New Year blues: Inflation-driven water rate hikes to hound consumers

December 29, 2018

by IBON Foundation

Water firms are not yet finished with squeezing higher water rates out of consumers. Advocacy group Water for the People Network (WPN) said that the most recent approval of water rate hikes for implementation this New Year shows that government prioritizes water firms’ profits over minimizing the impact of high inflation on water consumers, particularly poor households.

The Metropolitan Waterworks and Sewerage Systems (MWSS) board gave its nod to another rate adjustment effective January 1, 2019 to account for the past year’s inflation as well as the strengthening of the peso in the fourth quarter of 2018. The board also approved Manila Water’s Php1.54 per cubic meter (cu.m.) increase for inflation which was lowered by Php0.90/cu.m. due to the foreign currency differential adjustment (FCDA), for a net increase of Php0.64/cu.m. Meanwhile, Maynilad was granted a Php1.95/cu.m. hike with an FCDA decrease of Php0.47/cu.m., for a net increase of Php1.48/cu.m.

WPN said that the concession agreement (CA) between government and the water firms allows tariffs to be regularly adjusted to guarantee the profits of concessionaires Manila Water and Maynilad. Aside from the rate rebasing every five years, the basic charge is also adjusted at the beginning of every year (January 1) to account for inflation. This is measured by the inflation rate for July of the preceding year, which was 5.7% for July 2018.

In turn, the inflation adjustment will lead to a higher environmental charge, sewerage charge, and value-added tax. These are respectively 20% of the combined basic charge and FCDA; 20-30% of the basic charge for commercial and industrial consumers; and 12% each of the basic, environmental, sewerage and maintenance service charges.

WPN said that the government is ensuring water firms’ profits by allowing them to pass on all the risks of running a business to consumers, along with other questionable charges. The group said that like other businesses, especially small and medium enterprises, Manila Water and Maynilad should cover the costs of inflation, peso fluctuation and other adjustments, as well as corporate income tax.

Water firms make more than enough profits to cover these business expenses, said the group. Maynilad’s gross revenues grew by 8.8% to Php29.6 billion in 2017 from Php27.2 billion in 2016. Manila Water’s gross revenues also grew by 8.5% to Php21.3 billion from Php19.6 billion in the same period.

Meanwhile, said WPN, many water consumers especially poor households are struggling to cope with rising prices and high inflation. Another water rates increase in the coming year not only means higher water bills, but corresponding hikes in other basic goods and services.

The group said that more water rate hikes are imminent if the peso depreciates and high inflation is sustained, due to the implementation of the second round of fuel excise tax hikes and volatility of global oil prices. This will be further compounded as the next tranches of rate rebasing hikes are carried out in the next few years.

WPN said that despite water regulators’ assurances, consumers will continue to be burdened by questionable water rate increases as long as there is water privatization. The group said that the concession agreements with Maynilad and Manila Water must be junked, with government taking control of, operating, and regulating the water supply system. ###