Ppp gone wrong

The concession agreements entered into by the Metropolitan Waterworks and Sewerage System (MWSS) with Metro Pacific’s Maynilad and Manila Water of the Ayala group, and the cost recovery system included in it, enabled these two groups to invest a total of P105 billion to improve water distribution in Metro Manila and neighboring areas.

This is precisely the essence of the Public-Private Partnership (PPP) program of our government, wherein private investors are asked to invest huge sums of money on infrastructure projects which the public sector would not otherwise be able to afford on the promise that the long-term contracts entered into with the government will be honored.

Now, if our government cannot honor its contracts, which investor in his right mind would invest in public sector projects? Is our government a lousy and unreliable business partner?

This is precisely the essence of the statement issued by four of the country’s biggest business organizations, namely the Employers Confederation of the Philippines, the Philippine Chamber of Commerce and Industry, the Management Association of the Philippines, and the Foundation for Economic Freedom.

The four groups noted that under the PPP, investors and financiers are asked to commit huge sums of money on projects with long recovery periods, 20 years or longer, on the promise that government will honor its contract obligations and will do so with consistency and fairness. 

It said that the 16-year-old Philippine water PPP has contributed much to improve public welfare by having more than doubled the number of customers served, provided a 24-hour water service availability level that meets health standards, while addressing the needs of millions in the poor communities. None of this was available before. These achievements have won international recognition from the IFC/World Bank, International Water Association, the World Economic Forum, and others. 

The business community expressed concern about “reckless statements” calling for unilateral changes, even abrogation of contracts, by government agents whose responsibility is to deliver on obligations under those contracts.

Such statements, if accepted, could reinforce perceptions that there are risks to investing under the Philippine PPP program, and undermine faith in government’s seriousness of commitment to its own flagship PPP program.

They urged Philippine authorities to faithfully adhere to the terms of the concession agreements, including following the provisions on dispute settlement that call for international arbitration in the event of differences.

They emphasized that demands for tariff adjustments need to be framed strictly within the agreements, and be mindful of the public’s need, not just for reliable clean water, sewage and sanitation services, but for other sorely  lacking infrastructure such as mass transport, toll roads, ports, power and others which would be affected by any ill-considered decision on this case.

The fact that these “exposes” about the alleged uncalled for expenses that are allowed to be passed on to customers under the water concession agreements were made known to the public at a time when rate rebasing (petition for water rate increases) is forthcoming makes them dubious. But when was the last water rate increase? The proposed water rate increase in fact is revenue-neutral and has no impact on the net income of the concessionaires.  Part of it is just to make up for the foreign exchange losses arising from the payment of the concession fees to the government (when the concessionaires assumed MWSS’ foreign loans). Water concessionaires are not allowed to generate returns beyond what is necessary to recover cost and make a little ROI.

How often do oil companies raise their fuel prices? Have we pressured our government to repeal the oil deregulation law that has made the life of motorists a living hell?

If not for these private sector conglomerates who are willing to invest billions of pesos to make our lives better by way of better roads, clean and readily available water, power, electricity, and means of communications, to name a few, foreign investors won’t even dare take a look at our country and do business here.

If our government decides to renege on its commitments under the concession agreements with Maynilad and Manila Water, one message becomes resoundingly clear – government is a lousy business partner and should never be trusted.

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