Manila’s water shortage seen to persist amid blame game on supply woes

MANILA, Philippines — A water shortage in Metro Manila would likely persist over the next two years, but it seems President Rodrigo Duterte may be blaming the wrong parties for the problem.

Not only did the government repeatedly drag its feet on establishing an alternative water source, it has also allocated limited funds to develop the water sector, a duty it has since effectively relegated to the private sector.

Now, as Duterte orders a review of supposedly “onerous” contracts with water firms, his subordinates also rely on Manila Water and Maynilad Water Services for a short-term fix that will buy the government time to address the capital's water shortage.

Politically, the popular Duterte has the upper hand, forcing the Ayala- and Pangilinan-led water firms to drop their arbitration claims—unrelated to the present water problem—totalling some P11 billion.

But the government is also at the losing end as investors count political risks of contract alteration at a time more “Build, Build, Build” infrastructure projects depend on private financing.

READ: Water utilities' woes seen hurting investor confidence

"Fundamentally, it was a problem of lack of foresight, planning and political will. Government agencies from past administrations were basically kicking the can down the road. They all knew that (water) demand will outstrip supply," said Eduardo Araral, director of the Institute for Water Policy at the Lee Kuan Yew School of Public Policy.

Throwback

The water shortage throws Metro Manila, the country’s business center and home to about a fifth of the population, back to when state-run Metropolitan Water and Sewerage System inefficiently allocated water to 17 cities and municipalities, resulting in hours of shortages.

In 1997, Manila Water and Maynilad Water Services Inc. took over the job and improved water services for the now over 20 million Filipinos residing in the capital. Old pipes poorly maintained by the government were replaced one by one, on top of new investments to build new ones and reach more customers.

The concessionaires did their job: In more than two decades since taking over, less water is getting wasted— the so-called non-revenue water—and supply is flowing uninterrupted from dams to houses and enterprises at affordable rates.

But as dams nearly ran empty early this year due to inadequate rainfall, old problems resurfaced, and less water flowed into household taps.

“The problem early this year was La Mesa. Water from La Mesa flows to Angat and since the water was going down, it was only a matter of time before Angat followed,” said MWSS chief regulator Patrick Ty in an interview.

Water in Angat, where more than 90% of Metro Manila’s supply emanates, did decline to critical levels and while it has since recovered, a reprieve from water disruptions remain unlikely.

Despite rains brought by Typhoon Tisoy, government projections show Angat would continue to operate below its maximum normal capacity of 210 meters until June 2020 when the next dry season would have culminated. Ty said this means water interruptions experienced daily by households would likely persist.

Controversial

“But the situation will be better than this year since we are already starting interventions as early as now to prepare for the dry season next year,” Ty claimed.

These interventions include daily rotational water interruptions in service areas, lasting for about six to eight hours.

Over the next two years when water shortage is expected, new treatment facilities in Laguna de Bay, Marikina River as well deep wells are also programmed to augment supply.

But none of these contingencies are coming from the government, which, under water concession agreements, are supposedly tasked to develop new water sources.

“We are reviewing the forecasts to consider contingencies by the two water concessionaires over the short-term of one to two years,” MWSS administrator Emmanuel Salamat said in a phone interview.

From 2019 to 2021, Metro Manila’s water demand will outstrip supply by as much as 13% during peak days. It is only by 2022 that projected water supply of 5.89 billion liters a day will begin exceeding demand of 5.24 billion liters a day, but this is highly dependent on the controversial Kaliwa Dam becoming operational.

For Maynilad, locating new water sources by themselves, although not their job, is also beneficial to business. “This is controversial,” chief operating officer Reynaldo Estrallado said in an interview.

"Part of our obligation, how we are measured, is that we should improve water coverage. There are targets on availability of water in the population on our service area. But as population grows, eventually (the supply) will not be enough so we have to find ways to meet our targets,” he explained.

As they invest on facilities to bridge an impending water gap, capital investments of the Metro Manila’s water concessionaires are poised to rise until 2020. Both companies told Philstar.com project completion is on track, although delays are likely.

“We are working as fast as we can, but fixing water pipes, for instance, can take time because of heavy traffic. Some local governments refuse our requests to work because they fear it would result into too much traffic,” Estrallado said.

Lack of water infrastructure

On the government side, there seems to be a dearth of funds for water infrastructure.

Official data showed a budget of P70.1 billion for water resources and flood control projects for 2020, up 15% year-on-year although the bulk of funds would go to flood control instead of improving water supply. The amount also accounts for just 1.71 percent of the budget, down from 2.6 percent in 2018.

Ideally, Araral said, private investors should finance projects like dams because of the size of investment needed, but it is difficult to attract investors to such a “risky” and “expensive” venture.

These risks were in full display on the China-funded Kaliwa Dam, which suffered several delays after the government failed to consult indigenous communities occupying ancestral lands where the project will be constructed. Investors may also get turned off by political risks, especially after Manila’s water firms caved in to Duterte’s threats.

The uncertain regulatory environment, which changes at the president’s whim, does not bode well for investors seeking stability and rule of law before placing their bets. Anton Alifandi, associate director at IHS Markit, said the risks could impact investor appetite on the revised “Build, Build, Build” infrastructure program, where 29 public-private partnerships worth P1.77 trillion are up for grabs.

“Contract renegotiations increase the risk of project delays and cancellations while the government seeks private funding for its $165-billion ‘Build, Build, Build’ infrastructure program,” Alifandi said in a note to clients.