Maynilad, MWSS sign new concession deal

Published May 19, 2021, 1:00 PM

by Madelaine B. Miraflor

More than a month since the new concession agreement (CA) of Metropolitan Waterworks and Sewerage System (MWSS) and Manila Water Company Inc. was finalized and released, the CA between the government agency and Maynilad Water Services Inc. is also finally out now.

By signing the CA, Maynilad will now impose a tariff freeze until 31 December 2022, and will also formally forego collecting the P3.4 billion compensation that the Philippine government must pay the company based on the decision of Permanent Court of Arbitration in Singapore. 

In a statement, MWSS Chairman and Acting Administrator Reynaldo V. Velasco said the signing of the new CA is a big step towards water security and it’s a win-win for all stakeholders. 

He is optimistic that with the new agreement, various water security projects can now move forward.

 “Public-private partnership is still the best option for water infrastructure projects at this time,” Velasco said. 

Following the template of the new Manila Water CA, Velasco said the new Maynilad CA eliminated “onerous provisions detrimental to the interests of the government and the consumers even as it guarantees the economic viability of the concessionaire’s capital investments”. 

The revised CA was the outcome of a thorough review and negotiations conducted by a government panel led by the Department of Justice (DOJ) based on an order from President Rodrigo Duterte in December 2019.

MWSS’ CAs with Maynilad and Manila Water Company, Inc. was signed and took effect in 1997 during the Ramos administration. 

Supposedly, the 25-year 1997 CAs will expire in 2022 but this was extended for another 15 years pursuant to MWSS Board Resolutions in 2008 and 2009 during the incumbency of President Gloria Macapagal-Arroyo. 

In a disclosure to the stock exchange, Metro Pacific Investments Corp. (MPIC) shared the details of its newly signed revised CA with MWSS.

MPIC is one of Maynilad’s principal shareholders, holding 52.80 percent of the west zone concessionaire. Other stakeholders are DMCI Holdings, Inc. (25.24 percent) and Marubeni Corporation (20.00 percent).

Based on the new CA, Maynilad shall still provide water and wastewater services in the West Zone Area until July 31, 2037.

The new CA also removed Corporate Income Tax from among Maynilad’s recoverable expenditures as well as the Foreign Currency Differential Adjustment (FCDA), while the annual inflation factor is capped to two-thirds of the Consumer Price Index.

Likewise, the CA provided the imposition of rate caps for water and sewerage services to 1.3x and 1.5x, respectively, of the previous standard rate.

The CA also included the removal from the Republic of the Philippine’s (RoP) Letter of Undertaking of the non-interference of the Government in the rate-setting process, and the limitation of the RoP’s financial guarantees to cover only those loans and contracts that are existing as of the signing of the CA.

Meanwhile, the CA retained the rate rebasing mechanism, which will allow Maynilad to recover, over the term of the concession, expenditures efficiently and prudently incurred and to earn a reasonable rate of return.

A copy of the CA will be made available in Maynilad’s website, in the interest of transparency and for the information of all the relevant stakeholders, MPIC said in the disclosure.

The other week, Velasco said the release of the new CA with Maynilad is “critical” in implementing projects for water security.

This, as Maynilad’s capital expenditures will be used to rehabilitate and replace old pipelines, install new pipes in unserved areas, construct new pumping stations, reservoirs, and treatment facilities, among others.

He added that a new concession agreement will boost investors’ confidence as many of the investors have adopted a wait-and-see attitude pending the signing of a new concession agreement.
Manila Water’s revised CA with MWSS was signed signed last March 31.