FIRST PERSON - Alex Magno (The Philippine Star) - December 14, 2019 - 12:00am

There is reason to dread the way things are going regarding the water situation. All that is happening could end up making the Mega Manila area a very dry town beginning next year.

Things were not going well even before President Duterte called the water privatization deals “onerous” and his allies promptly ganged up on the distribution concessionaires. Angat Dam, that supplies 98% of Mega Manila’s water needs, is not filling up as it should. The rehabilitated Wawa Dam will hardly offset the deficit. The Kaliwa River Dam is probably five years away.

It is government’s principal responsibility to develop raw water sources for the metropolis. They have done a very bad job at it. Now we are frantically looking for new raw water sources.

With government tearing up concession contracts at will and ignoring international arbitration rulings with impunity, there is little that will attract investments into our dreadful water sector.

With Duterte’s outburst against the water concessionaires, their business has suffered tremendously in a matter of days. In a vain attempt to appease a raging President, the two distribution companies announced they would not raise water rates next year as originally scheduled. That means they are giving up potential revenues that might fund improvement of their business.

But even as they were making that announcement, the MWSS declared they were nullifying the extension of the contracts, shortening their life to 2022. The regulators blissfully neglected the main reason the contracts were extended to 2037: to allow enough time to recover investments in improving the distribution system and ease their impact on water rates.

In a word, the contracts were extended to protect consumers from a price spike. Now, with a shortened contract, pressure to raise water rates will sharply increase. That is plainly the dictate of financial recovery. One expert estimates a minimum of 100 percent increase in water rates will be necessary to stave off bankruptcy. It will be the consumers who will shoulder the financing costs of Duterte’s rant.

Then the terrified water distributors announced they will forego the nearly P11 billion they won by way of arbitral ruling. That constrains their financial position even more.

Finally, the stock prices of the corporations linked to the water distribution system dropped precipitously this week. That has grave financial consequences. It shrinks the market capital the distributors need to improve their efficiency. With diminished stock prices, they cannot borrow as much as they should to help develop new water sources on their own, buy new pumps and lay down new lines.

They will also have less capital to invest in building the sewerage system Mega Manila so desperately needs. From this point on, forget about cleaning up our waterways and the bay. They need large volumes of investments. The investment community is running scared of what this government might do next.

The populist orgy of the past few days does not set us back years. It will set us back decades. In the worst scenario, Mega Manila will be a waterless town for a generation.

Water districts

To be fair, the Villar-owned Prime Water is not the puppeteer behind all the crazy things that happened regarding water concessions the past few days. All the speculation about their taking over the distribution concessions in Mega Manila is due to Duterte himself alluding to Prime Water as possibly taking over the metropolitan distribution business.

Duterte is indulging in wishful thinking. Prime Water, which has businesses in provincial water districts covering about 124 towns, has enough problems as it is.

Just last week, a multi-sector consumer group Amlig Tubig expressed alarm over the possibility that Prime Water could take over the Bacolod City Water District through the joint venture process now underway. Consumers are demanding greater transparency in the selection process.

Bacolodnons are alarmed that Prime Water would take over their water district with only P5 million in capital, eventually working up their stake to P2.3 billion in 25 years. This raises the prospect that excessive fees will be charged consumers in that city.

There is basis for the alarm. Prime Water operations have not been free from controversies in the water districts they have taken over.

The COA issued negative findings regarding water districts recently acquired by Prime Water. The City of San Fernando Water District, which entered into a joint venture with Prime Water in 2016 suffered a net income loss of P48.6 million. The Floridablanca Water District was doing reasonably well before it entered into a joint venture with Prime Water in 2017. In 2016, before the joint venture, the water district reported a net income of P13 million. In 2017, after the takeover, net income dropped to P4.46 million.

The COA lists several violations after Prime Water took over a number of water districts. In the case of the Meycauayan and Marilao water districts, the auditors cited failure to pay franchise taxes. The Cabanatuan Water District incurred a loss of P28.6 million after Prime Water took over in April 2017.

COA likewise cites a number of cases were the water districts were constrained to fund improvement of their distribution systems in violation of the joint venture agreement with Prime Water. They have yet to be reimbursed by the private developer.

Under the NEDA guidelines, the joint venture agreements with the private developer are supposed to bring the water districts to profitability. The COA reports otherwise.

These are some of the reasons consumers in the provincial water districts are wary about the entry of the Villar-owned water company.

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