BuSinESSwiSE

Val A. Villanueva

The move is just like the scene of firemen containing the blaze. Water concessionaires Manila Water Co. and Maynilad Water Services will no longer seek payment for the more than P10.8 billion arbitral award they won before by the Permanent Court of Arbitration in Singapore.

Manila Water was supposed to get P7.4 billion, and Maynilad, P3.4 billion, which should have covered their claimed losses when the government rejected their demand for tariff hikes.

the two water firms also signified their intent to renegotiate their respective concession agreements, which have been in effect since the government of former President Fidel V. Ramos and given a boost during the incumbency of former President Gloria Macapagal-arroyo. the arrangement was signed during Ramos. Under arroyo, Maynilad’s and Manila Water’s 25-year deals were to expire in 2022, but were extended to 2037, after they were mandated to fast-track their respective wastewater investments.

Even before such extension, however, through the Metro Manila Waterworks and sewerage system (MWss), arroyo decided in July 2004 to recognize the two private firms not as public utilities but as mere agents of the government agency, which sanctioned them from passing on income taxes to consumers via tariffs.

It is clear that both firms were never in violation of any law. they operated under the terms set forth by the Ramos and arroyo governments. From their perspective, it was the government that was in breach of the agreement, thus the legal battle.

still, with his usual incendiary and intimidating style, President Duterte threatened them with plunder, economic sabotage and possible expropriation—moves that do not really solve the problem, but were intended to rally the people behind such populist stance.

Constitutionalist Oscar Plameras told BusinessWise that Duterte’s threat had no such specific provisions in the 1987 Constitution. “I believe the merits/demerits of the ‘plunder case’ Duterte is talking about against water concessionaires may be examined by the court, if any, in the context of the conditions/ limitations of the specific concession signed by and agreed to between the government and the concessionaires. the 1987 Constitution itself, and the Constitution in general, provides for the powers of Government and for the limits to these powers.

Personally, I think that consumers are generally in agreement that the water concession deals of the government with Maynilad, Manila Water, and—don’t forget—Villar’s Prime Water are heavily tilted in favor of these firms. the aquino administration tried, but failed, to wiggle out of it. Why? the Ramos administration, in its ambitious privatization program, made “sovereign guarantee” as a come-on to both local and foreign investors. this provision is not only confined to water companies. It is written in government contracts with infrastructure, telecommunications, and other companies under the build-operate-transfer or public-private partnership scheme. the concession deals Manila Water and Maynilad inked with MWss are offshoots of this business incentive. In fact, this was the very reason why the arbitration court favored both water firms.

Giving incentives to business is nothing new. the Board of Investments also offers tax breaks to pioneering enterprises. But sovereign guarantee under Ramos takes the cake. It forces us taxpayers to shoulder the losses these firms will incur

in the conduct of their business. It is under the privatization provision allowed by members of Congress, most of whom are still in power.

What is disconcerting is the manner by which Prime Water of the Villars was able to buy and consolidate local water units in almost all the local government units in the north. Local water units are all under the supervision of the Local Water Utilities administration, which is directly under the Department of Public Works and Highways headed by secretary Mark Villar.

President Duterte’s men rightfully favor renegotiation of the whole contract. Justice secretary Menardo Guevarra says that “the issue of paying the arbitral award is not as important as ensuring that disputes arising from burdensome provisions of the water concession agreements will never happen again in the future,” thus signaling a possibly new concession deal that favors both the concessionaires and their customers.

aside from sovereign guarantee, the government cannot interfere in setting water rates under the deal, a provision that the two firms used in filing a suit against it in the singapore-based Permanent Court of arbitration.

also in 2008, the MWss approved the business plans of Manila Water and Maynilad that considered income taxes, and other items as part of operating expenses that could be recovered from or passed on to consumers as part of the expense of going to arbitration! Included therein is a penalty clause provision should the concessionaires fail to put up a wastewater treatment facility. the agreement provided that the penalties could also be passed on as cost to the consumers.

these are the salient points of the agreement that should be threshed out to balance the interest of the water concessionaires and their customers. the idea of the government taking them over should be tossed right into the thrash bin. We all know how woefully the government handles business. It would be a disaster if we allow this to happen.

Operating and managing water concessions is not as easy as many people seem to believe. there was a time when even Maynilad expanded access, but was still unable to reduce water losses. Maynilad failed to pay concession fees to the government and went bankrupt in 2003. It was temporarily taken over by the government, but sold to new investors in 2007. Performance has improved since then. Manila Water struggled initially, but increased its contractual rate of return by arbitration in 1998, and improved its performance. In 2003 came a loan from the International Finance Corp., which then took an equity stake in the company, followed by an initial public offering of shares on the Manila stock exchange in 2004, and local currency bond sales in 2008.

Neither company achieved its contractual targets of increased access. Improvements in access and service quality were slow during their first years, especially in west Manila. Progress in water sanitation has been far below the contractual targets of access to sewerage, from less than 10 percent to 66 percent in west Manila and 55 percent in east Manila until 2021.

For comments and suggestions, e-mail me at mvala.v@gmail.com