Water woes (II)

In any situation at any given time, the ethical person seeks to fulfil a simple credo: To do the right thing, in the right way, for the right reasons. Oftentimes this can be a difficult task. What is right is sometimes unclear by the murkiness of a world marked by moral dilemmas. Doing what is right may also entail personal sacrifice. However, even in the most trying of circumstances we must endeavour to fulfil the credo. To do the right thing, in the right way, for the right reasons.

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The Right Reasons: The water rate issue has produced much vitriol, particularly among consumer groups. This is understandable as water is more than just a commodity, it’s a necessity. Ordinary Filipinos are impacted when water tariffs increase because it is difficult to change water consumption habits. With higher bills, people struggle to shuffle around their budgets. Hence, knee-jerk protests from customers supposedly paying for the tax burden and ordinary expenses of the concessionaires are but natural.

Yet amidst this emotionally changed atmosphere, we must strive to maintain level heads. We should not forgot how much the privatization scheme has helped the country. And the concessionaires’ multibillion peso investments into our water infrastructure coupled with the relative efficiency of the current system needs to be recognized. As in most things in life, the key is finding the right balance.

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The Right Way: The 1997 concession agreements sought to accomplish two basic objectives: improved water service for Metro Manila residents in consideration of reasonable returns for the investor concessionaires. The former is a given. It is the latter that is now being debated.

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Since MWSS’s privatization in 1997, water rates have increased by nine times in Manila Water’s east zone and more than six times in Maynilad’s west zone. Manila Water is currently seeking a 21% increase or P5.83 which will bring their rate to P34.12 per cubic meter. Maynilad is proposing a 25% increase or an additional P8.58 that will result in a water rate of P42.55 per cubic meter.

The table below provides a comparison of 2012 water rates in key Southeast Asian cities:

To be fair, we are unable to meaningfully compare the quality of water services in these jurisdictions.

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Aside from the debate on what expenses the concessionaires can pass on to the consumers, the discussion is also focused on what level of guaranteed returns is the water companies entitled to.

Termed the appropriate discount rate or ADR, it has been reported that the concessionaires are seeking an ADR of 8.99% for the next five years or until 2017. This figure should be compared to the ADR of 9.3% for the period 2008-2012 and 10.4% for 2003-2007. The ADR has a direct impact not only on the concessionaires’ bottom line but also on the water rates eventually charged to consumers.

MWSS is supposedly arguing for a lower ADR in the vicinity of 6% because of the favorable interest rate climate (yields of long term Philippine bonds are at an all-time low) and the relative stability of the US$-Peso rate which reflect the country’s strong economic fundamentals. There is a definite logic in this stance. Companies generally operate within a risk/reward framework. And since currently there is less risk (and more fun) in doing business in the Philippines, the reward in terms of return on investment should be commensurately reduced.

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The Right Thing to Do: While it is true that the state should honor its contracts, the real issue is the correct implementation of its provisions. Level heads are not pushing for the abrogation of contracts; they are questioning what the contract really provides in the first place. And just because it was interpreted in a certain way before does not make such interpretation gospel truth now.

With that in mind though, we must examine the counterfactual. Would the prices being offered now, even considering increased tariffs, be lower than what we would have without entering into these agreements in 1997? And there must be a recognition that payments consumers now make cover not only the better service of the past few years but should be seen as an investment for the years of service to come.

The government needs to be careful with how it allays concerns from non-contractual third parties. While the public has a right to be part of a discourse that profoundly affects their lives (since an agreement between the government and a private company is fundamentally an agreement between the public and said company), the government should also ensure that the contractual provisions in settling disputes is observed and the process not unduly politicized.

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Greetings: Rules are meant to be broken. While your four centavos has strictly adhered to the commandment of not greeting anyone unless the event actually falls on a Saturday. I hope you will forgive me for breaking the rule this one time. My dear mother, Angelita Donato Bautista, turned 80 yesterday. While I could have waited until next year to greet her, unfortunately a person only turns 80 once; hence the need for the exception. –Dean Andy Bautista (The Philippine Star)

Email: deanbautista@yahoo.com