Now there is talk about desalinating water from Manila Bay to meet the needs of the metropolitan area. We are beginning to sound like a desert kingdom drowning in petrodollars but desperate for water.
Desalination is an expensive, energy-intensive method for producing fresh water. It could push up water prices a hundred-fold. Generating the power to run the desalination plants will be harmful to the environment.
Strange that we are talking about desalination while the DENR is saying we will have enough water to last through the dry months ahead. Strange that the DENR is saying what it is saying. We have not filled up Angat Dam to its normal level during the months when there was some rain. Mega Manila remains 98% dependent on Angat Dam for raw water.
Those fascinated by the idea of desalinating water from the bay have not told us who will invest in the expensive technology. It is one thing to talk about what is technologically possible and what is economically viable. Unless it is politically possible to charge our consumers a hundred-fold for the water they use, this option will require huge subsidies.
Right now, we have invested all our hopes for new raw water supplies on the Kaliwa River project. That will take a few years to complete after we acquire the financing for the dam. To date, we have not seen one yuan from the Chinese loan committed (with all the strings attached) for this undertaking.
Surely we are not thinking of asking the two water concessionaires to finance a desalination project to supplement our fresh water supply. Right now, the concessionaires are in difficult financial straits.
Since that long bout of presidential ranting about the water concessions, the stock prices of the two concessionaires have dropped substantially. As corporations, they are now worth substantially less than they were a year before. That has serious implications on their ability to finance their operations.
With the extended contract in limbo and with water rate increases suspended, the water companies have had difficulty convincing the banks to lend them money. Banks always want to know how they would be paid back.
With less water to deliver, with politically imposed low tariffs, and with the continuity of the contracts uncertain, the concessionaires are obviously not the most preferred clients for the banks. The credit risk rating of the concessionaires have spiked through the roof. They will now have to pay more for financing costs.
The concessionaires could barely cover their operating expenses. Let us not even talk about financing in the tens of billions required to build a modern sewerage system for the metropolitan area.
With high financing costs and little possibility they could cover them by way of rate increases, the quality of service is bound to deteriorate.
We saw this happen to MRT-3. As soon as the rail line was inaugurated, then President Joseph Estrada, obsessed with scoring popularity points, asked that fares be reduced. At the same time, he asked the company to invest anew in providing escalators for the rail stations.
Caught between politically dictated low fares and additional investments in passenger amenities, MRT-3 began deteriorating as soon as it commenced operations. The operator began cutting corners. The rail stations remained ugly unpainted eyesores. The supply of spare parts was always thin. Maintenance work was spotty and austere. The rails were not replaced dutifully. No additional carriages were procured.
What Mar Roxas and Jun Abaya did to the MRT-3, allowing it to be cannibalized and looted, was nearly a coup de grace. The facility had become decrepit by the time they terminated the maintenance services of Sumitomo and contracted clowns to run the system.
Unless the water concessions are allowed to become viable businesses, we court the prospect of our water delivery system going the way of MRT-3. Should the concessions be put under constant political pressure and subjected to all sorts of threats, their viability as a business declines. Soon after, the quality of water services declines as well.
We sometimes forget that the concessionaires rely on market capitalization. The only way ordinary investors will buy their stocks is when they are assured of good returns for their investments. If the returns are uncertain, market capitalization will be depleted. The concessionaires will have to borrow at high financing costs to sustain their operations.
That is the predicament of the concessionaires at the moment. They entered the business on the attractiveness of the 1997 concession agreement. Now that agreement has been repudiated by the powers-that-be.
Those actually running the concessions have to answer some hard questions asked by their investors. That includes the small investors who bought their stocks.
The immense political and regulatory risks the concessionaires now face pushed down their stock prices. Those prices were pushed down further as the stock market reeled from fears over the coronavirus epidemic. The recent bloodbath in the global equities markets pushed the concessionaires into an even more difficult financial predicament.
Our consumers will suffer the consequences if there is not enough capital to support purchases of new equipment and technologies. It is bad enough that there is now less water to distribute. It is worse if the distribution system starts breaking down.
There were good reasons why water distribution was privatized. It opened a mechanism for market capitalization to improve services. The 1997 privatization model we used was hailed globally and many other governments were convinced this was the way to go.
Now it seems we are returning to a calamitous water distribution system.