While the Philippines continues to impress financial institutions and credit ratings agencies by showing continued economic growth despite the slowdown in the region, some government agencies seem bent on destabilizing the positive investment climate in the country by flip-flopping on contracts with private investors. Take for instance water regulatory agency MWSS (Metropolitan Waterworks and Sewerage System) and its administrator Gerry Esquivel who suddenly decided to slash water rates and overturn an existing agreement with private water concessionaires that allows them to recover their investments.
In 1997, the government decided to privatize the MWSS because it was failing, and very dismally too, in its responsibility to provide adequate and clean water to the growing population in Metro Manila, with a lot of water leakages and illegal connections costing the government through the so-called non-revenue water. In fact, the water situation in Metro Manila was so bad, with water supply only available for 12 to 16 hours a day (if you’re lucky) and just 50 to 60 percent of households covered that a Water Crisis Act was passed in 1995, paving the way for privatization through concession contracts wherein concessionaires would operate and manage the facilities while the MWSS retained ownership of the structure.
The service area was divided into two zones, with the Ayala-owned Manila Water servicing the East Zone (Makati, Mandaluyong, Pasig, Pateros, San Juan, Marikina, Taguig and parts of Quezon City and Manila) while Maynilad Water – led by the Metro Pacific Group of Manny Pangilinan – services the West Zone (majority of Manila, Quezon City, Caloocan, Pasay, Parañaque, Muntinlupa, Las Piñas, Valenzuela, Caloocan, Navotas and Malabon).
These concessionaires invested billions to develop and improve the water distribution system, replaced old and leaking rusty pipes and installed state-of-the-art water treatment plants like what Maynilad did in Putatan, Muntinlupa where the facility taps into Laguna Lake as an alternative to Angat Dam as a water source.
Of course, the whole idea of privatization is that it’s a business, and you don’t get into business to lose money, which is why you try to recover your cost. Part of the contract with the water concessionaires is for them to increase tariff rates to ensure the efficient delivery of potable water to Metro Manila households. Obviously, the decision of MWSS and Esquivel to slash water rates, disallowing the market-based rate of return on investments, is a populist and short-sighted move that does not take long-term consequences into consideration.
The Japanese Chamber of Commerce has already conveyed its disappointment, saying the MWSS move undermines the legitimacy of contracts and obstructs vital investments to further improve water supply and sewerage systems. More importantly, the Japanese Chamber said that it “sends a very strong message to the business community about the level of commitment of the Philippine government in upholding the sanctity of contracts.â€
Even an ambassador from a major country is appalled at the purely populist move of the government with the MWSS decision, pointing out that incentives such as recovery of corporate income tax is normal in major concession contracts in other countries and that there is nothing illegal or irregular about the practice.
What MWSS officials conveniently omit from the public is the fact that they are facing accusations of irregularity, giving themselves very fat bonuses, allowances, per diems and other perks that come from concession fees paid by Manila Water and Maynilad. No less than President Noynoy Aquino himself gave MWSS officials a very public scolding in his first State of the Nation Address for highly excessive bonuses. According to the Commission on Audit, MWSS exceeded its budget by P121 million last year, with over P74 million reportedly going to unauthorized allowances to the board of trustees. A big part of the MWSS budget also reportedly goes to more than 400 consultants whose fees are charged to the water concessionaires.
Private investors – both foreign and local – do business in the country and invest in long-term infrastructure and Public-Private Partnership projects believing that the Philippines has a stable regulatory environment. But deceptively populist and arbitrary decisions that undermine contracts and renege on established agreements will discourage investors from doing business in a country whose government is perceived to be unreliable as a business partner – with contracts just doing down the drain.
MOA Arena: Game changer
The first ever NBA game to be held in the country at the SM Mall of Asia Arena (MOAA) today is something that basketball-crazy Filipinos have dreamed about for so long – and now that it’s happening, many still have a hard time believing that it’s true. Tickets were almost already sold out as early as the first week of September, giving you an idea just how much NBA fanatics are looking forward to the pre-season game between the Houston Rockets and the Indiana Pacers.
Obviously, the Arena is a major draw for the NBA’s decision to hold the Global Games here, with a legacy contract already signed between the NBA and SM Investments Corp. for local NBA events to be held at the MOA Area in the next three years. The Arena has a seating capacity of 16,000 including 200-plus seats for PWDs (persons with disabilities), and the crowd capacity can be extended up to 20,000 with dedicated platforms in every section for standing spectators. The venue offers the best amenities fitting for the NBA stars (including Hall of Famer Larry Bird), and the Arena’s location near the airport is a definite plus. Clearly, the MOA Arena is a game changer – literally and figuratively.
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