MWSS privatization, a manna from heaven

Backbencher
by Rod P. Kapunan

One could recall that when Fidel Ramos was selling hard the foreign-dictated proposal to privatize the country’s water distribution system, the faithful errand boy trumpeted to the Filipino people it would be good for them. With the usual braggadocio of giving the monopoly-capitalist a free hand to manage, operate and distribute water to the 15 million residents of Metro Manila, that would result in a more efficient service, increase revenue collection, reduced cost, and most important eliminate graft and corruption, a favorite alibi of the yellow hypocrites to justify the disposition of the country’s national patrimony to private hands. 

Thus, in 1997, with the approval of R.A. No. 8041, the journey for the privatization of the country’s water system began. The sale was hailed as the first large-scale and successful privatization of a water utility in Asia. The Metropolitan Waterworks and Sewerage System (MWSS) was sold without disclosing the proceeds that will go to the government, except to say that Maynilad Water Service Co. would assume 90 percent of the $900 million debt incurred by MWSS, while Manila Water Co. would take the rest. The two rent-seeking concessionaires namely, the Manila Water Co. owned by the Ayala clan was to take the east sector, while Maynilad Water Co. owned Lopez clan would take the west sector.

Accordingly, ensure the “sustainability” of the operations, a guaranteed rate of return was provided, dubbed as the “appropriate discount rate” (ADR) based on operating expenses, capital investment, taxes, including the servicing of MWSS’s debts, the two firms were allowed to get back the costs incurred for their operations and maintenance, investments, and concession fees payment -over and above a market-based rate of return. This forms the foundation for the tariff-setting mechanism.  

Other important features were the quarterly foreign currency differential adjustment for the payment of MWSS’s foreign-denominated debt taking into account changes in the exchange rate, annual adjustments for inflation, and an annual extraordinary price adjustment for events beyond the control of the concessionaires, e.g. natural calamities. Disputes, disagreements, controversies, or claims relating to the agreement shall be resolved through arbitration proceedings conforming with the arbitration rules of the UN Commission on International Trade Law. The World Bank through its private sector arm, International Finance Corporation (IFC), collected fees for its advisory services for the privatization strategy a whopping fee of US$6.2 million.

Some say, the right to grant concession belongs to the National Water Resources Board. Rather, the concession given by MWSS was made to guarantee the huge loans the two concessionaires premeditatedly planned borrow under their so-called expansion and upgrading program. It was for that why the proceeds in the sale of MWSS evaporated fast that today the two private water utilities have incurred a huge debt from the World Bank far beyond the amount that warranted the disposition of MWSS. In fact, in 2002 Maynilad Water filed a notice to terminate its concession, blaming the government for its failure to deliver water service, and sought the return of at least US$303 million it allegedly invested. 

Thus, right after the two water utilities were granted the concession, they hiked their cost per cubic meter from P2.50 as originally charged by MWSS to P5 then to P7, P20, P25, and now between P30 to P35 per cubic meter. They also scrapped the socialized pricing scheme which is to charge less for residential users as against commercial users. The reason is to encourage investors, which to this day come in like a trickle in the bucket. According to Global Water Intelligence, as of 2012 the rates of Maynilad ($7.18) and Manila Water ($5.11) are now the third and fourth highest, respectively, in Southeast Asia, after Singapore ($19.29) and Jakarta ($8.86). Davao City which was included in the report cost only $2.83, and the lowest, Phnom Penh $2.42. 

The two private water utility firms practically violated the laws on public service that has for decades been observed by public utility operators such as electric, telephone, cable television companies, suppliers of liquefied petroleum gas, and water companies like the NAWASA and MWSS. Each is required to directly connect or service their user/customers. All expenses, liabilities, repairs or damages incurred from and up to the meter is supposed to be shouldered by the utility company, and beyond that is for the customer. 

To prevent losses through leaks and pilferage, they would install a master meter at the gate to be connected with the existing pipes of the subdivision. In the meantime, resident-customers are required to maintain their own private meter to individually bill them, while the master meter is used to bill the entire subdivision. 

The catch is while the homeowners’ association is required to pay the total amount consumed by the subdivision, it does not enjoy the benefit of a discount as buyer in bulk, say at 10 percent less than the amount paid by individual consumer. Such discount is in order much that it is the association that is paying for the employees to bill and collect payments from individual customers. Most anomalous is while the greedy operators of water utilities use the existing pipes of the subdivision, all expenses related for repairs, leaks, pilferage, bust or extension, including the replacement of private meter and valves beyond the master meter is to be shouldered by the homeowners association. In effect, the water utility firm gets in full the amount without having to pay even a drop of water lost.

The two firms offered to install direct water connection in their bid to get as many customers, like subdivisions with existing water pipes. As modus operandi, they demanded the subdivision homeowners to discard their pumping wells and huge overhead water tanks to give way for their entry. More than that, direct water connection comes not without a big cost to the residents. Every individual homeowner is charged P24,000 for the rehabilitation and construction of the pipes even if the construction that will be undertaken is common or owned by the subdivision. Once the rehabilitation and piping is completed the firm would demand that they be donated to the water company despite the fact that each individual homeowner paid for them. Now, is it public service or robbery? (rpkapunan@yahoo.com)