NAGA CITY, 26June2013 – dvocacy group Water for the People Network (WPN) today revealed that consumers have been shouldering the costs of the corporate income taxes of Manila Water and Maynilad at an estimated Php3.1 billion a year from 2008 to 2012. Of the said amount, Manila Water accounts for about Php1.5 billion annually and Maynilad, around Php1.6 billion. The figures are based on documents obtained by research group IBON, one of WPN’s convenors.
Worse, the WPN added that income taxes make up a significant portion of the two firms’ proposed rates for the next five years through the rate rebasing exercise that they again want to pass on to consumers as operating expenses (Opex). Manila Water is seeking a Php5.83-per cubic meter (cu. m.) increase in its basic charge and Maynilad, Php8.58 for 2013-2018.
Moreover, a guaranteed rate of return, called appropriate discount rate (ADR), is applied on the pass-on income taxes as part of the Opex, which means that Manila Water and Maynilad, apart from not paying their tax obligations, are even profiting from it. According to the group, “Hindi na sila nagbabayad ng buwis, tumutubo pa sila sa hindi pagbabayad nito.”
In the last rate rebasing period covering 2008 to 2012, Manila Water and Maynilad were given an ADR of 9.3 percent. “It’s a double whammy for consumers,” said the WPN. In the case of Maynilad, this is even a triple whammy because the Manny Pangilinan-led firm enjoys an income tax holiday but still included corporate income taxes in its Opex, further bloating its profits.
In 2008, The Metropolitan Waterworks and Sewerage System-Regulatory Office (MWSS-RO) allowed the private concessionaires to include in their Opex the cost of corporate income taxes that Manila Water and Maynilad could recover from consumers through monthly water bills. The two concessionaires’ combined pass-on income taxes was projected at Php15.3 billion from 2008 to 2012 or Php3.1 billion annually. Corporate income taxes comprise 31% of the projected Opex of Manila Water and 26% of Maynilad’s during the said period.
The privatization of MWSS allowed the concessionaires’ future income taxes and other expenses to be included in the calculation of water tariffs to be paid for by consumers. Based on their approved business plans in the previous rate rebasing as well as the extension of their Concession Agreements (CAs) with the MWSS, the total cost of the corporate income taxes that Manila Water consumers will unjustly shoulder could reach Php64.1 billion and for Maynilad, Php68.7 billion, covering the period 2008 to 2037, the expiration year of the CAs. Under the rate rebasing model, the concessionaires are permitted to project all their expenses until the end of their CAs and charge them to consumers.
The advocacy group called the practice “parasitic” and said that the MWSS-RO should be held accountable for allowing and legitimizing such practice. It challenged the current regulators to disclose how much of the rate hikes currently being sought by Manila Water and Maynilad represent their income taxes and what the MWSS-RO intends to do about it.
Rate rebasing is a tariff adjustment scheme done every five years throughout the lifetime of the respective CAs of Manila Water and Maynilad with the MWSS. The CAs, a form of public-private partnership (PPP) or privatization, came into force in 1997 and were originally set at 25 years but were extended for another 15 years during the Arroyo administration. The first two rate rebasing exercises were held in 2002 and in 2007.
WPN said that abusive practices such as passing on to consumers the cost of corporate taxes as well as future expenses that inflate the monthly water bill and fatten the pockets of the local and foreign business groups led by Pangilinan and the Ayala family (Manila Water), should be expected under privatization. The primary motivation of a private business is to rake in profits in every way it can which should not be the case in a service as essential as water, the group pointed out.
The advocacy alliance vowed to continue its opposition to the new round of rate increases being sought by Manila Water and Maynilad even as it renewed its call for policy makers to reverse the privatization of MWSS.