WARM - Petition for Certiorari, Prohibition, and Mandamus

7/22/2019 WARM - Petition for Certiorari, Prohibition, and Mandamus

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WARM and Tecson v. MWSS, et al.SC G.R. No. ______________

Petition for Certiorari, Prohibition, and Mandamus, with Prayer for Issuance of Temporary Restraining Order and/or Writ of Preliminary Injunction, Accounting, and Refund

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Certified true copies of the official breakdown of overbilling

charges , prepared by G ATMAITAN & ASSOCIATES , CERTIFIED PUBLICACCOUNTANTS , is attached hereto as Annex T for the perusal andready reference of this Honorable Court, incorporated herein byreference, and made an integral part hereof.

57. The concessionaires, worse, include amountscorresponding to their respective income taxes in the charges passedon to water consumers. As will be more extensively discussed laterherein, these pass-on charges are illegal.

58. To this very day , notwithstanding the mandate forrefunds on concession projects, and the directive by no less than thePresident of the Republic of the Philippines to put on hold all newventures and loans of MWSS, coupled with clear overbilled amountscharged to water consumers from the East and West Service Areas,there has been no downward adjustment in the tariff schedule .

59. Hence, this Petition.

ISSUES

60. This case presents the following novel issues forresolution by this Honorable Court:

a. Whether the Concession Agreements areunconstitutional and/or void for being ultra vires ;

b. Whether the concessionaires are publicutilities subject to the rules and requirements set forth bythe general public service law, including the 12% profitcap;

c. Whether the Concession Agreements maycause the creation of the Regulatory Officea publicoffice performing public functionsand source its

funding from the concessionaires, which are the verysame entities supposed to be regulated;


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d. Whether the concessionaires Tariff Schedulesallow Manila Water and Maynilad, as public utilities, toovercharge the consuming public for water. In particular:

i. Whether the profit restriction inRepublic Act No. 6234 applies to ManilaWater and Maynilad individually;

ii. Whether the concessionaires canadvance and pass on the cost for projected,contingent, and future water infrastructureprojects on to the consumer/end-user, as wellas continue charging costs for projects, whichhave failed or remain unimplemented;

iii. Whether the concessionaires candeclare its income taxes as expendituresand, consequently, likewise pass these on tothe water consumers within their respectiveService Areas.

ARGUMENTS

61. Petitioner advances the following arguments in responseto the foregoing issues:

a. The Concession Agreements areunconstitutional and/or ultra vires , since these undulygrant to the concessionaires the exercise of governmental

powers even without the benefit of legislation or, at thevery least, a franchise for such purpose ;

b. The concessionaires are performing publicservice and are, therefore, governed by the general publicservice law, are subject to the 12% profit cap;

i. Contrary to their publicpronouncements, the concessionaires arepublic utilities.

ii. Not only are the concessionairespublic utilitiesthey cannot, despite express


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provisions in the Concession Agreements tothis effect, be characterized as mere agentsor contractors;

iii. Assuming the concessionaires aremere agents or contractors of MWSS,with more reason should they be barred fromoverbilling, and passing on illegal charges to,water consumers, since their principalMWSSmay not do so anyway; and

iv. In any event, public utility or not,the concessionaires may not pass on theirincome taxes to the water consumers, sinceincome taxes may not be properlycharacterized as expenditures;

c. The Concession Agreements may not, bysheer will of the contracting parties, cause the creation ofthe Regulatory Officea public office performing publicfunctionsand even source its funding from theconcessionaires, which are the very same entitiessupposed to be regulated;

i. Only the Legislature and, asdeclared by the Supreme Court in the case ofLouis Barok C. Biraogo versus The PhilippineTruth Commission,53 the President of thePhilippines, in the exercise of his power ofcontrol, may create a public office or ad hocbody, respectively;

ii. By providing for the creation ofthe Regulatory Office, the ConcessionAgreements had institutionalized anentanglement among MWSS, the RegulatoryOffice, and the concessionairesthe verysubjects of regulationplacing MWSS and the

Regulatory Office in a state of regulatorycapture;

53 G.R. Nos. 192935 and G.R. No. 193036, 7 December 2010.


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iii. In addition, there have beeninterlocking directors between MWSS andMaynilad, and between MWSS and the

NWRB;

d. The concessionaires Tariff Schedules cannotlegitimately permit Manila Water and Maynilad, aspublic utilities, to overcharge the consuming public forwater.

62. Petitioner shall discuss the foregoing arguments moreextensively in seriatim hereunder, thus:

DISCUSSION

A. THE CONCESSION AGREEMENTS AREUNCONSTITUTIONAL AND / OR ULTRA VIRES.

The Concession Agreements unduly grant to the concessionaires the exercise of

governmental powerseven without thebenefit of legislation or, at the very least, a franchise for such purpose.

63. Under the Concession Agreements, MWSSwithoutreference to any constitutional provision or statuteempowered theconcessionaires to apply for and exercise its easement, eminent domain , right of way[,] and similar rights and powers given toMWSS under its Charter in connection with infrastructure projects

and works undertaken relating to the Concession xxx.54

64. The right of eminent domain is usually understood to bethe ultimate right of the sovereign power to appropriate, not only thepublic but the private property of all citizens within the territorialsovereignty, to public purpose. 55

54 Concession Agreements, Clause 7.2.

55 JOAQUIN G. BERNAS, THE 1987 CONSTITUTION OF THE REPUBLIC OF THEPHILIPPINES : A COMMENTARY 396-397 [hereinafter B ERNAS], citing Charles RiverBridge v. Warren Bridge, 11 Pet. 420, 641 U.S. 1837.


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65. While jurisprudential pronouncements of the SupremeCourt show that government entities 56 and even private entities 57 may exercise the power of eminent domain, the exercise of such

power must be preceded an act of the legislature or, at the very least,the issuance of a franchise expressly granting the concessionaires theauthority to exercise these powers.

66. In the case at Bench, however, it is through theConcession Agreements that the concessionaires draw their authorityto exercise eminent domain and other enumerated powers, despitethe absence of any enabling lawa clear case of usurpation oflegislative power.

B. THE CONCESSIONAIRES ARE PERFORMING PUBLICSERVICE AND ARE , THEREFORE, GOVERNED BY THE GENERALPUBLIC SERVICE LAW , ARE SUBJECT TO THE 12% PROFIT CAP .

Contrary to their public pronouncements, theconcessionaires are publicutilities.

67. A public utility is a business or service which is engagedin regularly supplying the public with some commodity or servicewhich is of public consequence and need, such as electricity, gas,water, transportation, or telephone or telegraph service. 58

68. It has been held that the true test for determining if aconcern is a public utility is whether it has held itself out as ready,

able, and willing to serve the public. The term implies a public use ofan article, product, or service, carrying with it the duty of theproducer or manufacturer, or one attempting to furnish the service,

56 BERNAS, supra note 55, at 398, citing City of Manila v. ChineseCommunity of Manila, 40 Phil. 349, 368 (1919).

57

BERNAS, supra note 55, at 398, citing Tenorio v. Manila Railroad Co., 22Phil. 411, 414 (1912).

58 Gulf States Utilities Co. v. State, Tex.Civ.App., 46 S.W.2d 1018, 1021,cited in B LACKS LAW DICTIONARY 1232 (6th ed. 1990). Hereinafter B LACKS LAWDICTIONARY .


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to serve the public and treat all persons alike, withoutdiscrimination. 59

69. In the case of Iloilo Ice and Cold Storage Co. versus PublicUtility Board,60 the Supreme Court had the occasion to define what apublic utility is, thus:

The original public utility law, Act No. 2307, in its section 14,1n speaking of the jurisdiction of the Board of Public UtilityCommissioner, and in defining the term public utility, failed toinclude ice, refrigeration, and cold storage plants. This deficiencywas, however, remedied by Act No. 2694, enacted in 1917, whichamended section 14 of Act No. 2307, to read as follows:

The term public utility is hereby defined toinclude every individual, copartnership, association,corporation or joint stock company, whether domesticor foreign, their lessee, trustees or receivers appointedby any court whatsoever, or any municipality,province or other department of the Government ofthe Philippine Islands, that now or hereafter mayown, operate, manage or control within thePhilippine Islands any common carrier, railroad,

street railway, traction railway, steamboat orsteamship line, small water craft, such as bancas,virais, lorchas, and others, engaged in thetransportation of passengers and cargo, line of freightand passenger automobiles, shipyard, marinerailway, marine repair shop, ferry, freight or anyother car services, public warehouse, public wharf ordock not under the jurisdiction of the InsularCollector of Customs, ice, refrigeration, cold storage,canal, irrigation, express, subway, pipe line, gas,electric light, heat, power, water, oil sewer, telephone,wire or wireless telegraph system, plant orequipment, for public use: Provided, That theCommission or Commissioner shall have no jurisdiction over ice plants, cold storage plants, or anyother kind of public utilities operated by the FederalGovernment exclusively for its own and not forpublic use. . . .

It will thus be noted that the term public utility, in this jurisdiction, includes every individual, copartnership, association,

59 BLACKS LAW DICTIONARY 1232, citing Buder v. First National Bank in St.Louis, C.C.A.Mo., 16 F.2d 990, 992.

60 44 Phil. 551.


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corporation, or joint stock company that now or hereafter mayown, operate, manage, or control, within the Philippine Islands,any ice, refrigeration, cold storage system, plant, or equipment, for public use . Particular attention is invited to the last phrase, for

public use. (Emphasis supplied)

70. Citing the Philippine case of United States versus TanPiaco,61 which, in turn, cited the American case of Terminal TaxicabCo. versus Kutz, 62 the Supreme Court defined public use, thus:

Public use means the same as use by the public. Theessential feature of the public use is that it is not confined toprivileged individuals, but is open to the indefinite public. It is this

indefinite or unrestricted quality that gives it its public character. Indetermining whether a use is public, we must look not only to thecharacter of the business to be done, but also to the proposed modeof doing it. If the use is merely optional with the owners, or thepublic benefit is merely incidental, it is not a public use,authorizing the exercise of the jurisdiction of the public utilitycommission. There must be, in general, a right which the lawcompels the owner to give to the general public. It is not enoughthat the general prosperity of the public is promoted. Public use isnot synonymous with public interest. The true criterion by whichto judge of the character of the use is whether the public may enjoyit by right or only by permission . (Emphasis supplied)

71. Manila Water describes itself as a corporation with thefollowing primary purpose :

To construct, possess, use, operate, manage, maintain,rehabilitate, remove, repair, improve and expand such waterworks,waste waterworks and treatment facilities, including the laying ofpipes, mains, valves, aqueducts and other construction works

related to the same and the storage, conveyance, treatment,collection and/or distribution of water and/or wastewater, in order to render water supply and sewerage services to the general public ;to collect such fees as compensation for such services; and, for suchother purposes, to negotiate, enter, make and execute any and allcontracts as may be necessary under the circumstances obtaining.(Emphasis supplied)

A faithful reproduction of the Articles of Incorporation of Manila Water is attached hereto as Annex U for the perusal and

61 40 Phil. 853 (1920).

62 241 U. S. 252 (1916).


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ready reference of this Honorable Court, incorporated herein byreference, and made an integral part hereof. 63

72. Maynilad describes itself as a corporation with thefollowing primary purpose :

To carry on the general business of operating, managing,maintaining and rehabilitating waterworks, sewerage, and sanitation systems and services , specifically, for the distribution,supply and sale of potable water; the provision of sewerage andsanitation systems; the maintenance, development, repair andupgrading of water and wastewater facilities including watersupply, treatment, distribution of water, sewerage and sanitation,

metering and leakage control, customer service and billing; theconstruction, maintenance and operation of all necessary andconvenient buildings, structures, dams, reservoirs, conduits,aqueducts, tunnels, purification plants, water mains, pipes,pumping stations, machineries, sanitary sewerages and otherwaterworks and the acquisition, lease, occupation or use of landrights of way and easement therein; the provision of allied andancillary services; and undertaking such other activities incidentalto the foregoing. (Emphasis supplied)

A faithful reproduction of the Articles of Incorporation of Maynilad is attached hereto as Annex V for the perusal and readyreference of this Honorable Court, incorporated herein by reference,and made an integral part hereof. 64

73. As regards the nature of the service of water supply, theSupreme Court, in the case of Initiatives for Dialogue and EmpowermentThrough Alternative Legal Service, Inc. (IDEALS), et al. versus Power Sector Assets & Liabilities Management Corporation (PSALM), et al.,65 expressly declared that [t]here can be no doubt that the matter of ensuring adequate water supply for domestic use is one of paramount importance to the public .

63 Petitioners, consistent with Section 6 of A.M. No. 11-9-4-SC, otherwiseknown as the Efficient Use of Paper Rule, have dispensed with service ofcopies hereof on respondents, as the latter are presumed to already be inpossession of the same, being privy thereto or previous recipients thereof.

64

Petitioners, consistent with Section 6 of A.M. No. 11-9-4-SC, otherwiseknown as the Efficient Use of Paper Rule, have dispensed with service ofcopies hereof on respondents, as the latter are presumed to already be inpossession of the same, being privy thereto or previous recipients thereof.

65 G.R. No. 192088, 9 October 2012.


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74. By undertaking to supply water, under the terms andconditions set forth in their respective Concession Agreements,consistent with the primary purpose indicated in the Articles of

Incorporation, each concessionaire holds itself out as ready, able, andwilling to serve the public, and are charged with the duty offurnishing water service without discrimination its Service Area.Coupled with validation through foreign and local jurisprudence,discussed above, there is no question that the concessionaires are public utilities .

Not only are theconcessionaires public utilities

they cannot, despite express provisions in the Concession Agreements to this effect, becharacterized as mere agents or contractors.

75. The concessionaires, resorting to a textual reference totheir respective Concession Agreements, argue that they are eitheragents 66 or contractors 67 of MWSS. As discussed above,

however, the concessionaires are public utilities.

76. Not only are the concessionaires public utilitiestheymany not be characterized as agents or contractors. Theobligations of each concessionaire militate against a finding ofagency.

77. By the contract of agency, a person binds himself torender some service or to do something in representation or on behalfof another, with the consent or authority of the latter. 68

a. Among the Transitional Arrangementsbetween MWSS and the concessionaires under theConcession Agreements is the undertaking of MWSS,

66 Concession Agreements, Fourth Whereas Clause and Clauses 2.1 and7.2, which characterize each concessionaire as agent, while Clause 8.1 (i) refers

to the concessionaires agency powers.67Concession Agreements, Fourth Whereas Clause and Clause 2.1, which

separately refer to each concessionaire as contractor of MWSS.

68 NEW CIVIL CODE , art. 1868.


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even prior to opening the Concessions for bidding, toidentify permanent MWSS employees who shall behired by each concessionaire, thus:

3.1 Designation of Employees

(i) Prior to bidding on the Concession,MWSS shall have provided the concessionaire with alist of MWSS permanent employees (andsalary/benefit levels/length of service) who shall behired by the concessionaire effective on theCommencement Date (each a concessionaireEmployee) and a list of MWSS permanent employees

who shall be hired by the Other Operator effective onthe Commencement Date (each an Other OperatorEmployee). xxx xxx xxx69 (Emphasis supplied)

b. If the concessionaires really were mereagents or contractors, then neither Manila Water norMaynilad would have been required to assumeoperational burdens internal to MWSSanathema to therepresentative nature of agency. While there is a

recognized physical duality in an agency i.e., theprincipal is distinct and distinguishable from the agentthere is no legal duality, since the agent merely represents the principal.

c. The Concession Agreements, however,maintain both the physical and legal duality between eachconcessionaire, on the one hand, and MWSS, on the other.MWSS, Manila Water, and Maynilad are three separate

entitiesphysically and legallywith Manila Water andMaynilad being required to execute contracts ofemployment with erstwhile MWSS employees.

d. Further, assuming that the delegation ofeminent domain and other sovereign powers granted tothe concessionaires is valid, the Concession Agreementsthemselves uniformly provide that either concessionaireshall be solely responsible for the payment of any

69 Concession Agreements, Clause 3.1 (i).


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compensation to third parties occasioned by the exerciseof such rights and powers. 70

e. This contradicts the concessionaires theorythat they are mere agents or contractors of MWSS, sincean agent or contractor, by law, is not liable for theobligations of the principal.

f. Also, assuming without admitting that theconcessionaires are agents, the New Civil Codeprovides, thus:

Every agent is bound to render an account of his transactions and to deliver to the principalwhatever he may have received by virtue of theagency, even though it may not be owing to the principal .

Every stipulation exempting the agent from theobligation to render an account shall be void .71 (Emphasis supplied)

g. There is nothing in the ConcessionAgreements that mandates the concessionaires to not onlyrender an account of their respective transactions, butalso, and more important, to deliver to the principal(hypothetically, MWSS) whatever [they] may havereceived by virtue of the agency.

h. Moreover, both concessionaires had

separately applied for, and were granted, income taxholidays. While this particular fact will be accorded moreextensive treatment on a different argument later in thisPetition, it is submitted that the concessionaires(purported agents), and not MWSS (the putativeprincipal), were the ones who benefited from theincome tax holidaysagain, going against the grain ofrepresentation, which is the underlying concept ofagency.


71 NEW CIVIL CODE , art. 1891.


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i. The concessionaires, therefore, are notinfact, never wereagents.

Assuming theconcessionaires are mere agents or contractors of MWSS, withmore reason should they be barred from overbilling, and passing onillegal charges to, water consumers, since their principal MWSSmay not do so anyway .

78. Assuming for the nonce, without however conceding thatthe concessionaires are agents of MWSS, they may logicallyexercise powers and be bound by obligations that MWSS itself mayexercise or submit to, respectively.

79. There is nothing in the MWSS Charter, however, thatpermits the MWSS itself to pass on its own income tax liabilities oreven future expenditures to water consumers.

80. The MWSS Charter, R.A. No. 6273, provides that MWSSshall have the power [t]o fix periodically water rates and sewerageservice fees as the System may deem just and equitable in accordancewith the standards outlined in Section 12 [thereof]. 72

81. Section 12, in turn, provides that [t]he rates and feesfixed by the Board of Trustees for the System and by the localgovernments for the local systems shall be of such magnitude that the

Systems rate of net return shall not exceed twelve per centum (12%),on a rate base composed of the sum of its assets in operation asrevalued from time to time plus two months operating capital. 73

82. If the concessionaires really are agents, as they publiclyclaim, then they may not exercise powers that not even theirprincipal i.e., MWSSmay itself exercise.

In any event, public utilityor not, the concessionaires may

72 R.A. 6234, 3 (h).

73 R.A. 6234, 12.


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not pass on their income taxes tothe water consumers, since incometaxes may not be properly

characterized as expenditures.

83. In its Decision74 and Resolution75 in the consolidated casesof Republic of the Philippines v. Manila Electric Company (MERALCO), the Supreme Court ruled that income tax cannot be properlycharacterized as an expenditure that may be passed on by a publicutility to the consuming public.

84. In these cases, the Supreme Court ordered MERALCO torefund the amounts corresponding to its income taxes, which it hadpassed on to the consumers. The refund, however, was grounded onthe inherent nature of income taxes and not on the character of theentity liable for such taxes, thus:

Income tax, it should be stressed, is imposed on anindividual or entity as a form of excise tax or a tax on the privilegeof earning income . In exchange for the protection extended by theState to the taxpayer, the government collects taxes as a source ofrevenue to finance its activities. Clearly, by its nature, income tax payments of a public utility are not expenses which contribute toor are incurred in connection with the production of profit of a public utility. Income tax should be borne by the taxpayer alone asthey are payments made in exchange for benefits received by thetaxpayer from the State. No benefit is derived by the customers of a public utility for the taxes paid by such entity and no direct contribution is made by the payment of income tax to theoperation of a public utility for purposes of generating revenue or profit . Accordingly, the burden of paying income tax should be[MERALCOs] alone and should not be shifted to the consumers by

including the same in the computation of its operating expenses.(Emphasis supplied)

85. An excise tax is a tax upon the performance, carrying on,or exercise of some right, privilege, activity, calling or occupation. 76

74 G.R. Nos. 141314 and G.R. No. 141369, 15 November 2002.

75 G.R. Nos. 141314 and G.R. No. 141369, 9 April 2003.

76 Cordero v. Conda, 18 SCRA 341 (1966), cited in F EDERICO B. MORENO , PHILIPPINE LAW DICTIONARY 341 (3rd ed. 1988). Hereinafter P HILIPPINE LAWDICTIONARY .


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The term excise tax is synonymous with privilege tax and thetwo are often used interchangeably. 77

86. It is erroneous for the concessionaires, therefore, tocontinuously assert their being mere agents or contractors todefeat liability for income taxes. To reiterate, it is the nature ofincome tax itself that militates against being passed on to waterconsumers.

C. THE CONCESSION AGREEMENTS MAY NOT , BYSHEER WILL OF THE CONTRACTING PARTIES , CAUSE THECREATION OF THE REGULATORY OFFICEA PUBLIC OFFICEPERFORMING PUBLIC FUNCTIONS AND EVEN SOURCE ITSFUNDING FROM THE CONCESSIONAIRES , WHICH ARE THE VERYSAME ENTITIES SUPPOSED TO BE REGULATED .

Only the Legislature and, asdeclared by the Supreme Court inthe case of Louis Barok C.Biraogo versus The PhilippineTruth Commission, 78 the President of the Philippines, in the exerciseof his power of control, maycreate a public office or ad hocbody, respectively.

87. In his Dissenting Opinion in the case of Nicanor G. Salaysayversus Hon. Fred Ruiz Castro, et al. ,79 Supreme Court Justice RobertoConcepcion stated, thus:

The issues would, perhaps, be clearer if we considered atcloser range, the nature of a public office , the essence of which isthe right, authority and duty, forming part of the sovereign functions of the government, delegated by operation of law . Insofaras public officers are concerned, two other elements are material,namely, (1) title to the office, and (2) authority to exercise its powers and discharge its duties . The former is usually acquired

77

Villanueva v. City of Iloilo, 26 SCRA 587 (1968), cited in P HILIPPINE LAWDICTIONARY 341.

78 G.R. Nos. 192935 and G.R. No. 193036, 7 December 2010.

79 G.R. No. L-9669, 31 January 1956.


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either by appointment or by popular election, although, in someinstances, it may be secured by legislative enactment.

xxx xxx xxx.

A public office , however, is the right, authority and duty ,created and conferred by law , by which for a given period eitherfixed by law or enduring at the pleasure of the creating power, anindividual is invested with some portion of the sovereign functionsof the government, to be exercised by him for the benefit of the public . (Emphasis supplied)

88. In Exhibit A of the Concession Agreements, it is clear that

the Regulatory Office has both oversight and regulatory functions,including

a. the monitoring of the awarded ConcessionAgreements;

b. reviewing and monitoring of water supplyand sewerage rates;

c. implementing Extraordinary PriceAdjustment provisions;

d. implementing Rate Rebasing provisions;

e. monitoring contracts between theconcessionaire and customers for the provision of waterand sewerage services;

f. monitoring and enforcing standards ofservices to customers, and any agreed improvement inthese standards, or extensions in the coverage of watersupply and sewerage services;

among other functions.

89. Since the concessionaires, as discussed above, are publicutilities performing public service, there is no other conclusion thanthat the entity tasked to monitor and regulate these concessionairesi.e., the Regulatory Officemust, itself, be a public office.


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90. The Regulatory Office, au contraire, was created by merecontracta mere meeting of minds 80 among the parties to theConcession AgreementsThere is, however, no law or executive

edict creating the Regulatory Office and/or providing for itsauthority to monitor and regulate the concessionaires.

91. The Regulatory Office, therefore, and by mere contract , isusurping the powers and functions of a public office . This is a clearcase of undue delegation of sovereign powers .

By providing for thecreation of the Regulatory Office,the Concession Agreements had institutionalized an entanglement among MWSS, the RegulatoryOffice, and the concessionairesthe very subjects of regulation placing MWSS and the RegulatoryOffice in a state of regulatorycapture .

There have been interlocking directors between MWSS and Maynilad, and between MWSSand the NWRB.

92. Regulatory capture is a theory associated with G EORGESTIGLER, a Nobel laureate economist. It is the process by whichregulatory agencies eventually come to be dominated by the veryindustries they were charged with regulating . Regulatory capturehappens when a regulatory agency, formed to act in the publicsinterest, eventually acts in ways that benefit the industry it issupposed to be regulating, rather than the public .81

93. The Regulatory Office, to recapitulateand which, evenby sheer nomenclature, is meant to regulate the concessionairesis a

80 See N EW CIVIL CODE , art. 1305, thus:

A contract is a meeting of minds between two personswhereby one binds himself, with respect to the other, to givesomething or to render some service.

81 See http://www.investopedia.com/terms/r/regulatory-capture.asp.


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contractual creation, particularly an initiatory prestation of MWSS ,thus:

11.1 Organization

The MWSS Board of Trustees shall establish and fund aregulatory Office (the Regulatory Office) to be organized andoperated in a manner consistent with the MWSS Board of Trusteesmay make from time to time, and shall have the functions andpowers described in that Exhibit. Decisions of the Regulatory Officerequiring action by the MWSS Board of Trustees, includingdecisions affecting the level of Standard Rates, shall promptly besubmitted to the Board in accordance with Section 7.1 hereof.

(Emphasis supplied)

94. Under the Concession Agreements, the concessionairesshall pay to MWSS the amount of 50 million Pesos, which MWSSshall use and allocate in accordance with Section 11.2 for theestablishment and budget of the Regulatory Office as a ConcessionFee. 82

95. In fact, based on the funding mechanism provided under the Concession Agreements, the Regulatory Office is completely funded by the concessionaires , thus:

11.2 Funding

Not later than 10 days after the Commencement Date, MWSS shall allocate from the Concession Fees received from theConcessionaire and the Other Operator the amount of 100 Million Pesos which shall constitute the budget of the Regulatory Office

for the year 1997 . Not later than January 10 of each subsequentyear, MWSS shall allocate from the Concession Fees paid in that year by the Concessionaire and the Other Operator the annualbudget for the Regulatory Office and MWSS for that year,provided that such annual budget shall not for any year exceed 200Million Pesos, subject to annual CPI adjustments, 100 Million Pesosof which, as so adjusted, shall be allocated by MWSS for theRegulatory Office. (Emphasis supplied)

96. Under the Concession Agreements, the Regulatory Office

is mandated to determinepresumably jointlywith theconcessionaires whether the Consumer Price Index accurately reflectsthe rate of inflation in the Philippines. In the event it does not so

82 Concession Agreements, Clause 6.4 (b).


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reflect the rate of inflation, the concessionaires and the RegulatoryOffice may, themselves, select an alternative index, thus:

2.4 Consumer Price Index Adjustments

In the event that the Concessionaire and the RegulatoryOffice determine that the CPI is for any period not an accuratereflection of the rate of inflation in the Philippines as it relates tothis Agreement, the Concessionaire and the Regulatory Office mayselect an alternative index. 83

97. Under the Concession Agreements, MWSS is required tocooperate with the concessionaires in all reasonable ways to facilitate the concessionaires performance , thus:

7.1 Cooperation with Concessionaire

Subject to the requirements of the Charter, MWSS shall,upon request of the Concessionaire, cooperate in all reasonableways to facilitate the Concessionaires carrying out of itsresponsibilities under the Concession . Pursuant to the authoritygiven to MWSS by Section 3(h) of the Charter, and subject to the

restrictions contained in Section 12 of the Charter, this cooperationshall include, but not be limited to, cooperation with actionsundertaken by the Concessionaire to implement changes to theStandard Rates for water and sewerage services as instructed by theRegulatory Office or, as appropriate, by the Appeals Panel.

98. The Regulatory Office is a creation of the MWSS, which ismandated to cooperate with the concessionaires at their request.The concessionaires are funding the Regulatory Office, the very sameentity that is supposed to be regulating them.

99. Regulation of the concessionaires, therefore, is anillusion, since, under the regulatory setup, all parties involvedthe MWSS, the Regulatory Office, and the Concessionairesare allentangled .

100. Further, Amendment No. 1 of the Concession Agreementsexpressly requires annual computation of RORB before any annual

water rate adjustment can be recommended by the Regulatory Officeand, consequently, approved by the MWSS Board of Trustees.



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101. This is to ensure that capital expenditures or assets usedin operations as claimed to have been invested by the concessionairesare efficiently and prudently incurred.

102. This is also ensure that MWSS assets used in operationare likewise fully accounted for as depreciated and the RORB will notexceed the 12% cap.

103. Further, it is required that if a pre-computation of theRORB after considering all factors needed for its annual RORBcomputation will exceed the 12% cap in relation to water rateadjustment or water rate increase, the regulator is required to defer orpostpone the concessionaires proposals in the business plans.

104. Due to the fault, negligence, or intentional omission bythe very first Deputy Regulator for Financial Regulationand nowMWSS Chairman of the Boardrespondent Alikpala, who is taskedwith initiating the RORB determination described above, no RORBcomputation or determination was ever commenced since that time.This was followed by subsequent Deputy Regulators for FinancialRegulation up to the present, resulting in non-determination of theannual RORB.

105. Thus, whatever business plans and water rates weresubmitted by the concessionaires over the past two rebasing periodswere perfunctorily adopted by the MWSS regulators and/or theMWSS Board of Trustees as a collegial decision, ultimately resultingin uncontrolled and unregulated water rate increasesall to thedetriment of water consumers.

106. Moreover, there are interlocking directors between MWSSand Mayniladwith O SCAR GARCIA being in the payrolls of bothMWSS and Mayniladand between MWSS and the NWRBwithrespondent Alikpala, now MWSS Chairman, being former ExecutiveDirector of NWRB.

Faithful reproductions of the Breakdown of Allowances/Other Personnel Benefits of MWSS and Summary of Benefits of Interim

Board Members are attached hereto as Annexes W and W-1 for


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the perusal and ready reference of this Honorable Court,incorporated herein by reference, and made integral parts hereof. 84

107.

Therefore, there is nothing that prevents theconcessionaires to impose water consumption feesno matter howarbitrary or exorbitantsince the MWSS is mandated to cooperatewith the concessionaires, while the Regulatory Office owes its verycreation to the concessionaires it is tasked to oversee and regulate.

D. THE CONCESSIONAIRES TARIFF SCHEDULESCANNOT LEGITIMATELY PERMIT MANILA WATER ANDMAYNILAD , AS PUBLIC UTILITIES, TO OVERCHARGE THE

CONSUMING PUBLIC FOR WATER .

108. In the 2002 Tariff Schedule, MWSS allowed theconcessionaires to collect fees for the following projects in advance :

a. Feasibility Study for Laiban Dam;

b. Business Plan by Manila Water for WawaDam; and

c. Business Plan by Maynilad for the PutatanPumping Station.

109. In the 2008 Tariff Schedule, MWSS allowed theconcessionaires to collect fees for the following projects in advance :

a. Pinugay Sewerage System in Antipolo City,valued at Php 1,000,000,000.00;

b. Angat Water Irrigation Replacement System,valued at Php 5,700,000,000.00; and

c. Laiban Dam Feasibility Study.



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110. Notwithstanding the non-continuance of the Angat WaterIrrigation Replacement System and the Laiban Dam Feasibility Study,neither Manila Water nor Maynilad had taken steps to return the

money advanced.111. Under the Concession Agreements, the concessionaires

may, during the term of the Concession, recover operating, capitalmaintenance, and investment expenditures. 85 The relevant provisionof the Concession Agreement, however, expressly provides that theexpenditures that may be recovered are those that have beenefficiently and prudently incurred . The concessionaires, therefore,have no basis in passing on expenditures that have yet to be incurred

or, worse, had already been suspended or abandoned , thus:9.3.4 General Rates Setting Policy/Rate Rebasing

Determination

The maximum rates chargeable by the concessionaire forwater and sewage services hereunder applicable to the periodthrough the Second Rate Rebasing Date (subject to interimadjustments as described in this Article 9) are set out in Schedule 5to this Agreement. It is the intention of the parties that, from and after the Second Rate Rebasing Date, the rates for water and sewerage services provided by the concessionaire shall be set at level that will permit the concessionaire to recover over the 25-year term of the Concession (net of any grants from third partiesand any possible Expiration Payment) operating, capitalmaintenance and investment expenditures efficiently and prudentlyincurred, Philippine business taxes and payments corresponding todebt service on the MWSS Loans and concessionaire Loansincurred to finance such expenditures , and to earn a rate of return(referred to herein as the Appropriate Discount Rate) on theseexpenditures for the remaining term of the Concession in line with

the rates of return being allowed from time to time to operators oflong-term infrastructure concession arrangements in othercountries having a credit standing similar to that of the Philippines.The parties further agree that the maximum rates chargeable forsuch water and sewerage services shall be subject to generaladjustment at five-year intervals commencing on the second RateRebasing Date; provided that the Regulatory Office may exercise itsdiscretion to make a general adjustment of such rates on the FirstRate Rebasing Date, but, if it does not do so, the Regulatory Officeshall implement the assumptions set out in paragraph 2 of ExhibitE on the fifth anniversary of the Commencement Date. It isunderstood that the determination of the appropriate rate of returnwill be made separately at the time of each generalized raterebasing.

85 Concession Agreements, Clause 9.3.4.


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It is also the intention of the parties that rates be set in such away as to provide appropriate efficiency incentives to theconcessionaire, with a view toward benefiting both the Customers

and the concessionaire.

The Regulatory Office shall determine the RebasingAdjustment to be used for the purposes of calculating the RatesLimit for each of the five Charging Years of each Rebasing Period,in accordance with the provisions set forth below. (Emphasissupplied)

112. Worse, and as mentioned earlier, the concessionaires hadindividually applied for, and were granted, income tax holidays by

the Board of Investments . This means that the concessionaires had no income tax liabilities to declare, expenditures or not. If so, thenit was highly anomalous for the concessionaires to have passed onincome tax liabilities, peddled as expenditures, when they were not liable for these anyway.

113. Manila Water, for instance, even requested for a change inthe date of commercial operation of its registered activity fromAugust 2000 to January 2000, which the Board of Investments

granted, thus:

Under the specific terms and conditions of your registration(Item 4a) pertaining to the grant of Income Tax Holiday:

Income Tax Holiday for six (6) years fromAugust 2000 or from actual start of commercialoperation, whichever comes first but in no case earlierthan the date of registration.

Hence, the Board interposes no objection to the advanceddate of commercial operation. Consequently, the reckoning periodof your [Income Tax Holiday] will now be moved to this newschedule of commercial operation ( i.e., January 2000).

A faithful reproduction of the Letter by the Board of Investments dated 3 January 2000 is attached hereto as Annex X forthe perusal and ready reference of this Honorable Court,incorporated herein by reference, and made an integral part hereof. 86

86 Petitioners, consistent with Section 6 of A.M. No. 11-9-4-SC, otherwiseknown as the Efficient Use of Paper Rule, have dispensed with service of


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114. Maynilad was granted an Income Tax Holiday from 1August 2001 to 31 July 2007, which, upon Maynilads request, waschanged to January 2003 to December 2008. Maynilad had also

applied for an Income Tax Holiday Bonus Year, an extension of theIncome Tax Holiday availment, which was approved on 22 December2008, for a period covering 1 January 2009 to 31 December 2009. 87

115. Thus, assuming Maynilad may declare its income taxes asexpenditures, it was nonetheless prohibited from passing theseexpenditures to water consumers within its Service Area.

116. Worst of all, there are expenditures that, logically, are

being passed on by the concessionaires to water consumers evenwhen these items are absolutely unrelated to providing water service .

117. Indeed, even items for entertainment are declared asexpenditures and, presumably, being shouldered by waterconsumerseven if these expenses for entertainment, even bybrute logic, have no relation, proximate or remote, to the verypurposes for which the concessionaires were formed. 88

Faithful reproductions of the Financial Statements of ManilaWater for December 31, 2004 and 2003, December 31, 2005 and 2004, December 31, 2006 and 2005, and December 31, 2007 and 2006; and Audited Financial Statements for the years 2008 and 2009 , preparedby SGV & CO., are attached hereto as Annexes Y, Y-1, Y-2, Y-3, Y-4, and Y-5 for the perusal and ready reference of thisHonorable Court, incorporated herein by reference, and madeintegral parts hereof. 89

copies hereof on respondents, as the latter are presumed to already be inpossession of the same, being privy thereto or previous recipients thereof.

87 See Financial Statements from December 31, 2008 and 2007, and YearsEnded December 31, 2008, 2007, and 2006, prepared by SGV & CO. for Maynilad,infra, at 50.

88 See Financial Statements from December 31, 2005 and 2004, and Report

of Independent Auditors, prepared by SGV & CO. for Maynilad, infra, at 39.89 Petitioners, consistent with Section 6 of A.M. No. 11-9-4-SC, otherwise

known as the Efficient Use of Paper Rule, have dispensed with service ofcopies hereof on respondents, as the latter are presumed to already be inpossession of the same, being privy thereto or previous recipients thereof.


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Faithful reproductions of the Financial Statements of Maynilad for December 31, 2004 and 2003, December 31, 2005 and 2004, December 31, 2006 and 2005, December 31, 2007 and 2006, and

December 31, 2008 and 2007 , prepared by SGV & CO., are attachedhereto as Annexes Z, Z-1, Z-2, Z-3, and Z-4 for the perusaland ready reference of this Honorable Court, incorporated herein byreference, and made integral parts hereof. 90

118. In view of all the foregoing considerations, there is anurgent necessity for accounting by the concessionaires and,consequently, consistent with the provisions of the New Civil Codeon solutio indebiti,91 refundcompletely and immediatelythe

charges overbilled by the concessionaires to the water consumers oftheir respective Service Areas.

ALLEGATIONS IN SUPPORT OF THE ISSUANCE OF ASTATUSQUO ANTE ORDER, TEMPORARY RESTRAINING ORDER

AND/OR WRIT OF PRELIMINARY INJUNCTION

119. Petitioner repleads all the foregoing allegations insupport of its prayer for the issuance of a Status Quo Ante , Temporary

Restraining Order, and/or a Writ of Preliminary Injunction.

120. The constitutional and legal infirmity of the ConcessionAgreements is manifest, as these constitute an undue delegation ofinherent sovereign powers.

121. The violations against the legally enshrined rights ofpetitioner are equally manifest, as its legally-protected right againstrabid corporate profiteering on public utilities or services of utmost

public import are currently being trampled upon with the approvalof the 2013 Tariff Schedule.


91

See N EW CIVIL CODE , art. 2154, thus:If something is received when there is no right to demand it,

and it was unduly delivered through mistake, the obligation toreturn it arises.


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a. Petitioners rights to affordable potable waterare violated when Manila Water and Maynilad areallowed to charge the general public for future projects

that have not passed scrutiny for having been prudentlyincurred, without any legal basis therefor.

b. Petitioners rights to affordable potable waterare violated when Manila Water and Maynilad areallowed to charge the general public water rates wellabove the 12% profit cap imposed by Republic Act No.6234.

122.

Thus, the issuance of a Status Quo Ante Order, temporaryrestraining order, and/or writ of preliminary injunction ordering allrespondents to maintain and observe the current state of affairs priorto the implementation of the latest Rate Rebasing Exercise andenjoining all respondents from implementing the same, is warranted.

PRAYER

Wherefore, in view of all the foregoing considerations,

petitioners respectfully pray that this Honorable Court:

a. upon filing of this Petition for Certiorari , ISSUE a Temporary Restraining Order , Status Quo Ante Order and/or Writ of Preliminary Injunction against the allrespondents, requiring them to maintain and observe thestatus quo prevailing before the commencement of the2013 Rate Rebasing Exercises;

b. GIVE DUE COURSEto this Petition;

c. ISSUE an Order , Resolution, or such otherappropriate form of adjudication:

i. DECLARING the ConcessionAgreements dated 21 February 1997 betweenMWSS, on the one hand, and Manila Waterand Maynilad, on the other, to be void for

being constitutionally infirm and/or ultravires; and,


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ii. in the alternative, DECLARING the2013 Tariff Schedule for Manila Water andMaynilad void for being in violation of law;

iii. SETTING ASIDE any ruling ofMWSS and/or the Regulatory Office to thecontrary;

iv. DIRECTING MWSS to determineanew the appropriate water tariffs in line withthe pronouncements made herein;

v. DECLARING Manila Water andMaynilad to be public utilities subject to therules and regulations of public service lawsand the auditing powers of the COA;

vi. ORDERING Manila Water andMaynilad, whether by themselves or throughMWSS, to refund to water consumers withintheir respective Service Areas the following

amounts billed, charged, and/or collectedfrom them:

- All amounts in excessof the 12% cap provided inRepublic Act No. 6234;

- All amountsrepresenting income taxes of

MWSS and/or theconcessionaires; and

- All amounts for futureand/or abandoned projects; and

c. SET the case at Bench for oral argument at atime, and on a date, most convenient to this HonorableCourt.

Petitioners likewise pray for other just and equitable reliefsunder the premises.


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Respectfully submitted, Makati City for Manila.

5 August 2013.

ATTY. ANDR R. DE JESUSCounsel for Petitioner

1100, 11/F, 88 Corporate CenterSedeo corner Valero Streets, Salcedo Village 1227

Makati City, Metropolitan ManilaRepublic of the Philippines

Telephone Number: (63 2) 908 2563Facsimile Number: (63 2) 908 2555Roll No. 52205

PTR No. 0320496, 7 January 2013, Makati CityIBP No. 922294, 7 January 2013, Quezon City

MCLE Certificate of Compliance No. IV-0020674, 13 June 2013

Copy furnished:

METROPOLITAN WATERWORKS & SEWERAGE SYSTEM (MWSS)MWSS REGULATORY OFFICE RAMON B. ALIKPALA GERARDO A.I. ESQUIVEL ATTY. EMMANUEL L. CAPARAS ATTY. RAOUL C. CREENCIA MA. CECILIA G. SORIANO JOSE RAMON T. VILLARIN BENJAMIN J. YAMBAO

NATHANIEL C. SANTOS ZOILO L. ANDIN JR.LEONOR CLEOFAS Public Respondents4/F, Administration Building, MWSS Complex489 Katipunan Road, Balara 1105, Quezon CityMetropolitan Manila, Republic of the Philippines

MANILA WATER COMPANY , INC . (Manila Water)

MAYNILAD WATER SERVICES, INC . (Maynilad)Private Respondents4/F, Administration Building, MWSS Complex489 Katipunan Road, Balara 1105, Quezon CityMetropolitan Manila, Republic of the Philippines


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EXPLANATION AS TO SERVICE OF PLEADING(To be disregarded if effected personally)

Copies hereof intended for respondents were served viaregistered mail, personal service being impracticable due to lack ofmaterial time.

ATTY. ANDRE R. DE JESUS


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VERIFICATION ANDCERTIFICATION ON NON-FORUM SHOPPING

I, RODOLFO JAVELLANA JR., a Filipino citizen, of legal age, afterhaving been duly sworn in accordance with law, depose and statethat:

1. I am the President of W ATER FOR ALL REFUND MOVEMENT(WARM), INC ., one of the petitioners in the case at Bench;

2. I have been duly authorized by WARM to cause thecommencement of proceedings against MWSS, Manila Water, andMaynilad, among other parties, as gleaned from the Resolution adopted at a special meeting of WARMs Board of Directors on 16 July 2013, evidenced by the Secretarys Certificate issued by WARMsCorporate Secretary, C ESAR C. WALICAN , which accompanies thisverification;

3. Pursuant to said authority, I caused the preparation ofthis Petition;

4. I am in a position to verify the truthfulness andcorrectness of the allegations in the Petition;

5. I have read the contents thereof and the facts statedtherein are true and correct of my personal knowledge and/or on thebasis of copies of documents and records in my possession;

6. WARM has not commenced any other action orproceeding involving the same issues in the Supreme Court, theCourt of Appeals, or any other tribunal or agency, except for aPetition for Writ of Kalikasan docketed as C.A. G.R. Sp. No. 00020, filedwith the Court of Appeals on 19 July 2013;

7. I was advised by my counsel that the Rules of Procedurefor Environmental Cases, A.M. No. 09-6-8-SC (2010), notably, Section17, Rule 7 (Writ of Kalikasan) thereof, allow me to file this Petition.

Section 17 provides: Institution of separate actions .The filing of a petition for the issuance of the writ of


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kalikasan shall not preclude the filing of separate civil,criminal or administrative actions.

8. To the best of my personal knowledge, and on the basis ofrecords and other documents in my possession, no other action orproceeding is pending in the Supreme Court, the Court of Appeals,or any other tribunal or agency;

9. If I should thereafter learn that a similar action orproceeding has been filed with, or is pending before, the SupremeCourt, the Court of Appeals, or any other tribunal or agency, I herebyundertake to report that fact within five days therefrom to thisHonorable Court.

RODOLFO B. JAVELLANA JR. Affiant

Subscribed and sworn to before me this 5 th day of August, 2013,at Makati City, Metropolitan Manila, Republic of the Philippines,affiant exhibiting to me his Drivers License, Numbered N01-95-181135, containing his name, photograph, and specimen signature.

ATTY. ANDRE R. DE JESUSNotary Public for Makati City

Appointment No. M-436My commission expires on 31 December 2014

Roll No. 52205

PTR No. 0320496, 7 January 2013, Makati CityIBP No. 922294, 7 January 2013, Quezon City1100, 11/F, 88 Corporate Center, Sedeo corner

Valero Streets, Salcedo Village 1227Makati City, Metropolitan Manila

Republic of the PhilippinesDoc. No. 1Page No. 1Book No. 54Series of 2013


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VERIFICATION ANDCERTIFICATION ON NON-FORUM SHOPPING

I, MARCELO L. TECSON , a Filipino citizen, of legal age, afterhaving been duly sworn in accordance with law, depose and statethat:

10. I am one of the petitioners in the case at Bench;

11. I am in a position to verify the truthfulness andcorrectness of the allegations in the Petition;

12. I have read the contents thereof and the facts statedtherein are true and correct of my personal knowledge and/or on thebasis of copies of documents and records in my possession;

13. I have not commenced any other action or proceedinginvolving the same issues in the Supreme Court, the Court ofAppeals, or any other tribunal or agency;

14. To the best of my personal knowledge, and on the basis ofrecords and other documents in my possession, no other action orproceeding is pending in the Supreme Court, the Court of Appeals,or any other tribunal or agency;

15. If I should thereafter learn that a similar action orproceeding has been filed with, or is pending before, the SupremeCourt, the Court of Appeals, or any other tribunal or agency, I herebyundertake to report that fact within five days therefrom to thisHonorable Court.

MARCELOL. TECSON Affiant


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Subscribed and sworn to before me this 5 th day of August, 2013,at Makati City, Metropolitan Manila, Republic of the Philippines,affiant exhibiting to me his drivers license, numbered N03-72-

016185, containing his name, photograph, and specimen signature.

ATTY. ANDRE R. DE JESUSNotary Public for Makati City

Appointment No. M-436My commission expires on 31 December 2014

Roll No. 52205PTR No. 0320496, 7 January 2013, Makati City

IBP No. 922294, 7 January 2013, Quezon City1100, 11/F, 88 Corporate Center, Sedeo cornerValero Streets, Salcedo Village 1227

Makati City, Metropolitan ManilaRepublic of the Philippines

Doc. No. 2Page No. 1Book No. 54Series of 2013

WARM - Petition for Certiorari, Prohibition, and Mandamus

Documents

Transcript of WARM - Petition for Certiorari, Prohibition, and Mandamus