First Pacific’s Water Unit Reviews Spending Amid Impasse

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First Pacific Co. and Marubeni Corp.’s water venture in the Philippines will review spending after the regulator put a constraint on the prices it can charge.

Their company, Maynilad Water Services Inc., will review capital expenditure for 2016 and 2017 after the Metropolitan Waterworks & Sewerage System said it couldn’t include corporate income taxes in charges to customers, said Chief Financial Officer Randolph Estrellado.

Planned spending is about 10 billion pesos ($226 million) annually over the next five years, he said.

“We will ensure that services to existing customers won’t suffer, but beyond that, and on expansion to areas not served or under-served, we have to study that very well,” Estrellado said Tuesday.

The ruling means that Maynilad Water, which serves the western half of the Philippine capital, could face a reduction in a rate increase won in December.

“Sometimes it’s not fun to do business in the Philippines,” said James Lago, head of research at PCCI Securities Brokers Corp. in Manila. “The regulator wants to appear populist when it shouldn’t be that way.”

Maynilad Water said in a statement its rate increase is final and binding, and called on the government to rein in MWSS, which it described as “a runaway regulator.”

MWSS said on its website it has a duty to set just and equitable rates. Its decision effectively upends a ruling in December that said Maynilad isn’t a utility and can therefore charge customers to cover its income tax liabilities.

Maynilad’s December rate increase was deferred, awaiting a separate ruling on competitor Manila Water Co., a unit of Ayala Corp., which serves the other half of the capital. That judgment classified Manila Water as a utility, prompting criticism that the two weren’t being treated consistently.

Maynilad has demanded compensation from the government for revenue lost because of the delay to its rate increase. The company is 53 percent owned by Metro Pacific, a unit of Hong Kong-listed First Pacific, and 20 percent owned by Marubeni. DMCI Holdings Inc. holds 25 percent.

Metro Pacific shares declined 1 percent at the close in Manila trading on Wednesday, trimming this year’s gain to 3.9 percent. DMCI fell as much as 3.6 percent during the session before ending higher by 0.6 percent. Manila Water fell 3.2 percent to its lowest since June 18. The benchmark Philippine Stock Exchange Index declined 0.2 percent.

The stocks are likely to remain under pressure until the issue is resolved and investors have more certainty on their earnings outlooks, PCCI’s Lago said.

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