Muddy waters

I’ve been trying to think of how to explain what’s happened in the water situation. When I study the contracts, President Duterte is right — the contracts could seem onerous in some of the conditions they impose when looked at in today’s light.

For instance, one of the most notable provisions, which the Justice department has also stated, is the “prohibition against government interference in rate-setting and the provisions on indemnification for possible losses in the event of such government interference.” But then President Fidel Ramos had no choice. Back in 1997, the Philippines was the “sick man of Asia,” with numerous problems and a seeming high risk environment for investors. Times were much different then. Nothing the government was doing worked. We had daily hours-long blackouts. You weren’t waiting for a dial tone, you were waiting for a phone. Ramos decided the solution was to privatize. And it worked. We had continuous power from privately-owned and -run generators and distribution utilities. We had phones in our houses from a now private PLDT and other players. And we had power.

As to water, when the contracts were drafted, we had a water crisis. The MWSS had failed miserably in its job—people had no water. Trucks were used to deliver water. People had to line up for hours to fill a couple of pails. The few that had water had so intermittently, and the cost was exorbitant.

Ramos knew he had to take drastic action and somehow entice the private sector to come in, as he recognized that the government wasn’t capable of doing the job. It was hugely complex. The government still didn’t have the capability; even giving it to the other companies wouldn’t work. There was no one with the expertise or experience necessary. But to get there, Ramos had to convince business that investing in this failed service was worth the risk.

I sympathize with Mr. Duterte. He’s been handed a poor deal by two Aquinos—Cory for a department under her care that couldn’t do its job, and Noynoy for inaction on approving a needed increase in the toll fees due to higher costs, and in not building a second dam. But it’s Mr. Duterte who has to pay for it. Of course he got angry, who wouldn’t, but against the wrong people; someone has advised him poorly on this. Manila Water and Maynilad just bid for the contracts, they had no hand in writing them, so they shouldn’t be blamed for the conditions that are now considered onerous. Nor should Ramos and his people be blamed; there was no choice if water was to be privatized.

Aquino failed, but Mr. Duterte has to pay, although I can’t understand why he’s still angry as the companies have agreed not to collect. His concern now should be “are the contracts fair to the people today?” This is a legitimate thing to look into as long as it is done in partnership with the water companies. And this is where it’s heading: new contracts with conditions more favorable to the government and the people, yet are still reasonable for the concessionaires, are being drafted and will, I believe, be accepted—so we’ll still have water from companies that know how to do it.

In the main, sovereign contracts (contracts with a government) must be inviolate. That’s why contracts are entered into. If at a later time change would seem desirable, it must be change that is willingly entered into by both parties. Here, there’s an immediate problem.

In this light I hope he rescinds his cancellation of the extension. It was granted during Gloria Macapagal Arroyo’s time for a good reason. The concessionaires were required to provide 100-percent sanitation service from the 50 percent the contract called for. That huge extra cost had to come from somewhere. Normally it would be by increasing the tariff. But realizing this would not go down well with consumers, the concessionaires agreed with the Arroyo administration to accept an extension of their contracts so they could recoup the cost over (a long) time.

This raises the point that private companies do have to make money. As long as it’s reasonable, this is a sound thing to support. The greater efficiencies and better services the private sector provides result in a cheaper deal for the public — if you properly account for government costs.

For me, the real test is: Has privatization worked? The answer is a resounding yes. Government-run MWSS served about 800,000 households and lost about 62 percent of the water it drew from our only dam, but it never built a second one despite the obvious need. Today, the concessionaires supply water on tap, 24/7 to some 2.5 million households. Manila Water has 11.5 percent of water lost, Maynilad 27 percent — a far cry from 62 percent. Had MWSS still been supplying water, the shortage in March in a limited area would have been Manila-wide, and not just for a few short months. The cost is also the lowest among the major cities in the country.

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