Monday, July 16, 2018
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Corporate Securities Info

Respect arbitration awards

Just when the Duterte administration is scrounging for additional revenues to fund its P8-trillion infrastructure projects, comes a report that an international arbitral tribunal has ordered the government to pay Maynilad Water Services Inc. P3.4 billion for uncollected tariffs from March 11, 2015, to Aug. 31, 2016.

The award represents the tariffs Maynilad could have collected from its customers had the government allowed it to adjust its rates for the period 2013 to 2017.

Finance Secretary Carlos Dominguez III said the government would have to check its budget to find out if there were funds available to satisfy the award. For its part, Maynilad stated it would coordinate with the government “in finding the most efficient way to implement the judgment.”


Assuming the P3.4 billion is paid, it will not end the disagreement between Maynilad and the government over tariff adjustments. Maynilad may file for arbitration again in case the government fails to reimburse the losses it incurred from Jan. 1, 2013, to March 10, 2015, for the same reason.

Although some quarters have protested the arbitral decision, there is no indication the government is inclined to look for legal loopholes or ways to avoid satisfying the award.

For Dominguez, it’s just a question of finding out what funds in the budget can be tapped to pay the amount because no provisions were made for it in the 2017 budget.

If Dominguez fails to find funds from the present budget, he will be obliged to ask Congress to make a special allocation for or provide for it in the 2018 budget.

The award is a financial obligation that must be fulfilled by the Duterte administration even if the cause of action arose during the past administration.

The government cannot evade satisfying the award without risking its credibility. Multinational lending institutions and governments have long memories on countries that renege on their contractual obligations.

Since the government willingly participated in the arbitration proceedings initiated by Maynilad and argued its case, it cannot, when the decision is adverse to it, turn around and question the authority of the arbitration panel to render a favorable judgment to Maynilad.

When the government entered into a water concession agreement with Maynilad in 1997, they agreed that all disputes that cannot be amicably settled shall be resolved through arbitration under the rules of the UN Commission on International Trade Law.


The agreement also provides that the decision of the arbitral panel shall be valid and binding on the parties. They cannot appeal or ask that it be reviewed by any court or regulatory body.

The business community does not look kindly on contracting parties that quickly demand to go to arbitration whenever they have differences in the implementation or interpretation of their contract.

Arbitration is a means of last resort. It is availed of only when all efforts of amicably settling the parties’ disputes have failed. When the arbitration process is invoked at the drop of a hat or treated cavalierly, it can only mean that the parties did not clearly spell out the meaning or intent of the provisions of their agreement, or one of the parties was dealing in bad faith with the other during the negotiations.

The P3.4-billion award may be a bitter pill for the government to swallow considering its present financial condition. But unless the government can truthfully claim that the award was tainted with fraud and has proof to that effect, it is morally and legally obliged to satisfy it.

In the civilized world, only rogue parties or governments violate agreements they freely and willing entered into.

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TAGS: Duterte Administration, Maynilad Water Services Inc., P8-trillion infrastructure projects, revenues
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