‘The high prices of our public utility services’

Common citizens face high prices for public utility services in general them – be it water, electricity, transport, communications or internet.

“Long standing problem.” The country has been suffering from this problem for a long time now.

Some of the public utilities are vital to life itself. Others are vital for the vigor of the nation’s economic development and the welfare of its citizens.

Indeed, we can argue about which is the worst public utility service in the country today. Is it water? Is it electricity? Is it public transport? Is it internet or communication? Is it all of the above?

Is there hope for a solution? Actually, the government has been at work tackling the problems. They will require time to show results. But we can see evidence of the tasks being undertaken.

In general, much of what is happening – the country’s infrastructure building program being one important evidence – is toward improving these services. In our country, the private sector plays an important role in the delivery of these services.

“The example of the water service in Metro Manila.” The current challenges, however, are frustrating sometimes.

From this standpoint, we can understand why the president – who is front and center , the receptacle of all the complaints of common citizens – would lose his temper as when he was faced with the intensity of the problem that the country encountered last summer and which continues to this day in the case of the water service in the metropolis.

The problem has no quick fix. Lack of sufficient water catchment capacity during extreme months of dryness made this clear when the water dams serving Metro Manila reached critical points during the hot and dry months.

To top it all, the government was tagged with a total bill of 10.8 billion pesos to pay the water companies as a result of separate awards made through an arbitral ruling in Singapore. The water companies had sued the government for its failure to allow rate increases that they had requested per their concession agreement.

The government not only lost the court cases (which were filed separately). In its rulings, the arbitral court required the government to pay the claimed losses of the companies. In addition, the government was asked to adjust water tariffs!

President Duterte vented his anger by announcing he would not let the government pay these court decisions. Instead, he threatened to terminate the concession agreements with the water companies.

Fearing the worst, the two concessionaires waived collection of the court award and agreed to a renegotiation of the concession contract.

At this point, we do not know yet how the government will react to this surrender. In fact, the president had threatened to have the military (or perhaps the government) to take over the concessionaire companies.

Given our past experience with government management of the water utility, this measure would be a likely No, no!

Hopefully, the president will be advised by more reasonable men not to do this. That would set us back years again. It would be better to renegotiate the terms of service with the existing companies since, given their predicament, they are disposed to accept a reasonable and fair agreement.

They have much to contribute toward improving the system of water delivery in the country by now. They have learned their jobs well in the time that they had been managing the water service.

In recognizing this, let us also understand that in the harnessing and conservation of the nation’s water resources, the government shares an important responsibility. Aside challenges arising from climate, the proper conservation of the nation’s water resources, like the development of other public infrastructure, had not caught up with demand arising from the nation’s economic expansion and population growth.

“No quick solution.” Solving the problem of the water distribution service, like that of the problems of the other public utilities, requires thoughtful economic and management policies.

The privatization of the water distribution service came about as a response to government failure in dealing with ther problem. When the government was in charge, the service was worse and not improving. Water tariffs were generally low, but the service was deteriorating.

It was a combination of poor management, low salaries, and political intervention in the delivery of the service. As a result of these factors, the institutional development of the public water corporation had miserably failed. This was initially the national water and sewerage agency known as the NWSA, later the Metropolitan Water and Sewerage System (MWSS) confined to serve the Metro Manila area water district.

In the years of privatization of the service, in general, the water service has much improved in operational performance. There was hope. But the nation also has to learn that part of the increase in efficiency was through and increase in the proper pricing of the resource being served.

The private water companies that won the bid to manage the water system have learned a lot in their business. They have expanded their services not only within other water districts of the country but also in a few neighboring countries in the region. They have become agents of change not only at home but also in other countries.

In terms of improving the water service delivery and in envigorating the investments in the distribution network within their franchise regions, the water system has succeeded.

In part, this had to take place under a regime of rising prices for the service, to align prices with the principle that the investments undertaken to improve the service would be recovered by the investor.

Under the old model of service delivery, the public corporation delivering water services operated under heavy financial losses, they also contributed to the worsening of the country’s fiscal deficit problem. Moreover, service suffered from great economic inefficiency.

Importantly, the government had a share in the failure to expand the nation’s capacity in holding back water in the mountains and other water conservation systems through the construction of an expanded system of water catchment basins.

My email is: [email protected]. For archives of previous Crossroads essays, go to: http://www.philstar.com/authors/1336383/gerardo-p-sicat. Visit this site for more information, feedback and commentary: http://econ.upd.edu.ph/gpsicat/