Pass-on charges tucked in Maynilad, MWC water bills bared

MANILA, Philippines — The two water service concessionaires of greater Manila area recovered through tariffs the sundry expenses and income tax payments, that are unacceptable to consumer welfare advocates.

Based on the business plans of Maynilad Water Services Inc. and Manila Water Company Inc. (MWC), which regulators approved in 2008, operating expenses included those for advertising, training, representation, transportation and travel, and special events management.

The concession agreement with the Metropolitan Waterworks and Sewerage System provides that the concessionaires may recover during the full concession term “operating, capital maintenance and investment expenditures efficiently and prudently incurred.”

The agreement also allows the recovery of “Philippine business taxes and payments corresponding to debt service on MWSS loans and concessionaire loans incurred to finance such expenditures.”

Maynilad’s business plan indicates that operational expenses (OPEX) include personnel costs; supplies; light and power used in its plants, facilities and offices; repairs and maintenance of such facilities and offices as well as vehicles and equipment; and the company’s annual contribution to the maintenance and operating expenses budget of the MWSS’ regulatory office  and corporate office.

Aside from these, there are “other expenses” that include a performance bond premium set at $30 million in 2008, outside services, rentals, insurance, and professional fees for consultants.

For the advocacy group Water for the People Network (WPN), what is most irksome is the inclusion of expenses like those for advertising, promotions and recreation.

Maynilad defines this as the cost of enhancing and promoting (the company’s) image; developing harmonious relations with local government units, establishing rapport with tri-media, advertisement and publication of notices in newspapers and magazines of general circulation, TV/radio broadcast, website, public consultations on ground and cost of sponsorships.

This item also includes athletic, recreational and annual cultural celebrations.

The WPN also cited an item for trainings, workshops, seminars, and conferences. This includes expenses for the conduct of training for the development, enhancement, and furtherance of employee skills, competencies and potentials.

Also covered are professional fees, honoraria and gifts for the resource persons and facilitators, training/seminar/enrolment fees, training materials, giveaways, transportation expenses incurred by an official or employee in attending such training, and other incidental expenses.

Still another item is for representation and transportation, which includes expenses incurred by the various officers of the company and to promote, establish and maintain good public image and relations.

This also includes but is not limited to gifts, flowers, and other tokens for all occasions, food expenses during meetings, seminars, and conferences, official entertainment either by the officers or their authorized representatives.

There is also an item for transportation and travel, which refers to the cost of fuel including brake fluids, oils, etc., consumed by the company’s transportation equipment in the normal course of business operations.

This item also pertains to expenses of officers and employees while traveling on official business within the country or abroad (including the cost of airfare, hotel accommodations, and other travel-related expenses in connection with regional visits). The cost of tolls and parking expenses are also covered.

Further, Maynilad’s other expenses include “utilities” or the cost of communication including expenses for telephone, cellular phone including cell cards, handheld two-way radio transceivers, frame relay, wireless and cable charges and tolls, postage charges, messengerial and couriers services and other expenses incurred in operating and maintaining the communication system of the company.

Utilities expenses also include water and sewer services used in the company’s facilities such as branch offices, warehouses, etc.

Maynilad’s business plan in 2008 pencils in “other expenses” to cost P7.07 billion for the five years to 2012.

Similarly, MWC’s business plan identifies “major cost centers” of its OPEX like personnel, power, chemical, wastewater, repair and maintenance, and premises.

MWC also identifies outsourcing costs which refer to expenses on call center services, collection, bill distribution, deep well maintenance, meter reading, facilities and building maintenance, and special events management.

MWC marked opex for 2008 to 2012 as totalling P24 billion.

However, for both concessionaires, there is no available data to show whether actual figures were lower or higher than planned.

According to the WPN, the two concessionaires “have effectively turned water service into a profitable business while consumers shoulder the burden of onerous charges and taxes.”

Sonny Africa, executive director of Ibon Foundation which is one of WPN’s convenors, called on regulators to disallow the recovery from consumers of such expenses and to thumb down proposals for rate hikes.

“We are sure these same items are included in the business proposals of Maynilad and Manila Water for the next rate rebasing (cycle),” Africa said.

The WPN earlier criticized the two utilities for passing on to consumers their income tax payments, which are part of their OPEX.

When asked for comment, Maynilad said the concession agreement of 1997 provided for the recovery of business-related taxes by the concessionaires.

“This helps ensure the concessionaires’ capability to undertake massive investments despite their gradual recovery of these investments,” said Cherubim Ocampo-Mojica, head of corporate communications at Maynilad.

Mojica said countries like the United Kingdom, Chile and Peru were using similar tax expense recovery frameworks in water service concessions “with favorable results.”

“We believe this is for the mutual, long-term benefit of the consumers and the concessionaires,” she added.

The Philippine Daily Inquirer tried to get hold of Manila Water but messages were not returned as of press time.

The MWSS allowed the recovery of income tax through tariffs in a resolution issued in 2004.

In a new resolution adopted last month, the MWWS Regulatory Office moved to strike down the 2004 resolution after the Office of the Government Corporate Counsel issued an opinion that concessionaires should not be allowed to recover income tax expenses from consumers.

However, the MWSS RO resolution still needs the approval and confirmation of the MWSS board of trustees to be binding.