The story starts with Martial Law President Ferdinand Marcos. When he became president in 1965, the total external debt was $600 million; by the time he was ousted in 1986, it had ballooned to $26 billion — a 4,300% rise, according to the Ibon Databank, cited in an article in the Philippine Daily Inquirer of Nov. 24, 2016.
When Senator Benigno “Ninoy” Aquino, Jr. was assassinated on Aug. 21, 1983, foreign banks worried about the Marcos autocracy and withheld their credit facilities. Marcos declared bankruptcy in October 1983 and sought a 90-day moratorium on principal debt payments. The World Bank had to lend him some more to avert a default but “with painful conditions like cutting the government budget, peso devaluation, tariff dismantling, and ending subsidies,” the same Ibon report related.
Borrow to complacency, that is what Marcos and other “third world” (developing) countries did at that time. It was in this situation that the concept of privatization was gaining popularity, in the thinking of economist F. A. Hayek that governments should devolve commercial activities to the private sector and just regulate these, while concentrating on social development. Privatization seemed a convenient way to unload government-run enterprises and services (and produce cash therefrom), as then British Prime Minister Margaret Thatcher had tested in the UK.
And Marcos took notice of this “panacea” to his financial problems. He issued PD 2032 to prepare for the privatization of some of his collection of sequestered companies, called Government-Owned and -Controlled Corporations (GOCCs). But the February 1986 EDSA People Power Revolution soon ousted Marcos and installed Ninoy’s widow, Corazon “Cory” Aquino, as president, and she returned most of the sequestered corporations to their rightful owners. Cory instead implemented the Build, Operate and Transfer (BOT) scheme for self-financing of new projects.
It was President Fidel Ramos who maximized the privatization scheme for boosting the economy. He sold government assets totaling to about P70 billion, the most massive “fire sale” among all administrations. From this Ramos, and only he among all presidents, had budget surpluses for four of the six years of his term. He was able to contain and resolve the power crisis in his time, with emergency powers to fast-track the construction of power projects on BOT and BOO (Build, Operate and Own) — bases, the latter a sort of “prepaid” privatization to the contractor.
The water crisis in the early 1990s became the justification for the privatization of the water sector, the Water for the People Network Asia (WPNA) declared to the UN Office of the High Commissioner on Human Rights (ohchr.org). The National Water Crisis Act of 1995 (RA 8041) gave President Ramos emergency power for one year to manage the projected 75% increase in national demand for water. The Metropolitan Waterworks and Sewerage System (MWSS) had incurred a debt of $307 million by 1995, $204 million of which were debts from World Bank (WB) and the Asian Development Bank (ADB). To ensure repayment of debts, the WB proposed privatization as the solution to the problem, according to the WPNA report.
“The World Bank became the Ramos administration’s consultant on the privatization through the International Finance Corporation, even designing the bidding process and drawing up the Concession Agreement,” the WPNA said.
Is that the Concession Agreement that turned President Duterte livid, as he lashed out at water concessionaires Manila Water and Maynilad on live television? The President threatened to sue officials of the two companies and former government officials who had been part of the concession agreement, following the ruling of the Permanent Court of Arbitration (PCA) ordering the national government to pay P7.39 billion in “foregone revenues” to the Ayala-owned Manila Water. Maynilad won its own case in 2017 in the arbitration court, which directed the government to pay P3.4 billion.
“I will file plunder. Ang plunder Mr. Ayala, no bail ’yan,” Mr. Duterte seethed through gritted teeth (CNN Philippines, Dec. 5). Presidential Spokesman Salvador Panelo called certain provisions being reviewed by the Department of Justice as “onerous” and said these will be removed, as all those who had anything to do with the Concession Agreement will be charged in court — possibly including Presidents Fidel Ramos and Gloria Arroyo and those who let those onerous provisions go through — all up to the administration of Benigno S.C. Aquino III.
President Ramos publicly reacted immediately, saying that “any agreement (must be honored), be it between governments and/or the government and the private sector… our word must be our bond. With privatization, the private sector mobilized funding from both foreign and local sources depending on the word of the Philippine government that the essential conditions of adherence to the sanctity of contracts and rule of law must be observed.
“The MWSS concession agreement, as with all projects and agreements entered into by government during my administration, was anchored on complete staff work, review and consultation with various government agencies, organizations and the concerned public, which resulted in complete transparency all the while negotiating terms most favorable to government.” President Ramos said in a statement quoted in the Philippine Daily Inquirer of Dec. 14.
What President Ramos did not say was that the government was probably under the gun by the IMF/World Bank at the time of the Water Concession Agreement. Remember that the World Bank was hot on collecting the $307 million in MWSS debt, during the world financial crisis when other countries who owed the IMF/WB were boldly talking of debt repudiation. In separate Concession Agreements that MWSS signed, Maynilad would shoulder 90% of MWSS debts while Manila Water would shoulder 10% through payments of concession fees.
And so, the WPNA bewailed to the UNCHR, “The architects behind the privatization of MWSS ensured that the ‘commercial viability’ of firms operating the water system through a pricing scheme that automatically generates profits.”
The Rate Rebasing every five years allows the concessionaires to recover historical capital, operating and investment expenditures, and review future capital, operating, and investment plans. The foreign currency differential adjustments (FCDA) every quarter and the accelerated extraordinary price adjustment (AEPA) also cover foreign currency exchange and other risks.
“Manila Water’s net income from 2015 to 2018 totaled P25 billion… its average annual earnings was P6.2 billion, increasing from P5.6 billion in 2011 to 2014” (Manila Times, Dec. 6). And the two concessionaires, both profitable all these years, do not pay income taxes, President Duterte boomed on national television, as he threatened to charge them with economic sabotage.
Maynilad Chief Executive Officer Ramoncito Fernandez said at the joint House Committees on Good Government and on Public Accountability on Dec. 10: “We are not losing money… (but) everything that we have spent, including capital expenditure, operating expenses… averaged P20 billion in income but we have spent P33 billion.”
To cut a long story short, both “Maynilad and Manila Water announced they decided to abandon their arbitral claim of a combined P10.8 billion supposedly for lost revenues from an unenforced rate hike,” as the Philippine Star of Dec. 11 reported. The two concessionaires also declared there will be no water rate hike in January 2020 for consumers.
“Puede naman pala (so it can be done, after all),” former Vice-President Noli de Castro said in his TV news program Kabayan the morning after. But, perhaps riding the crest of public delight at the staying of water rates, President Duterte has been titillating his audience with “coming-soon” trailers of killing off Manila Water and Maynilad with the cancellation of the “onerous” Concession Agreement.
Let’s see how the story goes from there.
Amelia H. C. Ylagan is a Doctor of Business Administration from the University of the Philippines.