Like It Is

Mindless opposition

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Whenever public utility has to raise its rates, an outcry immediately arises opposing it. No thought is given to the opposition, no research done to see if it’s justified or not. It’s just “I don’t want to pay more so it must be stopped.”

Oil firms face an almost weekly barrage of these mindless outcries, which completely ignore the fact that the pump price of gas and diesel is dictated by the cost of oil on the world market, over which no one has control. If you think the oil firms are gouging the public, look at their public record of financial performance. In 2010, Petron, Pilipinas Shell and Chevron Philippines recorded an average net profit margin of 3 percent. Compare that with a fast-food giant that everyone accepts sells at fair price, and that made 13 percent.

But today there’s a new hobbyhorse to ride. The water concessionaires have requested an increase in rates from the Metropolitan Waterworks and Sewerage System (MWSS) under the “rate rebasing” scheme. This rebasing is done every five years and is meant to “reset” rates at a level that will permit the concessionaires to recover over the life of their respective concessions the expenditures incurred and to earn reasonable returns on these expenditures. It also reviews the previous years to see how the concessionaires performed compared to target.

Opposition has been strong, but I wonder if those who are crying out have read the contracts, which have been in force and accepted for 16 years now.

The situation before 1997 was disastrous: Only 67 percent of the population was connected to the MWSS system (of which only 26 percent had 24/7 water service), and system losses stood at an incredible 63 percent of total water production.

Today, Manila Water and Maynilad have expanded water coverage to 89 percent and 86 percent of their respective service areas, 99 percent and 96 percent, respectively, of which are experiencing 24/7 water service. They have proven what we’ve always known: The private sector does it better. The privatization of water supply to Manila has been one of the very few PPP successes.

This alone is sufficient justification, as far as I’m concerned, for a higher fee. I’m happy to pay it. I turn on the tap, and drink the water.

But the opposition has focused on what it calls the unconscionable action of the concessionaires to charge their income tax to the consumer. “How dare they?” Well, it’s quite simple, really: The contracts allow it. The contracts are based on an allowed profit after tax. If tax was not to be passed on, then the contracts would have specified a higher profit before tax.

Actually, it’s not profit that’s the measure but the recovery rate on their investments. In other words, the government said, “If you invest in this service we’ll assure you a fair return on the money you’ve put in.” It’s called an appropriate discount rate. It amounts to a return on investment determined every five years.

As to collecting money in advance to pay for the construction of Laiban Dam and some irrigation, this is reasonable given that it is a public service that the government should be providing, but can’t. A reading of the contract will show that mechanisms are in place, particularly the rate rebasing exercise, to ensure that if the projects are deferred, tariffs will be adjusted to reflect the deferment.

While considering the companies as public utilities is in contradiction to the contracts stating that the MWSS remained the public utility providing water, the companies were only operators of the system. This was clearly spelled out in Article 2.1—Grant of Concession of the Concession Agreement, which states:

On the terms and subject to the conditions set forth herein, MWSS hereby grants to the Concessionaire, as contractor to perform certain functions and as agent for the exercise of certain rights and powers under the [MWSS] Charter, the sole right to manage, operate, repair, decommission and refurbish the Facilities in the Service Area, including the right to bill and collect for water and sewerage services supplied in the Service Area (“the Concession”).

There is no mention in the MWSS Grant of Concession that the concessionaires were envisioned to become the public utilities. They are mere contractors and agents of the public utility (MWSS). And neither Manila Water nor Maynilad has a legislative franchise—a requisite for all public utilities. The legislative franchise remains with the MWSS through Republic Act 6234—the law that created the MWSS and that remains in effect to this day.

On the “disallowances” being considered by the MWSS for being imprudent and inefficient, this is precisely why rate rebasing is in place. From what I’ve gathered, most of the expenses cited for possible disallowance are normal business costs that any normal business would incorporate into the prices it charges customers for its products and services. Let’s respect this process and trust that it will yield a result that balances the interests of the general public as well as the concessionaires.  We’ve trusted this process for the past 16 years and it has served us well.

The government is committed to it by a sovereign contract. It must meet that obligation, and not be pressured into change by noisy opposition. That’s the way to turn off investors. The contracts provide Maynilad and Manila Water a recovery rate on their investment. The increases will just bring the companies back to that agreed level.

It’s not what you can afford to pay, it’s what it costs. That’s the reality of an open economy. The alternative is subsidy by taxpayers—an alternative that I as a taxpayer hope the government will reject. Whichever it is, the providers must be fairly recompensed.

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  • Fulpol

    why will they enter to that kind of business if they cannot able to manipulate the system…

    and that is what they did.. they manipulated the system.. the contracts and so on…

    that is also what they are doing in electricity.. and other public utilities..

    scamming, indeed..

  • Mary Anne Celestino

    Kudos to Mr. Wallace for this very clear and comprehensive analysis. This just shows that we have taken steady, potable water for granted, and have paid for same for 16 years with little fuss. Enter left-leaning groups like IBON, Bayan and WPN with their conspiracy theories of a known contract provision, a discovery interestingly timed in anticipation of the next price increase for maximum outrage. They would have us reject the charges for income tax but do not tell us how the concessionaires are supposed to continue to provide good service while keeping their heads above the water, no pun intended. Worse, they would have us return to the days when the utility was run by the state in the person of the MWSS, the same agency that failed so miserably that they had to call in the concessionaires for bailout.

    Little wonder that MWSS’ Emmmanuel Caparas, without prior warning, played along with the leftists and pulled the rug out from under the concessionaires by disavowing the charges allowed by his own agency’s contract. MWSS would have the monopoly all over again.

    Once again, this administration has shown its true colors: Chameleon. Great impression this will make on overseas investors thinking of signing contracts with us.

    • aldren85

      So like Mr. Wallace, you would trust the Regulatory Body (which is under the Board of Trustees of MWSS) to do the evaluation of the rate rebasing plan of us. The Regulatory Body is funded by the concessionaires (per the contract) at an amount initially in 1997-98 of P100 million, with a ceiling of P200 million. The regulatory body has 60 employees and 5 officials, so at P8,333,333 budget a month, you now realize why the MWSS has all kinds of bonuses before PNoy stopped it in 2011. Can you really expect independence and professionalism from such a body that it would bite the hand that feeds them?

  • josh_alexei

    There is no argument about the arguments beyond the rate increases,..But..but it should be done in a Transparent and open Process and Can be Justified. If and when our utility Provider here would like to increase its rate, for example the Water utility, it must give reasonable notice and must clearly indicate in the Billing what the increases were For and detail them for the consumers’ benefit..Is it for the new Infras? for money spent on subsidies? New Sewer Treatment Plants?

    For Electric Utility, the same will also applies..Is the amount for investment recovery? this one must be clearly identified in the Billings separate from all other items. And if it a government owned, whatever booboo the govt. had done, it will also be reflected in the Bill how much it cost the Taxpayers in their monthly bills, no matter if it a Fraction of a cent per kWh for the next Century. At Least in that Regards my great Grandchildren will know what they are paying were the sins of their estupid or corrupt already gone former politicians.

  • http://jaoromero.com/ Jao Romero

    wow, if you really believe oil companies aren’t manipulating prices, i have a set of magic beans to sell you.

  • josh_alexei

    Mr Wallace, for the last 8 years our City increases the rate of our Water Bills for 9% each year and now it tops at average $2.82 per cube m ($815 for household consuming 300 cm annually) and of course we do not protest since this is for replacement of aging main pipes that most are 100 years old and the City Council been nice to spread rate increases as the upgrading progressed. (under the Law, the City Government can not incur deficit, and any project it proposed must be financed by the city Residents either increase in property taxes and or User fees.)

  • http://www.yahoo.com JOSE RIZAL

    Mindless article by Wallace…
    Comparing OIL pump price to WATER pump price??? The Philippines must be in the Middle East.
    Hahahahahaha!
    Not all caucasians are brilliants…I should know, I experience it here abroad.

    • water_gate64

      Absolutely; perhaps someone should give ‘mindless’ Wallace the heads up that unlike the oil companies the water concessionaires obtain their product FOC.

  • water_gate64

    Although uncertainty may very well surround our daily existence, it is somehow vaguely reassuring to know that the venality of paid media mouthpieces, can still be relied upon in times of need. The mere fact that Manila Water and Maynilad are not classified as public utility entities, apparently confers upon them the right to include whatever charges they like within their purported cost base, in addition to charging levies amounting to billions of pesos, for water catchment infrastructure investments which they have not undertaken, and which will likely never see the light of day. There is an unhealthy cosiness between the water concessionaires and the MWSS, with those responsible for granting the boon of unfettered price increases to the concessionaires, also having served as heads of Manila Water and Maynilad. This unholy alliance is further compounded by an abject lack of transparency, at least from the perspective of long suffering taxpayers, as to what actually constitutes ‘a reasonable rate of return’ as the concessionaires grab for profits steadily increases over time, with seemingly no limits in sight. The absurd suggestion that because the public has been fleeced for the past 16 years, it should reasonably be expected to quietly acquiesce to a continuation of the concessionaires’ plunder, is both arsine and reprehensible in equal measure, as is the ridiculous notion that we can rely upon the current processes to balance the greed of the concessionaires and their MWSS co-conspirators, with the good of the general public. There is conveniently no mention of the fact that the concessionaires have already been granted substantial extensions of their initial tenure, without competitive tenders being sought and they are now in the process of seeking additional 25 year extensions, throughout which time their guaranteed profits will no doubt continue to escalate at an alarming rate. Invariably where rent seeking monopolies are allowed operate in the Philippines, there is a stench born of corruption and underhanded dealings; Manila Water, Manilyad and their MWSS cronies should all be subjected to close scrutiny, with the interests of the general public for once being guaranteed as a genuine priority.

  • Ommm

    Peter Wallace you have probably earned your keep as a stooge to these water profiteers…BUT… they did not invent the water, only delivered it. Water is the source of all life and in a country where life is so obviously relished the extortion tactics of these company’s goes well beyond common decency and concern for their fellow man….

    • koolkid_inthehouse

      that’s true, they delivered it but they have overheads on maintaining the delivery systems. Miles of waterpipes, like oil pipelines. Leakage and water thief is a risk in water delivery. Expand your mind, maintaining a delivery system is not free and without risks.
      Don’t be a dumb donkey. Ask for quality water.

  • koolkid_inthehouse

    if MWSS is a public traded company listed in PSE, then this is a good company to bet on. People should buy shares to leverage against their water bill.

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