April 1,
2019 | 12:27 am
By Romeo L. Bernardo
THE leadership and the
management of Manila Water squarely took responsibility for inability to
provide 24-7 service in many parts of its concession area. And voluntarily
waived fees in the several hundreds of millions, despite the absence of any
such obligation under its concession agreement.
Such act of corporate
governance and responsibility is exemplary, and from my recall, unprecedented
in the Philippines. Especially since, in the view of many, the fundamental shortcoming
is not theirs, but government’s. More precisely, that of the MWSS in the last
administration. Despite repeated warnings of the two concessionaires at that
time, MWSS abysmally failed to develop a single water source, not a single
stone was turned or a shovel lifted, even as they barred the concessionaires
from developing such. The “original sin.”
I reprint below excerpts
from my October 2013 column, “Being Water Secure.” MAP President Riza Mantaring
described it as “prescient.” I do so to provide perspective on where we were,
why we are where we are, and most importantly, the way forward.
Quote:
Water security is ensured
only when long-term investment and financing for the sector are sustainably and
efficiently done to meet the needs of a growing population, the economy and the
environment. This was the clear message delivered at a recent forum on Water
Security organized by Finex.
IFC Resident Representative
Jesse Ang said in the forum that while the Philippines is not yet considered a
water-scarce country, management of the resource needs to be strengthened.
Former MWSS Administrator Dr. Lito Lazaro explained why: “With the improved
efficiency of both Manila Water and Maynilad in reducing previously big
leakages (non-revenue water) the gain to Metro Manila is almost like building a
new huge dam.”
Dr. Lazaro was too modest
to discuss the benefits reaped over 16 years of the highly successful “largest
water privatization” in the world: the broad public welfare gains, not just in
water security, but in environmental protection, health, and outreach to poor
communities. In short, clean water made available to Mang Juan. As CEO of MWSS,
he was one of the three architects, under the direction of President Ramos, who
made this privatization happen. The other two were then DPWH Secretary Virgilio
Vigilar, and Mark Dumol, his Chief of Staff.
The success story of this
privatization is objectively and engagingly told in a book Built on Dreams, Grounded
in Reality, by former UP School of Economics Dean and our only living
National Scientist in Economics, Dr. Raul Fabella. Chapter 4, “The
Privatization of MWSS: How and Why It Was Won” had this to say:
“The privatization of MWSS
was clearly a triumph of the principle of comparative competence-the private
sector proved more competent at the delivery of water and sewage services than
the state. It is now considered a singularly successful structural reform in
the annals of Philippine political economy.”
The welfare gains for the
public is a matter of public record. In the Joint Statement on Water Public
Private Partnership (PPP), the Foundation for Economic Freedom, the Management
Association of the Philippines, the Employers Confederation of the Philippines,
and Philippine Chamber of Commerce and Industries noted that the water PPP has
“contributed much to improve public welfare by having more than doubled the
number of customers served, provided 24 hour water service availability that
meets health standards, while addressing the needs of millions in the poor
communities. The improvements in service delivery came after the two
concessionaires poured in a combined P105 billion in investments to expand and
upgrade the water and sewage network, achieved without adding to government’s
fiscal burden or public debt exposure.” They further lamented that it’s a pity
that this “successful, internationally recognized model PPP has not been
replicated outside Metro Manila where the water situation remains at
pre-privatization MWSS standards.”
It is disturbing indeed
that instead of building on this success and nurturing the greater water
security achieved over the years, we now observe populist myopic demands, not
just by the usual suspects from the protest industry, but by MWSS itself, for
arbitrary reductions in water rates — already the lowest in the country, and
compare favorably internationally. This will inevitably compromise water
security over the medium and long term as needed investments for maintaining
service quality and protecting the environment are neglected.
The Japanese Chamber of
Commerce and Industry was quite emphatic in this regard: “We view the MWSS’
unilateral and arbitrary act of changing the terms or interpretation of the
concession agreement, in total disregard of the contractual rights and intent
of the parties, with grave concern.” Such unilateral populist action by
government agents is referred to in regulatory economics literature as
“administrative expropriation,” a form of “government opportunism” inflicted on
captive investors in utilities. ( Spiller and Tommasi, Handbook of New Institutional
Economics).
There are a number of
issues in the dispute notices that the two concessionaires submitted for
international arbitration, ranging from the computation of the appropriate
discount rate (allowed rate of return) to the disallowances pertaining to past
and future investments, and incredibly, a reinterpretation 16 years hence, of
treatment of corporate income taxes.
The one item of contention
that calls for comment is on who is responsible for investing in new raw water
sources — a key element to water security. The insistence of the current MWSS
management that investments in such are excluded under the Concession
Agreements, and therefore disallowed in the tariff rate setting, squarely
contradict the intent of the Agreements. More fundamentally, given MWSS, and
government’s, dismal track record in public service provision — especially when
contrasted with the two concessionaires’ — such revisionist interpretation will
certainly bring us back to pre-privatization water insecurity.
Mark Dumol was categorical
on what they had in mind: “Without any doubt, the original intent of the MWSS
concession agreement was that all aspects of the provision of potable water,
from raw water sourcing to treatment to distribution would be the
responsibility of the concessionaires.”
I also consulted Dr. Lito
Lazaro on this and he said “in my mind it was clear that raw water development
is the responsibility of the concessionaires. How can the concessionaires be
held to their targets if they are not responsible for the raw water
development, since complying with the targets assumes that water is available?”
This unilateral
reinterpretation by MWSS now risks all the gains achieved in one and half
decades.
End of quote.
Sadly prophetic. But all is
not lost. Thanks to short term measures being undertaken collaboratively by
MWSS, Manila Water and Maynilad, the current supply deficit of 9 percent will
likely be brought down to zero by June.
But this crisis would have
been wasted, if we fail to address the roots of the problem, the
non-development of new water sources. Two musts:
a) Government must
fast-track the development of the Kaliwa project. We need the Duterte political
will referred to by Sec Dominguez recently in connection with BBB.
b) “The private water
concessionaires, being accountable for rendering water service to the public,
should be allowed the option to provide raw water supply for their respective
zones” ( MAP, Finex, FEF et al March 25 Press Statement).
Finally, this “crisis”
would be a good trigger for government to review its basic approach for funding
water and sewage. The three T’s, Taxes, Tariffs and Transfers, and the proper
shares are a policy/political decision. Angat was funded by taxes. Transfers,
usually from donor institutions, are limited and unpredictable. The literature
is full of robust findings that tariff mode is the most sustainable. Given the
still regressive Philippine tax system, and coupled with a “lifeline” rate for
the poor that we have, the tariff mode is the most equitable and most conducive
to conservation efforts.
In the same way that the
“inflation blip” last year led to the game-changing reform of rice policy,
let’s use this “water shortage blip” to address the underlying problem of lack
of raw water and failure to adhere faithfully to the Concession Agreements in
language and spirit.
My plea to authorities:
“Never waste a good crisis.”
Romeo L. Bernardo is
Vice-Chairman of the Foundation for Economic Freedom and GlobalSource Partners
Philippine Advisor. He was Finance Undersecretary during the Corazon Aquino and
Fidel Ramos administrations.
