Misdirection

Frank Drilon, Butch Abad and Edwin Lacierda, all facing more difficult questions each day regarding the “disbursement acceleration program” (DAP) funds converted into pork, should attend a seminar conducted by MWSS chairman Gerardo Esquivel.

There is only so much that outright lying can buy you these days when information may be accessed online. For instance, Drilon claimed that no pork funds were released to senators during the Corona trial. A quick check with the DBM website quickly belied that, showing P556 million pork released on the eve of the conviction. That was followed shortly after by a deluge of over a billion in additional money from the DAP after the conviction, probably a Guinness record for bribery on a large scale.

What these three gentlemen desperately need right now is a course in misdirection. Esquivel seems to be the authority on the matter.

Esquivel is facing serious scrutiny by the COA for releasing P36 million unauthorized allowances last year alone. In addition, the agency overshot its budget by P121 million in the same year. Of that excess spending, P88.85 million was spent hiring an army of 436 “consultants.”

Among those “consultants” retained by the MWSS are two heads of left-leaning NGOs opposing the terms of the contract with the two water distribution concessions. What a great time this is to be with NGOs: they earn populist points for demanding reduction in water tariffs and get paid out of revenue from the concessions they attack.

The COA found that Esquivel and his board padded their earnings with P17.03 million in representation and transportation allowances. According to the MWSS union, the board won extra lard by reporting four board meetings a day four times a month. Esquivel and his board each took home P58,000 in allowances each day they convened by making it appear there were four meetings instead of one.

With the audit trail closing in on them, Esquivel and his board pulled a dramatic stunt that should win them public accolade even if its causes our whole economy great damage in the longer run. A petition from the two water concessionaires asking for increases in water rates happened to be on the table. Despite the standing contracts defining the rate of return for the billions invested by the concessionaires (as well as clear directives from the Palace to respect those contracts), Esquivel and his board decided not only to deny the water rate hike petitions but to order the reduction in water rates over the next five years.

The decision by the Esquivel board pleased consumers, of course, but it sent major shock waves through the investment community. Immediately, our stock market dropped as investors fled, abandoning corporations related to the water concessionaires.

The message sent by the MWSS board is that, in our economy, contracts may or may not be respected. The sanctity of contracts has long been an investor concern. The MWSS board just confirmed the worst fears of those wanting to do business in our economy.

We will see, in the near term, the negative repercussions of this as government tries to put PPP projects up for bidding. No investor in his right mind will put in good money on a flimsy contract — one that can be reduced to a meaningless piece of paper by the likes of Esquivel when it serves to buy popularity.

Arbitration

With their financial viability put in jeopardy, the two water concessions have no recourse but to seek arbitration. The two concessions have sunk in billions in investment to modernize the water distribution system.

Manila Water filed a dispute notice with the International Chamber of Commerce. Maynilad is expected to follow suit very soon.

Arbitration is a costly process. It will require hiring international arbitration firms who charge appalling rates. For instance, the long arbitration process regarding NAIA Terminal 3 cost the Philippine government enough money to build a Terminal 4. The arbitration case filed by the Belgians for the arbitrary abrogation of the contract to dredge Laguna de Bay will probably cost government billions — without a bucket of mud dredged from the lake and floods constantly menacing the lakeshore towns.

The two water concessions are confident they will win the arbitration proceedings, having a live contract on their side. If the government loses the arbitration proceedings, the MWSS will be deeper in the red. Apart from hiring a battalion of useless consultants and overcharging on allowances, the agency will have to pay huge arbitration costs. In the short term, however, they are able to score public relations points and misdirect public attention from the audit even if they upset potential investors.

There is no way the public will benefit from this gimmick. The reduction in water rates will not happen, as the concessionaires chose to await arbitration before obeying the MWSS order.

If, in the highly unlikely possibility the Esquivel board wins the arbitration, the two concessionaires can simply return the concessions to government. This happened once before, when the Lopez conglomerate returned Maynilad to government without any significant improvement in the service. Fortunately, the Pangilinan group and DMCI stepped in to take over the concession — the unseemly regulatory environment notwithstanding.

If the water concessions are returned to government, the metropolis will be hit by a water crisis. We will all return to the bad old days when no water came out of the faucets. There will be no investments in new water sources, putting the expanding metropolitan population in jeopardy.

Such an outcome will torpedo our economic prospects — and all to distract public attention from an incriminating audit report.