Violeta Q. Perez-Corral
NGO Forum on ADB
On 9 December 2002, Maynilad Water Services
Inc (MWSI) filed a notice of termination of its 1997 concession
agreement with the Philippine government, blamed government
for Maynilad's failure to deliver water services to the
Metro Manila consumers, and sought the return of at least
US$303 million it allegedly invested in the privatized water
utility. Maynilad is one of two private concessionaires
which won in the August 1997 privatization of the government-owned
Manila Metropolitan Waterworks and Sewerage Services (MWSS),
hailed then as the first large-scale and successful privatization
of a water utility in Asia. Following the enactment of a
National Water Crisis Act in 1995, the World Bank痴 private
sector arm -- International Finance Corporation (IFC) -provided
fees-based advisory services to the Philippine government
on the MWSS privatization strategy in 1996-1997 at a whopping
fee of US$6.2 million(*1).
The Lopez-controlled Maynilad won the 努est zone� concession,
with French Suez Lyonnaise de Eux (now Ondeo) as foreign
partners. Manila Water won the "east zone�; Manila Water
Company (MWC) is controlled by the Ayalas with UK's United
Utilities, US-based Bechtel, and Mitsubishi Corporation
of Japan as foreign partners. Maynilad and Manila Water
submitted winning bids of PhP4.96/cubic meter (cu m) and
PhP2.32/cu m, respectively; the pre-privatization rate of
MWSS was PhP8.78/cu m. Under separate concession agreements,
Maynilad and Manila Water were given 25 years to rehabilitate
and operate the water system, reduce physical losses, check
illegal usage, and expand service coverage.
There were several reasons given in 1997 for
privatizing the management of Manila's water utility ? (1)
the private sector can bring in foreign investments needed
for expansion of water services, decreasing fiscal burden
on the national government which subsidizes the operation
of MWSS; and (2) the private sector can offer more efficient,
de-politicized and less corrupt services. MWSS creditors
such as the World Bank (WB) and the Asian Development Bank
(ADB) also pushed for the private sector take-over of the
utility; in 1995, WB and ADB accounted for $250 M of the
total $307 M long-term MWSS loans.
Civil society groups has been critical of
the privatization, citing that water is a social good and
its delivery should remain in public hands. Because water
is a basic necessity for the maintenance of life itself,
every citizen ? rich or poor -has a right to water, and
this right should not be subject to the profit motive of
the private sector. Moreover, critics decried the lack of
transparency and consultations in decision-making processes,
government's lack of regulatory capacity, massive job displacement,
and the lack of a full-options approach.
Upon privatization, water consumers were promised
not only lower water rates but also other supposed benefits
from the privatization which include the following: 100%
water coverage within 10 years; No real increase in water
rates within first 10 years; US$7.5 billion in new investments
over 25 years; Uninterrupted, 24 hours per day water service
that meet Department of Health standards provided within
3 years to all connected customers; Non-revenue water (NRW)
reduced from 56% to 32% over the first 10 years; Waste water
program to dramatically improve public health and environmental
conditions with 80% coverage within 25 years; and some $4
billion in income tax revenues over 25 years (See Table
1 for the original state of water and sanitation services
delivery and performance targets for the concessionaires
over 25 years.).
As an immediate adverse consequence of privatization,
only 200 of a total 5,400 employees remained with the "residual"
MWSS after the take-over. Some 3,000 employees were displaced
or were forced to avail of retirement packages. Many of
those who were forced to retire remain jobless to this day.
Five years after the privatization, the Maynilad pull-out
in December 2002 is testament to the failure of the water
utility privatization. Even before December, several tell-tale
signs of the failed privatization were already evigets dent
Water rate hikes
By January 2003, basic water rate for Maynilad increased
four-fold to PhP 21.11/cu m; for Manila Water, the rate
increased almost 500% to PhP12.21/cu m. The first major
increase(*2) was granted in October 2001, when -- citing
the 1997 Asian financial crisis -- both concession agreements
were amended to allow the companies to recover foreign exchange
losses in the same quarter these were incurred, rather than
throughout the remaining life of the 25-year concession(*3).
The second increase was a result of the "rebasing"� exercise
undertaken in 2002 (See Figures 1 and 2).
In the case of Maynilad which inherited 90%
of MWSS foreign-denominated loans, the increases granted
the company was largely seen as government bailing out the
Lopezes, a favored private sector client. In March 2001,
Maynilad unilaterally stopped payment of its monthly concession
fees of PhP200 million (approximatery US$4 million); even
after the rate increases, Maynilad still has not resumed
payment of its obligation which had been passed back to
government. Even with rate increases, Maynilad did not become
viable. In effect, only profits were privatized in the MWSS
privatization, much of the the risks still remained with
government.
Non-revenue water (NRW)
As one of the benefits of privatization, NRW (or water losses
due to water leaks, pilferages, etc) was supposed to decrease
from an average 56% (pre-1997) to an average 37% in 2001
(see Table 1). Government regulators say that this had not
been the case, although one concessionaire - Manila Water-
claims otherwise. Maynilad's NRW rose from 60% in 1998 to
68% in 2002. NRW does not only impact on Maynilad's bottomline,
which is the business of Maynilad, but also on the wastage
of an increasingly scarcer natural resource, which is in
the public interest.
Service coverage
Both companies claim that water supply coverage tar have
been attained (see Table 1). According to them, an additional
two million people had been connected to the service; about
half of this figure were supposed to be urban poor customers.
Regulators dispute these claims, however, saying coverage
figures are exaggerated because of how companies define
a "water connection"� and how they calculate number
of persons in an average household. Moreover, Mickey mouse
targets set in 1997 in sanitation and sewerage had not been
attained as major investments had not been undertaken by
both companies. A 2000 MWSS survey of residents of 100 communities
in Metro Manila revealed that 55% thought there had been
no change in the water service and 12% claimed the service
was worse; only 33% noticed an improvement.
Impact on urban poor
Both Maynilad and Manila Water have programs for water coverage
in urban poor areas. Urban poor residents who are now connected
pay much less for water than in the past when they buy water
from vendors. Women and children no longer need to line
up two to three hours a day, or even more, just to save
water for the day's consumption.
The greater challenge to servicing urban poor
areas, however, lies in: (a) the larger amount of financial
investments entailed to connect urban poor communities;
(b) the high cost of installation fees; and (c) the lack
of security of tenure. Due to the physical proximity of
houses and difficulty in laying down pipes, an additional
30-50% investments may be needed, as in the case of Maynilad's
showcase urban poor community in Parola, Tondo. Will the
private companies altruism be sustainable in the long-term?
In the same urban poor community in Parola,
out of a total 8,000 families, 3,000 families (or nearly
40% of the population) either did not avail or were not
allowed by Maynilad to be connected to the water service.
Of these 3,000 families, seventy percent -the poorest of
the poor -- had no money to pay for the one-time (water
meter) installation cost of PhP4,000, even on supposed concessional
payment terms. The remaining thirty percent were not allowed
by Maynilad to be connected since their shanties were to
be demolished within the next five years (or the length
of time Maynilad projects a return on its investment in
the urban poor community). To make things worse, Maynilad
prohibited those connected to share or sell their water
to those unconnected. And because Maynilad had taken over,
the old public faucet which used to be a source of 吐ree� water,
is no more.
Meanwhile, the fate of water service in the
Maynilad water concession is now in the hands of a three-person
arbitration panel of the Paris-based International Chamber
of Commerce (ICC). In a ruling which took effect on 8 February
2003, the panel indefinitely suspended Maynilad's termination
of its water concession agreement; this meant that Maynilad
would continue its operations of the west zone until such
time as the arbitration process is completed. In a January
2003 statement, Maynilad management said it will not return
its concession to the government unless it is paid the early
termination amount provided for under their agreement. The
MWSS, on the other hand, says that it will take-over the
concession if there are no interested private sector takers.
(*1) Asian Development Bank (ADB) also agreed
to provide loans totaling over US$170 million in 1999 to
improve and expand MWSS.
(*2)Manilad and Manila water both pay monthly concession
fees to MWSS. MWSS Regulatory Office (RO) decides on water
rates, upon petition for increase from concessionaries.
But, there is no obligation on their part to conduct public
hearings for any rate increase petition.
(*3)Maynilad was granted an amendment of its contract by
the MWSS Board of Trustees; this was significant because
it automatically grants rate increases to private concessionaires
- and hence without "regulation" from the RO-
due to foreign exchange fluctuations,
