Respect arbitration decisions

The refusal of Metropolitan Waterworks and Sewerage System (MWSS) to implement the decision of the arbitration panel on the tariff hike petition of Maynilad Water Services Inc. could adversely affect the country’s image in the international investment market.

It will be recalled that in 1997, MWSS entered into concession agreements with Maynilad and Manila Water Co. to supply water to residents of the western and eastern parts of Metro Manila.

The 25-year contracts provide, among others, that every five years the water rates may be upwardly adjusted based on a pre-agreed formula.

Invoking this provision, in 2013, the two companies sought approval from MWSS to increase the water tariffs. MWSS refused the request and lowered them instead.

On account of the rebuff, the concessionaires, pursuant to their respective agreements, filed separate dispute notices with the International Chamber of Commerce to challenge MWSS’s action and seek confirmation of the validity of their application for water rates adjustment.

Last December, the arbitration panel that heard Maynilad’s petition ruled in its favor.

Agreement

Although the concession agreement states that awards of arbitration panels shall be final and binding on the parties, MWSS refused to comply with the decision.

MWSS said it was holding compliance until a similar petition filed by Manila Water now pending with another arbitration panel was resolved.

In justifying its action, MWSS’ chief regulator said “we don’t want any inconsistencies in the way we conduct our regulatory mandate.”

The reason cited by MWSS to explain its refusal to implement the arbitration panel’s decision smacks of bad faith and, to say the least, is ridiculous.

It does not take a college degree to understand that “final and binding” means the arbitrators’ decision should be implemented without delay as soon as the parties receive it.

By submitting the tariff dispute to arbitration in accordance with their agreement, MWSS acknowledged that this procedure was fair, the arbitrators could be trusted to render an equitable judgment and, for these reasons, its ruling deserved full faith and credit.

Unless MWSS has reason to believe the decision was secured through fraud or misrepresentation, there is neither legal nor moral basis for it to make its compliance with it dependent on extraneous factors.

Enforcement

What if it was MWSS, and not Maynilad, that prevailed in the arbitration?

You can bet your bottom dollar that MWSS would quickly invoke that “final and binding” clause and demand that Maynilad immediately implement the decision.

And because MWSS could earn brownie points from such triumph, expect it to engage in a media blitz to give the public the impression it is superbly doing its job as regulator for the water provisioning sector.

Too bad, MWSS didn’t get its way in the arbitration. Maynilad did a better job in proving its case.

Having lost in a fair and square fight, MWSS should graciously accept defeat and not invoke flimsy arguments to justify its refusal to implement the arbitrators’ decision.

There is nothing in the agreements that says that if the concessionaires file separate arbitration cases against MWSS or vice versa, both cases have to be resolved first before the losing party can be compelled to comply with the arbitrators’ awards.

Let us assume the arbitration panel in Manila Water’s case decides against the latter and in favor of MWSS, what will MWSS do?

Implement the decision in its favor and go to court to stop that of Maynilad’s? Ask the arbitration panel in Maynilad’s case to reconsider its award using the findings in Manila Water’s case as basis for such action? Order Maynilad and Manila Water to reconcile the differences in the awards and agree on a common tariff rate?

Reputation

By deferring compliance with the award on Maynilad’s case, MWSS has endeared itself to Metro Manila residents who stand to be affected by the water hike.

On the short term, it has burnished MWSS’s reputation as a white elephant government-controlled corporation.

It will be recalled that, in 2010, President Aquino lambasted its board for giving its officers and employees bloated allowances and bonuses that did not have any legal basis.

Despite the tongue lashing, MWSS has been the subject of several written admonitions from the Commission on Audit about the same illegal acts.

The net result of those three minutes of fame is the subliminal message to local and foreign investors that agreements with government offices cannot be taken at their face value and are subject to their bureaucrats’ mood swings.

Differences of opinion in the implementation of contracts cannot be avoided. They’re par for the course in commercial transactions.

In anticipation of those exigencies, commercial agreements, in particular, when foreign companies are involved, make provisions for their resolution through arbitration.

This makes good business sense because going through the judicial process can be expensive and tedious.

The arbitration provision is particularly “sacred” to companies that do business outside of their home turf. It is their assurance they will be heard fairly and objectively in case of commercial disputes and will not fall victim to home town decisions.

MWSS should rethink its position on the handling of the Maynilad arbitration award. The international investment community has an elephant’s memory on creditors or counterparties that do not take seriously their contractual commitments.

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