Profit or public service?


foto Ben KritzThe reactions to my part in the chorus of protests being leveled at Maynilad Water Services Inc. and Manila Water Co. Inc., the two suppliers of water to Metro Manila (Legalized Plunder, July 13) were for the most part unsurprising: People do not like being charged very high rates for a basic service they have no choice but to buy, they especially do not like learning those rates are so high because they include charges for things like the suppliers’ own income taxes and entertainment expenses, and they are more than happy to express their outrage about it in forums such as Facebook or in the comments section of this paper’s online version.

The opinions about the growing scandal were not unanimous, however; Gary Olivar, one of my favorite columnists at one of the few other papers worth reading apart from The Times, made a couple interesting, if somewhat discomforting, points about the issue in his column last week. Privatization of the Metropolitan Waterworks and Sewerage System (MWSS) was seen as necessary because as a government agency, it had failed its mandate to provide acceptable water services to Metro Manila; the comparative superiority of private to government enterprise in creating and maintaining efficient infrastructure systems is a forgone conclusion. That being the case, the real issues in Olivar’s view are questions about whether the contracts between the MWSS and the two concessionaires were violated; whether or not the contracts were formed validly in the first place, or in other words, whether the parties to the contracts (MWSS and the water suppliers) signed them with the full understanding of the terms and conditions; and if the contracts are revoked, for whatever reason or through whatever legal process it might be done, what would be the replacement for the present arrangement?

The reason Gary Olivar’s observations should make us uncomfortable is that they are largely correct. Under the present circumstances, the MWSS being what it is, the only recourse to the legal contractual arrangement would be something extralegal, and that could very well have unintended consequences. Utility and other infrastructure is an area in which the country needs the help of private investors, and a prerequisite to attracting these is the assurance that consistent processes, contracts and other legal arrangements will be followed. The public interest notwithstanding, arbitrarily revoking the arrangements between MWSS and the two concessionaires would send exactly the same sort of signal President Benigno Aquino 3rd’s arrogant and ill-advised unilateral cancellation of the Laguna Lake Rehabilitation Project did—that move, after all, completely scuttled his once-heralded “public-private partnership” initiative and virtually guaranteed no significant infrastructure development will occur during his term.

An uncomfortable problem, indeed: We cannot demand that extraordinary action be taken to end the rape of consumers for fear of its longer-term consequences, yet we also cannot permit private enterprises to continue to use legalities as a fig leaf of legitimacy for their plunder. What is truly disturbing about the whole water scandal is that it reveals that the fundamental error was actually made a long time ago, first by allowing the MWSS to privatize, and second, by allowing it to continue as the regulator of water utilities after privatization.

The remedy to MWSS financial and performance inefficiency should not have been its privatization by the Water Crisis Act of 1997, but rather an overhaul of the agency to correct its flaws. While privatization is generally a better option than government management, the line should be drawn at the provision of water and sanitation systems. Although it might be unpleasant, people can survive without electricity. They can survive without cooking gas, without telecommunications services, without public transportation. They cannot survive without access to clean water. Allowing MWSS to privatize was an abrogation of a basic duty of the government to its people, and it should have never been permitted. Having made that mistake, however, the country failed in not creating, or delegating to an existing government agency, a third-part regulatory structure. MWSS is the entity responsible for providing the public service of water and sewerage, not its two concessionaires—thus, MWSS is the entity that should be regulated. Allowing it to be the regulator of the utility is like taking the fox’s word for it that he will behave himself in the henhouse.

If there is one small consolation to be taken from the current crisis, it may be that MWSS seems to have been affected by the public outrage enough to move to correct the egregious provisions allowing Maynilad and Manila Water to charge their corporate income taxes to customers. On June 7, in a move that was quietly made public last week as the public outcry was reaching a fever pitch, the MWSS Regulatory Office adopted a resolution (Resolution 13-005-CA, for those keeping score at home) to revoke the July 2004 Resolution 04-006-CA that permitted the income tax pass-through by defining Maynilad and Manila Water as contractors of the MWSS and not public utilities. The June resolution, however, has yet to be approved by the MWSS Board of Trustees, and that approval is not a foregone conclusion; technically MWSS is the public utility and the two water companies are its agents, and the MWSS board may feel they have no choice but to maintain that definition (or may be compelled to do so by the powerful interests behind both companies), as much as we may hope they do not. The distinction is important, because according to a Supreme Court ruling concerning the Manila Electric Co. in 2002, public utilities may not include income taxes in operating expense calculations.

The bottom line, at this point in what has become a rapidly developing scandal, there is still no certain relief in sight for affected consumers, and many remaining difficult, unanswered questions. In my next column on Thursday, I will take a look at some of these other remaining issues, and assess some suggestions that have been made for correcting the disadvantageous—and in some very real ways, inhumane—situation that has been created for consumers.


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