IT HAS has been nearly five years since the Luyang River in the northern town of Carmen started supplying bulk water to homes in Metro Cebu.
The development was an offshoot to a joint investment agreement (JIA) between the Provincial Government and Manila Water Consortium, Inc., but the former has reportedly been deprived of an estimated P150 million worth of revenues.
Aside from not remitting receivables to the Province, Manila Water also allegedly raised the approved tariff of P13.95 per cubic meter to P24.59 per cubic meter.
These were among the five serious and material breach of obligation the Manila Water allegedly committed under its JIA with the Provincial Government.
The other three violations include allegations over the increase in the project cost, or capital expenditure (Capex), from P702 million to P1,003,000,000, and the decrease in project internal rate of return (PIRR) from 19.23 percent to 12.30 percent.
The earned revenues were also reportedly plowed back to the Capex of the joint investment company.
These alleged serious and material breach, which involved the essence of the project, were reportedly not approved and authorized by the JIA parties.
The board of directors also reportedly did not pass any resolution approving and authorizing the same.
In an interview on Monday, Sept. 2, 2019, Capitol legal consultants Marino Martinquilla and Rory Jon Sepulveda said Gov. Gwendolyn Garcia has already issued a notice of breach/default against Virgilio Rivera, Manila Water president and chairman of the board of directors.
Martinquilla and Sepulvida were recently appointed by the governor as Capitol's representatives to the JIA.
The notice, dated Thursday, Aug. 29, was received by Cebu Manila Water Development Inc. general manager Constantine Uy on the same day.
Garcia has given Manila Water 90 days to fix the breaches it had allegedly committed.
"Otherwise, the Province of Cebu would be constrained to take the appropriate measures under existing laws and the JIA, including but not limited to the termination of the JIA. Please give this matter your preferential attention and prompt action," the notice read.
The governor said the violations were "greatly prejudicial to the interest of the province of Cebu and the Cebuanos."
Garcia had come to know of Manila Water's alleged violations after meeting with the consortium's representatives at the Capitol last Wednesday, Aug. 28.
Capitol reporters had asked Manila Water representatives for an interview when the meeting adjourned, but they declined.
On March 21, 2012, during Garcia's earlier stint as governor, the Capitol entered into a JIA with Manila Water to manage the bulk water supply in Luyang River in Carmen.
It had a 49-51 percent profit-sharing scheme, in favor of the private partner.
The JIA led to the creation of Cebu Water, a joint investment company, for the construction and development of water supply facilities that would deliver treated bulk water.
The JIA provided an option to engage in retail supply in certain areas and to some areas in the province by tapping the surface water source of the Luyang River.
In 2014, the P1.1-billion water supply project started producing 35 million liters of water daily for homes in Metro Cebu.
Water produced by the Carmen facility was sold to the Metropolitan Cebu Water District (MCWD). Cebu Water and MCWD have a 20-year supply agreement.
Martinquilla said the MCWD's current bulk water supply is now running at close to 38 million liters a day due to high consumer demand.
Sepulveda said it's possible that the MCWD may have been subsidizing the cost to keep bulk water supply affordable for consumers.
"Actually, murag na-alkanse ang MCWD ani (the MCWD may have had a shortfall). The MCWD buys it at P24.59 per cubic meter and sells it in bulk at way below. The mandate of the MCWD is to provide water, so they have to make do," he said.
SunStar Cebu tried to reach MCWD to find out if the increase in tariff was passed on to consumers, but no one was available to comment as of press time.
Martinquilla said Garcia had wanted to impose low tariffs to establish a win-win solution for both the distributor and the consumers.
"The governor wanted to have low tariffs since providing water to its constituents is a social responsibility of the Province," he added.
Before the Capitol entered into a JIA with Manila Water, a price challenge was done to determine who will undertake the Carmen bulk water supply project.
Manila Water had submitted an unsolicited proposal, making it the original proponent.
In a 2011 report, the other companies that joined the bidding for the project were Maynilad Water Services Inc. and Cebu Bulk Water Resources Inc. (CBWRI).
Metro Maynilad's bid of P18.71 per cubic meter without the value added tax (VAT) was deemed too high. It had a PIRR of 14.51 percent.
Manila Water, on the other hand, offered P24.90 per cubic meter of water tariff with a PIRR of 14.5 percent.
CBWRI had the lowest water tariff at P13.95 per cubic meter including VAT, with a PIRR of 19.26 percent.
Under the Swiss Challenge, the original proponent was given a chance to match the bid of its challenger.
Manila Water challenged the top bidder, CBWRI, at the same tariff of P13.95 (inclusive of the VAT) and with an income return rate of 19.26 percent, too.