Babies and bathwater

How did water concessionaires unjustly exploit the onerous provisions the Duterte administration discovered in their agreements? The original contracts, crafted by the Ramos administration, had been in force for over two decades, overseen by the Metropolitan Waterworks and Sewerage System (MWSS), a government regulatory agency. Also unclear is why their extension by the Arroyo administration was deemed “irregular” enough to deserve cancellation.

President Duterte now tells Maynilad and Manila Water they must accept new contracts or lose the business. They may welcome pre-termination; but will the government that rejected the adverse judgment of an international arbitration court honor liabilities defined in the agreements for this step? Concessionaires must also worry that the contract they must accept has not yet been drafted. When Marlon Brando, as the Godfather, makes an offer that cannot be refused, he spells out the terms. And presents a clear quid pro quo. But even if they submit to an unseen contract, the concessionaires can still be indicted on the nonbailable crime of plunder. Government can then detain the accused for however long it chooses to drag out the investigation and trial. Witness the plight of Sen. Leila de Lima. The President has also declared open season for customers to sue the companies holding the concessions. Never mind if the government approach is moral or just or wise; is it even lawful? Our law schools should describe for us the legal vestments in which the Emperor is attired.

Business might worry about how the handling of the case might impact the international appetite for Philippine investments. Justice Secretary Menardo Guevarra “couldn’t care less about this concern,” disdaining mere profit-seekers in favor of foreign investors imbued with a sense of corporate social responsibility. Perhaps, he might suggest who among the People’s Republic of China (PRC) companies entering the country might serve as model investors.

Another problem is not so casually dismissed: meeting the public need for safe, affordable and reliable water supply. Water levels at Angat and La Mesa dams, Manila’s main water sources, dropped last March below the operating level of 180 meters to a crisis low of 160 meters. Reduced supply due to climate change and the increased demand of a growing population forced Manila Water to do rotational rationing, infuriating 1.2 million customers.

Public complaints exposed the company to government scrutiny and almost P1 billion in MWSS fines and its self-imposed penalty. By September, restored water levels permitted the resumption of regular services. December rains raised the Angat level to 204 meters, still short of the year-end level of 214 meters needed to moderate the anticipated summer shortage and the anger of even more unhappy customers.

While pursuing the current concessionaires, government might give a thought to how the public will continue to get water. Who will assume the responsibility, not just for operating the delivery system, but for investing in the development of new water sources? Will other bidders find attractive the contract that the government is forcing upon the concessionaires on a take-or-leave basis? Can the terms be lawfully modified for new bidders?

Mr. Duterte has threatened to nationalize the sector. How will it source the capital expenditures and operating funds required, and who will manage the system? Privatization happened precisely because the MWSS proved unable to meet the challenge. A frequent Duterte default might offer an alternative: delegate the job to the military. This option is likely to encounter resistance from both the military and civilian sectors.

Another, not-uncommonly recommended recourse would outsource the program to PRC companies; MWSS already awarded in 2018 a contract for the Kaliwa Dam to China Energy Engineering Co. Ltd. (CEEC). But the concerns raised about onerous contracts have given new force to complaints against the CEEC award by human rights and environmental activists, policy think tanks and even the Commission on Audit.

Correcting any flaws in the water agreements is necessary. Billionaires (and presidents) should be jailed, if justly convicted of crimes. But beyond punishing guilty billionaires, the end goal of assuring water supply should not be forgotten. The danger is discarding the baby with the bathwater: pursuing a course of action considered beneficial but ultimately causing greater harm to many more people, to institutions and to the environment.

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Edilberto C. de Jesus is professor emeritus at the Asian Institute of Management.

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Business Matters is a project of the Makati Business Club (makatibusinessclub@mbc.com.ph).