COWD: No need to notify PCC on bulk water joint venture

Mar 27, 2018

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The Cagayan de Oro Water District says it did not notify the Philippine Competition Commission of its joint venture with MetroPac Water Investments, Corp. because there was no need to do it.

Philippine Competition Commission

“We will wait for the PCC to decide but MetroPac has already replied to that issue,” said Eduardo Montalvan, chairman of the COWD Board of Directors during a press conference last week. “The threshold (for notification) of PCC, if I’m not mistaken, is P3-bilion, so it has to be a P3-billion project and ours is only P140-million.”

Late last year, Lawyer James Judith, representing Councilors Teodulfo Lao Jr., Eric Salcedo and Reuben Daba filed a motu propio complaint with the PCC alleging MWIC and Rio Verde Water Consortium Inc. (RVWCI) failed to submit their operation and management contract and bulk water supply contracts when these fall within PCC’s notification threshold for acquisitions, mergers and joint ventures.

In his letter-complaint, Judith alleged that the bulk water supply agreement between RVWCI and COWD to which MWIC was subrogated was valued at P1.75-Billion, well withinthe minimum threshold amount of P 1B to fall within the jurisdiction and authority of the PCC.

However, in its letter to the PCC in reply to Judith’s letter-complaint, MWIC maintains that the value of the transaction that was computed based on the actual contribution of the parties is only P140M, thus the JV project does not fall within the PCA notification requirements.

 “Under Rule 4, Section 3 of the PCA Implementing Rules and Regulations, parties to a merger or acquisition are required to provide notification when, either the aggregate annual gross revenues in, into or from the Philippines, or value of the assets in the Philippines of the ultimate parent entity of at least one of the acquiring or acquired entities, including that of all entities that the ultimate parent entity controls, directly or indirectly, exceeds P1-Billion, and when the value of the transaction exceeds P1-B as calculated in accordance with the PCA IRR.” 

PCC logo

“Rule 4, Section 3(d) of the PCA IRR clarifies that with respect to joint ventures, an acquiring entity shall be subject to the notification requirements if either the aggregate value of the assets that will be combined in the Philippines or contributed into the proposed joint venture exceeds P1B; or the gross revenues generated in the Philippines by assets to be combined in the Philippines or contributed into the proposed joint venture exceed P1-B.

 The PCA IRR also state that the following shall be included in determining the assets of the joint venture,: all assets which any entity contributing to the formation of the joint venture has agreed to transfer, or for which agreements have been secured for the joint venture to obtain at any time, whether or not such entity is subject to the requirements of the PCA; and any amount of credit or obligations of the joint venture which any entity contributing to the formation has agreed to extend or guarantee, at any time.

Thus, neither the assets contributed to, nor the gross revenues generated by the CDO JV Project breaches the P1-B threshold prescribed by the PCA IRR. 

 MWIC further noted that the P2B amount in the law was actually only P1B at the time the letter-complaint was filed, but has just been increased to 2B this March. 

According to a press release posted 05 March 2018 at the PCC’s official website (http://phcc.gov.ph/pcc-adjusts-thresholds-compulsory-ma-notifications/) mergers and acquisitions subject to mandatory notification to the PCC must have a transaction value of at least P5 billion and P2 billion depending on the gross revenue of the acquiring party and the value of the transaction, respectively. (PCC Memorandum Circular No. 18-001, dated March 1, 2018.)

PCC Merger Review Guidelines

Although a joint venture would under normal circumstances be considered a merger or acquisition (since the parties involved maintain their respective juridical personalities and are only jointly undertaking a project to attain a common end), the PCC said it is still classified as a merger that has to be reported to the PCC “provided the transaction comes within the threshold.”

The PCC considers all parties in the joint venture as an “acquiring entity” obliged to make a notification if the aggregate value of the assets that will be combined or contributed in the proposed joint venture exceeds P2 billion, or the gross revenues generated in the Philippines by assets to be combined in the Philippines or contributed into the proposed joint venture exceed P2 billion.

Consistent with the principle that parties in a joint venture do not lose their respective juridical identities, the valuation of the assets for purposes of determining the application of the notification requirement shall be limited to (a) the properties that the entities involved have agreed to contribute to the joint venture at the time of its signing and in the future, and (b) any amount of credit or obligation of the joint venture that any of the parties has agreed to extend or guarantee at any time.

 

The P5 billion and P2 billion thresholds earlier mentioned are applicable only for one year from the date of announcement. If any of the requisites is absent or does not meet the valuation criterion, the PCC need not be notified and the contracting parties can proceed with the transaction.

Earlier, the COWD said the complaints of the three councilors are unfounded since the water district remains open to all bulk water suppliers but only MWIC’s proposal passed the rigorous year-long procurement process conducted under the purview of the Local Water Utilities Administration (LWUA) and the Office of the Government Corporate Counsel (OGCC) following guidelines stipulated by the National Economic and Development Authority (NEDA).

 

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