COA cites Primewater’s P250M in unsettled performance bond

Primewater Corporation, a water utility firm owned by the family of real estate tycoon Manuel Villar, has been cited by the Commission Audit (COA) for allegedly failing to fully settle a P250-million performance bond and pay the franchise tax under separate joint venture deals with two water districts in Bulacan.

The company was not able to settle in full the P250-million performance bond with joint venture partner Meycauayan Water District, according to state auditors.

Based on the commission’s annual report on Water Districts for 2018, the performance bond posted by Primewater in favor of Meycauayan Water District amounted to only P15,436,468 million—an insufficient amount since the National Economic Development Authority (NEDA) rules on joint venture agreements require a minimum performance bond of 10% of the private sector’s participating contribution.

But the company told GMA News Online on Friday that there is solid basis at this point regarding the actual amount of the performance bond.

The P250 million in unpaid performance bond was an inaccurate computation. The company’s total investment valued at P2.6 billion was an estimated amount “which may increase or decrease depending on the future and yet-to-be-certain conditions and circumstances surrounding the JV Area in each of the phases of the joint venture,” said Cezar Ong, head of Primewater’s North Luzon Joint Venture Operations.

“Thus, it is unreasonable for projected investments to be the basis of the performance bond since such investments may or may not happen,” Ong added.

In the case of the joint venture with Meycauayan Water, the company contributed P2,661,130,000, according to the commission.

“When compared to the posted bond of P15,436,468 million, it showed a deficiency of P250,676,532.00 million. Without the right amount of performance bond, the interest of the District in the joint venture agreement was not adequately protected,” the commission noted.

Franchise tax

In the same report, the commission said Primewater has failed to pay P2.793 million in franchise tax from the gross receipts under a separate joint venture agreement with Marilao Water District.

“For the period of January to December 2018, Primewater had total gross sales amounting to ?139,653,299.87 million, two percent of which amounting to ?2,793,066 million as franchise tax was not paid to the Bureau of Internal Revenue (BIR),” state auditors said.

“Verification of the pertinent provision relative to tax matters revealed that Section 6.1.2 of the JV agreement states that Primewater should be responsible for all income and withholding taxes, customs and import duties, real property taxes on the facilities used in the Joint Venture Project, other local taxes, capital gains tax and other transfer taxes, value-added tax and other form of taxes and charges arising from its operation of the Joint Venture,” the report noted.

Not paying the franchise tax is a violation of the Tax Reform Act, according to COA.

“Prior to the Primewater operation under the JV Agreement, the District has regularly complied with the payment of the two per cent franchise tax on the total water sales collection,” it added.

Primewater noted that as a private entity, it was only legally mandated to collect the 12 percent value-added taxes on the amounts paid by the customers.

“The 12 percent VAT cannot be imposed together with the 2 percent franchise tax to prevent double taxation under the law,” Ong said.

“Further, the remittance of 12% VAT is more advantageous to the government than the 2% franchise tax,” Ong added.

Primewater also argued in the COA report that they were only liable to pay value-added taxes under the law on Value-Added Tax on Sale of Services and Use or Lease of Properties.

The state audit team, however, argued that the law only exempts electric, gas and water utilities classified as district entities.

“Since the operation and concession of the [Marilao Water] District has been transferred to Primewater, the latter should shoulder the payment of franchise taxes,” the state auditors said.

“The above circumstance deprived the government of additional revenues that will be used to finance government programs, activities and projects,” the commission added.

No feasibility study

COA has tasked Marilao Water to oblige its joint venture partner to pay the franchise tax and submit copies of the payment receipts together with the monthly sales receipts to determine if the computation is correct.

The Marilao Water District accepted this recommendation, according to the commission.

State auditors also discovered that Meycauayan Water entered into a joint venture agreement with Primewater even in the absence of documentary evidences that a feasibility study or business case and pre-feasibility study of the project was conducted or prepared by the Joint Venture Selection Committee (JVSC)—a declaration that was stated under the joint venture pact inked between Meycauayan Water and Primewater.

“Seemingly, the consideration for entering into a joint venture agreement was only based on the unsolicited proposal of the Primewater Infrastructure Corporation, contrary to NEDA Guidelines,” state auditors noted.

Discussions with Meycauayan Water officials showed that the feasibility study was actually an unsolicited proposal by Primewater, the commission also noted.

“The District relied on Primewater’s proposal in entering into the joint venture agreement without considering NEDA Guidelines which states, among others, that the government entity concerned should prepare the selection/tender documents, including a feasibility study or a business case/pre-feasibility study of the project,” state auditors said.

The commission reiterated its recommendations the previous year that Meycauayan Water submit a justification of non-compliance by the Joint Venture Selection Committee with the COA and NEDA to evaluate the propriety and validity of the JVA.

Meycauayan Water agreed to this recommendation, according to the commission. —VDS, GMA News