Consumers question rate setting provision in PSA bill

Published June 1, 2021, 4:57 PM

by Bernie Cahiles-Magkilat

As the Senate starts to deliberate on the proposed amendments to the Philippine Services Act (PSA) on hopes to attract more foreign direct investments, consumers have spotted 2 provisions that would allow utilities firms to set rates without prior public consultations.

In a letter to Senator Grace Poe, chairperson on the Senate committee on public services, Laban Konsyumer inc. (LKI) noted of the two items on Senate Bill 2094, which seeks to amend the 85-year old Commonwealth Act. No. 146, but which the group deemed inimical to the interest of consumers.

Both concerns are found under Section 6 of the bill that will amend Section 16 a and c of Commonwealth Act No. 146.

LKI President Victorio Mario Dimagiba in his letter to Poe on May 31, 2021 said that Section 6 seeks to grant provisional authority to utilities firms on rate setting without consultation.

“This should be subject to prior public hearing with due notice, and should not be post facto,” said Dimagiba. According to Dimagiba, rate making should be conducted just like the Energy Regulatory Commission for electricity.

Under the proposed amendment, regulators have the discretion to provide provisional authority before hearing. “That was the principal objections in the Maynilad and Manila Water . The Manila Water Sewerage System does not conduct public hearing,” he pointed out.

The second item under Section 6 the consumer group finds adverse is the provision on income tax where income tax shall be allowed as a cash expenditure or outflow for rate determination purpose.

“Our understanding is this provision will allow regulated entities to incorporate income tax in rates. At the moment, distribution utilities are not allowed to add corporate income tax,” Dimagiba said.

Dimagiba cited reports wherein water concessionaires signed new contracts which do not

allow recovery of income tax. “Those contracts should be honored. Income tax is a direct tax and as such paid by the taxpayer and such direct taxes are not allowed to be passed on to the costs of services or goods,” said Dimagiba.

The proposed amendment in the Senate Bill will allow public utility and put local services to recover them backdoor thru the rate increases. “That is double whammy and anti-consumers,” said Dimagiba.

LKI said that these two items under Section 6 of the bill will possibly increase rates of utilities rates.

Overall, LKI supports the amendments to the old public services law.

Also, local and foreign business groups also threw their strong support to the Senate Bill to amend the 85-year old PSA calling a low-hanging fruit in the legislative tree to attract foreign investments instead of amending the Constitution.

However, the 13 local business groups have expressed concern and called for review of two provisions in the bill.

The first item is on reciprocity clause which requires a similar treatment by the home country of the foreign investor before it can be allowed to own more than 40 percent of the capital of public services engaged in critical infrastructure.

The second provision relates to investments by foreign-state owned enterprises, which can be interpreted as prohibiting sovereign wealth funds from investing in public service classified as critical infrastructure.

“We strongly urge that these provisions be revisited and/or refined as they pose obstacles to the achievement of the bill’s avowed objective to attract more foreign investments,” the local business groups said.