Unseen

President Duterte ordered the water distribution concessionaires to sign a new contract minus those he considers “onerous” provisions. If they do not, he warned, the two concessionaires would face charges for economic crimes.

One analyst described that order as basically pointing a gun to the heads of the counterparties. That is not a particularly encouraging sight for other private companies waiting to sign contracts with government for a variety of public-private partnerships. The presidential utterance just widened the margin for political and regulatory risks.

Neither of the concessionaires publicly commented on the President’s order. There is a simple reason for that: the new contracts are yet unseen.

 According to reports, the Justice Secretary and the Solicitor-General still have to arrive at a final draft of the new contracts. The affected parties have nothing on hand to consider. They are not sure what the new provisions will be. No one knows if there will be wiggle room to negotiate the details.

In the normal course of things, changes to subsisting contracts are made upon agreement of the two parties. This matter is not in the normal course of things, obviously.

There is reason to be concerned that the new contracts might be so restrictive they will disable the concessionaires from additional investments in improving the distribution system. Even if the concessionaires may want to make those needed investments, their bankers might not agree it is worth the risk.

The presidential spokesman has said that the concessionaires have made so much money they do not need to borrow from the banks. That is an irresponsible statement.

It is nearly as irresponsible as those who say water occurs naturally and should therefore be free. That overlooks the costs of building an efficient distribution system. Recall that when water distribution was privatized, non-revenue water was as high as 61 percent. Only two-thirds of consumers received water – with most getting it only intermittently. The public water system was deep in debt.

At any rate, if the efficiency of the distribution system is not further improved, this will lead to wastage of what is already a scarce commodity. We are not about to get any additional raw water anytime soon. It is nearly certain we will have water rationing by March.

As the economy grows, water usage will increase dramatically. As climate change takes its toll, we are bound for hotter days. We need both efficiency and correct pricing.

The worse case scenario is that the new contracts could undercut the business viability of the concessionaires. If this happens, the concessionaires could choose to cut costs, declare bankruptcy and return the contracts to government.

Evident

PrimeWater Infrastructure Corp. has been dragged into the water distribution debate only because Duterte himself mentioned the company as possible replacement for the two existing concessionaires for the National Capital Region.

While everyone was focused on the water woes in the metropolitan area, PrimeWater has been busy signing joint venture agreements with provincial water utilities. According to one count, the company has signed joint venture agreements with 63 out of 76 water districts.

Through these agreements, PrimeWater assumed management of the operations, financing, rehabilitation and maintenance of the local water utilities.  Since PrimeWater appears to be pursuing all the water districts, the company must have discovered a profitable business model. Our local water districts are notoriously undercapitalized, inefficient and unreliable.

But not everybody is happy PrimeWater is taking over water utilities nationwide. In Bacolod City, for instance, there is a broad coalition of civic groups opposing a joint venture agreement with PrimeWater. They fear more expensive water if the joint venture materializes.

The COA has examined these agreements and issued a rather derogatory report. The auditors point out that many of the joint ventures either do not conform to the law or lack clear guidelines for operations under the new partnerships.

Among the specific shortcomings are: passing the VAT load entirely to consumers, submitting financial reports and service obligations annually instead of monthly as law mandates, and omitting a provision that allows the joint ventures to be examined and audited by COA.

Quite alarming for consumers in some of the areas now managed by PrimeWater, such as the Marilao Water District, is that the service provider does not have a water safety plan. This is a firm requirement of the COA. Unsafe water consumed by thousands of customers could have catastrophic consequences. Some customers have complained that the water delivered to their homes resemble tea.

At least two water district administrators have publicly complained against the joint ventures. Elmer Luzon, general manager of the San Francisco Water District in Agusan del Sur, and Anselmo Sang Tian, general manager of the Butuan City Water District claim the water contracts have been slanted to unduly favor PrimeWater.

Sen. Richard Gordon, as chair of the Senate Blue Ribbon Committee promised to look into consumer complaints and investigate the Local Water Utilities Administration (LWUA). A public hearing has yet to be scheduled. When this happens, it might educate us about the complexities (technical as well as financial) of maintaining a modern water system.

As our population rapidly urbanizes, the public will need efficient water distribution systems. We can no longer rely on drawing water manually from deep wells or fetching them from increasingly polluted rivers.

The national economy could grow by seven percent this year. But that will only sharpen the gap between a modern market and a pre-modern water service.

We need a more robust public discussion of this matter.