The rate increases earlier sought by the two water concessionaires in Metro Manila should have been granted by the Metropolitan Waterworks and Sewerage System (MWSS), hence the government might have to pay the compensation being demanded by these firms as a result of the regulator’s non-compliance, the Finance department told the President last March.

This was disclosed by Bayan Muna Rep. Neri J. Colmenares during the 2016 budget briefing at the House of Representatives Monday, after which the legislator asked Budget Secretary Florencio B. Abad if the government had already paid the compensation being sought by the water concessionaires.

Abad said that to date, not a single centavo was used to pay any performance undertaking, even as Finance Secretary Cesar V. Purisima said the DOF wanted that the contracts we entered into, we should respect.

We need to protect the credibility of the government, the Finance chief said.

In a March 4 memorandum for President Aquino, copies of which were distributed by Colmenares’ staff to reporters, Purisima said the DOF disagrees with MWSS’ position deferring the implementation of the final award tendered to Maynilad Water Services Inc. by the appeals panel for major disputes last Dec. 29.

Maynilad’s call upon the performance of the undertaking might result in the payment of about P5 billion for the period Jan. 1, 2013, to Jan. 31, 2015, on top of P208 million for every month of delay, the DOF noted.

Manila Water Co. Inc., for its part, claimed losses of about P79 billion from 2015 to 2037 seen to result from having to reduce water rates in line with an arbitration court ruling against the Ayala-led company.

Recently, an appeals panel upheld the position of the MWSS to declare Manila Water as a public utility. The decision changes the fundamental character and rate of return of Manila Water.

As a result, both Maynilad and Manila Water, last February and April, respectively sought compensation under the performance undertaking issued by the DOF in 1997.

A performance undertaking is a form of government guarantee under which state agencies involved in a project will have to fulfill their obligations.

In the memo, the DOF pointed out that since the arbitral award is final and binding upon MWSS there is no basis for delaying the execution of the rate increase whatever the outcome of the arbitration case between MWSS and Manila Water.

Maynilad may call on the government under the undertaking letters in this specific situation. MWSS’ reading would result in the illogical situation where the MWSS is practically allowed to be in breach of its contractual commitment to observe the standard rates with no recourse for Maynilad, the DOF added.

It further said that the undertaking letters clearly guarantee against delays in legitimate rate increases and do not foresee recovery of delays over the concession period.

According to the DOF, non-compliance with the arbitral award will reverse significant gains made by [the Aquino] administration in inspiring confidence in both privatization efforts and the public-private partnership program.

The DOF nonetheless noted that MWSS as well as the MWSS-Regulatory Office in a Feb. 25 letter justified the delay in implementation of the arbitral award, questioned the applicability of the undertaking letters to the situation, and also questioned the need for an immediate payment since delays in rate increases could be recovered over the rest of the concession period.

Due to government inaction thus far, Maynilad had served the government, through the DOF, a notice of arbitration and statement of claim. The arbitration proceedings will be conducted in Singapore before a three-man panel.

Purisima said the Office of the Solicitor General was in the process of choosing the arbiter representative for the government.