Hi Miggy (Louie),

Appreciate your take on these issues before the SC, thanks.

Bobet Corral

**

Are Maynilad / Manila Water public utilities or “agents and contractors” of MWSS?

A long-standing issue is whether Maynilad and Manila Water are public utilities themselves and not
mere “agents and contractors” of MWSS, a public utility. The dispute first arose from a rate audit
report of the Commission on Audit (COA) which treated the concessionaires as public utilities, and found
that Manila Water’s return on rate base (RORB) in 1999 was 40.92% which exceeded the allowable 12%
under the MWSS Charter. (Maynilad’ RORB in 1999 was 7.71%.)

In 2006, water advocates led by the Freedom from Debt Coalition, Bantay-Tubig and some lawmakers
elevated the issue to the Supreme Court and sought to invalidate an MWSS resolution – adopted by its
Board of Trustees and Regulatory Office (RO) – declaring that Maynilad and Manila Water are its “agents
and contractors”[i]. They also asked that: a) the 12% cap be imposed on the concessionaires’ rate of
return, and b) the concessionaires’ income tax payments be disallowed as operating expenses[ii].

If Manila Water/Maynilad and other private water operators are treated as mere “agents and
contractors” of public utilities such as local water districts – a) The water companies will be earning
more than they are allowed under the 12% cap on profit margin of public utilities; b) They will be
allowed to pass on to their consumers their corporate income taxes; and c) Stripped of their public
utility character, water companies can refuse to extend any service to anyone within their coverage
area, especially if this does not bring added value to their bottomlines.

Are MWSS contracts Illegal and unconstitutional?

The MWSS and Maynilad/Manila Water are facing at least five suits before the Supreme Court involving
water rate hikes and controversial provisions of their CAs[iii]. The SC is asked to rule on:

a) whether or not Manila Water and Maynilad are public utilities,

b) whether or not the two companies are entitled to recover from the consuming public their
corporate income taxes,

c) whether or not the performance contracts issued by MWSS were valid, and
d) whether or not the claims of both concessionaires are covered by their contracts with MWSS.

In 2014, for instance, Abakada party-list asked the Court to declare that Maynilad and Manila Water are
public utilities subject to the rules and regulations of public service laws and the audit powers of
COA[iv]. Abakada argued that MWSS committed “grave abuse of discretion” when it delegated to the
concessionaires its duties under its charter.

In 2015, party-list group Bayan Muna asked the high court to nullify the CAs because it delegated to a
private entity strictly government functions in violation of the 1987 Constitution[v]. Government should
also be stopped from granting the claims of Maynilad and Manila Water worth P3.44-billion and P79-
billion, respectively, which are “illegal and unconstitutional sovereign guarantees”[vi]. Furthermore,
corporate income taxes (CIT) should be excluded from allowed expenditures under the contracts[vii].

In April 2016, an Arbitration Panel (a dispute resolution mechanism provided in the CA), ruled that
Manila Water is a public utility. If the Supreme Court agrees, this fundamentally changes the
concession agreement which characterizes Manila Water (and Maynilad) as a “contractor and agent” of
MWSS[viii].

The Supreme Court’s ruling is keenly awaited, including by the water concessionaires
themselves. Recently, President Rodrigo Duterte ordered the review of the MWSS deal with the private
water concessionaires in order to “omit onerous provisions that put the public at a disadvantage”[ix].

[i] SC asked to declare Maynilad, Manila Water as public utilities, not mere MWSS agents (June 29,
2006) ·

[ii] Following a Supreme Court ruling disallowing corporate income taxes in the Manila Electric Company
(Meralco) case (ERB vs. Meralco). In 2007, the Supreme Court dismissed FDC et al’s petition, ruling that
the petitioners failed to resort to the appropriate remedy and cite any Constitutional provision being
violated. In: https://www.lawphil.net/judjuris/juri2007/dec2007/gr_173044_2007.html

[iii] The public utilities issue is the subject of cases filed before the Supreme Court from 2013 to 2015 by
the Water Watch Coalition, Water for All Refund Movement, Virginia Javier, Abakada Guro Partylist and
Bayan Muna Representatives Neri Javier Colmenares and Isagani Zarate. DOF told to hold off P82B
payments to water firms (May 29, 2016); G.R. No. 207444 – Waterwatch Coalition, Inc., et. al. vs.
Ramon B. Alikpala, Jr, in his capacity as Chairperson of the Board of Trustees of MWSS, et. Al; G.R. No.
208207 – Water for All Refund Movement, Inc., et. al. vs. MWSS; System, et. al; G.R. No. 208207 –
Virginia S. Javier, et. al. vs. MWSS, et. al; G.R. No. 210147 – ABAKADA-Guro Party List, represented by
Atty. Florante B. Legaspi, Jr vs. MWSS, et. al; G.R. No. 213227 – Neri Colmenares and Carlos Isagani
Zarate, Representatives of Bayan Muna Party-List vs. Hon. Cesar Purisima, in his capacity as Secretary of
Finance, et. al. In: https://k-learn.adb.org/system/files/materials/2017/07/201707-metro-manila-s-
water-ppp-take-aways-regulator.pdf

[iv] SC asked to void MWSS concession deal with Manila Water, Maynilad (July 24, 2014)

[v] The said provisions, according to Bayan Muna petitioners, violate various provisions of the 1987
Constitution such as Section 6, Article XII (mandates the government to promote distributive justice and
to intervene when the common good so requires); Section 1, Article III (insofar as these contravenes the
water consuming public’s right against deprivation of property without due process); Section 1, Article
VIII (insofar as it nullifies the Supreme Court’s power of judicial review) ; Section 19, Article XII (as it
contravenes the State’s duty to subject monopolies to strict State regulation); and Republic Act 6234
(MWSS) Charter (insofar as arbitration effectively takes away the agency’s power and duty to regulate
the water sewerage system). In: SC asked to stop gov’t from granting claims of Maynilad, Manila
Water (August 11, 2015)

[vi] In 2015, Manila Water filed a P79-billion claim over the MWSS’ disallowance of the company’s
recovery of its corporate income taxes from consumers from 2013 to 2017, while Maynilad said it
suffered losses worth P3.44 billion because the MWSS has not enforced an arbitration panel’s decision
favoring the company’s inclusion of its CITs in its standard rates for the same period. Manila Water has
charged rates that helped offset corporate income tax, but in 2013, the regulator ordered it to lower
rates, saying Manila Water was a public utility and so unable to pass on tax. An arbitration panel upheld
the order, necessitating what Manila Water called a contract change. Maynilad was also ordered to cut
rates and likewise sought arbitration, but in contrast to Manila Water, the arbitration panel ruled in
favor of Maynilad. Maynilad has since asked the government for compensation; it has also taken its
compensation demand to a Singapore-based arbitration panel. With the refusal of MWSS to implement
the arbitral decision, Maynilad brought the matter to the local court and the matter is now pending at
the Supreme Court. In: In: Manila Water seeks $1.8 bln compensation from government after tariff
cut (April 23, 2015); Maynilad arbitration victory becomes final (October 11, 2018)

[vii] For six years (2008-2013), water consumers had been shouldering an estimated P3.1 billion of
Maynilad's and Manila Water's CIT since both companies were allowed to pass on their corporate
income taxes to consumers, even as they were already granted tax holidays in 2009. In: MWSS admits
consumers paying Maynilad, Manila Water taxes (June 26, 2013)

[viii]https://www.manilawater.com/storage/files/1/investor/Disclosures/Decision%20of%20the%20App
eals%20Panel%20on%20the%20Manila%20Water%20Arbitration%20with%20the%20Metropolitan%20
Waterworks%20and%20Sewerage%20System_4-21-2015.pdf

[ix] Duterte orders review of contracts with water concessionaires (April 2, 2019); Maynilad may forego
arbitration for clarity on tariffs (April 8, 2019)
What happened to affected MWSS workers?

To show political will and attract the private sector to bid in the MWSS privatization, those who bore the
heaviest brunt are adversely affected MWSS workers. Months before the privatization, MWSS executed
a labor reduction program that reduced personnel by 30%[i].

In 1996, MWSS was reorganized[ii] and offered separation benefits to affected officials and employees
through the Early Retirement Incentive Package (ERIP I)[iii] which was availed of by at least 2,000
employees[iv] (or around 30% of the workforce). In 1997, on account of the privatization, MWSS offered
ERIP II to 5,000 employees who would be affected or terminated if they were not absorbed by the two
new concessionaires; those absorbed or rehired were on a probationary basis.

Employees affected by the MWSS privatization had to resort to legal action to avail of retirement and
separation benefits rightfully due them, and many waited up to 21 years to get a favorable ruling.

In October 2018, or 21 years after privatization, COA finally ordered the MWSS to grant 550 former
employees an estimated at P455 million in unpaid separation benefits under ERIP[v]. Those eligible are
employees who have rendered less than 15 years of service, provided that they were not absorbed by
private concessionaires, and those who have served for more than 30 years[vi]. These former
employees sued the MWSS in 2004 for non-payment of their full separation pay; they earlier won
favorable decisions from a Regional Trial Court (2005) and the Court of Appeals (2007), which was later
upheld by the Supreme Court in a February 2011 decision[vii].

Three cases involving contractual bill collectors also went all the way to the Supreme Court and obtained
favorable decisions. When MWSS was privatized, the collection of bills was transferred to the private
concessionaires (Manila Water and Maynilad), effectively terminating the contracts of service between
the contractual bill collectors and MWSS. Some of them had rendered more than two decades of service
to MWSS.

a) MWSS refused to pay their retirement benefits, relying on a Civil Service Commission (CSC)
resolution that said they are not MWSS employees and hence not entitled to benefits due to regular
government employees[viii]. In 2005, the Supreme Court ruled in favor of bill collectors who claimed
payment of their retirement, separation and terminal leave benefits from MWSS[ix]. As preface to its
decision, the high court remarked thus: “The constitutional protection to labor, a uniform feature of the
last three Constitutions including the present one, is outstanding in its uniqueness and as a mandate for
judicial activism.”

The high court ruled that indeed the bill collectors are regular employees of MWSS and that MWSS
should pay their retirement benefits. The Court said that bill collectors cannot fall within the purview of
contract of services or job orders because of the vital role they perform for the MWSS. Their
“continuous and repeated rehiring indicate the necessity and desirability of their services, as well as the
importance of the role of bill collectors in the MWSS”. (wiley doctrine)
b) In August 1997, Manila Water did not absorb 121 bill collectors but engaged their services without
written contract for one month; thereafter they signed a three-month contract to perform collection
services. Before the contract ended, the bill collectors incorporated the Association Collectors Group,
Inc (ACGI), which was then contracted by Manila Water. Later, most of them were asked by Manila
Water to transfer to a newly registered corporation (First Classic Courier Services Inc or FCCSI), and only
15 remained with ACGI. In February 1999, Manila Water terminated its contract with ACGI. The 15 bill
collectors filed a complaint for illegal dismissal and money claims against Manila Water, contending that
they were employees of Manila Water who controlled all the methods and procedures of their
collections.

In its 2004 ruling[x], the Supreme Court declared that despite the existence of a sham labor
contractor, the bill collectors are regular employees of Manila Water since they performed activities
which were necessary or desirable to the firm’s principal trade or business. The high court also found
that ACGI was engaged in labor-only contracting and thus should be considered an agent of Manila
Water[xi]. The Court also established that the schemes employed by Manila Water were “devious
attempts to defeat the tenurial rights” of the bill collectors, and that their dismissal was “tainted with
illegality”.

c) The bill collectors who joined FCCSI in December 1997 were also terminated in 2002 as Manila
Water no longer renewed its contract with FCCSI[xii]. The aggrieved bill collectors filed complaints for
illegal dismissal, unfair labor practice, damages, and asked for reinstatement and backwages against
Manila Water and FCCSI. In 2010, the Supreme Court declared that the bill collectors are Manila Water
employees and that their termination is illegal, and ordered Manila Water to pay the bill collectors
separation pay[xiii].

[i] Mark Dumol (2000) http://web.mit.edu/urbanupgrading/waterandsanitation/resources/pdf-

files/ManilaConcession.pdf

[ii] Pursuant to the National Water Crisis Act of 1995, and its implementing guidelines Executive Order
No. 286 (EO 286) https://lawphil.net/judjuris/juri2011/feb2011/gr_179217_2011.html#fnt6

[iii] There are 3 categories of employees under ERIP – a) regular permanent officials of MWSS who are
not qualified to retire under any existing law (non-retirables); b) those who are qualified to retire
(retirables); and c) casuals. In: G.R. No. 179217 (February 2, 2011)

[iv] MWSS Memorandum Circular (MC) Nos. 26-96, 26-96(b), 26-96(c) and 26-96(d) governed the
implementation of ERIP I. MC No. 26-96, provided, among others, that MWSS pay separation benefits to
its affected permanent officials and employees who have served at least one year.
[v] COA reminded the former employees to show sufficient and convincing proof of their previous
employment with MWSS, such as employment contracts, Notice of separation and basic pay, after the
MWSS failed in producing a master list of its employees as enjoined by the Regional Trial Court (RTC) in
September 10, 2013 order. According to COA, the master list is not indispensable requirement in the
payment of the separation pay. COA added there is no reason to deny the retirees’ claim – the
continued failure without just cause of MWSS to produce the required document even after four years
since the RTC issued the order, is tantamount to refusal to comply with such order. It would be “grossly
unfair” for the workers to be denied the benefits only because of the inability of the MWSS to comply
with the court order. In: MWSS told to pay former workers P454.69M in separation benefits (Manila
Bulletin, October 22, 2018); MWSS told to pay ex-workers P455M in separation benefits (Manila Times,
October 22, 2018); Supreme Court releases decision on payment of separation pay under ERIP II since
1997 MWSS’ privatization (MWSS. November 21, 2018)

[vi] Also see: G.R. No. 164542 (December 18, 2007)

[vii] G.R. No. 179217 (February 2, 2011)

[viii] The bill collectors filed a complaint with the CSC. In its Resolution dated 1 July 1999, the CSC
denied their claims, stating that petitioners were engaged by MWSS through a contract of service, which
explicitly provides that a bill collector-contractor is not an MWSS employee. Relying on Part V of CSC
Memorandum Circular No. 38, Series of 1993, the CSC stated that contract services/job orders are not
considered government services, which do not have to be submitted to the CSC for approval, unlike
contractual and plantilla appointments.8 Moreover, it found that petitioners were unable to show that
they have contractual appointments duly attested by the CSC.9 In addition, the CSC stated that
petitioners, not being permanent employees of MWSS and not included in the list .submitted to the
concessionaire, are not entitled to severance pay.10 Petitioners’ claims for retirement benefits and
terminal leave pay were likewise denied. Petitioners sought reconsideration of the CSC Resolution,
which was however denied by the CSC on 17 September 1999.11 According to the CSC, petitioners failed
to present any proof that their appointments were contractual appointments submitted to the CSC for
its approval. In: G.R. No. 154472 (June 30, 2005)

[ix] G.R. No. 154472 (June 30, 2005)

[x] G.R. No. 158255 (July 8, 2004)

[xi] First, ACGI does not have substantial capitalization or investment in the form of tools, equipment,
machineries, work premises, and other materials, to qualify as an independent contractor. Second, the
work of the private respondents was directly related to the principal business or operation of the
petitioner. Lastly, ACGI did not carry on an independent business or undertake the performance of its
service contract according to its own manner and method, free from the control and supervision of its
principal, petitioner.

[xii] Manila Water decided to implement a "collectorless" scheme whereby customers would instead
remit payments through "Bayad Centers."
[xiii] G.R. No. 175501 (October 4, 2010)

In Wiley, the Supreme Court first introduced the idea that a successor employer could be bound by an
arbitration clause in a CBA between the predecessor employer and its unionized employees. employer,
merged with John Wiley & Sons, Inc. ("Wiley"), and ceased to do business as a separate entity.May 1,
2013

Navigating the Labor Law Successorship Doctrine - eRepository ...

scholarship.shu.edu/cgi/viewcontent.cgi?article=1371&context=student_scholarship