When private means are used to deliver public services, several things happen. The private sector is given occasion to dip its fingers into public coffers. The profit motive is entrusted with the pursuit of the public good. And the pressure builds up for governments to set up mechanisms to enforce the promises of the private sector.
The promise is that through privatization, public service sectors are able to tap financial markets in innovative ways. Services that might otherwise fail to get financing from government get financing from bankers and investors. The private sector’s technical prowess is also harnessed and services are delivered efficiently and quickly. As for the rights of citizens to minimum services, privatization advocates would claim that private providers are bound to deliver, or else they lose their business, their reputation, not to mention their performance bonds.
From the experience of private involvement in the water and sanitation in Metro Manila, several things are clear:
First, at least one of the private concessionaires (Maynilad) has been unable to tap the financial markets as planned, and consequently, it has failed to deliver on its service obligations. The company’s own excuse is that it had the misfortune of inheriting 90% of the dollar-denominated debts of MWSS and when the peso fell in 1997, the money they needed to service those debts immediately doubled, leaving them with little resources for investments and operations. While this is partly true, the concession contract did provide for the recovery of these losses throughout the life of the contract. However, Maynilad demanded immediate recovery of these losses, resulting in a 135% increase in their water rates starting in October 2001. In contrast, the other concessionaire (Manila Water) raised money on the strength of the financial position of the Ayala group of corporations, shielding their consumers from an abrupt rise in water tarrifs. There is also ample evidence that would demonstrate gross technical inefficiency on the part of Maynilad in the high rate of Non Revenue Water (NRW) and high operating costs.
Maynilad is now asking government for three things: a) a postponement of its service obligations (less connections, less than 24-hours water availability, low water pressures, etc.) b) a rate increase that will raise the cost of water to P30 pesos per cubic meter by January 2003 (more than 500% of its original bid) and c) a government guarantee on its $350 million loan from the Asian Development Bank and commercial banks. If these things are granted, nothing of the original gains from privatization would have been preserved.
Second, both concessionaires have succeeded in changing the contract. Through Amendment Number 1 effected last October 2001, both companies succeeded in changing the parameters of their original bids in terms of the allowable pace and amounts of rate increases and service and expansion targets. Manila Water has succeeded in doubling its allowable profit by an upward adjustment in its ADR. Maynilad has been allowed to collect its debt payments at an accelerated pace even if it has failed to reach its target number of connections. The improvement in the contract of Maynilad benefits Manila Water, and vice versa.
Third, the regulatory agency that is tasked with enforcing the concession contracts has been unable to stand its ground. Key regulators became advocates for the concessionaires. The government entity that is party to the contract—the MWSS—on the other hand, has been unable to police the concessionaires’ compliance with the original contract and thus failed to safeguard the gains from privatization in the form of efficiency, low prices and the aim of near-universal service coverage.
Fourth, there are no effective mechanisms for the exercise of consumer power in this crucial public utility. Although consumers have the greatest incentive for defending the gains of privatization, there is no mechanism for empowering and
harnessing consumer voice under privatization. There is no consumer representation in the MWSS Board. There is no formal mechanism for making information accessible to the public and the media. Public hearings conducted by the MWSS Regulatory office do not give weight to consumer input and grievances. A better arrangement is possible!
BANTAY TUBIG, a citizens’ network for adequate, potable and affordable water, calls for the following:
A review of Amendment Number 1 that will reinstate incentives and penalties in relation to water companies’ compliance to service obligations. In other words, we want Maynilad and Manila Water to stick to the contract: if they cannot deliver, they should not be allowed price hikes, much less, allowed to stay in the business of running a public utility.
A stop to the rate rebasing exercise that will raise water rates to 25-30 pesos per cubic meter. Previous rate hikes by Maynilad remain contested, a public hearing in Congress is in progress and the rate-rebasing process remains a mystery. We want a public accounting of the basis of these rate proposals.
The establishment of an independent regulatory body that will enforce service obligations and contractual commitments on both private and public providers of water service. The current Regulatory Office is a creation of the contract between government and the concessionaires, hence its imperviousness to public demands. We propose a quasi-judicial body in the mold of the Energy Regulatory Commission that will evaluate petitions for price increases and monitor service-obligation. This body must perform these functions not only for Metro Manila but for the entire country.
The creation of institutional mechanisms for consumer representation. One proposal is for consumers to own the two water companies, given that we pay for items apart from our actual consumption. At the minimum, there should be consumer representatives in the MWSS Board. Another approach would be for Metro Manila mayors to appoint representatives to the MWSS Board and to establish formal forums where instructions are taken directly from public consultations in Metro Manila towns and cities. In the short term, clear procedures for public hearings must be established, and clear and enforceable terms of reference between community representatives and the private providers must be put in place.
That the national government through its pertinent line agencies, local governments, together with private concessionaires, specify an agenda for water provision based on the principle that water is a basic human right, and that all citizens must have access to adequate, potable and affordable water.