‘Sovereign guarantees, arbitration clause in MWSS deal unconstitutional’ –BayanMuna

Bayan Muna lawmakers asked the Supreme Court to stop this virtual “transfer of power to a private entity,” or transfer of power to decide on matters that are within the purview of MWSS, as the government regulating agency, to the concessionaires or to a private arbitration/appeals panel, the International Court of Arbitration of the International Chamber of Commerce.


MANILA – When the Philippine government transferred to private corporations the business of operating, maintaining, and investing on water and sewerage system in Metro Manila in 1997, it retained the functions of regulating the water companies. Regulation became the main responsibility of the Metropolitan Waterworks and Sewerage System (MWSS) after its other functions in the water business were privatized.

But how much of these regulatory functions did the MWSS actually retain?

In a petition for certiorari submitted to the Supreme Court on Tuesday, August 12, Bayan Muna lawmakers questioned the legality and constitutionality of the “Arbitration Clause” in the Concession Agreements entered into between Respondents MWSS and Maynilad and Manila Water, as well as the “Sovereign Guarantee” embodied in the Letter of Undertaking executed by the Aquino government in relation to the said Concession Agreements.

These two, said the progressive legislators, “amend,” or worse, “trump” the higher law particularly those pertaining to regulation of the water business and protection of the rights to water, among others, of consumers in MWSS’ service areas

Citing various Philippine laws and jurisprudence, Bayan Muna lawmakers argued and appealed in their petition with the Supreme Court to stop this virtual “transfer of power to a private entity,” or transfer of power to decide on matters that are within the purview of MWSS, as the government regulating agency, to the concessionaires or to a private arbitration/appeals panel, the International Court of Arbitration of the International Chamber of Commerce.

Private water concessionaires in public utility

As a monopoly, the water concessionaires are in fact subject to “a higher level of state regulation,” said Bayan Muna petitioners. They cited the 1987 Constitution’s mandate to strictly regulate monopolies whether private or public, and subsequent Supreme Court rulings such as the case of Agan, Jr. vs. PIATCO in 2003.

Even if the concessionaires call themselves as mere ‘agents’ or ‘contractors’ of the MWSS, as they are referred to in the Concession Agreement, Bayan Muna petitioners said they are still bound by the nature of their principal as a public utility.

Bulatlat picture Colmenares Zarate
L – R: Bayan Muna Reps. Zarate, Colmenares (Photo grabbed from Bayan Muna Facebook account)

Maynilad and Manila Water have been evading compliance with the Supreme Court 2003 decision prohibiting the passing on of their income taxes to consumers by referring to themselves in the Concession Agreement as mere agents or contractors of MWSS.

But Bayan Muna lawmakers said the water concessionaires cannot just vest themselves with another entity or status. “The parties, by stipulating in a contract, cannot vest and determine for themselves that an entity is of some other status, such as being a mere contractor and/or agent, when the law itself provides for its nature and status,” the petitioners said.

Based on laws and jurisprudence, the petitioners said it is undisputed that MWSS is a public utility, being “a business or service which is engaged in regularly supplying the public with some commodity or service which is of public consequence and need, such as electricity, gas, water, transportation, or telephone or telegraph service.”

They added that, if Maynilad and Manila Water are “mere contractors” of MWSS, why are they entitled to privileges which the supposed principal, the MWSS, do not and did not have?

Bayan Muna reiterated that Congress has vested upon the MWSS the duty to regulate the waterworks and sewerage system in Metro Manila and other areas. In fact, it is the declared state policy to control the establishment, operation and maintenance of the said system.

But experiences show this regulatory duty is being trumped by the arbitration clause in the concession agreement, and the sovereign guarantees the concessionaires received under the Aquino administration.

Trumping regulation, taking privatization to new heights

The website of the International Chamber of Commerce, the private business organization that formed the International Court of Arbitration in 1923, said that since it was formed, “it spoke out on behalf of business in making representations to governments and intergovernmental organizations.”

“Arbitration is a form of private justice which negates the concept of public regulation. Such a situation cannot and should not be countenanced,” Bayan Muna Rep. Neri Colmenares said.

When Bulatlat.com requested information about the arbitral court’s recent decisions on the cases of Maynilad and Manila Water, for example, it replied that it does not provide any sort of information concerning “possible cases or parties,” because it is “strictly bound by a confidentiality obligation.”

“As indicated in Article 6, Appendix I of the ICC Rules of Arbitration and in Article 3 of the Internal Rules of the International Court of Arbitration of the ICC, the work of the Court as well as the documents submitted to the Court are of confidential nature,” they said.

Drawing on experiences and complaints in other countries about arbitration, the Bayan Muna petition reiterated that “it will almost certainly inhibit rather than promote wide publicity and thus deterrence of deceptive and/or unconscionable commercial conduct.” They based it on a case heard in Canada. (Seidel v TELUS Communications Inc., [2011] 1 SCR 531, 2011 SCC 15 (Supreme Court of Canada)

Bulatlat picture protesters vs privatization
FILE PHOTO 2013: Marching against water privatization and excessive water rates, to the gates of main offices of Maynilad, Manila Water and MWSS (bulatlat.com)

The group said the Article 12 of the Concession Agreement, or the so-called “arbitration clause,” violates Section 1, 6 and 19 of the Philippine Constitution, as well as the Republic Act 6234 (or the MWSS Charter).

“The interest and welfare of the water consumers who now number in tens of millions cannot be left to the mercy of a privately-organized “Appeals Panel” (or the arbitrators) and to the whims, mistakes or prejudices of private individuals who do not have public accountability,” the petition filed by Bayan Muna Partylist representatives Neri Colmenares and Carlos Zarate said against the so-called “arbitration clause.”

They added that the Sovereign Guarantee embodied in the Letters of Undertaking executed by the Republic through the Secretary of Finance in relation to the Concession Agreements is likewise unconstitutional and illegal because it violates the people’s constitutionally assured due process rights, and thwarts the powers of the Supreme Court and the MWSS to regulate public utilities.

Calling for restraint and relief

Against the threats of “an impending, direct or indirect, enforcement of a clearly illegal imposition on water consumers,” Bayan Muna’s petition for certiorari also includes an application for a temporary restraining order and/or a writ of preliminary injunction.

They asked the Supreme Court to restrain the Respondents – the water concessionaires, MWSS, Finance Secretary Purisima and President Aquino – “from placing unnecessary and illegal burden on the water consumers and/or the taxpayers.“ This illegal burden includes the implementation and enforcement of Arbitral Awards, and the impending “illegal multi-billion claims of Maynilad and Manila Water against the sovereign guarantee under the Republic’s Letters of Undertaking.”

In imploring the Supreme Court for an immediate reprieve, Colmenares and Zarate said, “We should not allow our taxes to be used to pay for the income tax of the rich and the powerful.” (https://www.bulatlat.com)

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