January 05, 2015

Maynilad wins arbitration case against MWSS

Metro Pacific Investments Corporation (MPI), yesterday disclosed that its subsidiary Maynilad Water Services Inc (MWC) has won its arbitration case against Metropolitan Waterworks and Sewerage System (MWSS).

In a decision dated 29 Decr 2014, the international appeals panel upheld the alternative rebasing adjustment of Maynilad. The award translates to an average increase of 9.8% or P4.06 per cubic meter (m3) over the 2012 average basic water charge of P30.28/m3.

The increase is inclusive of the P1.00/m3 currency exchange rate adjustment (CERA) that the MWSS has now incorporated into the basic charge. According to Maynilad, it is willing to implement the increase on a staggered basis in order to mitigate its impact on consumers, subject to the approval of the MWSS.

Our take: Although the increase is 58% lower than Maynilad’s original petition of a P9.58/m3 rate hike (inclusive of CERA), the award still represents a substantial P6.52/m3 improvement over MWSS’ Sep 2013 decision of an 8% rate cut (equivalent to around P2.46/m3).

Relative to this year’s current rate of P32.25/m3 (inclusive of CERA), the award represents a P2.09/m3 increase. But more importantly, the final award should finally allow for the resumption of yearly rate adjustments, which have been put on hold pending the outcome of the arbitration case.

Inclusive of yearly CPI adjustments for 2014 (2.5% of the average basic water charge) and 2015 (4.9%), as well as the environmental charge (20% of the total water charge), the adjusted 2015 tariff rate (before VAT) should amount to P44.31/m3, a 14% or P5.61/m3 increase over the current rate of P38.70/m3.

The arbitration case is just one of three pending rate cases involving MPI’s various businesses that are still awaiting final decisions from regulators – the others being Manila Electric Co (MER) and Metro Pacific Tollways Corp. Nevertheless, we view this development positively and expect the share price to reflect this. Last year, MPI’s share price underperformed the market by 16.28 percentage points. – WealthSec