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Renegotiation of CA not enough without renouncing privatization –WPN

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by Water for the People Network

The Water for the People Network (WPN) said that government should renounce water privatization and assert water as a human right whose provision should be under effective public control. This is the most important basis for terminating the concession agreements (CA) between the State and private water firms. The vital public utility should be returned to the public sector, WPN said, and not remain in the hands of profit-seeking water oligarchs.

President Duterte recently ordered the CAs between government and water firms Maynilad Water Systems Inc. and Manila Water Company to be renegotiated. Department of Justice (DOJ) Secretary Menardo Guevarra said that certain provisions of the water CAs are onerous and disadvantageous to both government and consumers. The DOJ began reviewing the CAs upon the instruction of President Duterte at the height of the water crisis during the first quarter of this year.

The onerous stipulations recorded by the DOJ include prohibition against State interference in rate-setting, indemnification for revenue losses due to this interference, and irregular extension of contracts by 15 years. These are issues that have been raised by water rights advocates, WPN said, in the more than two decades since water in Metro Manila was privatized.

“The WPN has long and repeatedly called for the scrapping of the CAs. The CAs are the very epitome of water privatization, which has failed to deliver promised cheaper, cleaner, and more secure water services,” WPN spokesperson Prof. Reggie Vallejos said. Water utilities have to deliver water as a human right, he stressed, and mere renegotiation of the CAs will not truly ensure public interest objectives over private profits.

“The government has not yet revealed its points for renegotiation but we doubt that these will be enough to uphold the public welfare if they are still within the failed water privatization framework and biased towards profitability for water oligarchs,” Vallejos said.

WPN recalled that water privatization has only resulted in more expensive water, with rates increasing seven-fold for Maynilad and ten-fold for Manila Water from the start of the concession in 1997 to the third quarter of 2019. The CA-directed rate rebasing every five years since privatization allowed firms to make profits by charging consumers increasing tariffs including, among others, for projects that fail to push through. WPN added that the CA gives government a key role in rate-setting (judging whether enumerated expenses were prudent and just in the interest of consumers), but nonetheless allows the companies to sue the State should its regulation affect their profit-making.

The water firms also face Supreme Court-imposed penalties for violating the Clean Water Act, with poor sewerage services performance versus targets as of 2018. Meanwhile, water service interruptions have been hounding Manila Water and Maynilad consumers since March 2019.

These problems bring us back to 1997, WPN said, when the Ramos administration invoked a national water crisis and handed over water sourcing, processing and distribution to the private sector. The huge socially-sensitive water utility was handed over to the Ayalas and Lopezes. The biggest water privatization until then was perfectly in tune with the Ramos government’s grand promotion of globalization policies including deregulating the oil industry and liberalizing Philippine agriculture, said the group.

Public sector water operations should be re-established in Metro Manila and the rest of the country as soon as possible, said Vallejos. “These should be returned to the public sector to ensure that profit-seeking does not get in the way of delivering cheap, clean, and secure water services to the public,” he said.

WPN cited the growing global trend of water remunicipalization reversing water privatization. This has already happened in over 231 cities in some 37 countries around the world for instance in Spain, Germany, Argentina, and even in France, home to water multinationals. The poor experience with water privatization is making governments choose public water sourcing and distribution over private control, the group said.

Government’s continued implementation of water privatization is seeing additional oligarchs taking over public control of water, said WPN. Specifically, these are big business interests close to Duterte, for instance, Manny Villar and Dennis Uy who are also in the water business through Prime Water Infrastructure Corp. and Udenna Water and Integrated Services, respectively. Prime Water has been striking joint venture agreements with local water districts in areas nationwide but undermining water services according to a Commission on Audit report, WPN observed.

Simply renegotiating the CAs to let more oligarchs keep profiting from the water business will not remove the ill effects of privatization on the public and may even make it worse, WPN said. Government must bravely decide to take control of the vital public utility and run it as a service rather than for profit, the group said. #

On Consumer Welfare Month: 20 years of MWSS privatization, 20 years of violating the people’s right to water

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By Water for the People Network–The 20th anniversary of the privatization of the Metropolitan Waterworks and Sewerage System (MWSS) in August was considered a milestone by privatization proponents. The MWSS has often been used to showcase the supposed benefits of turning over water supply services to private corporations. But the start of government-declared Consumer Welfare Month is an opportune time to note that two decades of MWSS privatization has harmed the interests of the consumers and the general public. While ensuring huge profits for Manila Water Co. Inc. and Maynilad Water Services Inc., it has violated the people’s right to water, the various ways by which are listed below:

  1. MWSS privatization has resulted in soaring water rates as private concessionaires rake in massive corporate profits

Between August 1997 and August 2017, the basic tariff of Manila Water has soared by 969 percent. The basic tariff of Maynilad, meanwhile, has ballooned by 596 percent. The all-in tariff, which counts the basic tariff plus add-on charges, for Manila Water has increased by 762% during the same period. For Maynilad, it has jumped by 548 percent.

This translated to enormous profits with a combined accumulated income of Php94.5 billion from 2000 to 2015. Such soaring rates and massive profits for Manila Water and Maynilad were made possible by the concession agreements (CA) they signed with MWSS. Tariffs reflected the impact of inflation, adjustments in the foreign exchange rate, and the concessionaires’ petitioned basic charge which would allow them to supposedly implement their business plan and achieve a guaranteed rate of return in the succeeding five years.

Privatization guaranteed the profits of Manila Water and Maynilad not only by allowing them to pass on all the risks of running a business to the consumers. Privatization also legitimized the collection from the consumers of onerous and questionable charges by MWSS concessionaires.

During the last rebasing in 2013, it was exposed that Manila Water and Maynilad had been including questionable items in their application for new rates. As in previous rebasing exercises (2002 and 2007), they passed on to clueless customers the costs of their corporate income tax (CIT), unimplemented projects, advertising, donations, and recreation.

  1. MWSS privatization has seriously undermined the power and mandate of government to regulate the private concessionaires to protect public interests and welfare

The last rebasing also exposed a key feature of MWSS privatization which is how the power of the state to regulate businesses to protect public interest is greatly undermined. When the Regulatory Office (RO) prohibited the concessionaires from passing on their CIT and other questionable charges to the consumers, Manila Water and Maynilad promptly challenged the decision through international arbitration. This is a mechanism provided by the CA to settle disputes between the concessionaires and MWSS on the interpretation and implementation of the contracts’ provisions, including on the setting of rates. It is a secretive and undemocratic process that includes only representatives of MWSS and the concessionaires and without any public participation. It is being chaired by an unaccountable foreign third party that also represents big business interests.

Filipino taxpayers now face the possibility of shouldering as much as Php82 billion in additional burden if the concessionaires are able to secure favorable decisions from international arbitration. Already, the arbitration panel that heard Maynilad’s case ordered government to pay Php3.4 billion. These amounts represent the supposed losses of the concessionaires when the RO disallowed the continued collection of the CIT and other questionable charges. As stipulated in the CA, government has committed to pay for these supposed losses through what is called sovereign guarantee.

As early as 1998 or a year into privatization, Manila Water had already sought international arbitration to compel the RO to increase the firm’s rate of return contained in its original bid. Aside from the arbitration mechanism, concessionaires also resort to blatant arm-twisting to force favorable decisions from government. In 2001, the original investors of Maynilad blackmailed government to amend the CA to allow it to increase rates or else it would terminate the contract.

  1. MWSS privatization has further weakened the people’s right to water amid questionable claims by the concessionaires of improved water services

The soaring water rates and onerous charges being imposed by Manila Water and Maynilad have effectively marginalized poor households from enjoying the right to access water for domestic use. Amid depressed wages and chronic unemployment, water services along with other basic daily necessities, have put increasing pressure on ordinary families’ budgets.

While both concessionaires claim almost universal water supply coverage, poor communities in their service areas do not enjoy the same quality of service that well-off customers like richer households and commercial areas have. Instead of individual connections, poor communities have to make do with bulk meter connections. Aside from compromising the safety and quality of water, it is also not unusual that the water supply in these poor communities is not available 24/7.

Based on the latest available data, the number of persons per connection for Manila Water is seven, and nine for Maynilad, indicating the prevalence of bulk connections – mainly among urban poor communities – in the MWSS concession areas. Thus, while the concessionaires claim outstanding performance (which the RO apparently could not even independently verify), the truth is that many households, in particular the poor, are not individually connected to the water supply system, which is supposed to be the standard. The poor also end up paying more as block tariff rates apply on these bulk connections.

Aside from universal and 24/7 supply coverage, the concessionaires also promised to provide improved sewerage coverage, which they substantially failed to do amid limited investments despite skyrocketing water rates. In their original service targets, Maynilad committed to achieve 31% sewerage coverage by 2016 and 52% for Manila Water. As of December 2013 – the latest available data – Manila Water has only achieved 12% and Maynilad, 11 percent.

  1. MWSS privatization has deepened corporate and foreign control over vital infrastructure and key services in the country

From the onset, MWSS privatization has been an agenda of big corporate and foreign interests.  Foreign creditors World Bank, Asian Development Bank (ADB), and Japan Bank for International Cooperation (JBIC) pushed for the privatization of MWSS, which then owed them some US$800 million in debt. The World Bank’s International Finance Corp. (IFC) served as government consultant in MWSS privatization and designed the concession agreement.

The IFC is now an investor in Manila Water, raking billions of profits from a contract it designed itself. Manila Water is led by Ayala Corporation and United Kingdom (UK)-based United Utilities. Aside from the IFC, other foreign investors include Japanese giant, Mitsubishi Corp. as well as First State Investments of the UK, Singapore-based global fund manager Aberdeen Asset Management plc, and US-based equity mutual fund Smallcap World Fund Inc.

Meanwhile, Maynilad is currently controlled by Manny V. Pangilinan through the Metro Pacific Investments Corp. (MPIC) and DMCI Holdings of the Consunji family. MPIC , of course, is backed by  Indonesia’s Salim group. Other foreign interests in Maynilad are MCNK JV Corp., a unit of Japanese giant Marubeni Corp., and Lyonnaise Asia Water Limited, a unit of French firm Suez, one of the world’s largest water companies.

Water privatization is being challenged worldwide – from France where some of the first water privatization took place and where the world’s largest water firms are based – to Jakarta, Indonesia which privatized its water system the same year as Metro Manila and used the same model.

Water privatization must be reversed. There is no way out of the trap of exorbitant water rates and unreliable service for the poor unless the concession agreements with Manila Water and Maynilad are junked and the operation of the water supply system is taken over by a reformed public sector. # (Ibon.org)