DOF to review Maynilad’s demand for P3.44-B compensation

MANILA, Philippines - The Department of Finance is reviewing whether Maynilad Water Services Inc.’s demand for P3.44 billion sovereign compensation has basis before it honors its contractual obligation.

A performance undertaking is a written promise offered by the state that it will comply with all its obligations to the contractor, traditionally a private corporation.

The approval of the inter-agency Investment Coordinating Committee (ICC) must be secured before the DOF is allowed to issue any performance undertaking. 

“In principle, we will abide by our obligations.  But we need to study the performance undertaking, whether the triggers have been met,” Finance assistant secretary Teresa S. Habitan said.

Habitan said the DOF has received the second letter submitted by Maynilad and that the request for compensation is now under review.

Maynilad, a unit of infrastructure holding firm Metro Pacific Investments Corp., is seeking compensation from the government for its refusal to implement the new tariff rates cleared by international arbiters.

The utility firm  invoked  a Philippine government undertaking issued on March 17, 2010 which requires the state to “indemnify the concessionaire in respect of any losses” incurred by a delay on the part of any government-owned agency in implementing any increase in the standard rates beyond the date for its implementation in accordance with the concession agreement.

Maynilad said the delayed implementation of the tariff adjustment has resulted in very significant amounts of lost revenues for the company in the past two years or since Jan. 1, 2013, when the rate hike  should have been implemented.

The company claims it is losing at least P208 million for every month of delay in the implementation of higher water rates.

This prompted Maynilad to write a letter to the Department of Finance to seek damages.

“Maynilad has expressed regret that it has come to this point, but claims that it was constrained to take this difficult step only after its pleas for the implementation of the Appeals Panel’s decision that was issued in December 2014 were repeatedly rebuffed by the current Manila Water and Sewerage System’s management,” the West Zone water concessionaire said in a statement.

Maynilad’s call on the undertaking came after the MWSS decided to wait for the final outcome of another arbitration with the other concessionaire, Manila Water Company, Inc., before making any official pronouncements to avoid any inconsistencies.

“MWSS and the Regulatory Office never once told us they would refuse to honor and implement the arbitral award unless it is consistent with the outcome of another arbitration where we are neither a party, nor have we played any part whatsoever,” Maynilad CFO Randy Estrellado, said Maynilad and Manila Water operate independently of each other and are assigned their own service areas in Metro Manila and their surrounding municipalities.