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Business

The value of the water franchise

EYES WIDE OPEN - Iris Gonzales - The Philippine Star

Tycoons Manuel V. Pangilinan, Enrique Razon, and their respective partners, Isidro Consunji, and the Zobel brothers, have reasons to pop the champagne bottles despite the very challenging times.

This, after President Duterte signed the laws granting Pangilinan-led Maynilad Water Services Inc. and Razon-led Manila Water Co. Inc. each a 25-year franchise.

Maynilad, the west zone concessionaire, is the water utility arm of Pangilinan’s Metro Pacific Investments Corp. with the Consunji Group’s DMCI Holdings as its partner, while Manila Water, the east zone concessionaire, is now led by Razon – even as the Ayala Group still has its economic interest.

Of the two, only Manila Water is listed in the stock market. Maynilad is expected to list as well within the next five years as mandated by the franchise.

When the news came out on Monday, Manila Water’s share price closed at P24.75, up from the previous close of P23.80.

Investors surely welcomed the new franchise for good reasons. It essentially assures the two water utilities of the license to operate even after their revised water contracts with the government expire. This basically means there will be no repeat of what happened in 2019 when the Duterte administration abruptly decided to junk the old contracts.

The franchise is similar to what power firms and distributors, such as the Manila Electric Co., have.

Thus, the franchise is enough assurance for investors of both Manila Water and Maynilad.

Of course, nothing is assured in the Philippines given the ever-changing political tide. We all know what happened to the franchise of the Lopez-led media giant ABS-CBN, which Duterte’s cohorts in Congress successfully killed.

But as I said, that’s still a long way – as in 25 years – down the road. For now, everyone can rest easy.

It’s also no secret that Razon is an agile and politically savvy tycoon who has been successfully navigating the ever changing political environment in the Philippines for decades now. Maynilad, by default, would benefit from this, too.

Another value of the franchise is that after 2037, when the existing revised concession agreement expires, and in the event the waterworks and sewerage system assets of Metropolitan Waterworks and Sewerage System (MWSS) pertaining to the franchise area, are privatized by law, they would have the right to match the highest compliant bid after a public bidding.

That essentially assures the two water companies that they’re in for the long haul.

And if their service is good, that’s a win for us customers because it would mean they will not hesitate to pour in billions for capital expenditures to improve their service.

In any case, the signed franchise also authorizes MWSS to extend the effectivity of the revised concession agreements to coincide with the term of the franchise or up to 2046.

Good news for customers

More importantly, the franchise also requires Manila Water and Maynilad to ensure that they will meet 100 percent service coverage of water supply and sewerage during the period of the franchise.

This is good news for customers of course. Nobody wants interrupted water supply. We may be able to survive a few days without electricity, weeks even, but not without water.

Higher water rates

It’s not charity of course, but a business for both Manila Water and Maynilad, which means they have to recover their investments.

This means water rates will increase whether we like it or not or whether President Duterte likes it or not.

The revised concession agreement allows for a new round of tariff increases after December 2022 by January 2023. Brace for higher rates then.

But at the end of the day, let’s not forget, the most expensive water is no water.

MWSS was privatized because it was inherently weak and inefficient by virtue of it being a government corporation. It is very difficult even today for any government corporation to procure materials and to get financing, things necessary to make a company work efficiently.

Before it was privatized, MWSS consumers had water for only 16 hours a day. Imagine that.

Mark Dumol, the chief of staff of Gregorio Vigilar, the former Public Works Secretary who led the privatization of MWSS, gave a glimpse of the MWSS at the time.

“There was a general attitude among MWSS employees of trying to extract as many benefits as possible from a company, with as little effort as possible. In board meetings, the best prepared presentations were those that involved requests for increases in benefits. Other presentations, including those for critical projects, were often poorly prepared,” Dumol said in his Diary of the World’s Largest Water Privatization published in 2000.

Moving forward

Thus, I hope that with the new franchise, water service and supply in Metro Manila will steadily improve.

The government, especially the succeeding administrations, and the water companies also need to develop new sources of water to meet growing population demand and economic growth.

This is necessary to ensure that we will continue to have a steady supply of water.

In ancient Greece, water represents vitality and life. That was true then and even more so now.

 

 

Iris Gonzales’ email address is [email protected]. Follow her on Twitter @eyesgonzales. Column archives at eyesgonzales.com

MANILA WATER

MANUEL V. PANGILINAN

MAYNILAD

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