Was it greed?

Was Maynilad justified in returning its concession to service the west zone to the government?

According to Maynilad president Rafael Alunan, returning the concession through a notice of termination which takes effect on Feb. 8 if uncontested, was largely brought about by MWSS’ failure to perform all its obligations on time and cooperate in the manner set forth by the concession agreement.

Alunan has stressed that the concession is not viable, despite Maynilad’s efforts in the past five years to make it so, because the MWSS has not performed its part of the deal. For instance, the one-year delay in the Umiray-Angat project curtailed revenues and cash flow. The 300 mld BOT project, similarly delayed, prevented Maynilad from serving up to two million unconnected residents in the southern part of the west zone. Certain agreements pertaining to tariff adjustments including rate rebasing in 2003 and revised service targets were also not met.

There was also lack of cooperation on the part of government to make the partnership work, Alunan stresses. He says there was delayed and inadequate regulatory relief from force majeure that undermined the concession’s viability. Because of the peso devaluation, Maynilad’s ability to sustain concession fee (CF) payments was impaired. The alternative therefore was to restructure the CF payments or to allow for adequate tariff adjustments to enable Maynilad to pay on time.

Maynilad likewise emphasizes that there was a failure on the part of the MWSS to understand the principles of full cost pricing and user’s pay, wherein subsidies should be borne by the government instead of the concession.

MWSS was forewarned a few years ago about a possible termination of the concession should the latter fail to achieve viability. According to Alunan, the MWSS mistook the forewarning to be a threat and apparently did not take matters seriously.

Maynilad emphasizes that the move to terminate was not a reaction to not getting the tariff increase it was asking for. In fact, according to Alunan, Maynilad was ready to forego a tariff increase for two years because of the country’s difficult economic condition, provided that the CF payments would be restructured. Again, this proposal was ignored by the MWSS, in the same way that the latter failed to assist in the resolution of certain issues that would have allowed Maynilad to secure a $350 million term loan.

Another problem that Maynilad faced was its stormy relations with the MWSS regulatory office. The MWSS-RO was created by the concession agreement between the MWSS and the concessionaires. Its main task was to ensure that both parties comply with the service targets stipulated in the agreement and to resolve issues that might arise between them.

Being a regulatory body, the MWSS-RO was supposed to be independent. Its major functions include monitoring and adjustment of water rates, monitoring and regulation of service operations and service infrastructure conditions, and handling customer complaints. However, the MWSS-RO reports to the MWSS board of trustees.

Regulating the MWSS and at the same time being under the MWSS board of trustees cast serious doubts on the RO’s ability to be independent and credible.

Sister Christine Tan, coordinator of the Alay Kapwa Christian Community, was right when she said that there was a marked improvement in the water supply situation since Maynilad took over operations. From a 56 percent water service coverage in Aug. 1997, this improved to 84 percent water and 18 percent sewer as of Aug. 2002. The number of water service connections increased from 447,266 to 603,306 in the same period. There was a marked increase in water supply, water pressure, treated water production. The number of connections in urban poor areas improved from zero to 63,076.

There is no doubt that the private sector is more efficient in managing not only water and sewerage systems, but also other public utilities. But while government has committed to privatize most of these utilities and has in fact done so, it fails to appreciate the fact that the private sector will get involved for the money, and nothing else. This has always been the complaint of private business. They are often being accused of being greedy when all business wants is a reasonable return on its investments.

Termination indeed is a legal right of an aggrieved party. When one party to an agreement has through its own acts made it impossible for the other party to comply with what is required of him, then that other party no longer has the obligation to deliver.

Call it greed or any other name. But it makes no sense for a business entity to continue doing business when there is no way for it to make money. Let us take the case of a farmer. What motivation for increasing his production does he have when every time supply goes up, the price of his produce goes down. Or the case of a local distributor of an imported brand who finds himself having to compete with fakes because government is not doing its part.

As for government, and the MWSS in particular, it should seriously rethink its privatization policy if it wants the private sector to take over vital utilities. Other than the tariff increase, there could have been ways that government could have helped Maynilad during the early part of the concession period. But instead of helping, it even made it more difficult for Maynilad to do business.

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