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Working through the water issue

 

BENITO TEEHANKEE

A year ago, I remember enjoying showers in the second floor of my house. This seems almost a distant memory now. This morning, as I struggled to wash my car of Taal Volcano’s ashfall, I couldn’t help wishing that the government and the water concessionaires can get their act together soon. I want to understand why the water situation in Metro Manila has become so bad and I’ve been talking to as many people, reading as much as I can about it, and watching Senate and congressional hearings over YouTube. It turns out that it’s a very complex matter indeed involving legal aspects of franchising and contracts, logistical and infrastructure development strategies, and fine points of finance and taxation.

I’m used to dealing with complexities but what makes this more challenging than usual is the high levels of emotion that even routine questions can trigger. This is aggravated by the atmosphere of finger-pointing and defensiveness that is now evident among parties being implicated in the problem. It’s a basic principle in problem-solving that anger and blaming need to be held in check to make progress. Instead, it will help to focus on fundamental premises in addressing a public service issue.


Firstly, government and the concessionaires need to focus on their common goal, which is the reliable delivery of quality water to consumers at a reasonable cost. Everything else, including the regulatory powers of government, the public pronouncements of politicians, and the right of the concessionaires to a reasonable return, must be in the service of this goal. This is non-negotiable.

Secondly, government and the concessionaires need each other. The Metropolitan Waterworks and Sewerage System (MWSS) has admitted that they do not have the capacity to deliver quality water to the consumers. For their part, during a congressional hearing on the issue, the concessionaires made clear their intent in pursuing a workable solution with government. They said that this was the reason they waived the reward from the Singapore arbitral ruling. Some congressmen wondered if they only did this because of President Rodrigo Duterte’s angry polemics. The water executives were coy about this and stuck to their “workable solution” goal but were careful to include a fair return on their investment as part of this solution. Given that government and the concessionaires are, in effect, committed partners in a dispute, it behooves both sides to put all their efforts on finding solutions and less on throwing blame or being defensive.

Thirdly, both sides need to focus on sound principles and solid facts, and avoid exaggerations and ad hominem arguments. While I feel the same outrage as President Duterte on the poor state of water service, accusing the concessionaires of excessive greed doesn’t help since it was government who invited them to bid during a period of crisis and had the opportunity to review these bids before entering into the agreement. The better approach is to fix the agreement of its defects, which is what the Department of Justice is now pursuing.

On the other hand, accusing government of unfairness for “changing the rules in the middle of the game” is misleading. In the first place, the primary role of government is to ensure that they interpret the rules according to the Constitutional mandate to promote the common good. The concessionaires’ interpretation of the concession agreement or even the specific wording of the provisions, even if the government had agreed to these provisions, do not override the duty of the government to intervene in the public interest. Basic contract law, after all, stipulates that contracts cannot be contrary to morals or public policy. Also, it should be remembered that the concessionaires themselves negotiated for changes in the conditions of the concession when they were encountering business difficulties.

A key principle that will need to be resolved is the level of fair return that the
concessionaires deserve for the investments and expenses they are shelling out. A related issue is whether corporate income taxes should be considered a legitimate expense to be considered when calculating this return. I myself agree with the government that corporate income tax should not be part of this calculation because it amounts to an indirect tax exemption, which is not fair to consumers who, in effect, pay the taxes. I’m eager to listen to counter-arguments on this point.

I believe that as long as government and the concessionaires stay in dialogue, clarify principles and facts, and, most importantly, keep the good of the consumers front and center, a workable solution will soon be in sight.

As for me, I just look forward to enjoying a good shower again.

Dr. Benito Teehankee is the Jose E. Cuisia Professor of Business Ethics and head of the Business for Human Development Network of De La Salle University. Email: benito.teehankee@dlsu.edu.ph.

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Today’s Front Page February 21, 2020

Today’s Front Page February 21, 2020