Sending the right signal

Much could be accomplished if government works hand-in-hand with the private sector, which obviously has the financial means and business acumen to undertake capital-intensive infrastructure projects.

This is basically the goal of the government’s private-public partnership (PPP) program. The PPP Center defines the partnership as a contractual agreement between the government and a private firm targeted towards financing, designing, implementing and operating infrastructure facilities and services that were traditionally provided by the public sector.

The project, it said, is to be structured in such a way that the private sector gets a reasonable rate of return on its investment, while addressing the limited funding resources for local infrastructure or development projects of the public sector thereby allowing the allocation of public funds for other local priorities.

PPP, it adds, is geared for both sectors to gain improved efficiency and project implementation processes in delivering services to the public, focusing on reduced costs, better risk allocation, faster implementation, improved services and possible generation of additional revenue.

What better way to illustrate the efficiency of a public service being undertaken by the private sector than the water distribution industry.

No less than the head of the Metropolitan Waterworks and Sewerage System (MWSS), administrator Reynaldo Velasco, has acknowledged recently the benefits of the partnership between the government and the two water concessionaires, namely Maynilad and Manila Water, in efficiently providing potable water in Metro Manila.

Velasco noted that prior to the privatization of the water distribution service in Metro Manila, there was generally poor service coverage all over the metropolis, at only 69 percent of the service area.

Twenty years ago, he said unaccounted-for water was more than 70 percent, water service was erratic and limited, and consumers often experienced low water pressure.

Sewerage coverage was also minimal and the implementation of projects were often delayed, he said.

With privatization, Velasco said water service delivery expanded to 96 percent in terms of population coverage and water availability, while non-revenue water went down to dramatically.

Equally important is the fact that the burden of financing MWSS’s funding shortfall and capital expenditure has been lifted and transferred to the private sector.

A report from the Philippine Institute for Development Studies (PIDS) also cited how before privatization, 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.

The PIDS study said that in 1995, vendors sold MWSS water for P30.45 per cubic meter when picked up by the buyers, and as high as P62.32 when delivered.

Also, 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.

In another paper, retired dean Raul Fabella of the UP School of Economics 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 pointed out that the water delivery service of the pre-privatization MWSS was remarkable more for the interruption than availability, adding that its $1-billion debt was a fiscal burden due in part to its dismal NRW performance and due to the lack of political will to adjust rates.

But of course, modernizing our water sector did not come cheap. Both Maynilad and Manila Water spent billions of pesos and continue to do so to make sure that every time consumers open their faucets, water comes out clean and flowing.

In their 1997 concession contracts with government, both concessionaires were assured reasonable returns on their investment as well as periodic rate adjustments. Given this assurance, they poured in huge amounts to increase water coverage, improve water supply, build sewerage systems, among others.

The two MWSS concessionaires go through five-year rate rebasing periods as stipulated in their 25-year contracts.

But the MWSS of the past administration refused to grant them their agreed periodic rate adjustments and even went to the extent of reducing their rates and disallowing certain expenses which again were allowed in their contracts with government. Both concessionaires were forced to seek arbitration.

Then last year, the International Chamber of Commerce (ICC) based in Singapore ruled in their favor, and ordered government to reimburse Maynilad about P3.4 billion in indemnity for the delayed implementation of its relevant tariffs for the rebasing period 2013 to 2017.

When asked about the tribunal’s decision, Finance Secretrary Carlos Dominguez III said the government would still look for funds to satisfy the decision of the international arbitration panel

Manila Water has filed a separate arbitration case against the government before the same tribunal, seeking reimbursement of its revenue losses.

In spite of these uncertainties, the two companies continue to invest, with Maynilad setting aside P35 billion in the next five years for its capex program, shifting its focus to wastewater treatment services, in sync with the priorities set by the MWSS under Velasco.

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