Tuesday, March 3, 2015

On vital public utilities, state policies are either incoherent or predatory

THE government decided on the fare increases for LRT1, LRT2 and the MRT 3 with lightning speed—then never wavered from that decision. The protesters raised very good points in the legal petitions to stop the fare increases but the points centered on what was publicly known: the insanity of imposing a fare increase despite the lousy, often dangerous, service offered by the decrepit trains. The MRT 3 is now one of the worst urban rail systems in the world, no thanks to the incompetent state agency that regulates and runs it.
What was not factored into the discussion was this. The government is now bent on taking full control of the MRT 3, the rail service that carries more than half a billion passengers a day, a captive market with room for immense and sustained growth.
Were it not for a vigilant Senate, which thwarted an attempt to sneak in a fund for the government takeover of the MRT 3 in the 2015 national budget, the planned equity buyout of the MRT 3 shares now held by the Land Bank of the Philippines and the Development Bank of the Philippines would have been a reality.
So this question is proper to ask. Was not the speedy decision to increase the MRT 3 fare tied up to the planned state takeover of the rail system, a cash cow with a captive market of at least 5000,000 commuters a day? Your guess is as good as mine. Who, in government, could resist the temptation of fully owning a utility with an unlimited room for growth and profit-generation?
When it is to the interests of some overly interested government apparatchiks, a fare increase can be a done deal under all circumstances. Even if this were to be rammed through the tired and weary bodies of MRT commuters.
But what if there is no selfish interests at stake? What if the rate increase is sought by a privately run firm that acquired it from government via privatization— and the government’s role is now limited to regulating that utility? What if the state regulator has no other mandate than to exercise fairness, especially in rate-setting?
The answer to that question is now unraveling before a visibly spooked investment community. The MWSS, invoking phony populism, refuses to allow a rate increase that was settled by an appeals panel of the International Chamber of Commerce based in Singapore in favor of the Maynilad Water Company. Whether one likes that decision or not, the December 2014 ruling of the ICC has to be respected as it is cloaked with the mantle of fairness.
Not much quibble is usually raised against ICC arbitration decisions as they are based on the sanctity of contracts and the fine prints of signed agreements between two contending parties.
From a superficial glance, the consumer protection reasoning of the MWSS will hold. What kind of consumers would not appreciate the action of a regulator that reins in the rates of the utility it regulates in the name of public good?
The problem is this. This invocation has no bearing in the real world in which obligations and contracts are sacrosanct. The 1997 privatization agreement with the two water companies now being overseen by the MWSS carries a proviso for a regular rate rebasing. If the private water firm fulfills what it promised in the areas of expanded service and improved services are fulfilled, the government cannot do anything except to stick to the terms of engagements, including the regular rate rebasing. As simple as that.
The foreign chambers of commerce in Manila have written letters to top Aquino government officials on the MWSS whimsy, on why the water regulator can just arbitrarily violate the terms of engagement in the 1997 privatization. Foreign investors are asking this: Where are the stable and fair rules?
Indeed, what motivates the LRT managers to declare a fare increase at will despite literally running the MRT 3 to the ground? And what gives the MWSS the mandate to just ignore international arbitrations and impose a rate freeze despite the supposed sacredness of privatization deals.
This contradiction between the two issues—an unjustified rate hike that was pushed through at the expense of the wary commuters and a frozen rate increase that was arbitrated, and green-lighted, by an international appeals panel —would not have been so glaring had not the foreign investment community said their piece and condemned the rate freeze.
The investment community is one of the last few remaining bastions of support for Mr. Aquino. And its brutally frank commentaries essentially raised questions on the stability of investment rules, which to the community should not be whimsical, capricious and arbitrary. The MWSS cannot just sabotage Mr. Aquino’s invest-in-the Philippines campaign via its deliberate mocking of the privatization rules. What if the turned-off investors, spooked to the core, shifted their investments elsewhere?
The other problem of the MWSS is lack of credibility. It cannot even say that the metropolitan water system was better off when it was running the whole enterprise, before the privatization. Clearly, it is seeking refuge in the refuge of those who cannot invoke clear, cogent and legal arguments—phony populism.
Last item on public utilities. Have you heard of the equally crazy and stupid plan of the state to run the public utility buses in Metro Manila? The operators, warts and all, have been there for generations. And they have been doing that without government support. The unlamented MMTC, or the Metro Manila Transit Corporation, after it folded up with gargantuan losses, left nothing but massive heaps of junk and litter.
Marlen Ronquillo

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