Sovereign guarantees: Unjust burden on people

At the House of Representatives plenary deliberations on the proposed 2016 General Appropriations Act (national budget) last Monday, two interesting revelations involving investment incentives and wrongful use of public funds were drawn out through assiduous interpellation.

One: Both Maynilad Water Services Inc. and Manila Water Co. Inc. – the concessionaires, respectively, of the west and east sections of the privatized MWSS (Metropolitan Waterworks and Sewerage Authority) – have asked the government to reimburse their alleged losses in operating the utility under a so-called sovereign guarantee. Maynilad wants P3.5 billion; Manila Water, P70 billion.

There are at least 17 firms, mostly foreign-owned or joint ventures with Filipino firms, that have similar sovereign guarantees in their contracts to undertake government projects. One of these is Universal LRT Corp. Ltd., the concessionaire/contractor for the MRT 7.

Earlier projects covered by sovereign guarantee are: the 1998 Mindanao coal-fired power plant undertaken by San Roque Power Corp., with the consortium of Marubeni Corp., Sithe Philippines Holdings, and Italia-Thai Development Public Co. Ltd.; and the 1999 Caliraya-Botocan-Kalayaan power plant, contracted by Industrias Metalurgicas Pescamona S.A. or IMPSA.

Two: At least three foreign companies operating in export processing zones are privileged to have gotten the government to guarantee the payment of their electricity consumption bills, under an Industrial Competitiveness Fund authorized by former President Gloria Macapagal-Arroyo.

The firms and their electricity bills to be paid by the government in the 2016 budget are: Texas Instruments, P2.105 billion; Hanjin Heavy Industries, P1.25 billion; and Phoenix Semiconductor Phils. Corp., P1.45 billion.

These disclosures, among others, were drawn out by Bayan Muna Rep. Neri Colmenares, senior deputy minority leader, from Rep. Gabriel Quisumbing of Cebu, sponsor of the finance department proposal.

Colmenares (who conducted his thorough interpellation in conversational Pilipino, mind you) started with the Maynilad case. He cited the fact that the company sought to collect from its water-using customers the equivalent of its income tax payment. The customers opposed the imposition before the MWSS, which sided with them and refused to approve it.

Maynilad thus sought recourse to the government’s sovereign guarantee. It wrote to Finance Secretary Cesar Purisima on February 20, seeking reimbursement of its alleged monthly loss of P208 million from January 1, 2013 to January 1, 2015. Acting promptly, Purisima recommended to President Aquino an outlay of P5 billion for the reimbursement. The amount was reduced to P3.5 billion after Maynilad submitted, on March 9, detailed lower monthly-loss figures.

The P3.5 billion is to be drawn from the Risk Management Fund under the proposed 2016 budget. To forestall the payment that could prejudice the people’s interest, Colmenares and fellow Bayan Muna party-list representative Carlos Zarate have petitioned the Supreme Court to adjudicate the issue.

In his interpellation, Colmenares questioned the alacrity with which Purisima set aside the MWSS decision upholding the water-users’ opposition to Maynilad’s scheme to make them shoulder the payment of its income tax. He asked: “Doesn’t Purisima’s stance pre-empt the due-process right of the people to object to the onerously increased rate they are being required to pay?”

What is worse, Colmenares pointed out, should the government compensate Maynilad for its claimed losses, not only its customers in Metro Manila would shoulder the burden but the entire Filipino people, because the payment would come from public funds.

Moving on to a related issue, Colmenares asked what was the finance department’s stand vis-à-vis his pending bill which seeks to remove the value-added tax on “system loss” (the cost of electricity lost through leakages or illegal connections), which Meralco customers are also made to pay for.

Reply: the DoF is opposed to all measures that would cut government revenue; besides, the VAT on system loss “is a particularly complex issue” that dropping it could lead to “other loopholes in the tax collection system… and disrupt the revenue chain.” That’s gobbledygook the people can’t comprehend, Colmenares riposted. He asked how much tax revenue would be foregone if the VAT on system loss were removed. Reply: P300 million.

Again Colmenares raised the issue of justice: Whereas the government has committed to pay the electricity bills of giant firms like Texas Instruments, Hanjin, and Phoenix Semiconductors – totalling P4.7 billion in 2016 – it cannot cede P300 million in VAT charges to the electricity-consuming public.

To Quisumbing’s assertion that it’s the DoF’s primary mandate to raise revenues on behalf of the government, Colmenares retorted:

“If the mandate of the DoF, and I am sure the government’s mandate, is to raise revenues, why do we pay P2.1 billion to Texas Instruments…P1.25 billion to Hanjin, and P1.4 billion to Phoenix? Why are we paying P3.5 billion to Maynilad…and P70 billion to Manila Water? Why are we paying P7.5 billion to LRT1?” He added:

“Bakit bigay kayo nang bigay sa mayayamang mga kumpanya pero singil naman kayo nang singil sa mahihirap na taumbayan?”

Appealing to the entire House membership, Colmenares said: “I hope our colleagues are listening. I really hope that the House will overrule the objection of the DoF. Let’s assert our right to have the VAT removed from the price of electricity. That’s all we’re asking, for now.”

That episode in the House budget deliberations points up the need to seriously review the government’s policy on liberally granting such types of incentives. Supposedly, they attract foreign investments, but it’s clear that they gravely prejudice public interest.

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