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No Free Lunch

Conflicted

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We have come a long way, no doubt, with President Aquino’s “daang matuwid” and “no wang-wang” policy and all they symbolize. But the pursuit of good governance is far from complete. So far, the focus has dominantly been on people in public service, especially those in positions of authority where having the wrong people can do the most damage. Even then, numerous people with questionable motivations remain in positions of power—some entrenched due to political entitlement in our deeply flawed political system, others by virtue of proximity to the powers that be. Cleaning up the bureaucracy to a satisfactory and irreversible level will take much more time than a presidential term of office allows. Indeed, many of us dread the very real prospect of backsliding on our governance improvements, with the possible election in 2016 of a president who may throw us back to the old ways that had perennially held us back as a nation.

This is all the more reason why fixing government and fixing our governance must now go beyond people but also address the nature of governance institutions themselves, particularly their mandates and functions. We need our institutions to have mandates, functions and processes that minimize, if not eliminate, opportunities for graft and corruption, and that are conducive to achieving maximum effectiveness. A basic flaw I have seen is our propensity to have the roles of planning, development, operations and regulation all combined in the same government entity. The regulatory role in particular tends to be incompatible with the rest, and the combination begets an institution that is conflicted and consequently ineffective. A government agency with developmental and operational roles cannot be expected to exercise effective regulation as well, as the aims of these respective functions tend to run counter to one another. As a general rule, then, regulatory bodies must be independent not only of private entities they must regulate, but of government entities involved in the regulated activity as well.

In the case of the Local Water and Utilities Administration (LWUA), the conflict of functions has become all too real, further complicated by the additional and prominent role it has as financier to local water districts. The conflict has impinged on the development of water and sanitation services at the local levels, a very basic need of communities that forms part of the United Nations’ Millennium Development Goals. Created by Presidential Decree No. 198 in 1973, LWUA was mandated to be a specialized lending institution to promote development of local water districts (WDs) around the country. It was also tasked to prescribe minimum standards and regulations on water supply materials and construction, maintenance, operation, personnel training and fiscal practices for local water utilities, and to provide institutional and technical assistance.

Subsequent executive orders enhanced or modified LWUA’s functions and operational guidelines.  Among others, Executive Order No. 123 (in 2002) transferred the agency’s authority to regulate the WDs’ water and sewerage tariffs to the National Water Resources Board (NWRB), an interagency body chaired by the Department of Environment and Natural Resources. While a conceptually sound move, I’m told that it has remained inoperative due to NWRB’s resource constraints, and LWUA has maintained a de facto economic regulatory role over WDs. Hence, the conflict between its developmental and regulatory roles appears to persist.

In another reform, EO 279 (2004) redirected LWUA’s financing policies for the water and sewerage sector, and rationalized its organizational structure and operations. In particular, it confined LWUA’s lending to weaker (and less credit-worthy) WDs, allowing the more capable ones to borrow funds from government and private banks. Conceptually, this would facilitate integration of the WDs in the financial market, and effectively expand the financial resource base for developing water supply facilities nationwide. All this should help accelerate expansion and improvement of water services around the country, which is basic to LWUA’s institutional mission.

Well, not quite. For a WD to borrow funds elsewhere, it needs a waiver from LWUA that would put its loans from other sources on equal footing with its outstanding LWUA loans. But LWUA, giving precedence to its own financial standing, makes it extremely difficult even for the most credit-worthy WDs to obtain such waiver, contravening a key aim of EO 279. And its previous leaders flatly refused to grant such waivers in 2009-2011. Thus, even as a Philippine Water Revolving Fund was created to combine resources from private banks with funds from donor agencies like USAID and Jica, WDs find difficulty accessing it. LWUA is hard-pressed balancing its financial, developmental and regulatory roles. Meanwhile, the development of the water supply and sanitation sector especially in our poorest areas is held hostage, impeded by this institutional flaw.

LWUA’s example is not at all unique. The Philippine Ports Authority, Civil Aviation Authority of the Philippines, various bureaus under the Department of Agriculture and others are in similar conflicted situations owing to combined developmental, operational and regulatory roles. The resulting identity crisis provides fertile ground for inefficiency and corruption, begging for a revisit of institutional mandates.  In his final three years, P-Noy would do well to train his guns on this needed next phase of governance reform, as it well complements the first phase. And we all know even that is far from completed.

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E-mail: cielito.habito@gmail.com


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