Preserving the gains

About two months’ ago, the three-member arbitral tribunal of the International Chamber of Commerce (ICC) unanimously upheld the validity of Maynilad Water Services’ P3.4-billion claim for compensation from the Philippine government for losses for the period March 11, 2015 to Aug. 31, 2016 incurred due to the delayed implementation of its tariff adjustments, or rate increases which Maynilad should have collected from its customers as guaranteed in its concession agreement with the Manila Waterworks and Sewerage System (MWSS).

The amount represented revenue losses caused by MWSS’ refusal to honor an earlier ICC arbitral decision ordering rate adjustments that should have started last Jan. 1, 2013. This does not include any losses incurred from Jan. 1, 2013 to March 10, 2015 as well as those from Sept. 1, 2016 onwards.

According to the Department of Finance, government is still looking for funds to satisfy the decision.

MWSS concessionaires go through five-year rate rebasing periods as stipulated in their 25-year contracts. In early 2013, Maynilad submitted to MWSS a five-year business plan covering the period 2013-2017 that required an P8.58 per cubic meter increase in the basic charge. Instead, the regulator ordered Maynilad to cut its rates by P1.46 per cubic meters for the five-year period.

And just recently, the Quezon City Regional Trial Court (RTC) granted Maynilad’s petition for confirmation and enforcement of the arbitral award upholding the 13.41 percent rebasing adjustment covering 2013-2017. Once implemented, Maynilad’s average basic charge would increase by 9.89 percent, representing the balance of the 13.41 percent that has yet to be implemented.

Maynilad president Ramoncito Fernandez has said that the decision confirms the concession agreement works, restores investor confidence in the public-private partnership program of the government, and ensured continued implementation of the company’s capital expenditure projects intended to benefit its customers.

This year alone, Maynilad is spending P13.2 billion for its water and wastewater infrastructure projects.

MWSS administrator Reynaldo Velasco earlier cited the benefits of the two-decade PPP in efficiently providing potable water in Metro Manila, noting that before the privatization of water distribution service, there was generally poor service coverage all over the metropolis.

Velasco said that 20 years ago, unaccounted for water was more than 70 percent, water service was erratic, limited, consumers often experienced low water pressure, sewerage coverage was minimal, and implementation of projects was often delayed.

With privatization, he pointed out that water service delivery expanded to 96 percent in terms of population coverage and water availability, and there was a dramatic reduction in non-revenue water to 69 percent for Manila Water and 30 percent for Maynilad.

According to Velasco, privatization also eased the national government’s financial burden of filling the MWSS’ funding shortfall and capital expenditures.

Maynilad has spent over P47 billion so far to improve and expand its water services since DMCI-MPIC Water Co., a joint venture between Metro Pacific Investments Corp. (MPIC) and DMCI Holdings Inc. (DMCI), took over Maynilad and launched a five-year investment program to rehabilitate the company and its operations.

As a result, over nine million people (in the west zone—from Valenzuela City in Bulacan to Cavite City) are now enjoying safe, reliable water supply, Fernandez said.

A Philippine Institute for Development Studies (PIDS) study has noted that before the privatization of water services, low-income consumers were forced to source their daily water needs mostly from kariton vendors who were charging as much as 13 times higher than the official MWSS rate.

In 1995, vendors sold MWSS water for P30.45 per cubic meter when picked up by the buyers from the sellers and as high as P62.32 when delivered by the vendors to the buyers’ homes. At that time, water was only available 16 hours per day in Metro Manila as against 19 hours in Jakarta and 24/7 in Bangkok, Kuala Lumpur and Singapore, the same PIDS study showed.

The situation was so bad in the 1990s that Congress had to pass the National Crisis Act (Republic Act No. 8041) in 1995 empowering former president Fidel V. Ramos to modernize MWSS’ debt-saddled and inefficient operations by privatizing them.

Under the privatization program, MWSS’s franchise area—covering the entire Metro Manila and Rizal plus parts of Cavite—was split into the west and east zones, and its hordes of contractors and service providers were replaced by one contractor for each zone.

In a paper entitled “The Privatization of the MWSS: How and Why it was Won,” former UP School of Economics dean Raul Fabella noted that the turnover of MWSS operations to the two concessionaires is now considered a singularly successful structural reform in the annals of Philippine political economy.

Fabella said the private sector has proven to be more competent at the delivery of water and sewerage services than the state.

Looking forward, Maynilad is setting aside P35 billion in the next five years for its capex program, shifting its focus to wastewater treatment services but without forgetting laying down new pipes, building new reservoirs and changing the linking pipes, according to Fernandez.

But just like any business concern, Maynilad needs to be able to recover its investments and earn a decent return on its investments to be able to balance not only the interest of its customers, but also that of its stockholders and investors. After all, no businessman in his right mind would continue doing business at a loss. And we do not want to return to those days when potable water was something you get some times, and many times you do not.

Not so hidden agenda

FOSTERING FRIENDSHIP: Nagasaki Prefecture officials led by Gov. Houdo Nakamura (fourth from left, seated) visited the Philippines upon the invitation of Shimizu Foundation, an NGO building classrooms in public schools around the country. During their stay, they visited the Japanese Embassy, the Educational Board and the Philippine Olympic Committee to offer a training camp in Nagasaki for Filipino athletes competing in the 2020 Tokyo Summer Olympics. They also met with Cardinal Antonio Luis Tagle regarding deployment of Filipino missionaries to Nagasaki. Shown in photo are (seated from left) Ralph Lim Joseph, Katsutachi Shimizu, Philippine Airlines SVP Lito Alvarez, Nakamura, Robert Lim Joseph; and (standing from left) Akihiro Doiguchi, Katsumi Nishikawa, Jun Shimizu, Noriaki Miyoshi, Monica Hiu, Hidenori Tashiro, and Tetsuya Dian.

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