Leaky agreements

Manila Water Co. Inc. and Maynilad Water Services Inc. have caved under President Duterte’s might, announcing on Tuesday in separate statements that they would waive almost P11 billion awarded to them via arbitral ruling, and, more important, that they would work with the government in crafting new and fair concession agreements.

Mr. Duterte had been scoring points particularly among his die-hards with his bombast against the “oligarchs” that won the bidding in 1997 for the privatization of water services in Metro Manila and the provinces of Cavite and Rizal. But a détente is afoot—not that, despite the sound and fury emanating from the Palace, an out-and-out war was ever in the cards—with the water concessionaires’ offer of the olive branch (or, to others, a white flag). Now the concession agreements, the forging of which supposedly benefited from the technical guidance of the World Bank’s International Finance Corp., as well as the questionable extension of their validity from 2022 to 2037, can be examined—and let the shards fall where they may.

It just might be possible that the “onerous” provisions, including the prohibition against government interference in rate-setting and the indemnity for possible losses in the event of such interference, would be fully disclosed, and those responsible haled to court and justly penalized. (Hope springs.)

Earlier, Mr. Duterte having apparently expended his initial rage at the prospect of paying Manila Water and Maynilad P7.4 billion and P3.4 billion respectively, his people were called upon to smooth troubled waters and clarify that despite his barked order for new contracts, the government would not rescind the agreements and was only determined to remove the “onerous” provisions. He had also seemed to ease up on the threats of arrest and charges of economic sabotage, and deigned to say that he would speak with the water concessionaires and the government lawyers involved in crafting the agreements.

Manila Water, led by the Zobel de Ayalas, had early on expressed willingness for a “workable solution” to the furor caused by the Singapore-based Permanent Court of Arbitration’s recent ruling that it be compensated for losses incurred due to its inability to raise water rates. The same court ruled in 2017 that Maynilad be similarly compensated. But Mr. Duterte had balked at this offer and rather dramatically demanded to know how he would explain to the Filipino people a compromise with those engaged in “economic plunder.” (Think how such a stance would impact on China’s aggressive behavior in the West Philippine Sea.)

In 1997, convinced that privatizing water services would once and for all address the water shortages plaguing Metro Manila, then President Fidel V. Ramos signed Republic Act No. 8041 (the National Water Crisis Act), leading to the transfer of water services to private hands. RA 8041 also mandated the reorganization of the all but useless Metropolitan Waterworks and Sewerage System (MWSS), under whose stewardship, less than 70 percent of the burgeoning metropolis had access to water, and illegal connections as well as leaking pipes were practically the norm.

Ayala Corp. and the Lopezes’ Benpres Holdings won the bidding for the privatization project in 1997, forming Manila Water and Maynilad to service the East and West Zones, respectively. Within years, Maynilad was floundering and near collapse; in January 2007 a joint venture of Metro Pacific Investments Corp. and DMCI Holdings took over the company from Benpres and acquired 84 percent of its shares.

Benpres’ failure to rise to the challenge of being half of what was touted as the world’s largest water privatization effort demonstrated the perils that accompanied the project. “It could well be a case of street-smart companies making unrealistic and unsustainable bids just to win the tender, and gambling on the possibility that the rules of the game may be changed in their favor, given the weakness of regulation in the country and the state’s historical permeability to private interests,” wrote the economist Jude Esguerra in a study.

And why did the administration of then President Gloria Macapagal-arroyo give the concession agreements an overly extended lease on life despite their shaky origins?

“Overall, the two concessionaires’ moves to muddle the arrangements constitute only half of the explanation on why the concession agreement was effectively mangled,” Esguerra wrote in the early years. “The response of public institutions and officials—those tasked to uphold the public interest—constitutes the other half.”

To be sure, the metropolis’ dry sectors gained access to the precious resource when water services were privatized. But appears that the concession agreements were damaged from the start, and their flaws just now beginning to show.

There’s an African proverb that illustrates this fine kettle of fish: When elephants fight, it’s the grass that suffers.