By Victor V. Saulon Sub-Editor
and Vann Marlo M. Villegas Reporter
METRO MANILA’S two water providers warned of the implication of the government’s move to revoke the extension of their concession, which they learned only on Wednesday morning, while a foreign business group and an economist said the wider impact on investor confidence bears watching.
“The revocation of the (Metropolitan Waterworks and Sewerage System) board resolution on the extension of our concession up to 2037 has very serious, grave repercussions on our capability to support water security and also support investments in the compliance of the Clean Water Act,” Ramoncito S. Fernandez, president and chief executive officer of west zone concessionaire Maynilad Water Services, Inc., said in an interview after a hearing at the House of Representatives on supposed onerous provisions in water companies’ contracts with the government.
“While we were meeting almost [the] whole day, our creditors have already asked us how will this affect [the company]. ‘Will you still be able to pay the loans that you’ve contracted with us long term?,’” Mr. Fernandez said.
During the hearing, state agency Metropolitan Waterworks and Sewerage System (MWSS) said its board of trustees had revoked a resolution issued in 2008 and 2009 that approved the extension of the concession of Maynilad and Manila Water Company, Inc.
“That’s the action of the board — the revocation of the 15-year extension,” MWSS Deputy Administrator Leonor C. Cleofas told lawmakers, saying the decision was reached during a Dec. 5 board meeting.
The move revoked the extension until 2037 of the concessions, which was agreed even before the end of the original term in 2022.
Share prices of listed firms concerned fell by more than 13% to multi-year lows: Manila Water shares dropped 13.93% to P12.48 apiece, the lowest in 10 years and seven months; while that of DMCI Holdings, Inc. — which owns a fourth of Maynilad — gave up 13.39% to P5.11 each, the lowest in more than nine years, and that of Metro Pacific Investments Corp. — which owns more than half of Maynilad — went down 13.08% to P3.19 each, the lowest in more than eight years.
Metro Pacific is one of three Philippine subsidiaries of Hong Kong’s First Pacific Co. Ltd., the others being PLDT, Inc. and Philex Mining Corp. Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., maintains an interest in BusinessWorld through the Philippine Star Group which it controls.
Antonino T. Aquino, former president of Manila Water and current member of its board, said in the same House hearing that it was also only on Wednesday that he learned about the decision of the MWSS board.
“Obviously it has implications on maybe the recovery period for all of the investments, that’s one item. And of course for all of those things, you are required that funds have to be borrowed,” he said in an interview after the hearing. “More importantly, we want to make sure that during that extension we’re able to address from our side new water source that we badly need.”
Mr. Aquino said the company would “definitely make a response.”
During the hearing, he said that since the extension of the contract, the company had implemented its spending plan on the assumption that it could recover its investment for a longer period.
He also said these investments were already factored in the rate rebasing even as early as 2013.
Mr. Fernandez said the extension was signed by the President of the Philippines at that time through the Finance secretary.
“We will respond formally, as we were given three days to respond,” he said.
Howard Randy A. Arzadon, assistant government corporate counsel at the Office of the Government Corporate Counsel, said the move of the MWSS board came after the directive of Malacañang to cancel the extension. “The concessionaires were given three days to give their position on the matter,” the government counsel said.
The extension was approved on Aug. 16, 2008 for Manila Water, and on Sept. 10, 2009 for Maynilad. Gloria Macapagal-Arroyo was president of the Philippines at that time.
The original concession agreement was signed in 1997 during the term of President Fidel V. Ramos between MWSS, which owns the franchise, and Ayala-led Manila Water and Maynilad, which at that time was led by the Lopezes’ Benpres Corp. and its French partner. Maynilad, at that time incurring losses, was inherited by its new owners after it was re-bid by the government in 2007.
“All the documents from day one came from the government,” said ANAKALUSUGAN Rep. Michael T. Defensor, chairman of the Public Accounts committee, who presided over the hearing.
Asked on the issue of the treatment of the concessionaires’ corporate income tax as an expense to be recovered from their customers, Maynilad’s Mr. Fernandez replied: “… [It] is our desire, in deference to the President, to come up with a workable solution together with the government.”
WHO IS RESPONSIBLE FOR THE AGREEMENT?
Presidential Spokesperson Salvador S. Panelo said in a statement Tuesday evening the President will soon read in public the letters sent him by both concessionaires.
“The Chief Executive will read the letters of Maynilad and Manila Water before the public for transparency and to show that all the steps being undertaken by the government in resolving this issue with the two Metro Manila water concessionaires are aboveboard and legitimate,” Mr. Panelo said.
“These companies not only have inefficiently delivered water to the households but exacted unconscionable amounts from the taxpayers,” he added.
“The President will evaluate this development, as well as study the practical and legal consequences of the situation, before making any decision on what measure to undertake next.”
In a separate hearing in the Senate, however, a former MWSS chief recalled that the government had to turn to foreign consultants, including the World Bank Group, for the drafting of the water concession agreement since no one in the country had any experience in this issue.
Former administrator Angel L. Lazaro III, who led the MWSS at the time of then president Fidel V. Ramos, said considering the agency had no prior experience, it consulted the World Bank in drafting the contract.
“Who is responsible for the concession agreement?” Mr. Lazaro said during a Senate hearing, which tackled ongoing concerns on water supply shortage, Wednesday.
“The concession agreement was drafted by our consultants kasi nung 1996 wala naman kaming alam (because we knew nothing about this subject in 1996).”
Mr. Lazaro explained the draft was later approved by the MWSS Board of Trustees, where he served as vice chairman, and later reviewed by a special advisory council formed by Mr. Ramos.
Senator Grace S. Poe-Llamanzares, as chairperson of the Senate Public Services committee, cited the need to talk next with those who drafted the contracts.
“We have to know who drafted the contract to make it disadvantageous to us,” Ms. Llamanzares said in a briefing after Wednesday’s hearing.
“Ngayon, meron bang liability ‘yyung concessionaires? Kung pinirmahan nila pero tayo naman ‘yung nagbigay nun, ang may kasalanan nun ‘yung gobyerno. (Now, do the concessionaires have any liability? If they signed contracts which the government itself offered them, then it is the government who is at fault).”
Before the revocation of concession extension, Maynilad was awaiting an unresolved claim on the Republic of the Philippines. On Dec. 29, 2014, Maynilad’s water tariff under the rate rebasing for the period from 2013-2017 received a favorable award in arbitration proceedings in the Philippines. But the MWSS did not implement the awarded tariff increase. The company proceeded to arbitration in Singapore and the final hearing was completed in 2016.
On July 24, 2017, a three-person arbitral tribunal unanimously upheld the validity of Maynilad’s claim against the undertaking letter issued by the Republic, through the Finance department, to compensate Maynilad for the delayed implementation of its tariffs for the rebasing period.
The tribunal ordered the Republic to reimburse Maynilad P3.4 billion, but later adjusted to P3.2 billion, for losses from March 11, 2015 to Aug. 31, 2016. It also ruled that Maynilad is entitled to recover from the Republic its losses from Sept. 1, 2016. Mr. Fernandez said the company had not move to enforce the award nor compel the government to pay.
Meanwhile, Manila Water said on Nov. 29, 2019 that it had received the award rendered by a separate arbitral tribunal in the proceedings in Singapore between the company and the Republic.
The Permanent Court of Arbitration ruled that Manila Water has a right to indemnification for actual losses suffered by it on account of the Republic’s breach of its obligation. It ordered the Republic to indemnify Manila Water the amount of P7.39 billion representing the losses it suffered from June 1, 2015 until 22 Nov. 22, 2019, plus other costs.
On Tuesday, officials of both companies said they were willing to waive their collection of the separate arbitral awards.
Mr. Fernandez said the “rationale” of Maynilad’s decision was that its chairman, Manuel V. Pangilinan, wanted that the company was willing “to start with a clean slate.” He said the company was willing to cooperate and discuss with the government “how to move forward.”
Mr. Aquino said that revocation of the concession’s extension was a more “disturbing” development. He said he hoped the company and the government would be able to come up with a “workable solution” to avoid further conflict and ensure a “fair return to whatever investments that we make.”
For European Chamber of Commerce of the Philippines President Nabil Francis, “Stability and predictability or the regulatory environment are crucial factors for investors.”
“Changing the rules in the middle of the game will send a negative signal to potential and current investors. This will also significantly affect investor confidence as well as the attractiveness of the Philippines as an investment destination,” he said via text when asked for comment.
Bienvenido S. Oplas, Jr., president of think-tank Minimal Government Thinkers, said this latest development in the government’s move on Metro Manila’s water service providers would have a “very negative” impact on investor confidence.
“It’s very negative because… FDI (foreign direct investment) is long term… among the main requirements of FDI is stability of policy, respect of contract,” Mr. Oplas said in a telephone interview.
“Once you say you have a concession for say, 20 years, 30 years, it should be honored because they’re going to put in big money and you cannot just pull it out any time,” he added.
“The message for all foreign investors around the world is that this administration can change rules any time, arbitrarily…”
Speaking to reporters in a briefing in Malacañan Palace, Socioeconomic Planning Secretary Ernesto M. Pernia said, however, that much depends on the quality and fairness of contracts.
Referring to “the sanctity of contracts,” Mr. Pernia said that “if they are not saintly… then they have to be revised.”
“As long as we are implementing correct policies, fair policies… that should lure investors.
Asked separately, presidential spokesman Panelo replied: “The opposite is true.”
“Investments will pour in because investors will feel secure that the Duterte presidency will not tolerate corruption and false narratives,” Mr. Panelo said in a mobile phone message.
“Uscrupulous investors will shy away because jail term will await them.” — with Charmaine A. Tadalan and Gillian M. Cortez