SC asked to declare Maynilad, Manila Water as public utilities, not mere MWSS agents

This refers to the personality of the two (2) MWSS concessionaires, Maynilad and Manila Water Company and their profit limit scheme. Before elaborating the issues and our position paper, allow the undersigned to present a brief history of the privatization of MWSS.

History of MWSS Privatization

The Lopez-owned Maynilad and the Ayalas’ Manila Water entered into concession agreements with MWSS in January 1997 after emerging as winning bidders for the concession’s West and East Zones, respectively, in the first large-scale water supply privatization undertaking in Asia.

In August 1997, the Ayala-led Manila Water Company took over the operation of the East Zone of Metro Manila under a 25-year concession agreement. The said concession agreement also granted Manila Water the exclusive rights for the use of land and facilities for the production, treatment and distribution of water, as well as the rights to operate the sewerage system. The East Zone is home to some five million people. It comprises the cities of Makati, Pasig, Mandaluyong, Marikina, most parts of Quezon City, some parts of Manila, and the municipalities of San Juan, Taguig, and Pateros. It also covers cities and municipalities in the Rizal province further east of Metro Manila.

Last December 5, 2006, the consortium of DM Consunji Holdings, Inc. (DMCI) and Metro Pacific Investments Corp. (MPIC) won the bid for the government’s stake in Maynilad, beating the other contending groups, Ayala-owned Manila Water Co. and BPI Capital Investments.

Issue:

WHETHER THE MWSS CONCESSIONAIRES ARE PUBLIC UTILITIES.

Answer:

1. Yes. There are several legal bases and jurisprudence and test whether an entity is a public utility.

a) As held in NAPOCOR vs. CAGAYAN ELECTRIC POWER & LIGHT CO. INC. [CEPALCO], G.R. No. 112702. February 17, 1999:

The test of whether or not an entity is a public utility is the fact of its being impressed with public interest. Thus,

“The public or private character of the enterprise does not depend, however, on the number of persons by whom it is used, but on whether or not it is open to the use and service of all members of the public who may require it, to the extent of its capacity; and the fact that only a limited number of persons may have occasion to use it, does not make it a private undertaking if the public generally has the right to such use. It has been stated that the true criterion by which to determine whether a plant or system is a public utility is whether or not the public may enjoy it of right or by permission only. It is the duty which the purveyor or producer of the service or commodity has undertaken to perform in behalf of the public generally, or of any defined portion of it, which stamps him as a public utility, and not the use which the consumer makes of the service or commodity furnished.”

b) Under Section 13, paragraph (b) of the Public Service Act (Commonwealth Act No. 1416, as amended), “ public service” includes:

“… every person that now of thereafter may own, operate, manage, or control in the Philippines, for hire or compensation, with general or limited clientele, whether permanent, occasional, accidental and done for general business purposes, any common carrier, railroad, street railways, traction railway, subway motor vehicle, either for freight or passenger, or both, with or without fixed route and whatever may be its classification, freight or carrier service of any class, express service, steamboat, or steamship line, pontines, ferries and water craft, engaged in the transportation of passenger or freight or both, shipyard, marine repair shop, wharf or dock, ice plant, ice refrigerator plant, canal. Irrigation system, gas, electric light, heat and power, water supply and power petroleum, sewerage system, wire or wireless communications system, wire or wireless broadcasting stations and other similar public services…”

c) Common carriers (First Philippine Industrial Corporation vs CA) may be seen to coincide neatly with the notion of “public service. Article 1732 of the Civil Code provides the definition of common carriers:

ARTICLE 1732. Common carriers are persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public.

d) Since Manila Water Company and Maynilad are concessionaires of a public utility MWSS, likewise they are also considered a public utility since the contractual follows the nature of the principal.

2. It is the position of the undersigned that the two private concessionaires Maynilad and Manila Water Company are “public utilities” and not agents & contractors as declared by the MWSS Board on its resolution No. 2004-201 and Regulatory Office Resolution No. 04-006.

The Supreme Court held in KMU vs Hon Jesus B Garcia Jr , “Public utilities are privately owned and operated businesses whose service are essential to the general public. They are enterprises which specially cater to the needs of the public and conduce to their comfort and convenience. As such, public utility services are impressed with public interest and concern.”

3.. In another Supreme Court Jurisprudence (National Power Corporation vs City of Cabanatuan), another definition of a public utility is that “they are purely private and commercial undertakings, albeit imbued with public interest. The public interest involved in its activities, however, does not distract from the true nature of the petitioner as a commercial enterprise, in the same league with similar public utilities like telephone and telegraph companies, railroad companies, WATER SUPPLY and irrigation companies, gas, coal or light companies, power plants, ice plant among others; all of which are declared by this Court as ministrant or proprietary functions of government aimed at advancing the general interest of society”.

Related Issue:

WHETHER OR NOT THE MWSS CONCESSIONAIRES ARE COMPANIES ENGAGED IN PUBLIC SERVICE AND OR PUBLIC UTILITY ENTITIES WHICH ARE UNDER THE COVERAGE OF PUBLIC SERVICE LAW.

Answer:

To lighten up the paramount issue, it is worthy to state the legal definition of PUBLIC SERVICE. As defined;

Meaning of Public Service. The idea of a public use is implicit in the term “public service”. A public service is a service for Public use. Public service is a stock phrase found in most definitions of a common carrier and a public utility. Thus, in simple parlance, a public utility us an entity who caters services to the public i.e. Water Supply, Primary Transportation, electric and power supply etc. It must be noted that public utility, even where the term is not defined by statute, is not determined by the number of people actually serviced and that the mere fact that service is rendered only under CONTRACT does not prevent a COMPANY i.e. MANILA WATER COMPANY, from being a PUBLIC UTILITY.

However, it is impossible to lay down any general rule on the subject. The question depends on such factors as the extent of service, whether such person or company has held himself or itself out as ready to SERVE the public or a portion of the public generally, or in other ways conducted himself or itself as a PUBLIC UTILITY.

Hints to determine whether MWSS CONCESSIONAIRES are PUBLIC UTILITY ENTITIES engaged in public service:

? Existing “certificate of public convenience” or a certificate of public convenience and necessity.
? Serving the public whether for limited or large scale
? Excessive fees and charges to the public
? Supply of necessary goods i.e. WATER
? Private property used for public or public service

Public utility is a company that maintains the infrastructure for a public service (often also providing a service using the infrastructure). Public utilities often involve natural monopolies, and as a result are often government monopolies, or if privately owned, treated as specially regulated sectors. Public utilities can be privately owned or publicly owned. Public1y owned utilities include cooperative and municipal utilities. Municipal utilities may actually include territories outside of city limits or may not even serve the entire city. Cooperative utilities are owned by the customers they serve. They are usually found in rural areas. Private utilities, also called investor, owned utilities, are owned by investors. Unlike public companies, private utilities may be listed on the stock exchange. Private, in this context, means not owned by the public or the government.

In poorer developing countries, public utilities are often limited to wealthier parts of major cities, as used to be the case in developed countries in the nineteenth century. However, in some developing countries, utilities do provide services to a large share of the urban population, such as in the case of water and sanitation in Latin America.

Examples of utilities are:

? Electric Utility, which in some instances can be Electric power transmission or
electricity distribution
? Drinking water purification and distribution
? Sewage treatment and disposal
? Other waste disposal
? Natural gas distribution
? District heat generation and distribution
? Public transport
? Telecommunications, such as cable television and telephone lines
? Roads, including toll ways

Third Issue:

TAX LIABILITIES OF PUBLIC UTILITIES

Answer:

The Local Government Units may charge Private concessionaires as expressly provided in section 154 (Public Utility Charges) and demand shares in the proceeds from the development and utilization of the National Wealth. (Section 289 & 290 of the LGC).

The MWSS Concessionaires are liable also to Franchise tax as expressly provided in Section 151 (Cities-Scope of Taxing Power citing Section 137, Franchise Tax) of the Local Government Code

Fourth Issue:

INVESTMENT OF AYALA AND SUCCESSION OF WATER TARIFFS

As published in BizNews Asia December 2006 Issue page 24,” Ayala Group invested only P2 billion in Manila Water and made nearly three times or 5.74 billion in profits in seven years. The Ayala Group got water rate increases averaging 50 percent per year, or 348 percent, in the first seven years of operation.” From tariff rate of P2.32 per cubic meter in 1997 to P32.99 per cubic meter this January.

The undersigned supports the position of the two cause-oriented groups Bantay Tubig Network and KAAKBAY and Senator Nene Pimentel calling for a review and revalidation of the profit-taking mechanism as approved by the Metropolitan Water Works and Sewerage System that exempts Manila Water Company, Inc. and the reprivatized Maynilad Water Services, Inc. from the 12-percent profit margin limitation allowed for public utilities. The series of increases in water fees being charged by these two private water operators defeat the essence of public service and the purpose of privatization of water distribution, which is to keep water rates affordable.

EFFECT OF THE NON-WITHDRAWAL OF
MWSS BOARD RESOLUTION NO. 2004-201

If the privileges at MWSS board resolution No. 2004-201 and Regulatory Office Resolution No. 04-006 enjoyed by MWCI and Maynilad are not withdrawn, the MWSS BOT is liable to section 3 (e) of the anti-graft and corruption law for giving unwarranted benefits to the MWSS concessionaires. They cannot invoke the doctrine of good faith since OGCC Opinion 125 issued by the Government Corporate Counsel Allan Roullo Yap on June 22, 2000 was also explicitly declared that Maynilad and Manila Water are public utilities. Quoted in part are pertinent portions of the said opinion:

“That water supply and distribution is classified as a public utility cannot be more apparent. That being so, COA involvement in the rate audit is expressly sanctioned by Section 38, P.D. 1445 cited above.

In sum, we hold that: (1) The choice of an independent auditor pertains to the RO of the MWSS, which is not bound to heed the demands of its concessionaires; (2) such audit should be guided by the limitation that it should be “pursuant to internationally accepted accounting principles”; and (3) the COA has authority to conduct the rate audit, its independence affirmed no less by a constitutional fiat.”

I hope this position paper will help address the Supreme Court petition seeking to invalidate a resolution adopted by respondents MWSS Board of Trustees (BOT) and its Regulatory Office (RO) declaring that the two water concessionaires are mere agents and contractors.