Digression

Not surprisingly, neither the House of Representatives nor the Senate will hold a public inquiry into the Napoles pork barrel scandal. This operation is said to have drained billions in pork barrel funds and could only have been made possible by a wide conspiracy of characters from both the executive and legislative branches.

The pork barrel, we all know, is the single biggest reason for the political dynasties that hold our politics hostage. It is the reason our officials spend so much to win posts that (officially) pays so little. The President did not curtail the pork barrel. The proposed 2014 budget in fact increases discretionary spending in both the executive and legislative branches.

Rather oddly, there seems to be little legislative enthusiasm to have a public hearing on the reported attempt to extort millions of dollars from Czech company Inekon. The names of presidential relatives, powerbrokers identified with the present administration and high officials have been linked to this scandal.

It appears the mechanism for shaking down MRT suppliers was set up as early as 2010, with the key players installed in strategic posts in government. The extortion attempt is being discussed extensively in European media, negating whatever advantages in investor confidence we might have gained from the credit rating upgrades.

Even more oddly, there seems to be little legislative enthusiasm for exercising oversight on the matter of rampant smuggling. The President, no less, in his State of the Nation Address lambasted the Bureau of Customs (BoC) for loss in potential revenues in the range of P200 billion annually.

All our business associations and all the foreign chambers of commerce have long been clamoring for action to curtail smuggling, to little avail. The Palace keeps assuring the public of “reforms” at the customs bureau. To date, however, no blueprint for reengineering an agency historically vulnerable to corruption has been unveiled. Meanwhile, smuggling cripples our agriculture and manufacturing sector with increasing viciousness.

As all the awesome scandals are pushed off the stage, some legislators want to indulge in a populist carnival by calling in the water concessionaires, berating them in public view and maximizing their television face time in aid of reelection. The public entertainment Congress wants to provide on this controversy is unnecessary. A petition has been filed with the Supreme Court regarding the pass-on charges allowed by the contract with the concessionaires.

The Court is the proper authority to rule on the matter. The carnival the two chambers of Congress threaten to unleash will be a digression from the weightier concerns, including a proposed budget inflated by so much pork.

Former economic planning secretary Felipe Medalla points out that the pass-on charges are ultimately irrelevant. The contracts held by the concessionaires stipulate a guaranteed rate of return called the Appropriate Discount Rate (ADR). The ADR is computed net of taxes.

Therefore, if taxes are imposed on the concessionaires, this will simply translate into increased water charges for the end-users. However the controversy is resolved, the concessionaires make a fixed rate of return.

The contracts covering the “privatization” of the water concessions were carefully crafted with the assistance of the World Bank’s International Finance Corporation and the Department of Finance. Those contracts, of course, may be unilaterally abrogated by government if that is what the populist agitators want. The economic fallout from that will be terrible.

Romeo Bernardo, former finance undersecretary, who played a key role in the “privatization” of the water concessions points out that, within the existing contractual framework, the concessionaires slashed non-revenue water, raised water deliveries 2.5 times, doubled the number of customers and assured round-the-clock water availability.

At the time the water concessions were awarded, the MWSS was $900 million in debt and delivered very little water to a rapidly ballooning metropolis. The concessionaires agreed to absorb the debt and invested over P105 billion more in modernizing the metropolitan water system. If the contracts are abrogated and the concession arrangements lose viability, we will return to the severe water crisis the metropolis experienced in the eighties and early nineties.

Economist Solita Monsod recalls that before privatization, many communities paid P150 per cubic meter of water delivered in drums. That is many times what consumers pay now at depreciated pesos, even as our water rates are indeed higher than most of our neighboring countries. While many may not be comfortable with all the elements of the concession agreement, only an idiot will want to return to the status quo ante.

Even as no adverse action has yet been taken on the contracts, this contrived controversy over the concession agreements is already taking its toll on investor confidence. Henry Schumacher of the European Chamber of Commerce has been pretty outspoken on the matter. He thinks the contrived controversy magnifies long-standing complaints from investors about the unreliability of contracts in this country as well as a marked propensity to change the rules of the game midstream.

The perceived weakness in the rule of law in this country is a major reason we receive only a trickle of the direct investments flowing to the region. Even our own corporations have begun moving their investments out to neighboring countries and economies as far away as Nigeria.

In a word, economic opportunities are quickly evaporating just from all the populist talk emanating from our politicians. Investors are becoming even more worried about entering into contracts with the Philippine government.

Ironically, the privatization of Manila’s water concessions was celebrated as a model for similar efforts undertaken by other countries. That was before irresponsible politicking polluted the water question.