Review of water concessions long overdue — Pernia

MANILA, Philippines — Investor sentiment is unlikely to be dampened by the revision of contracts of Metro Manila water concessionaires with the government, according to the National Economic and Development Authority (NEDA).

Socioeconomic Planning Secretary and NEDA chief Ernesto Pernia said the contracts of Maynilad Water Services Inc. and Manila Water Co. Inc. should have been reviewed a decade ago to suit the improving economic conditions in the country.

“Clear-thinking investors would understand that water concession agreement between the Philippine government with Manila Water and Maynilad are kind of disadvantageous. In 1997, the government was as the mercy of investors because our economy was considered a high risk economy,” he said in a briefing yesterday.

“In 2009 and 2010, the economy was doing better so there was no need to continue with the conditions in the concession agreement. They should have really revisited the concession agreements and the changed the terribly onerous conditions in the contract. I think that would have been more prudent,” he added.

The country’s two largest water concessionaires recently agreed to drop more than P10 billion in compensation claims from the government as granted by a Singapore arbitral court in 2017 and deferred the rate increase originally scheduled for next year.

This decision was reached in the wake of accusations by President Duterte that the firms have been been benefitting too much from disadvantageous contracts forged with past administrations.

The government, through the Metropolitan Waterworks and Sewerage System (MWSS), had also revoked the extension of the contracts of the two concessionaires from 2022 to 2037, a move that the firms said alarmed investors and puts pressure on their financial viability.

Duterte had also threatened the two firms with a military takeover of their operations.

Amid these developments, both sides have expressed willingness to negotiate new concession agreements to remove “onerous provisions in the concession deals.”

“ I think the most objectionable thing there is the great rush in extending the concession agreement so early, 13 years before the expiry of the end of the contract which is 2022 and extending it by another 15 years to 2037,” said Pernia.

“There was no renegotiation or review of the concession agreements before there were extended. So I’m sure the investors will understand that there is something fishy , something wrong with how concession agreements were handled,” he added.

Pernia noted that among the most disadvantageous provisions in the concession agreements were the prohibition on government interference on the setting of water rates, allowing water concessionaires to pass on their corporate income tax to consumers, and the long concession period of 25 years.

“Maybe that should be shorter, maybe 15 years,” he said. “Those are the standout items.”

Share prices water concessionaires have taken a hit, as the future of their concession agreements continue to hang in the balance.

This weakens the investment position of state-run pension funds Government Service Insurance System (GSIS) and Social Security System (SSS).

“I guess there is a set back on those investments but it will recover. They will recover in time with the adjustments that will be made especially now that the concessionaires are contrite. They have apologized and they will renegotiate for new contracts,” said Pernia.

He acknowledged, however, that with the prevailing uncertainties on the future of the water contracts, there will be increased pressure on water security next year as the tail end effects of El Niño will be felt in the summer.

“There is a possible water shortage in the summer months especially given that the concessionaires are now set back in their plans,” he said.

“Or maybe they will be pushed forward, they will be pressures to deliver better service in 2020.

NEDA Undersecretary Adoracion Navarro said there will be a special meeting between NEDA and the National Water Resources Board (NWRB) tomorrow to discuss the water shortage in Angat Dam.

“We are viewing this as one of the tail end effects of the El Niño phenomenon. We will engage agencies to come up with interventions,” she said.

“The things were looking at is possibly curtailing of supply to irrigation activities and also possibly curtailing of supply to household sector. But the first supply priority is potable water supply to households,” she added.