The Department of Finance (DOF) welcomes the renegotiation of the Metropolitan Waterworks and Sewerage System (MWSS) concession agreement, which was finally signed on May 10, 2023.
“This is a testament to the PBBM administration’s resolve to balance the interests of the government, private concessionaires, and Filipino consumers,” commented Finance Secretary Benjamin E. Diokno.
The MWSS signed the amendments to the revised concession agreement (RCA) with Manila Water Company, Inc. (MWCI) and Maynilad Water Services, Inc. (MWSI).
The amendments seek to ensure that the water concession agreement is reflective of current market conditions and is fair for all parties, including private investors, government, and consumers.
The agreement also ensures the MWSS’ continued service to the consumers.
The amendments resulted from the efforts of the Water Concessions Review Committee which was convened by President Ferdinand Marcos, Jr. on December 1, 2022.
The Secretary of Finance chairs the Committee, with the Executive Secretary, Secretary of Justice, Solicitor General, and the Government Corporate Counsel as its members.
The Committee ensured that onerous provisions in the original concession agreement were revised, such as:
The government non-interference clauses was removed, therefore releasing the government from liability when fulfilling its regulatory functions to protect consumers;
Secondly, the provisions that unduly compromise medium- and long-term government liabilities (contingent liabilities) were modified, such as:
a. Removing the National Government (NG)’s performance undertaking for future debt; consequently, this means the taxpayers will not pay for any future contingent liabilities;
b. Mandating that all succeeding debt and expenditures of the Concessionaire must be reviewed and approved by the MWSS Regulatory Office.
Finally, the inclusion of a provision that prohibits the concessionaire from charging its corporate income tax to the consumer.
Furthermore, the significant provisions of the amendments to the RCA are as follows:
First, the Foreign Currency Differential Adjustment (FCDA) for all future loans was removed. This mechanism ensures the concessionaires’ sustainability and the delivery of water supply even in times of significant economic downturns, while allowing the benefits to redound to the consumers when the peso is strong.
Furthermore, the FCDA mechanism will only be limited to loans of MWSS and currently contracted loans of the concessionaire. This amendment is consistent with the principle of proper allocation of risks between the public and private sector in public-private partnership (PPP) contracts.
Second, the Modified Foreign Currency Differential Adjustment (MFCDA) mechanism was introduced. This mechanism is only triggered when there is a sudden significant movement of exchange rates. The provision also ensures the sustainability of the concessionaires during periods of economic uncertainty while allowing the benefits of a strong peso to redound to the consumers.
Fourth, the annual tariff was adjusted to 75 percent of inflation based on the Consumer Price Index (CPI). Instead of the 95 percent requested, this adjustment incentivizes the concessionaires to incur expenses more prudently and keep water prices lower. This is beneficial for Filipino consumers because it prevents steeper price increases.
Finally, the alignment of the Material Adverse Government Action (MAGA) section with the Build-Operate-Transfer (BOT) Law and its revised Implementing Rules and Regulations (IRR) is based on prevailing market practice and gives assurance to investors.
Overall, the amendments to the RCA balances consumer protection, while retaining the viability of the concession.
“We strive to continue engaging with the private sector to build a conducive environment for investments while securing the best interests of the Filipino people,” Secretary Diokno said.
