Let cooler heads prevail in water row

THE CORNER ORACLE - Andrew J. Masigan (The Philippine Star) - December 11, 2019 - 12:00am

The most expensive water is having no water. I still remember how it was during the height of the water crisis. From 1994 to 1998, water was only available for one hour, every 12 hours in Mandaluyong. We had to hoard water and ration it throughout the day. If our hoard was insufficient, we had to buy more supply from a nearby vendor who owned a deep well. These vendors sold water at P30 to P62 per small drum. Back then, our household spent about P6,000 per month on water not withstanding the great inconvenience of water rationing.

These days, our water bill is P3,500 per month, but supply is 24/7 and the water pressure is adequate. Those who lived through the water crisis will agree that life is infinitely better these days with Maynilad and Manila Water Company (MWC) as the city’s water concessionaires.

President Ramos did what he had to do to solve the water crisis. He sought emergency powers from Congress to privatize the scandalously corrupt and brazenly inefficient Metropolitan Waterworks and Sewerage System (MWSS). It will be recalled that the MWSS was so inept that it only distributed water intermittently to 69 percent of the metropolis despite amassing debts of $1 billion. The MWSS was is such dire straits that it could not sustain its own operations let alone solve the crisis. Worse, it had no means to repay its debts. Privatization was the only way out.

To provide water connectivity and sewer facilities to a city that spans 619 square kilometers is no easy feat. It required capital in the hundreds of billions and a committed management willing to put in the time. It necessitated working under the short leash of government. It required absorbing $1 billion of MWSS’ debts. All these for a measly rate of return of seven to 12 percent.

The privatization of MWSS was a hard sell and FVR knew it. This is why he provided a rate rebasing mechanism in the concession agreement. The rebasing mechanism allows the adjustment of water rates every five years to determine the most equitable rates for the concessionaires to recover its investments. FVR needed to make the deal viable enough to attract investors. He was desperate….. the country was desperate.

In 1997, MWSS was successfully privatized to Maynilad and MWC. Both concessionaires absorbed the debts of MWSS and worked swiftly to provide the city with running water. Today, 96 percent of Metro Manila is connected to the water supply grid and 47% of the city will have wastewater treatment plants by 2021 (it was almost nil during the time of MWSS).

The President blew his top when an arbitration court in Singapore ruled for government to pay Maynilad P3.6 billion and MWC P7.4 billion over losses due to a delayed rate increase. The rate increase was requested during the Aquino administration who ignored it.

Not only did the President say he would defy the court’s ruling, he also ordered Solicitor General Jose Calida to craft a new water contract that will be “favorable to the public”. He further lashed out at the Ayala family and Manny Pangilinan and threatened to take them down for plunder.

Leftist groups and patronizing allies of the President fueled the anger-fest and called for the nullification of the concessionaires’ contract. They foolishly suggested that the concessions be nationalized. As if the MWSS has the management skills or capital to do the job.

Look, we must understand that this is a business deal. These concessionaires need to get a decent return for the capital they continue to shell out, not to mention their operations costs. This is only fair. Sure, their services are imperfect but let us not take for granted that they solved the water crisis when government could not.

MWC and Maynilad sought the intervention of the Singaporean courts to collect the foregone income from a price increase that should have been effected years ago. If we strictly go by the terms of the concession agreement, this foregone income is rightfully theirs. They just did what any professional corporation would do – seek the court’s help to collect it. Again, they are a business and not a source of government subsidy.

If government really wants heads to roll, it should look at those who crafted and signed-off on the concessionaires’ agreement – which is FVR himself, his legal counsel, former Senator Rene Cayetano and the Congress of the time.

To say that Maynilad and MWC are encroaching on the country’s sovereignty is a stretch. The concessionaires merely adhered to the terms of the contract which the Philippine government itself had drafted. To punish them for it is like castigating a pupil for following the student handbook.

At this point, cooler heads must prevail. Everything can be solved through dialogue. The Ayalas were right to suggest that both parties try to arrive at a “workable solution”.

Dialogue is a better approach rather than changing the terms of a privatization contract midstream or worse, nullifying it. Going down this road will cause severe damage and will be a great disservice to the Filipino people. It will tell the world that our justice system is pliable according to the moods of its politicians and that contracts aren’t honored. No foreign investor will touch the Philippines with a ten foot pole. It’s bad enough that our share of investments is a shameful 11.5% of the ASEAN pie. Our competitive ratings will drop and we can expect a downgrade in our credit rating score. This, in turn, will trigger an increase in interest rates for the country’s debts. It will cost government more than the amounts owed to Maynilad and MWC.

About the early renewal of the concession, it was President GMA who extended the Concession Agreement up to 2037 after realizing the need for more water and wastewater investments. The Clean Air Act mandated the concessionaires to establish sewer and wastewater treatment plants for 100% of the metropolis. This requires an investment commitment of P458 billion. Government did not have the money so it opted to simply extend the term of the concessionaire’s contract.

As I write this, I received the news that the President is willing to sit down with Mr. Pangilinan and the Ayala brothers to re-negotiate the terms of the contract. A re-negotiation is fine, provided it is done by mutual consent. What will cause damage is the unilateral nullification or replacement of the concession agreement. Let us hope this row is settled sensibly.

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