisement
Marketplace