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Water you up to, Mr. President?

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By Sonny Africa

Pres. Rodrigo Duterte is posturing against oligarchs again. This time, the tough talk is against corporate water giants Manila Water and Maynilad. It is a popular and justified stance – the firms make billions of pesos every year while consumers suffer expensive water and incomplete services.

The hope is that this comes from a real understanding of water as a human right where the oligarchy’s profit-seeking is seen as hindering the realization of this right. Or it might just be populist posturing against some oligarchs rather than the oligarchy.

Presidential threats

Pres. Duterte tapped into public outrage against the country’s water barons when he threatened the Ayala family and businessman Manny Pangilinan. They helm concessionaires Manila Water and Maynilad, respectively. At a speech in Malacañang, the president angrily said that Filipinos are poor because oligarchs dominate the economy.

He said he would take action against them even if this made the country a pariah in the international community and among investors. Anyway, he said: “We can start from the beginning… nandiyan naman si Villar” (Villar is there). The uneasy reference to richest Filipino Manny Villar, whose rapidly expanding PrimeWater venture makes him the country’s fastest-rising water baron, only fueled criticisms of cronyism in play.

The president also called on his audience – including senators, cabinet members, and business folks – to stop this “business of milking the people.” At the end of his short speech, everyone rose to their feet clapping.

The government seems serious about going after the two Metro Manila water concessionaires. The Solicitor General said it will pursue ‘all remedies’ to contest the water arbitral rulings that worked against the government. The justice department identified a dozen provisions making the water concession agreements (CAs) ‘onerous’. To remedy this, the finance department is drafting replacement contracts supposedly more favorable to the government and the public.

The Metropolitan Manila Waterworks and Sewerage System (MWSS) said that it will cancel the irregular 15-year extension of the CAs beyond 2022 to 2037.

Pres. Duterte himself threatened to file economic sabotage cases against the water firms and government officials involved in the disagreeable water deals. When the new water contracts are drafted, he said the water firms can basically take it or leave it. He reportedly also promised to make the lives of the Ayalas and Pangilinan “very, very, very miserable”. Among others, he threatened to slap each of the billionaires and offered this as some kind of catharsis to Filipinos.

The posturing seems to have paid off. The water firms are reportedly waiving the Php10.8 billion awarded to them by their respective international tribunals – Php3.4 billion for Maynilad and Php7.4 billion for Manila Water. The firms will also defer higher water rates scheduled for January 1, 2020 and renegotiate their contracts.

Still, water privatization

So are things, finally, all settled on the water front? Unfortunately not, if the government still sticks to its water privatization policy.

Many of the issues raised by the Duterte administration echo issues raised long ago by the Philippine mass movement (which includes many organizations now being vilified and attacked by the government). Progressive groups criticized water privatization and the CAs from the time that they were being negotiated in 1997. The Water for the People Network (WPN) meanwhile was at the forefront of civil society campaigning in 2013 against water rate hikes bloated by corporate income tax, non-implemented infrastructure projects, and a host of other irregular items.

Thus government’s apparent epiphany is welcome to the extent that it moderates corporate water profiteering. This relief is long overdue. Since the start of water privatization, water rates have increased seven-fold in the West Zone under Maynilad (573% increase) and ten-fold in the East Zone under Manila Water (871%). These rate increases far outpace inflation over that same period.

Water privatization proponents often justify expensive water with the argument: “The most expensive water is no water.” Yet beyond the catchiness, the reality is that water has become unaffordable especially for lower income families. The United Nations Development Programme (UNDP) suggests that water costs should not exceed 3% of household income. Yet WPN, in its studies in 2013, found poor families in Metro Manila paying as much as 7-22% of their household income for water which is so basic to survive.

The rate increases support huge profits. In 2013, WPN noted that the two water firms had returns on investment conspicuously higher than in telecommunications, power and housing. In the last 15 years, Maynilad made around Php68 billion in profits and Manila Water some Php61 billion. In 2018 alone, the water firms raked in around Php6.6 billion in profits each. Profits are also boosted by increasing water demand from explosive Metro Manila urban over-development – meaning that the Ayala group, also a major real estate developer, profits twice over.

Water rates and the water firms’ profits would be even higher if large water rates hikes had not been stifled following citizen- and mass movement-driven protests and campaigning in 2013.

The ‘losses’ claimed by the water firms and brought to arbitration are largely about the corporate income taxes that they were disallowed from charging to water consumers. These are potentially enormous and, in the case of Manila Water, would have summed to around Php79 billion passed on to consumers from 2015-2037.

Under an unchanged framework of privatization, there are reasons to doubt whether government’s renegotiated concession agreements will be able to completely rectify these problems. The basically profit-driven approach is inappropriate and will inevitably result in contracts still unnecessarily skewed towards ensuring private profit even at the expense of social objectives.

Privatization means having public utilities and social services run by the private sector. The private sector is assumed to be inherently more efficient than the public sector and, hence, able to provide the utility or service better. The better services, it is argued, justify the more expensive prices and resulting profits.

The new renegotiated contract terms are still undetermined so it is hard to say how far two decades of expensive water and unmet sanitation targets can be corrected. Still, the global experience with water privatization may provide some clues of the prospects.

Reversing water privatization

By now, many may believe that water privatization is commonplace. Yet water privatization really only started in the 1990s and the 1997 privatization of MWSS was actually one of the first and the biggest at the time.

Privatized water is actually a minority worldwide and even in retreat.

There are around 500 large cities worldwide with a population of over one million, including the big cities in Metro Manila. Despite the wave of water privatization starting in the 1990s, 82% of these cities and their populations are actually still served by public providers.

Moreover, privatized water has been in retreat in the last decade or so. Many of the reasons for this happening abroad are familiar to Metro Manila residents: steep water rate increases, inadequate service coverage, insufficient infrastructure investment, opaqueness, and lack of accountability.

Driven by the incompatibility of the human right to water with privatization, more and more water services have been nationalized since the mid-2000s. Erstwhile privatized water services in at least 267 cities in 37 countries have returned to, or are in advanced stages of returning to, public sector hands. Nearby, this includes Jakarta in Indonesia and Selangor in Malaysia.

Elsewhere in Asia, water services are being nationalized in India and Kazakhstan. This is also happening in countries from Argentina to Uruguay in South America, from Ghana to Tanzania in Africa, from France to Sweden in Europe, and even in the US and Canada. Uruguay and the Netherlands have even gone so far as making water privatization illegal.

The nationalization of water services – or ‘remunicipalization’ as it is also called – occurs at many levels. It has been literally national in Uruguay, regional as in Argentina, city level as in Indonesia, and at the municipal or community level as in France and the US.

Water for the people

Nationalization is the real alternative to water privatization. It is the best way to ensure that water is provided as a service instead of operated as a business.

The concession agreements should be terminated as the starting point for returning Metro Manila water services to full public ownership, management and control. Government officials and the water firms should also be held accountable for over two decades of water service misdeeds.

There is a seemingly powerful counterargument to renationalizing water – why return Metro Manila water services to the government which did such a poor job of running it over two decades ago and was the reason for privatization to begin with? Privatization is flawed, it is argued, but public water is worse.

The concern is legitimate. Metro Manila water services in the 1990s certainly needed much improvement. Yet the Metro Manila and global experience these decades past are strong arguments that water should be run as a public service rather than as a business.

The drive for profits is so powerful as to override social concerns. Businesses are inherently profit-seeking and will necessarily put profits above social considerations – otherwise, they would not be businesses any more. Governments on the other hand are supposed to put social considerations above all.

Businesses will always charge a profit premium. Apparently, they will also underinvest if this will make their profit-seeking risky. In effect, water businesses will give people the water services they want as long as these are water services the business wants to give. If forced to do otherwise they will not also not hesitate to bring the State to court.

Which raises the question – how can the government improve how it runs water services? First of all, we can rule out privatization for that. The MWSS has overly relied on the water concessionaires over the past two decades. Not only has it foregone building capacity over that period, it even eroded whatever capacity it already had.

The government should seriously consider options not relying on profit-maximization. Profit-seeking underlies all variants of privatization and public-private partnerships (PPPs). There are, for instance, public-public partnerships (PUPs). These are collaborations between two public authorities on the basis of solidarity and the spirit of improving public services.

The Public Services International Research Unit (PSIRU) already reports 137 water service PUPs in around 70 countries as of 2018. PSIRU even observed that “the number of implemented PUPs largely exceeds the number of privatized contracts in the global water sector”. Such not-for-profit partnerships to build non-commercialized water and sewerage systems are the most appropriate capacity-building arrangements for realizing water as a human right.

Democratic public water

Giving citizen groups a greater role in water services can also help check corruption, abuses and inefficiency. It is already well-established that civil society organizations are vital for reflecting needs of local communities, mobilizing these to support policies and projects, and holding governments accountable. Democratic and transparent governance is not easy – but it is necessary and possible.

The political and economic interests behind neoliberalism understandably oppose nationalization of water services. This would be a direct rebuttal of their claims that corporate profit-seeking can deliver the public service that people need and deserve as a matter of human right – and on such a huge and profitable flagship privatization project as Metro Manila water no less. It is also inconsistent with the market-biased and foreign investor-friendly preferences of economic policy elites.

There is however more than enough reason to let go of the cherished neoliberal dogma that pursuing private gain through free markets is the best way to achieve optimal social outcomes. The last few months have already seen protests and uprisings around the world. Although appearing to be on disparate issues, their common root is the neoliberal economic model imposed on populations worldwide for nearly four decades. This has caused such dire consequences for so many.

In the Philippines, nationalization of water services would be a significant beachhead to advance the counterattack against neoliberalism and reclaim the economy for the people. Which is exactly why the Duterte administration, for all its posturing, is most unlikely to go in that direction. As always, sustained social and political dissent is the key to upholding the interests of the majority –indeed, more than ever in these times of neoliberal authoritarianism. #

‘NAGAUGTAS AKO’: Approval of BACIWA-Prime TOR ‘hurried,’ ‘without proper study’ – GM

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Visayas Today

The decision to approve a “certificate of successful negotiation” for ongoing talks between the Bacolod City Water District and Prime Water Infrastructure Corp. for a controversial 25-year joint venture agreement was “hurried” and done “without proper study,” the general manager of the water utility said.

“Naga-ugtas ako (I am exasperated),” Juliana Carbon declared in an interview.

Carbon stressed that, while she saw nothing inherently wrong in allowing private sector participation in improving BACIWA’ s services and systems, the local utility has, given the needed funding and direction, the capacity to accomplish the task.

A joint venture, she said, “is only one of the solutions and it is not the best; there are many other options.”

From daily noontime rallies staged by the BACIWA Employees Union, opposition to the proposed deal, which many consider “privatization,” has grown steadily, joined by various sectoral organizations. As of this week, four barangay councils – those of Sum-ag, Pahanocoy, Tangub and Barangay 21 – have passed resolutions against the joint venture, with others expected to follow suit.

The joint venture, says the BEU and others against the joint venture, would turn water from a natural resource to a profit-generating commodity, to the detriment of consumers. For starters, the union says, a 12 percent Value Added Tax will be automatically tacked onto water bills once the deal is closed.

The BEU, like Carbon, has pointed to other options, most of which, it says, can be carried out by BACIWA itself – for example, entering into agreements to purchase abundant surface water from neighboring water districts like those of Murcia, Bago or Talisay.

While Carbon acknowledged that BACIWA does not have the funds for expansion, she pointed out that the Development Bank of the Philippines “has written us, offering us standby credit of P3 billion.” The Metro Bacolod Chamber of Commerce and Industry has urged BACIWA to take advantage of this.

Yet, in the end, “the board makes policy and it is their decision to go into the (joint venture agreement) as head of the procuring entity” even as she stressed that the governing body created the Joint Venture Selection Committee to study and evaluate (offers) if these are for the good of BACIWA, the people and the workers.”

Carbon said she herself has “practically no role.”

But even if a joint venture were really necessary, Carbon said, the one being negotiated with Prime Water is fraught with problems, not only for BACIWA but, more important, its employees and its consumers.

In fact, Carbon said that, in comments she was asked to make on the negotiation report following the Joint Venture Selection Committee’s last meeting on July 4, she concluded that “the negotiations are not over yet and in fact failed in some aspects.”

Despite these findings, the board approved the issuance of the certificate of successful negotiation.

While admitting she had yet to receive a copy of the certificate, “I understand that there were refinements based on some of my comments.”
However, she noted that these changes were “most likely done by the board” outside the regular JVSC meeting and should, therefore, be subject to a board decision.

The issue of BACIWA’s earnings from the joint venture readily stood out as a major problem.

Carbon said BACIWA, which she stressed “has never been losing,” had asked Prime Water for P80 million a year, “which is our current average net income.”

“But Prime would agree to only P35 million a year from year 1 to 5, and P36 million a year from year 6-10,” she said. “This includes money for wages.”

Under this arrangement, BACIWA will hardly earn anything, Carbon said, something the Commission on Audit would surely question.

Another major flaw Carbon sees is the lack of detail in many of the proposed agreement’s provisions which, she says, could make the deal grossly disadvantageous to the government.

“If they say they will build a building for BACIWA, the dimensions – the floor area, the number of stories – should be specified” otherwise, Prime Water could build a small building and claim it as compliance with its commitments, she explained.

“If you enter into a partnership, you have to lay down all your reasonable goals and then convince the partner to agree and comply with these. It cannot be only what the partner wants. We cannot leave this to Prime Water to decide,” Carbon stressed.

She pointed out that in the terms of reference, Prime Water committed to supply a minimum of 10 psi (pound-force per square inch) during the first year of the joint venture.

“But in the new TOR, this has been moved to the fourth year,” she said.

The BACIWA general manager notes that while Presidential Decree 198, which created local water districts, mandates that water districts acquire, install and facilitate water systems, the joint venture hands over management and operations to Prime Water and “relegates BACIWA to a mere regulating and monitoring unit,” a point critics of the deal raise to argue why it is privatization in all but name.

Carbon also questioned why Prime Water is not obliged to assume BACIWA’s obligations, like the P400-million balance of its original P507-million debt to the DBP.

Although Prime Water will give BACIWA the funds to meet its annual payments, “what if somehow it becomes unable to do so? Since all revenues go to Prime Water, what happens to BACIWA since, in the contract, BACIWA remains the debtor?”

In contrast, she said, Metro Pacific paid off the debt of the Metro Iloilo Water District.

Another snag Carbon saw is Prime Water’s use of BACIWA’s assets, which she said COA has opined “should be considered asset rentals and subjected to a separate agreement.”

“But the negotiation terms provide that Prime Water will pay net usufruct – a legal term meaning to use and enjoy a thing and which is usually free – payments of P25 million a year. This is really still rental,” she said.
But what riled Carbon most are the provisions covering BACIWA’s personnel.

BACIWA executives have given assurances that employees will be “absorbed” under the joint venture, a claim disputed by both the BEU and Carbon since what they say will happen is that the personnel will be transferred from government to private employment. The union says this is evident since their social security coverage will shift from the GSIS to SSS.

“I cannot understand how a mere contract can change the status of employees from public to private,” Carbon wondered.

“Under the agreement, the employees have only two options,” she said. “Be absorbed and become private sector employees, or retire.”

Also, the proposed agreement is silent on the fact that permanent employees have to resign and go through the pre-hiring process all over again, which she said is definitely not absorption.

And even if employees opt for retirement, “there is another problem.”
This has to do with “propriety – some even call it a bribe,” she said.

Carbon was referring to an admittedly generous offer of financial assistance equal to 250 percent of an employee’s current wage.

“But why should Prime Water, a private entity, give BACIWA employees, who are government workers, this incentive and then pass it on to the consumers? Is the employee even allowed to receive this?” she asked.

And then, she added, there is a third question: “What if the employees choose to remain with the district as government employees? Can BACIWA force them to resign or retire?”

Aside from these and other problems in what the BACIWA board has declared a “successful negotiation,” Carbon said “there are so many horror stories of what happened to the districts that partnered with Prime Water.”

“I wonder why the representatives of the water district did not see this and instead signed the certificate of successful negotiation,” she said.