Editors Note: This is the digital copy of the full text of the Joint Venture Agreement between the Bacolod City Water District and Primewater Infrastracture Inc that is based on a copy of the original agreement furnished DNX by former Councilor Wilson Gamboa Jr.
Amid the water shortage in Bacolod City and the failure of Primewater to provide residents of the city with 24/7 water supply as pointed out even by city officials led by sitting Mayor Alfredo Abelardo “Albee” Benitez, DNX is publishing it to shed light on the obligations of the parties involved.
JOINT VENTURE AGREEMENT
FINANCING, DEVELOPMENT, IMPROVEMENT, REHABILITATION, EXPANSION, OPERATION AND MAINTENANCE OF THE WATER SUPPLY AND SEPTAGE MANAGEMENT SYSTEMS OF BACOLOD CITY WATER DISTRICT
This Joint Venture Agreement for the Financing, Development, Improvement, Rehabilitation, Expansion, Operation and Maintenance of the Water Supply and Septage Management Systems of Bacolod City Water District (hereinafter referred to as the “Agreement”), is made this 17th day of July 2020 by and between:
BACOLOD CITY WATER DISTRICT, a Government-Owned and Controlled Corporation created pursuant to Presidential Decree No. 198 as amended, with principal business address at Cor. Galo & San Juan Streets, Bacolod City, Negros Occidental, herein represented by its Chairman of the Board of Directors, Lorendo K. Dilag, duly authorized for the purpose of this Agreement by the Board of Directors under Board Resolution No. 108, series of 2020, hereinafter referred to as the BACIWA,
– and –
PRIMEWATER INFRASTRUCTURE CORP., a corporation duly organized and existing under the laws of the Republic of the Philppines, with principal business address at 2nd Floor, Starmall Annex, Alabang-Zapote Road, Pamplona 3, Las Piñas City, Philippines, herein represented by its Vice-President/Business Development Head, Romeo M. Sabater, and its Operations Head – Iloilo City, Lily Donasco, duly authorized for the purpose of this Agreement by its Board of Directors under a Secretary’s Certificate, hereinafter referred to as PRIMEWATER.
BACIWA and PRIMEWATER are collectively referred to as the “Parties”
WITNESSETH:
WHEREAS, BACIWA, pursuant to Presidential Decree No. 198 (PD 198),
as amended, otherwise known as the Provincial Water Utilities Act of 1973, is responsible for the provision of Water Supply and Septage Management Services in the JV Area;
WHEREAS, BACIWA currently operates in Bacolod City consisting of a total of sixty-one (61) barangays in Bacolod City, Negros Occidental;
WHEREAS, PRIMEWATER is wholly- Filipino-owned company operating throughout the Philippines and providing support to communities, real estate development companies, local water districts, and local government units for the provision of quality water and wastewater services. It is directly involved in the supply and distribution of water to more than one million (1,000,000) service connections/households throughout the country;
WHEREAS, Original Proponent submitted on October 3, 2016, the unsolicited JV Proposal pursuant to the JV Guidelines to undertake the JV Project with BACIWA, which is the financing, improvement rehabilitation, expansion, operation and maintenance of the Water Supply and Septage Management Systems in the JV Area;
WHEREAS, pursuant to the JV Guidelines, the Parties conducted a series of in-depth negotiations on the purpose, terms and conditions, scope and implementation arrangements, as well as all legal, technical, and financial aspects of the JV Project, thereby coming up with a revised and improved JV Proposal;
WHEREAS, Original Proponent’s JV Proposal contains Original Proponent’s legal, technical, and financial proposal with regard to the JV Project as revised and improved, following negotiations with BACIWA’s Joint Venture Selection Committee (JVSC);
WHEREAS, pursuant to the JV Guidelines, the JV Proposal was subjected to competitive challenge/selection process;
WHEREAS, no bidder challenged the JV Proposal within the prescribed period:
WHEREAS, pursuant to the JV Guidelines, the JV Project for the financing, development, improvement, rehabilitation, expansion, operation and maintenance of the Water Supply and Septage Management Systems of the JV Area was awarded to PRIMEWATER;
NOW THEREFORE, in consideration of the foregoing premises and the terms and conditions specified herein, the Parties agree as follows:
Section 1. Definitions and Interpretation
1.1 Definitions
1.1.1 Appropriate Project Return – shall mean the real return (i.e. not adjusted for inflation) to PRIMEWATER’s project cash flows equal to the established weighted average cost of capital set at twelve percent (12%), or as may be set by National Economic Development Authority (NEDA), hereinafter referred to as “Established Rate”. Provided: that, the parties may agree to adopt an APR different from the Established Rate if, in their reasonable determination the Established Rate no longer reflects current market conditions as described in Sec. 16.2 hereof.
1.1.2 BACIWA – shall mean the Bacolod City Water District, a government owned and controlled corporation, created pursuant to PD 198, as amended.
1.1.3 BACIWA Board of Directors – shall mean the members of the Board of Directors of BACIWA duly appointed pursuant to PD 198, as amended, acting as a Board pursuant to its by-laws and applicable laws.
1.1.4 BACIWA Covered Areas – shall mean the areas within the JV Area that currently enjoys water supply service from BACIWA.
1.1.5 BACIWA Facilities – shall mean only the properties, plants and equipment owned by BACIWA, the exclusive use of which were transferred to PRIMEWATER as operator of the JV to be used in the Joint Venture operations, pursuant to Section 2.9.1 and 2.9.2 hereof.
1.1.6 BACIWA Functions – shall be described in Section 2.7.2 hereof.
1.1.7 Basic Tariff – shall mean the tariff charged to Customers for water supply services, including VAT and all other taxes, and fees required by the law to be indirectly passed on to Customers, and including all adjustments made thereon such as those provided in Section 8.2 hereof, those resulting from Detailed Review, those mandated by the appropriate regulatory authorities, and those due to changes in CPI and PPI. Income Tax shall not be chargeable to Tariff, unless specifically and expressly provided otherwise by a ruling from the Supreme Court or the appropriate regulatory agency and/or by law.
1.1.8 Closing Date – shall mean the specified date falling not later than ninety (90) calendar days after a Notice to Proceed is issued and delivered to PRIMEWATER or such date as may be set by the Parties that will permit the fulfillment of conditions precedent specified in Section 10.
1.1.9 Clustered Ares – shall mean the pertinent areas covered by the host Joint Venture Project and those adjacent to these areas. For purposes of this Agreement, these shall include the JV Area as well as areas adjacent to the JV Area which may further be served under the Clustering Schemes as defined hereunder.
1.1.10 Clustering Scheme – shall have the meaning given to the term under Section 5.1.6. hereof.
1.1.11 Commencement Date – shall mean the specified date when this Agreement becomes effective as determined under Section 11 hereof or the day after Closing Date.
1.1.12 Consumer Price Index or “CPI” – shall mean, for any year, the Consumer Price Index for that year published by the Philippine Statistics Authority or such successor index as the parties may agree pursuant to Section 8.4.1.
1.1.13 CPI Adjustment – shall have the meaning given to the term in Section 8.4 hereof.
1.1.14 Customer – shall mean (i) as of the date hereof, any customer of BACIWA or (ii) thereafter, any customer of PRIMEWATER as operator of the JV, for the provision of Supply and Septage Management Services in the JV Area.
1.1.15 Detailed Review – shall pertain to detailed review on tariff as provided in Section 8.5 hereof.
1.1.16 Detailed Review Period – shall mean the period wherein the BACIWA shall conduct a detailed review on tariff being on the last year of the Five-Year Performance Period as described in Section 8.5.1 hereof.
1.1.17 Environmental Fee – shall mean the rates per cubic meter (CuM) of water consumption set out in Section 8.3 hereof for septage management services provided by PRIMEWATER.
1.1.18 Event of Default – shall mean an event described in Section 12.1 or 12.2 hereof.
1.1.19 Expiration Date – shall mean the end of the 25-year term of the Agreement, or any extension or renewal thereof.
1.1.20 Expiration Payment – shall mean the amount due to PRIMEWATER at the Expiration Date of the Agreement, as provided under Section 13.3 hereof.
1.1.21 Financial Model – shall refer to the financial representation of the JV Project’s actual historical performance and projected future operations used to determine the required tariff adjustment in order to provide the APR set in accordance with this Agreement.
1.1.22 Financing Agreements – shall mean such agreement/s as may be entered between PRIMEWATER and its lenders in respect of credit facility/ies, including the subsequent enforcements of all rights or assist in the implementation of the Agreements.
1.1.23 Five-Year Performance Period – shall have the meaning given to the term in Section 8.5.1.
1.1.24 Initial Tariff – shall mean the tariff being imposed by BACIWA to its Customers at Closing Date.
1.1.25 Investment Recovery Rate – shall be the quotient derived by dividing (a) the cumulative operating cash flow net of taxes, including changes in working capital, derived from the JV Project, by (b) the cumulative investments made by PRIMEWATER in respect of the JV Project. JV Share payments made by PRIMEWATER as defined under Sections 2.10 and 4.1, shall not be considered as part of operating cash flow but shall be included as cumulative investments. The investment Recovery Rate shall be as reflected in the Business Plan by PRIMEWATER.
1.1.26 Joint Venture – shall mean the contractual Joint Venture between the Parties created by virtue of the Agreement pursuant to the JV Guidelines.
1.1.27 JV Area – shall mean the service area of BACIWA in the geographic jurisdiction of the Bacolod City (consisting of 61 barangays), and such other expansion areas, if any.
1.1.28 JV Guidelines – shall mean the 2013 Revised Guidelines and Procedures for Entering into Joint Venture Agreements between Government and Private Entities dated 3 May 2013 issued by the National Economic and Development Authority pursuant to Section 8 (Joint Venture Agreements) of Executive Order No. 423 dated 30 April 2005.
1.1.29 JV Project – shall mean the financing, development, improvement, rehabilitation, expansion, operation and maintenance of Water Supply and Septage Management Systems in the JV Area to be jointly undertaken by PRIMEWATER and BACIWA through a contractual joint venture arrangement for a period of twenty-five (25) years renewable for another twenty-five (25) years as provided in the Agreements.
1.1.30 JV Proposal – shall mean the unsolicited proposal to undertake the Joint Venture Project which was submitted by PRIMEWATER to BACIWA, as revised and improved following negotiations, in accordance with the JV Guidelines.
1.1.31 JV Share – shall mean the share of BACIWA in the JV Project as provided in Sections 2.10 and 4.1
1.1.32 LWUA – shall mean the Local Water Utilities Administration created under PD 198, as amended.
1.1.33 Net Present Value – shall mean the value of a series of cash flows over a period of time after considering the time value of money. This is obtained, for purposes of future cash flows, by discounting the same using an agreed discount rate, and, for purposes of historical cash flows, by increasing the same using an agreed rate of return.
1.1.34 Notice of Award – shall mean the notice issued by BACIWA containing instruction to the PRIMEWATER to comply with conditions precedent for the execution of the JV Agreement and to submit compliance statements with regard thereto, within thirty (30) calendar days from receipt thereof.
1.1.35 Notice to Proceed – shall mean the notice issued by BACIWA within ninety (90) days before Closing Date, in accordance with Section 10.1 paragraph (v), notifying PRIMEWATER that it may commence taking-over the operation of the BACIWA Facilities at a certain date.
1.1.36 Notice of intention to Pre-terminate– shall mean the notice issued by a party in accordance with Section 12.4 hereof, notifying the other party of the former’s intention to terminate/exit from this Agreement.
1.1.37 NWRB – shall mean the National Water Resources Board created under P.D. 1067 (The Water Code of the Philippines).
1.1.38 Original Investment Recovery and Return Curve – shall mean the investment recovery and return curve contained in the Initial Financial Mode as defined in Section 8.6.
1.1.39 Performance Bond – shall have the meaning to the term given in Section 6.5 hereof.
1.1.40 Pre-termination Date – shall mean the effective date of valid pre-termination due to an event of default or unforeseen change in circumstances after a pre-termination process, pursuant to Section 12 hereof.
1.1.41 Pre- termination Payment – shall mean the amount due to PRIMEWATER after the pre-termination of the Agreement as provided under Section 12.5 hereof.
1.1.42 PRIMEWATER – shall mean the Primewater Infrastructure Corp., a business entity created under and pursuant to the laws of the Republic of the Philippines.
1.1.43 PRIMEWATER Facilities – shall mean all properties, plants and equipment, including but not limited to water rights and right of way, owned and operated by PRIMEWATER in the Joint venture area, the exclusive use of such assets were contributed by PRIMEWATER for the purpose of the JV Project, pursuant to Section 2.9.3 hereof.
1.1.44 Real Value – shall mean the value of a series of cash flows expressed in current year prices. This is obtained, for purposes of nominal future cash flows, by deflating the same to remove the effects of future inflation, and , for purposes of nominal historical cash flows, by inflating the same to account for the effects of past inflation.
1.1.45 Rewards and Penalties Framework – shall have the meaning to the term given in Section 8.5.4 hereof.
1.1.46 Septage – the combination of scum, sludge, and liquid that accumulates in septic tanks. It is mixture of sludge, fatty materials, human feces, and wastewater removed during pumping of an onsite sewage treatment and disposal system. Excluded from this definition are the contents of portable toilets, holding tanks, and grease interceptors.
1.1.47 Septage Management facilities – generally means the stationary facility that treats only domestic septage or combinations of domestic septage, food establishment sludges, wastes removed from portable toilets, and wastes removed from holding tanks associated with boats, marinas onsite sewage treatment and disposal systems, before use or land application, and the trucks used to collect septage.
1.1.48 Septage Management Services – shall mean the collection, treatment, and disposal of septage collected from septic tanks.
1.1.49 Succeeding Operator – Any such entity, whether a private entity or a government instrumentality, that will operate the Water Supply and Septage Management Systems and/or provide Water Supply and Septage Management Services in a portion of or the entire JV Area at any time after expiration or pre-termination of this Agreement as applicable.
1.1.50 Term – shall mean twenty-five (25) years from the Commencement Date, renewable for another twenty-five (25) years as provided in Section 11 hereof.
1.1.51 Total Tariff – shall mean the sum of Basic Tariff and Environmental Fee, including VAT and all other taxes and fees required by law to be indirectly passed on to consumers, and including all adjustments made thereon such as those provided in Section 8.2 hereof, those resulting from Detailed Review, those mandated by the appropriate regulatory authorities, and those due to changes in CPI and PPI.
1.1.52 Water Supply Services – shall mean the supply and distribution of potable water and other related services to Customers in the JV Area.
1.1.53 Water Supply System – shall mean all water supply and distribution facilities and waterworks, including production and other wells, water treatment facilities, pumps, pumping and booster stations and pump houses, reservoirs, water mains, pipes, and all water distribution and transmission facilities, land building, and other appurtenant properties, plants and equipment used to provide Water Supply Services to the JV Area.
1.2 Interpretation
The Annexes to this Agreement shall form an integral part hereof and references to Annexes shall be Annexes to this Agreement unless otherwise stated.
The headings of Sections to this Agreement are inserted for convenience of reference only and shall not in any way affect the interpretation of this Agreement.
References to any part or person referred to in this Agreement include references to its respective successors and permitted assigns.
The words “include”, “includes” shall at all times be construed as if followed by the words “without limitation” unless specifically stated.
Section 2. The Contractual Joint Venture
2.1 Establishment of the Contractual Joint Venture
2.1.1 The parties hereby establish the Contractual Joint Venture pursuant to the JV Guidelines to undertake the development of the JV Project.
2.1.2 The Parties further agree that their relationship shall be governed by Philippine laws and principles applicable to a Contractual Joint Venture.
2.2 Business Name
Each Party shall use their respective business names for purposes of performing their respective functions as described in this Agreement.
2.3 Business Objective
The general objective of the JV Project is primarily to attain the highest possible level of Water Supply and Septage Management Services for as far as possible, 100% of water consumers in the JV Area. More specifically, the goal is to ensure sustainable and balanced water supply and complete septage management services that will meet current and future demand at the least cost possible.
The specific objectives of the JV Project are as follows:
i. To develop additional sources to serve 90% of the population at the end of the 25th year;
ii. To improve water facility service management by increasing area served from 54% to 90% of the total service area population;
iii. To effectively manage the operation of water supply, treatment and distribution system through the use of technologically advanced equipment and facilities;
iv. To operate and manage resources in an environmentally sustainable manner through proper monitoring and evaluation of its hydrologic parameters:
v. To continue and enhance watershed protection initiatives through appropriate linkages with different sectors;
vi. To develop and implement an operational Septage Management System in coordination with the Local Government Unit (LGU) of Bacolod City at the end of the 2nd year;
vii. To develop Customer Management System (CMS) to address water consumer issues;
ix. To provide safe and rewarding working environment that promotes diversity and equal opportunity for all;
x. To provide services consistent with the growth of the city;
xii. To comply with LGU and Government Agencies Reporting Requirements.
2.4 Joint Venture Relationship
2.4.1. The relationship of the Parties shall be one of joint venture partners.
2.4.2. The Parties have entered into this Agreement with the intention that it shall operate between them with fairness and without detriment to the interest of any of them on the basis of a relationship involving mutual trust, good faith and confidence and on the understanding that each one has the rights to participate in the conduct of the Joint Venture pursuant to Section 2.6 and 2.7 of this Agreement and the right to participate in the profits of the Joint Venture pursuant to Section 2.10 of this Agreement.
2.4.3. The rights of the Parties to bind the Joint Venture and one another, under the principle of mutual agency, shall be pursuant to the explicit provisions of this Agreement, in accordance with the Parties respective functions, rights, and obligations as enumerated hereunder, and subject to the exceptions, limitations, and indemnifications provided in this Agreement.
2.4.4. The Parties agree to meet on the 15th day of the first month of every quarter and at any reasonable time upon prior written notice by one Party to the other to discuss JV Project and all aspects thereof.
2.5 Business Plans of the Joint Venture
2.5.1. Every Detailed Review, the Parties shall agree on a Business Plan for the succeeding Five-Year Performance Period pursuant to the procedure described in Section 8.5 hereof. This Business plan shall become the basis of the Joint Venture’s plans and programs for the next Five-Year Performance Period and shall take effect upon approval of the BACIWA and/or other government agencies, as necessary.
2.5.2. For purpose of the first Five-Year Performance period, the parties agree that the relevant Business Plan for the said period be as presented in the revised and improved JV Proposal attached herewith as Annex “A”.
2.5.3. PRIMEWATER shall submit the Five-Year Business Plan before the Commencement Date of the JV Project.
2.6 Management and Operational Control of the joint Venture
2.6.1. Strategic Control – BACIWA shall have strategic control of the Joint Venture, which specifically means that it shall have the authority to: (I in coordination with PRIMEWATER, establish policies of the Joint Venture, (ii) set plans and programs as well as service obligations and targets of the Joint Venture, (iii) set tariff to be approved by the Appropriate Regulatory Body in accordance with the provisions of Section 8 of this Agreement, and (iv) review and monitor performance of PRIMEWATER annually in order to determine PRIMEWATER’s compliance with its service obligations and targets as well as its obligations under the Agreement.
2.6.2 Operational Control – Except for BACIWA Functions enumerated in Section 2.7.2 hereof and subject to the business policies, plans and programs set by the Joint Venture partners, PRIMEWATER, shall have control over the day-to-day operations and management of the Joint Venture activities, which shall be undertaken by and in the name of PRIMEWATER.
2.6.3 PRIMEWATER, to secure the best terms for the JV. Is authorized to enter into Financing Agreements as it may deem necessary and/or desirable to obtain financing for the PRIMEWATER Facilities to be used in the JV Project, with prior written consent of BACIWA, provided that the rights of BACIWA under Sections 13.1 and 12.5 to the transfer of all rights, title and interest to PRIMEWATER facilities a termination or pre-termination are not impaired. PRIMEWATER shall also ensure that the delivery of services should not be prejudiced and BACIWA’s operations will not be hampered throughout the JV period.
BACIWA shall sign letter/s or notice of consent in relation to such Financing Agreements deemed necessary by PRIMEWATER or by the financing institution concerned. The Financing Agreements shall be subject to compliance with applicable laws and requirements, if any, of the Bangko Sentral ng Pilipinas (BSP), or financing institution concerned. PRIMEWATER shall have the right to use as collateral of/or security in any Financing Agreements entered into by PRIMEWATER. Provided, further that such Financing Agreements shall be the sole liability of, for the exclusive account of, and shall be paid for by PRIMEWATER. Provided, finally, that PRIMEWATER’s contribution to the Joint Venture shall be computed based on total project cost to PRIMEWATER without regard of funding.
2.7 Functions of the Parties
2.7.1 PRIMEWATER shall manage and operate the Joint Venture. It shall perform the following functions:
(i) Finance, develop, rehabilitate, expand, improve, operate, and maintain all Water Supply and Septage Management Systems in the JV Area. As such, it will act as Facilities Operator and Asset Manager;
(ii) Bill and collect Total Tariff from Consumers within the JV Area and for this purpose test, mount, dismount and remount, connect, disconnect, and/or reconnect water meters within its jurisdiction;
(iii) Submit reports and remit JV Share to BACIWA as agreed in the JV Agreement;
(iv) Endeavor to resolve customer concerns, service requests, and complaints that are either directly received by it or referred to it by BACIWA;
(v) Such other functions as may be required of PRIMEWATER as operator in the JV Area and in order to fulfill PRIMEWATER’s Service Obligations; and
(vi) Shall transfer its rights, title and interest in the PRIMEWATER’s Facilities to BACIWA in the event of pre-termination or at the expiration date of JVA, subject to the relevant provisions of the JVA.
2.7.2 BACIWA shall have the following functions:
(i) Strategic Planning – BACIWA shall review and approve business plans of the Joint Venture that will contain the programs of work, service obligations and targets.
(ii) Business Policy Setting – In coordination with PRIMEWATER, BACIWA shall establish policies in order tro ensure that business targets of the Joint Venture are met
(iii) Asset Management Supervision – BACIWA shall have the authority to inspect, at reasonable hours, the condition of BACIWA Facilities and PRIMEWATER Facilities in order to determine whether said assets are kept in good condition and to enforce compliance measures upon PRIMEWATER to make good its obligation with respect to the management of these assets.
(iv) Customer Relations – BACIWA shall have the authority to entertain concerns, service requests, and complaints regarding water service and enforce compliance measures upon PRIMEWATER to address the same. BACIWA shall likewise have the authority and undertake all necessary activities pertaining to customer relations such as information dissemination, public consultations for tariff adjustment, and the like. The expenses incurred shall be at the account of the PRIMEWATER.
(v) Tariff Setting – BACIWA shall review and evaluate the request for tariff adjustment. Non-approval or delay of tariff per schedule by the concerned regulating agency shall not affect the committed service level to the existing consumers. PRIMEWATER shall be allowed to submit its revised business plan for approval of BACIWA. BACIWA shall set the Total Tariff in accordance with the provisions of Section 8 hereof.
(vi) Performance Review and Monitoring – PRIMEWATER shall submit quarterly operational highlights of the JV activities. BACIWA in coordination with PRIMEWATER shall conduct annual review and monitor the accomplishment of the JV Project’s objectives and compliance with set service obligations and targets. Accordingly, BACIWA, shall impose rewards and/or penalties Framework to be designed by the parties within one (1) year after the Commencement date.
(vii) Collection of Production Assessment Charge (PAC) and Water Source Development Supervision Fee (WSDSF) shall stay with BACIWA with agreed procedures and signed agreement as to operation of watershed management unit six (6) months after the Commencement date.
BACIWA shall exercise such other functions that may not be delegated by contract to PRIMEWATER pursuant to Section 30 of PD 198, as amended.
2.8 Parties to Contractual Joint Venture
The parties to the contractual Joint Venture shall be the Parties to this Agreement, or any subsidiary, successor or assignee of PRIMEWATER subject to the approval of BACIWA, which approval shall not be unreasonably withheld.
Provided that: PRIMEWATER may, at any time upon the commencement of this Agreement, from a wholly owned subsidiary for the purpose of the JV Project, in which case, said wholly owned subsidiary shall immediately substitute PRIMEWATER as a party to this Agreement and to the contractual joint venture upon written consent of BACIWA.
Provided further, PRIMEWATER shall guarantee the technical, financial and all other obligations and commitments of its subsidiary under the JVA.
2.9 Contributions of the Parties
2.9.1 BACIWA’s contribution to the Joint Venture shall be One Hundred Seventeen Million Six Hundred Forty Seven Thousand Eighty Seven Pesos (Php 117,647,087.00), which is the present value, using a discount rate of twelve percent (12%). Of its cash contribution amounting to Fifteen Million Pesos (PhP 15,000,000.00) per annum for twenty five (25) years to be offset against the usufruct payments to be made by PRIMEWATER.
The BACIWA has the option to subject to 3rd party valuation its assets that are being used by PRIMEWATER, and should the valuation cause adjustments in projections, these shall be considered for adjustments of usufruct payments and water tariff during the next Detailed Review.
BACIWA may increase its contribution to the Joint Venture by investing in additional assets and contributing the usufruct of the same to the Joint Venture subject to such terms and conditions as may be mutually agreed upon by the Parties hereunder, such as the additional JV Share to be granted to BACIWA as a result of the increase in contribution or a corresponding reduction in tariff due to the resulting reduction in expenses to be shouldered by PRIMEWATER.
2.9.2. PRIMEWATER’s contribution to the Joint Venture is the capital assets necessary to implement the JV Project’s 5-year Business Plans, which, for purposes of the first Five-Year Performance Period, shall be as presented in the revised and improved JV Proposal. The net present value of investment in capital assets for the first Five Year Performance Period is One Billion Three Hundred Eight Million nine Hundred Fifty Six Thousand Twenty Five Pesos (PhP1,308,956,025.00). the total amount thereof is One Billion Eight Hundred Forty Two Million Six Hundred Seventy Four Thousand Five hundred Sixty Nine Pesos (Php 1,842,674,569.00).
The capital assets for purposes of succeeding Five-Year performance Periods shall be as the Parties will subsequently agree upon pursuant to Section 8.5 of this Agreement.
Based on preliminary studies, PRIMEWATER’s total planned investment is estimated at Two Billion Three Hundred Seventeen Million Nine Hundred Fifty Thousand Six Hundred Forty Six Pesos (PhP 2,317,950,646.00) in present value and Six Billion Three Hundred Four Million Seven Hundred Twenty Seven Thousand One Hundred Forty Pesos (Php 6,304,727,140.00) over twenty-five (25) years.
PRIMEWATER shall abide with all the legal, technical and financial conditions as agreed in the Certificate of Successful Negotiation and its Supplemental marked as Annex “D1” and Annex “D2” and shall form an integral part of this Agreement.
2.10 Profits and Losses / JV Share
2.10.1 BACIWA shall be entitled to an annual JV Share as specified Section 4.1
2.10.2 After payment of JV Share to BACIWA, PRIMEWATER shall be entitled to the remaining profits and shall bear all resulting losses from the operation of the Joint Venture/ JV Project.
2.11 Assets of the Joint Venture
Assets of the Joint Venture shall consist of the BACIWA Facilities and the PRIMEWATER Facilities that may be brought in by PRIMEWATER into the Joint Venture.
2.11.1. BACIWA Facilities – Legal title to all BACIWA Facilities shall be retained by BACIWA. BACIWA Facilities shall be immediately turned-over by PRIMEWATER to BACIWA at Pre-termination Date or Expiration Date.
2.11.2. PRIMEWATER facilities – Legal title to PRIMEWATER Facilities shall be in the name of PRIMEWATER during the term of this Agreement.
Upon Pre-termination due to BACIWA Event of Default or Unforseen Change of Circumstances, the Parties hereby agree that PRIMEWATER shall transfer any and/or all rights, title, and interest to the PRIMEWATER Facilities to BACIWA provided that must Compensation is paid to PRIMEWATER for the PRIMEWATER Facilities pursuant to Section 12 of this Agreement.
Upon Pre-termination due to PRIMEWATER Event of Default, BACIWA shall have the right of first refusal to acquire any and/or all rights, title and interest to the PRIMEWATER Facilities and pay Must Compensation pursuant to Section 12.5 of this Agreement. On the other hand, should BACIWA choose not to acquire all rights, titles, and interest to the PRIMEWATER Facilities, ownership will remain with PRIMEWATER until such time and that the said PRIMEWATER Facilities is transferred to a qualified Succeeding Operator.
At Expiration Date, the Parties hereby agree that PRIMEWATER shall transfer all its rights, title, and interest to the PRIMEWATER Facilities to BACIWA, provided that all amounts that PRIMEWATER is entitled to receive under this Agreement shall have been received by PRIMEWATER subject to the provisions in Section 13 of this Agreement.
In the Expiration Date, PRIMEWATER shall pay all taxes such as: real property tax, income tax, VAT, including Transfer Tax during the turnover, after the end of the 25-year contract, based on applicable laws. Transfer tax will form part in the Tariff Computation.
Section 3. Grant of Right to Use BACIWA Assests
3.1. Subject to the terms and conditions of this Agreement, and in consideration of the Usufruct Payments as specified in Section 4.2 hereof, BACIWA hereby delivers the BACIWA Facilities to PRIMEWATER as operator of the JV by way of usufruct. Accordingly, PRIMEWATER shall have the right to use the BACIWA Facilities and PRIMEWATER Facilities consistent with the joint venture undertaking of PRIMEWATER and the business policies, plans and programs set by the Parties, including the right to operate, repair, maintain, rehabilitate, renew and/or decommission the BACIWA Facilities as well as all other Water Supply Facilities, in accordance with the joint venture undertaking of PRIMEWATER and the business policies, plans and programs set by the Parties.
3.2. BACIWA further grants PRIMEWATER the right to provide Septage Management Services to customers in neighboring cities and/or municipalities, and accordingly use the Septage Management System in the JV Area for such purpose, subject to the payment of the necessary tipping fees and desludging fees to PRIMEWATER, which tipping fees and desludging fees shall be considered as revenues of PRIMEWATER from the JV project and, as such shall be taken into account in the computation of Environmental Fee chargeable from customers of the JV Area.
Section 4. Payments to BACIWA
4.1 Payment of JV Share
4.1.1 PRIMEWATER shall remit to BACIWA, as JV Share the amount of Thirty Five Million Pesos (Php 35,000,000.00) per annum for years 1 to 5, Thirty Six Million Pesos (Php 36,000,000.00) for years 6 to 10, Thirty Eight Million Pesos (Php 38,000,000.00) for years 11 to 15, Forty One Million Pesos (PhP41,000,000.00) for years 16 to 20, and Forty Five Million Pesos (PhP45,000,000.00) for years 21 to 25.
4.2 Usufruct Payments
4.2.1 Total Usufruct Payments – The BACIWA shall be entitled to usufruct payments in consideration of the use of the BACIWA facilities. BACIWA shall receive said usufruct payments NET of estimated amortizations of BACIWA Loans and NET of BACIWA Equity amounting to Twenty Five Million Pesos (PhP25 Million) per year.
4.2.2 BACIWA Loans – Beginning Commencement Date, PRIMEWATER shall remit the payment per updated balance of scheduled amortizations for the amortizations, consisting of the principal and interest, to existing loans extended to BACIWA by various creditors(if any) pursuant to the schedule attached herewith as Annex “C”, (“BACIWA Loans”), which schedule was submitted and verified correct by BACIWA and agreed upon by PRIMEWATER before the finalization of negotiations. Annex “C” shall include only those loans disclosed to and negotiated with PRIMEWATER during Detailed Negotiations, and shall exclude loans and obligations not considered or included thereto.
4.2.3 BACIWA Equity – As provided in Section 2.9.1, BACIWA’s equity contribution to the Joint Venture shall be Fifteen Million Pesos (PhP15,000,000.00) per annum.
4.2.4 Net Usufruct Payments – Pursuant to which has been agreed upon and established by the Parties prior to finalization of negotiations based on usable values of BACIWA Facilities, estimated amortizations of BACIWA Loans, and BACIWA equity, BACIWA shall receive NET usufruct payments of Twenty Five Million Pesos (PhP25,000,000.00) per annum. These are presented in Annex “B”.
4.3 Treatment of/Adjustments to JV Share and Usufruct Payments
4.3.1 The JV Share indicated in Section 4.1.1 was set to sufficiently defray the costs of operating the remaining business affairs of BACIWA. The foregoing notwithstanding, BACIWA has the right to use the JV Share as it sees fit, such as in the procurement of assets for BACIWA’s exclusive benefit; provided that: such use will not be in conflict with the JV Project; provided further that: such use is subject to relevant laws, rules and regulations on disbursement of public funds.
4.3.2 Such JV Share under Section 4.1.1 and Net Usufruct Payments under Section 4.2 may further be adjusted, subject to the Agreement of the Parties for any actual, reasonable, and documented budgetary changes and/or changes in CPI, provided that the changes above should have been made applicable to Tariff as well, and/or for any increase in contribution of BACIWA pursuant to Section 2.9.1 hereof.
4.3.3 The JV Share and Usufruct payments are not for purposes of PRIMEWATER’s acquisition of any license from BACIWA to charge and/or bill and collect tariff from Customers for Water Supply and Septage Management Services, but such JV Share is for BACIWA’s primary contribution to the Joint Venture as clearly stated in Section 2.9.1 of the JVA and its participation in the joint venture while the Usufruct Payments are consideration for the use of the BACIWA Facilities.
4.4 Remittal Delays
4.4.1 At Commencement Date and on or before the fifth (5th) day of the succeeding month, PRIMEWATER shall pay BACIWA the amount equivalent to one twelfth (1/12) of the JV Share and Net Usufruct Payments.
4.4.2 PRIMEWATER shall remit to BAVIWA such amounts equivalent to the amortizations, principal and interest, of BACIWA Loans as listed in Annex “C”, within two (2) weeks before said amortizations fall due. BACIWA shall in turn pay said amortizations, principal, and interest on or before due date of the same. Annex “c” shall include only those loans disclosed to and negotiated with PRIMEWATER during Detailed Negotiations, and shall exclude loans and obligations net considered or included thereto.
4.4.3 Failure to remit any of the amount disclosed hereunder on their scheduled due date, without justifiable causes, shall render PRIMEWATER liable to pay a penalty based on the amount due at the legal rate for JV Share and Net Usufruct Payments and at the Prevailing rate for the BACIWA Loans. Penalty accruing to BACIWA shall be without prejudice to its right to take the payment of the amount due, including any penalty thereon, from the Performance Bond, which shall (30) days after it has been reduced for payment of the unpaid charges and penalties.
4.4.4 BACIWA warrants that no other claim, loan or obligation against BACIWA exists, other than those listed, which was submitted and verified correct by BACIWA and agreed upon by PRIMEWATER prior to the finalization of this Agreement.
Section 5. Service obligations of PRIMEWATER
5.1 Service obligations
5.1.1 Service Coverage – PRIMEWATER shall provide Water Supply and Septage Management Services to as many Customers in the JV Area as practicable by providing such services to all connected Customers in BACIWA Covered Areas and by making additional connections sufficient to meet the coverage targets set out in the revised and improved JV proposal.
5.1.2 Provision of Continuous Water Supply to all Connected Customers – Within phase 1 or five (5) years from Commencement Date, the PRIMEWATER shall ensure, as far as possible, that all customers enjoy uninterrupted twenty-four-hour water supply by end of the 2nd year and deliver a minimum pressure of 10psi in the whole service area by end of the 4th year, subject to interruptions due to reasonable causes as determined by BACIWA and when possible, upon 24 hours prior notice.
5.1.3 Drinking Water Standards – From Commencement Date. PRIMEWATER shall continue to ensure that the water supplied to Customers complies with standards set by the Philippine National Standards for Drinking Water (PNSDW) or with such prevailing standards on drinking water quality issued by the Department of Health or such other government agency of the Philippines that is tasked with issuing such standards. Provided that: this service obligation is applicable if the Parties are able to jointly confirm that as of Commencement Date, current water supply is already complaint with the aforementioned standards. Provided further that: in the event that water supply at or in parts of the JV Area proves to be non-complaint with the aforementioned standards as of Commencement Date as to physio-chemical parameters, PRIMEWATER shall within two (2) years from Commencement Date ensure compliance of the water supply with said standards. Water quality deviation on bacteriological aspect shall be addressed immediately within twenty-four (24) hours by the PRIMEWATER.
The Parties hereby agree that, in the event that PRIMEWATER needs to provide or introduce additional treatment to meet the standard set by the PNSDW due to any changes in existing circumstances, or to meet any future changes in standards set by PNSDW issued by the Department of Health or other governmental agency of the Philippines tasked with issuing such standards, shall form part of PRIMEWATER’s expenses that shall be considered in the computation of Tariff.
5.1.4 Customer Service – PRIMEWATER shall, at all times, strictly comply with customer service standards, which shall not be inferior to the standards of the appropriate regulatory body. Copy of the agreed customer service standards contained in the Citizen’s Charter of BACIWA is hereto attached and shall form an integral part of this contract.
The customer service standards shall be embodied in the Customer Service handbook to be developed by the Parties within one (1) year from Commencement Date and updates every Detailed Review Period.
These customer service standards shall consist of among other things, the timeline for responding to customer inquiries/ complaints, the required payment and rules on disconnection.
5.1.5 Compliance with KPIs and BEMs – in order to mitigate tariff impact to Customers, PRIMEWATER shall ensure that agreed Key Performance Indicators (KPIs) and Business Efficiency Measures (BEMs), set and agreed upon by both parties prior to the commencement of the JV Project, which shall not be inferior to the standards of the appropriate regulatory body, shall consistently be complied with. Copy of the agreed KPIs and BEMs will be attached hereto as Annex “E” and Annex “F” respectively and shall form an integral part of this contract.
5.1.6 Septage Management – PRIMEWATER shall provide septage management and sanitation services available to as many Customers as practicable and at regular intervals of five (5) years for each Customer at the end of the 2nd year from Commencement Date in accordance with the coverage targets set out in the revised and improved JV Proposal.
The performance of PRIMEWATER’s service obligations for Septage Management and/or the corresponding investment for Septage Management System shall be subject to a ) the issuance of an ordinance by the Local Government Unit mandating provision of Septage Management Services in the JVA Area, requiring Customers to desludge septic tanks every five (5) years, and authorizing BACIWA or PRIMEWATER to charge and collect Environmental Fee and b) the approval of the imposition and collection of Environmental Fee and the amount thereof by the appropriate regulatory authorities.
Septage Management operations shall be ISO complaint within five (5) years of operations.
5.1.7 Watershed Management and Protection Program – PRIMEWATER and BACIWA shall lead an environmental protection and watershed management program and shall jointly initiate and support plans and projects of the National and Local Government with regard to the development, protection and management of the JV area watershed, water resources and protected areas in relation to the JV project.
5.1.8 The service obligations shall be subject to: (a) the determination, approval and implementation of reasonable Total Tariff adjustments, in accordance with Section 8.5 of this Agreement; (b) the issuance by the proper government authorities of the necessary permits and approvals, such as, but not limited to, water permits and environmental compliance certificates: (c) other circumstances that may affect the performance of such service obligations, such as, but not limited to, changes in projections for population growth or demand; and/or (d) timely delivery of expected volume from BACIWA’s bulk water supply agreements.
5.1.9 Failure of PRIMEWATER to meet any of the service obligations enumerated above without reasonable cause/s on the dates or during the periods agreed upon shall entitle BACIWA to forfeit six percent (6%) of the Performance Bond and shall be replenished immediately subject to Section 6.5 of this Agreement unless such failure is due to justifiable causes to be determined by the BACIWA.
5.2 Revisions to Service Obligations
During the Detailed Review period, BACIWA shall, based on the Business Plan submitted by PRIMEWATER, determine whether changes to Service Obligations of PRIMEWATER are in order. The revised Service Obligations, as determined by the BACIWA, shall take effect on the first day of the Five-Year Performance Period immediately succeeding the Detailed Review Period.
Changes to Service Obligations are in order in the event that required tariff increases did not materialize, or the necessary permits and approvals ar not issued, or changes in circumstances affecting the performance of such service obligations take place.
5.3 Penalty for Failure to Comply with Service Obligations
5.3.1 The BACIWA shall, within one month after each anniversary date of the Commencement Date, issue a report on PRIMEWATER’s compliance with any or all of the service obligations enumerated in Section 5.1 of this Agreement during the one-year period preceding such anniversary date (for service obligations under Sections 5.1.2, 5.1.3, 5.1.4, and 5.1.5 as applicable) and/or as of such anniversary date (for service obligations under Sections 5.1.1, 5.1.2, 5.1.3, and 5.1.6 as applicable).
5.3.2 PRIMEWATER shall have sixty (60) days from written notice to cure its deficiency in the performance of its service obligations as noted by the BACIWA or to provide the BACIWA with justifications for such deficiency. However, deficiencies in the performance of its service obligation which endanger public health and safety of the customers/concessionaries shall be remedied or acted upon immediately within twenty-four (24) hours upon written notice.
5.3.3 Failure of PRIMEWATER to cure said deficiency or provide justifications for such deficiency to the satisfaction of the BACIWA shall entitled BACIWA to, immediately after the lapse of the sixty (60) day period from written notice to cure, impose a penalty on PRIMEWATER for the latter’s failure to perform any or all of its service obligations, which penalty shall be equivalent to six percent (6%) of the Performance Bond through the forfeiture of said amount form PRIMEWATER’s Performance Bond.
5.3.4 The Performance Bond shall be renewed by PRIMEWATER in full amount within thirty (30) days it has been reduced for payment of penalty as provided in this Section 5.3.
5.3.5 For the avoidance of doubt, the imposition of a penalty for PRIMEWATER’s failure to perform any or all of its service obligations shall be limited to once a year only.
5.3.6 In the event that the deficiency is clearly not rectifiable within a period of one year, PRIMEWATER will be allowed, after penalties are imposed, to submit its best scenario case on a catch-up plan on service obligations within a reasonable period to be specified by the BACIWA. The catch-up plan shall be subject to the approval of the BACIWA, which approval shall not be unreasonably withheld. As soon as the catch-up plan is approved by the BACIWA, the new service obligations shall be made applicable.
Section 6. Other Obligations of PRIMEWATER
6.1 Taxes
6.1.1 Taxes/Charges on the Execution of this Agreement – PRIMEWATER shall be responsible for all documentary stamp taxes and such other taxes and charges arising from the execution of this Agreement and such other agreements and instruments executed pursuant to this Agreement. For the avoidance of doubt, these shall form part or PRIMEWATER’s expenses that are considered in the computation of tariff except income tax.
6.1.2 Taxes/Charges on the Operation of the Joint Venture – PRIMEWATER shall be responsible for all withholding taxes, customs and Import duties, real property taxes on the Joint Ventures facilities, other local taxes, capital gains tax and other transfer taxes and other forms of taxes including but not limited to fees and charges such as annual water charges (AWC) to NWRB and fees to Environment Management Bureau (EMB) – Pollution Control and other applicable agencies and charges arising from its operation of the Joint Venture, including all taxes on the income of the Contractual Joint Venture. In the event that a tax assessment, accruing and payable after the Commencement Date, is imposed on the Joint Venture, PRIMEWATER shall shoulder the same.
For the avoidance of doubt, these shall form part of PRIMEWATER’s expenses that are considered in the computation of tariff except for the income tax levied on PRIMEWATER in relation to its operation of the JV pursuant to this JVA, unless specifically and expressly provided otherwise by a ruling from the Supreme Court or the appropriate regulatory agency and/or by law.
6.1.3 Value Added Tax (VAT) on the Operation of the Joint Venture – As a concession to the Customers, PRIMEWATER shall not increase the initial tariff on account of VAT on the first year of its operation. However, PRIMEWATER shall increase initial tariff on the second year of operation to pass on the applicable VAT to the Customers and remit the same to the Bureau Internal Revenue (BIR), as provided by law.
For the avoidance of doubt, the term “initial tariff” means the tariff imposed by BACIWA as of Closing Date.
6.1.4 Franchise Tax – BACIWA shall pay the Franchise Tax; in the Computation of JV Fee and Net Usufruct Payment to be remitted by PRIMEWATER to BACIWA shall be inclusive of the franchise tax. In the event that Franchise tax payable by BACIWA will be finally interpreted by the BIR to be based on the gross water sales, the payable in excess of the allocated amount thereof, shall be paid by PRIMEWATER.
6.2. Payments to Local Government
PRIMEWATER shall pay any and all fees required by the Local Government Unit (LGU) in relation to the operation of the Water Supply and Septage Management Systems. For the avoidance of doubt, these shall form part of PRIMEWATER’s expenses that are considered in the computation of tariff.
6.3. Insurance
PRIMEWATER shall, at its own cost, obtain and maintain in force sufficient insurance cover in such amounts and in such form as are reasonably customary in the industry for all applicable facilities of the PRIMEWATER. For BACIWA Facilities, Insurance shall be obtained from the Government Service Insurance System (GSIS) and BACIWA shall be named as the irrevocable beneficiary under policies pertaining thereto. Insurance proceeds shall be used to restore the BACIWA Facilities to their original state before the loss or damage.
For the avoidance of doubt, these shall form part of PRIMEWATER’s expenses that are considered in the computation of tariff.
6.4. Performance Bond
6.4.1 Prior to Commencement Date or every Commencement Date Anniversary, as the case may be, PRIMEWATER shall deliver to BACIWA a Performance Bond in the form of a surely bond equivalent to 10% of the scheduled CAPEX but should not be less than the JV Share amount for the year, as previously determined by BACIWA, to guarantee PRIMEWATER’s performance of its obligations hereunder and to cover for damages and expenses incurred by BACIWA in case of a PRIMEWATER Event of Default as discussed in Section 12.4.2 hereof.
6.4.2 PRIMEWATER shall deliver a Performance Bond annually, in the form of a Surety Bond from an Insurance Company accredited by the Insurance Commission, to BACIWA in order to guarantee proper and timely performance of its obligations. The Performance Bond shall be equivalent to 10% the scheduled CAPEX for the year and shall not be less than the JV Share amount for the year. In case of default, the Performance Bond shall be callable upon demand
.6.4.3 The Performance Bond shall be renewed annually, no later than thirty (30) days before the expiration date of such Performance Bond and adjusted for changes in projections for JV Share and/or CAPEX.
6.4.4 In the event BACIWA makes a call and collects against the Performance Bond under this Agreement, PRIMEWATER shall replenish or renew the Performance Bond for the required full amount of the Performance Bond within thirty (30) days after it has been reduced.
6.4.5 Twelve(12) months after the end of the Term of this Agreement, or its extension, unless there is any accrued liability under the Performance Bond, BACIWA shall undertake with due expedition such action as PRIMEWATER may reasonably request to assist PRIMEWATER in procuring the release of the Performance Bond which remains outstanding.
6.5 Reporting Obligations
6.5.1 Report on Service Obligations – In order for the BACIWA to timely monitor the compliance of PRIMEWATER with its Service Obligations, PRIMEWATER shall prepare and submit a report to the BACIWA of its compliance with its Service Obligation within ninety (90) days after the end of each calendar year in such form and having such data as the BACIWA may require.
These reports may include daily and weekly reports on specific items of operation (e.g. water supply status including bulk water supply, actions on customer’s requests and complaints with real/online time information per CMS generated report).
6.5.2 Government Regulatory Reportorial Requirements – PRIMEWATER shall also submit a monthly data sheet to the BACIWA in the format and containing all information as may be reasonably required by BACIWA every 15th day of the following month.
6.5.3 Financial Information – Not later than the 15th of May, PRIMEWATER shall submit to the BACIWA its financial statements for the JV Project accompanied by record of revenues, operating expenses, capital expenditures, and changes in working capital, certified correct by an Independent Auditor except to the extent that such details are proprietary in the reasonable opinion of PRIMEWATER.
6.5.4 Other Information – BACIWA shall have the right to request additional reports as deemed necessary upon prior notice within a reasonable of time.
6.6 Condition of Assets upon Turn-over to BACIWA
Upon the pre-termination or expiration of this Agreement, PRIMEWATER shall ensure that all assets of the Joint Venture to be turned-over to the BACIWA in accordance with Section 12 and 13 hereof shall be complaint with the existing operational standards of LWUA or the appropriate regulatory agency at the time the turn-over shall take place.
6.7 Authority to Operate and Licenses
If deemed necessary by the Parties or required by competent authority, PRIMEWATER shall file the necessary application or petition for the issuance of provisional authority (PA), water permits or licenses with the appropriate government regulatory authority for the operation of Water Supply and Septage Management Systems and provisions of Water Supply and Septage Management Services in the JV Areas; Provided that PRIMEWATER shall have the right to operate Water Supply and Septage Management Systems and provide of Water Supply and Septage Management Services in the JV Ares as contractor/agent of BACIWA in accordance with this agreement, until such PA’s permits or licenses is granted or issued by the appropriate government regulatory authority. For the avoidance of doubt, all fees and charges related to such Pas permits or licenses shall form part of PRIMEWATER’s expenses that are considered in the computation of tariff.
6.8 Pre-Existing Contracts of BACIWA
PRIMEWATER shall honor and assume the compliance of obligations under provisions of existing operational BACIWA policy, contracts or agreements of BAVIWA such as but not limited to property donors, bulk water contracts, installment payment scheme for new service connections.
6.9 Corporate Social Responsibilities
PRIMEWATER, in collaboration with BACIWA, shall implement corporate social responsibility programs (e.g. medical mission, information education campaign activities, global environmental events, clean-ups, etc).
6.10 Subdivisions operated by PRIMEWATER
All water systems within the JV Area served by PRIMEWATER, including all subdivisions turned over and operated by PRIMEWATER and associated or affiliated companies, shall be turned over to BACIWA at the end of the JV Contract.
Section 7 Obligations of BACIWA
7.1 Cooperation with PRIMEWATER
7.1.1 Subject to the provisions of this Agreement, the BACIWA undertakes to use its best efforts to ensure that PRIMEWATER shall be able to perform its obligations under this Agreement.
7.1.2 The BACIWA shall, at no extra cost, offer all reasonable assistance to PRIMEWATER, in making all necessary applications for government permits and in carrying out all other necessary acts at the requisite time and in requisite form to obtain and maintain such government permits and approvals as may be necessary for PRIMEWATER to perform its obligation under this Agreement.
7.1.3 If after the Commencement Date, any application for water permit or license/authority to provide Water Supply and Septage Management Services is filed with the NWRB or other appropriate government agency, and BACIWA’s consent is required or sought, BACIWA shall not grant its consent without consulting with PRIMEWATER, and in good faith, exerting all efforts necessary to defend and protect its authority to provide Water Supply and Septage Management Services in its Service Area against other sources and service providers. To the extent feasible, BACIWA shall authorize and facilitate direct communication between PRIMEWATER and NWRB (or other appropriate government agency) with respect to the matters referred to in this paragraph.
7.2 Functions of the BACIWA
BACIWA will retain functions that BACIWA Board may not delegate by contract, as provided under Section 30 of PD 198, as amended. In addition to these, BACIWA shall perform the functions stated in Section 2.7.2 hereof.
Section 8. Tariff
8.1 General Principles
8.1.1 Tariffs shall ensure that all project costs or PRIMEWATER are recoverable during the Joint Venture Term,, earning a reasonable rate of return on investment allowed by the government equal to the Appropriate Project Return (APR) set for the relevant period.
8.1.2. Notwithstanding any provision under this section, only reasonable, prudent, legitimate, and efficient costs shall be recognized as recoverable cost from Tariffs:
a. Prudent costs are expenditures that are incurred in a discrete, cautious, practical, and careful manner such that these do not deviate in a material way from costs of related expenditures of other water service providers having the same business climate and under similar conditions.
b. Legitimate costs are expenditures that are incurred in the course of carrying out the business of providing Water Supply and Septage Management Services. Accordingly, expenses that are not relevant in the provision of Water Supply and Septage Management Services in the service area or those that are incurred for projects outside of the JV Area should be ring-fenced and excluded from the computation of tariff.
c. Efficient costs are expenditures that are capable of achieving the desired results with the minimum use of resources, time, and effort.
d. Income Tax levied on PRIMEWATER in relation its operation of the JV pursuant to this JVA shall not be considered as cost or expense in the computation of tariff and shall therefore be excluded in the computation of tariff unless specifically and expressly provided otherwise by a ruling from the Supreme Court or the appropriate regulatory agency and/or by law.
8.1.3 Substantial and procedural government regulatory requirements for the approval of tariffs are complied with.
8.2. Agreed Tariff Rates
8.2.1 The Parties agree that for the first five years, there shall be an increase in Basic Tariff of 42% for water supply services for all blocks and customer categories, of which 12% pertains to VAT. This shall be implemented on a staggered basis as follows:
| 2nd year | 12% (due to VAT) |
| 3rd year | 30% |
The Value-Added Tax of 12 %, which shall be automatically imposed pursuant to our current taxation laws subject to Section 6.1.3 above, without need of regulatory approval or public hearing.
8.2.2 The parties further agree to the following subsequent adjustments to Basic Tariff for all blocks and customer categories, subject to Detailed Review:
| 6th year | 20% |
| 11th year | 7% |
8.2.3 For the avoidance of doubt, the above increases on Basic tariff shall also be applied on all adjustments made thereon as well as on the applicable Value Added Tax.
8.2.4 The Parties likewise agree that, to soften the effects of VAT, and as a concession to the Consumers, PRIMEWATER shall not increase the initial tariff on account of VAT on the 1st year of its operation. However, adjustment to tariff to pass-on the applicable VAT to the consumers as provided by law shall be implemented on the 2nd year and continue to implemented on succeeding years.
8.3 Tariff for Septage Management Services: Environmental Fee PRIMEWATER, shall, at the end of the 2nd year and at the start of septage collection services, impose and collect Environmental Fee for every Cu.M. of water consumption as follows:
| Customer Category | Environmental Fee |
| Residential / Institutional | PhP 2.80 plus VAT |
| Commercial/ Industrial | PhP 4.20 plus VAT |
The corresponding CAPEX, OPEX, and revenues from the provision of Septage Management Services shall be the basis in the computation Environmental Fee and shall not be considered in the computation of Basic Tariff.
8.4 Adjustment due to Changes in Consumer Price Index and Power Price Index
8.4.1 Effective on the 1st year anniversary of the Commencement Date and thereafter, there will be an automatic percentage adjustment in Total Tariff equal to: (i) the change in the consumer price index (CPI) and (ii) the change in applicable power price index (PPI) as published by the Philippine Government and made available through http://www.psa.gov.ph/business/price-indices/cpi-index. The relevant CPI shall be the relevant monthly index for all items, as referenced from Table 1. Monthly Consumer Price Index for All Income Households in the Philippines by Commodity Group (2012=100). The relevant PPI shall be the relevant monthly index for Housing, Water, Electricity, Gas, and other Fuels as referenced from Table 1. Monthly Consumer Price Index for All Income Households in the Philippines by Commodity Group (2012=100).
8.4.2. Adjustment from changes in Regional CPI and PPI shall be automatic and shall consist of a multiplier applied to the Total Tariff for each customer category calculated as follows:
Multiplier = 70% x [(CPIcurrent divided by CPILastYear) +
30 % x [(PPIcurrent divided by PPILastYear)
