The essence of ppp

Despite government’s refusal to honor its end of the deal and the consequent legal battle this private company is currently engaged in to make sure it is able to recover what it is entitled to, Maynilad Water Services Inc. (MWSI) is showing its firm commitment to public service when it revealed it is spending a whopping P13.6 billion in capital expenditure this year alone.

Of this amount, about P7.5 billion will go to infrastructure projects that will ensure sufficient water supply and water pressure in its West Zone service area. The rest of the money will be spent for wastewater management, sewerage and sanitation projects, lot acquisitions, automation of its facilities, among others.

Maynilad, majority owned by Metro Pacific Investments Corp. and DMCI Holdings, is the water concessionaire of the Metropolitan Waterworks and Sewerage System (MWSS) for certain parts of Manila, Makati and Quezon City, along with Caloocan, Pasay, Parañaque, Las Piñas, Muntinlupa, Valenzuela, Navotas and Malabon; and the cities of Bacoor and Imus and the towns of Kawit, Noveleta and Rosario, all in Cavite.

Officials said P3.9 billion of its capex budget is earmarked for the construction, rehabilitation and upgrade of reservoirs, pumping stations and water treatment plants; P2 billion for non-revenue water (NRW) reduction programs like leak repairs and pipe replacements; P4.6 billion for the construction of sewage treatment plants or improvement of existing plants in Manila, Quezon City and Cavite; and P1.2 billion for building conveyance systems and development of sewerage facilities in Quezon City and Valenzuela.

The balance of the budget will be used, among others, to modernize Maynilad’s data management and information systems, develop new water sources, and refurbish its facilities in the Bicti basins and Ipo Dam.

This will not only help ensure a steady and adequate supply of clean water to West Zone consumers, it will also help create 41,243 jobs in its concession area.

Newly appointed Maynilad president and CEO Ramoncito Fernandez said “we start the year right by providing the necessary investments to continue meeting our service obligations and contributing to the job generation efforts of the government.”  

This huge investment by Maynilad is doubly remarkable if we consider the fact the MWSS has refused to allow the former to adjust its water rates so it can recoup its investments as guaranteed in the 1997 privatization deal between government and Maynilad.

Maynilad asked for an adjustment three years ago in keeping with the contract-stipulated rate-rebasing process due in 2013, but MWSS, instead of approving the new rates, arbitrarily slashed the existing tariffs by doing away with charges the concessionaire has been legally passing on to its customers since 1997.

As a result, Maynilad filed an arbitration case before the International Chamber of Commerce (Singapore) to recover P3.44 billion in foregone revenues arising from MWSS’ rejection of its petitioned rate adjustment.

An ICC arbitral tribunal ruled in favor of Maynilad, but MWSS refused to follow. Maynilad then asked the Department of Finance (DOF) to honor its sovereign guarantee that requires the national government to compensate the concessionaire for whatever losses it may incur from the regulator’s non-implementation of the 1997 contract terms.

When the DOF ignored its two letters, Maynilad filed a second arbitration case before the ICC, telling the arbitral tribunal that on top of its P3.44 billion losses since 2013, it has been losing P208 million a month from the time the ICC approved the rate adjustment in end-December 2014.

Ayala-owned Manila Water Co., which is the concessionaire for the metropolis’ East Zone has also filed an arbitration case before the ICC, saying it stands to lose a projected P79 billion until its concession runs out in 2037 because of the regulator’s similar defiance of the rate-rebasing process.

Foreign and local business leaders have assailed MWSS’ refusal to honor its contracts with Maynilad and MWC as glaring proofs of the Philippine government’s penchant for changing rules midstream, which they say, continues to dampen investor appetite in the Philippines despite its newfound status as Asia’s economic star. 

Maynilad and Manila Water cannot continue investing at a loss. At some point, they will have to put their improvement and expansion projects on hold, if not scrap them altogether. They are business entities that are also accountable to their respective shareholders. They have to be allowed, at the least, to recover their investments and make a reasonable return because that is the essence of public-private partnerships (PPP) and doing business in general.

Also, if the national government is forced to pay over P5 billion-worth of sovereign guarantee (the amount is increasing at a rate of P208 million each month for Maynilad alone), this means less public funds that otherwise would have been spent for other purposes like education and health care. This would not happen if MWSS allows the rate adjustment instead.

We cannot afford to go back to pre-privatization days when water service was really bad.

Under the privatization program, MWSS’s franchise area was split into the West and East zones. The concessions were publicly auctioned off in 1997, with Maynilad and MWC winning the concessions for the respective West and East zones.

 However, financial and legal troubles forced the previous West Zone concessionaire—Benpres Holdings Corp. (BHC)—to return the concession to MWSS in 2004. 

 Two years later, the MPIC-DMCI consortium won the exclusive rights to provide water and wastewater services to the West Zone.

 In order to attract big-time investors, the Ramos administration had to sweeten the deal by offering provisions in the 1997 privatization contracts allowing would-be concessionaires to recoup their multibillion-peso investments in the course of their long-term service contracts.

Such sweeteners include the 1997 contract provision assuring the would-be concessionaires of higher cash flows by allowing them to pass on certain corporate taxes to their customers in their monthly bills.

For comments, e-mail at [email protected]