8 glasses a day

(Conclusion)

Last week I talked about the Metropolitan Waterworks and Sewerage System’s abrogation of its contract through the exclusion of tax it had committed to include. But there were other questionable decisions it made. It said there were some errors in the financial reports submitted by the concessionaires, but these are relatively minor items that could have been clarified with the latter, particularly as the external, independent auditors had found no such faults.

Take, for example, the cost of flowers which was, incredibly, raised as an issue. These go to inaugurations of barangays, or to bereaved families—something normal and expected in Philippine society. But let’s bring some (un)common sense to this. The cost of flowers, if deducted from our water rates, would reduce our rate by less than a hundredth of a centavo per cubic meter. You couldn’t even put it on the bill. Fortunately, the MWSS recognized this. It’s the same with entertainment expenses, incidentally something that every company has. The reduction would be equally unmeasurable.

Prior to privatization, informal settlers bought commercially vended water at P30 per drum. Today, the comparable water prices are P1.70-P4 per drum for the East Zone, and P2-P5 per drum for the West Zone, or some 10 times cheaper for potable water. (One cubic meter is equivalent to five drums.) And it comes out of a tap. Metro Manila water rates are among the lowest—sometimes the lowest, depending on consumption—compared to 15 metropolitan cities in the country.

Let me ask you something: Do you have water in your house, water you can drink? Did you, 16 years ago? Well, today 98 percent of the Manila service area has 24-hour potable water. Sixteen years ago, only 26 percent had water 24/7.

Over the past 16 years the concessionaires have invested over P100 billion in Metro Manila’s water and wastewater systems. Does that sound like gouging the public to you? The international investment houses certainly don’t think so.

Credit Suisse said in part in its report on the MWSS’ decision, which it viewed negatively:

“We believe that a successful execution of the government’s push for greater private sector investments is predicated on the Philippine government ensuring reasonable returns to existing investors.

“In our view, the severe reduction in the company’s opening cash position and recoverable expenses are not justified as we believe that concessionaires have been compliant with the parameters set in the concession agreement. In particular, we believe that the inclusion of income taxes as a recoverable expense should be upheld.

“We also believe that it is in the best interest of the Philippine government to be supportive of a tariff increase for the concessionaires. From a broader perspective, we believe that a successful execution of the government’s push for greater private sector investments will be on the line. Attracting potential investments under the public-private partnership model is predicated, in our view, on the Philippine government honoring its commitment to ensure reasonable returns for concession agreements to the private sector.”

J.P. Morgan said:

“Investors are likely to be skeptical of public-private partnership and it raises question marks on the infrastructure bid outlook … We see this tariff cut as a key negative event for confidence in PPP bidding and expect the two stocks to remain weak in the near term.”

Deutsche Bank was blunt about it:

“The parameters set for both concessionaires—Manila Water and Maynilad—were nothing short of disastrous, especially for MWC. We estimate a strict implementation of the decision could mean as much as an 80 percent cut in MWC’s value and 50 percent in Maynilad’s value.”

All three are, and I stress, independent, well-respected investment banks and financial analysts on a world scale that are listened to. This does not send a good message about investing in PPP in the Philippines.

The concessionaires have won a number of global awards—I counted nine—for the excellence of their performance. The IFC, for example, cited Metro Manila as one of only two cities (Phnom Penh was the other) where the achievements of the water companies were world-class for a developing country. They wouldn’t win these if they are cheating the public. But we don’t need that; just turning on our taps tells us that.

The MWSS is now the regulator of the two private-sector companies that have totally reversed the system—at a huge cost that they have every right to expect us to repay them as we use the water they supply.

The MWSS is now saying, “No, we won’t honor our contractual commitment to you.” For the past 16 years the concessionaires have submitted quarterly—yes, quarterly, that’s 64—reports on performance, revenues, costs, etc. in great detail. For 16 years the MWSS has accepted these reports and not complained. Now, suddenly, it has raised objections to expenses it always accepted before. It also disallowed monies already spent on capital equipment to improve the service, and disallowed taxes as an expense.

What the MWSS did defies any financial logic and is in contradiction to the contract. So why did it do it, because nothing significant has changed in those 16 years?

My doctor says I must drink eight glasses of water a day (San Mig has water in it, so that’s OK). The MWSS decision puts my health, and yours, at risk. Let’s hope it can be convinced to reconsider these strange decisions, to take into account the greater economic good of the country.

The President should get involved here and call for new discussions between the MWSS and the concessionaires without the need for arbitration. And, in particular, conform to the original contract. Otherwise, not just our access to clean water but also his whole PPP program will be at risk.