Investigating the water contracts

Now THAT we know that there is problem with our national power grid, it being run by state-owned company of China, and how to solve it (https://www.bworldonline.com/investigating-the-grid), we turn our attention to our problem with water.

The same thing that happened to NAWASA — the National Waterworks and Sewerage System Authority — when it was privatized and two private corporations took over our supply of water even if people today continue to use the old acronym to mean water supply.

It changed to the present MWSS — the Metropolitan Waterworks and Sewerage System — with its two 25-year concessionaires (1997-2022) that we have, East Zone to the Ayala’s Manila Water Company, Inc. and West Zone to the Lopez’s Maynilad Water Services, Inc. before being bought out by the Pangilinan and Consunji group in 2007.

The first easy point is why the renewal in 2009, or halfway to the agreed period. The quick answer is that the Lopez group was in deep debt post-financial crisis. To make business sense, the new owners/operators needed a new period to make it worth their while, hence, the renewal up to 2037, or 28 years, a period longer than the original 25 years.

Why these number of years and why was the early renewal also given to the Ayala zone with the same operator which now has a concessionaire period of 40 years (1997 to 2037)? The difficult answer is that only the operators know and this is a problem in privatization.

A public utility exists for the benefit and welfare of consumers, in this case, each Filipino that lives in the covered areas. True, we put up with bad service but cheap rates when run by government. But when private companies take over, profits become the primary motive. Water service may have improved but at what price? The last few years we experienced water crisis which ought to be the responsibility of the operators.

But with its lack of knowledge and paucity of expertise, the regulator, MWSS, is actually reliant and totally dependent on the regulated companies on “how best” to manage the water supply. There are issues of governance in the MWSS that at one point had a board member act as the Chief Regulator — a clear case of conflict of interest.

The situation is one of asymmetrical information between the regulator and regulated which results in the regulated companies providing all the data, whether technical, financial, or operational. With the specter of “regulatory capture” when private companies dictate the actions of the regulator, there is no concept of utility for the public but rather the maximization of the return on investment (ROI).

The two concessionaries say they are agents. Legally as agents, they act under the direction and for the interest of the principal. The reason for existence of the principal, MWSS, is for the Filipino consumers. For any regulated entity, its biggest risk and concern is displeasing the principal as its regulator. In the present case, it is the agents who dare take the principal to court.

The contract called for hearings in a foreign jurisdiction, Singapore. Technically it is arbitration but can you imagine the Republic of the Philippines being sued by two Filipino companies in a foreign country? Can you picture the US answering to a court in Hong Kong? Or China agreeing to a summons by foreign judges? And do you know that we are the ones ultimately paying for the costly legal fees in dollars for the proceedings?

In law, the principal has every right to revoke the agency if the agency is no longer performing its functions, or if the agent misbehaves.

Even with the change of name from NAWASA to MWSS, the mandate is not only for waterworks but also for sewerage. This is the subject of a Supreme Court case that ruled that both concessionaires have not lived up to their promise to connect consumers to a sewage system and penalized them for each day of non-compliance.

Connecting the sewerage system is perhaps as costly as supplying the water without the revenues. Honesty requires the same effort to work with stakeholders. For every consumer supplied with revenue water, an equivalent connection to the sewerage is a good measure. No excuse is acceptable.

So the President of the Philippines, regardless of some flawed policies and many bad selection of personnel, is right to demand a thorough and balanced review of the contracts. The review will have to determine how much were the dividends paid out by the private companies and what were their rates of return on investment over the years? These will answer whether the contracts are onerous or not, and their consequent revocation or continuance.