PPP — profits before people

By Carol Pagaduan-Araullo
Streetwise | BusinessWorld

The privatization mantra is being incessantly hummed by the Aquino III administration. Privatization is being promoted to the public as the solution to deteriorated, broken-down and inadequate public utilities and social services. The argument is not new: government just doesn’t have the resources to provide for these public goods. Coupled with this line is the conventional wisdom that governments are prone to mismanagement and corruption so much so that only private capital investment and management could solve the problem.

Thus the so-called public-private partnership or PPP has become the centerpiece economic program of Mr. Aquino. He, however, is merely taking a leaf from his mother, former President Corazon Aquino, who implemented the first build-operate-transfer (BOT) scheme for the power sector in the country in 1987 when the Philippine economy was subject to the conditionalities of the structural adjustment programs laid down by the International Monetary Fund. PPP projects are basically BOTs with a new, fancier title.

The privatization of the Metropolitan Waterworks and Sewerage Service (MWSS) in 1997 is considered to be the country’s showcase for such schemes. It was the largest water privatization project in the world at the time costing close to $8 billion. The Ramos government touted the project as the answer to the water crisis in Metro Manila and adjoining areas promising lower rates, better quality water, universal coverage and a more efficient use of scarce water resources. Filipino firms owned by the Ayalas and Lopezes (and later, the Consunjis and MV Pangilinan group of companies when the Lopezes divested) partnered with foreign investors from the US, France, UK, the Netherlands, Japan and China/Hong Kong to successfully bid for these contracts.

The move was immediately met with opposition, spearheaded by the MWSS Employees’ Union who unjustly stood to be displaced by privatization, supported by consumers who anticipated higher water rates once this vital public service is subjected to the bottom line of big business — profit.

In two years’ time however, water rates began their steady and steep climb, especially so with rate rebasing that took place every five years. By the 1st quarter of 2013, water rates were 7-12 times higher than pre-privatization rates. This year the rate increase is already under negotiation between MWSS, the government regulatory body, and the two concessionaires: Manila Water is asking for an increase of the basic charge by P5.38 per cubic meter (m3); Maynilad, by P10.30. Together with other charges such as 12% VAT, environment charge and foreign currency differential adjustment, this adds up to a hefty increase of P7.81/m3 for Manila Water and P13.71/m3 for Maynilad.

What does this mean for consumers? According to the national democratic alliance, BAYAN, one way to look at it is to compute the increase in monthly water bills for a low monthly consumption of 10 m3 and a “high” of 30 m3. This rate hike will range from P78.10 to P234.30 for Manila Water and P137.10 to P411.30 for Maynilad per month. But the real impact is revealed by comparing such increases with family incomes, especially of the more economically disadvantaged.

To illustrate, assuming the daily minimum wage in the National Capital Region (NCR)is at P419-456, the water bill to be charged by Maynilad for 10 m3 monthly consumption would be 3-4% of an ordinary worker’s earnings while it would be 2-3 % for Manila Water. At 30 m3 consumption, the figures are 10-11% for the former, 7-8% for the latter.

Such calculations were confirmed to even be underestimated in a study conducted by the policy research outfit IBON in four urban poor communities in NCR. Water connections cost anywhere between P1,300 and P10,000 and effective water rates are P20-75/m3 (for sub-metered connections) and P63-P333/m3 (for water bought in containers). The community is populated by kasambahay or household workers, pedicab/tricycle/jeepney drivers, construction workers, vendors, security guards and janitors with daily earnings of P100-400 or P3,000-12,000 monthly. The portion of their earnings that goes to paying for water is anywhere between 7-22% (at an income P100-150/day) and 3-15% (income P300-350/day).

Quite starkly, the wealthy households in Ayala Heights, Quezon City pay roughly the same rates as those in the slum area nearby who are fortunately connected to the water main. Those poorer households that make do with sub-meters pay several pesos more per cubic meter consumption while those who pay for water by the balde containers pay three to five times more. Thus the poor have to pay for their water at astoundingly higher rates than the rich do because the water reaches them through middle men.

Which brings us to ask what ever happened to the private concessionaires’ claims that they had achieved close to a hundred percent coverage of their franchise areas? According to IBON, the most recent representative survey data for access to safe water in the entire country including NCR is from the 2008 Annual Poverty Indicators Survey which makes it difficult to cross check the water concessionaires’ claims. (It is also an unflattering indication of how assiduous is the government in compiling data relevant and necessary to its regulatory function.)

Nonetheless, the official data shows that upon privatization (1997), the percentage of families without access to safe water was 12.2%. Post privatization (2008), it stood at 8.4%. On the other hand, the rising absolute numbers of households without access to safe water, from 201,117 to 204,036, is cause for alarm.

BAYAN says that not all households have individual connections; in urban poor communities, most rely on bulk meter connections that result in higher rates. In many areas water pressure is low such that water flows only at specified, and even ungodly, hours. In fact the physical infrastructure for water supply in many areas still appear to be antiquated resulting to the bursting of water mains that caused flash floods in thoroughfares and residential areas such as those at EDSA in 2010, Las Piñas in 2012 and Mandaluyong in 2013. It would be useful for a study to be made comparing the incidence of water-borne diseases in NCR pre- and post-privatization.

Most useful data culled by IBON is the robust profits garnered by Maynilad and Manila Water from 2008-2011, a 44% average annual increase for Maynilad and 15% for Manila Water. In fact the two water companies have been able to expand: Manila Water owns Boracay Island Water, Clark Water, Laguna Water and Kehn Dong Water Supply at Ho Chi Minh City, Vietnam; Ayala & Pangilinan, for their part, have cornered the Cebu Bulk Water project.

To check whether the water firms’ profits are indeed quite healthy, perhaps even unconscionable from the point of view that the commodity they are profiting from is one so vital to life, health and wellbeing, IBON estimated their respective rates of return on equity (ROE) or how much the company is earning from funds invested by its stockholders: Maynilad’s is 48%; Manila Water, 19%. These figures are reportedly higher than those of companies in the telecommunications, power and mining industries.

At the end of the day, this only underscores that with privatization, water firms controlled by the biggest names in the local and foreign business community are raking in their profits and government gets its similarly gargantuan tax revenue, while the poorest and middle-income households are bled dry.

With the privatization of water services considered to be the model for the PPP program of the Aquino regime, the common tao is in for a lot more hardship and misery, all for the glory of private profit. Looming just around the corner is the privatization of government hospitals, starting with the National Orthopedic Hospital.

It is as if we are not suffering enough from the unending increases in electric power rates and oil and gasoline prices, the Aquino regime would want us to believe that the best this government can offer is more of the same.

Published in Business World
13 June 2013

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  1. The author presents the problem with PPP. Does the author then prefer not have these projects out through PPP and let it sit with the government?

    I wonder how long that will take.

    I agree with the issues of PPP, what is the better solution then?

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