Philippine president Duterte threatens military takeover of water firms

MANILA, Dec 14, 2019, PhilStar. President Duterte has threatened to send the military to take over the operations of the country’s water firms if they fail to shape up, The Philippine Star reported.

The President raised the warning even as Finance Secretary Carlos Dominguez III said the government is open to adjustments in its contracts with water concessionaires Maynilad Water Services Inc. and Manila Water Co. Inc. that would reflect changes in interest rates and ultimately redound to the benefit of the public.

In an interview, Dominguez said concession agreements with Maynilad and Manila Water should not have fixed return on rates, to allow flexibility amid the changing interest rate environment.

“This is my personal opinion. The contracts should recognize that times change and you cannot fix the return on a fixed basis. It should be referenced to what the interest rates are at that particular time,” Dominguez pointed out.

In contrast to Dominguez’s appeasing tone, President Duterte on Thursday said he would order a military takeover of the water firms if he saw no sincerity in their commitment to shape up.

Dominguez noted that the contracts with the two water firms were signed in 1997 when interest rates were much higher.

“At that time, the Philippines was paying 700 basis points over the benchmark of six percent. So we were paying 13 percent interest rate when we borrow, so 12 percent looked OK,” Dominguez said.

“But 12 percent doesn’t look OK now. Our best spread is now 32 (basis points) over benchmark of 1.7 percent to 1.8 percent. You have to adjust also to be fair to consumers,” he added.

The finance chief said the Department of Justice (DOJ) and the Office of the Solicitor General (OSG) have begun reviewing the concession agreements to identify provisions disadvantageous to the government.

Dominguez said he has also talked with officials of the concessionaires and urged them to submit proposals on how to improve their contracts.

An arbitral court in Singapore ordered the Philippine government last month to pay Manila Water P7.4 billion in indemnification supposedly for lost revenues from an unenforced rate hike.

The same tribunal also ordered the government in July 2017 to reimburse Maynilad P3.4 billion for losses from March 2015 to August 2016, and ruled that Maynilad is allowed to recover its losses from September 2016 onwards.

Both Maynilad and Manila Water got a dressing down from President Duterte, who accused them of fooling the public and the government through onerous provisions in their contracts.

As the two water concessionaires continue to draw brickbats from the government, the House of Representatives is eyeing a measure that would open the water sector to more investors.

Deputy majority leader and Bagong Henerasyon party-list Rep. Bernadette Herrera said Congress intends to open the industry to new players to prevent what she described as “scare tactics” by the two water concessionaires in Metro Manila and nearby provinces.

“We in Congress will work together to create the competitive environment necessary for new investors to come in to challenge your water services stranglehold in Metro Manila and surrounding provinces, as well as in other areas where you have entered into service agreements,” she said.

“To make future operations profitable, the sewerage and water treatment aspects of water services can be spun off and opened up to more investors,” she suggested.

Her proposal came after the Metropolitan Waterworks and Sewerage System (MWSS) announced that there would be no extension to the concession agreements after their expiration in 2022.

In her proposal, Herrera said water concession should be divided into four areas – North, East, West and South – instead of the current two-area division.

She said the current set-up with just two concessionaires is already outdated as it was based on the status of the industry 20 years ago.

“The economy now is much stronger than when you entered into those service contracts in the late 90s. I believe the concession areas in the Greater Manila Area have grown much and can be divided into at least four and still be large enough to be profitable,” Herrera explained.

Military takeover

Despite the two water firms’ commitment to cooperate with the administration, President Duterte declared he is mulling a military takeover of their operations as well as the suspension of the writ of habeas corpus against “economic saboteurs.”

“Ako, I’ll just prepare the charges. Kapag hindi tayo nagka-intindihan dito (if we fail to reach an agreement), economic plunder. Economic plunder there is no bail,” he said.

The President made the declaration at the launch of The Tent and the birthday bash for former Senate president Manny Villar at the family-owned Vista Global South in Las Piñas Thursday evening.

“I will order the Armed Forces to operate your water. Sige sundalo (Go ahead soldier), take over kayo,” he said.

“And I will declare the suspension of the writ of habeas corpus but only against economic saboteurs. It will not include the NPAs because they are nosy,” he said. “And I will arrest all of you, I want to see billionaires in jail.”

He said he had also broached the idea to members of the Presidential Security Group during their “night with the President” last Wednesday.

Meanwhile, Sen. Christopher “Bong” Go said the decision of the MWSS to cancel the extension of contracts of the two water concessionaires should not be used to justify an increase in water rates,

“They promised our President they will no longer claim the compensation they got from the arbitral ruling, waive it, that they will not increase their rates in January. So why are they threatening the President and the people that they will hike their rates because of the cancellation?” Go said.

“It won’t help making threats to the people. Fix our services first. That’s what our people are waiting for – good service, no water shortage or interruptions,” he said.

Justice Secretary Menardo Guevarra, meanwhile, said he has asked Undersecretary Emmeline Aglipay-Villar to inhibit from the groups tasked with reviewing the concession agreements with Maynilad and Manila Water.

“I requested Usec. Villar to inhibit herself na lang to dispel suspicions that the DOJ contract review may not be completely objective due to an alleged possible conflict of interest,” Guevarra told reporters.

Guevarra’s statement came in the wake of reports that a Villar-led company is reportedly set to take over the water concessions.

Aglipay-Villar is the wife of Public Works Secretary Mark Villar, whose family owns water utility company Prime Water Infrastructure Corp.

Christina Mendez, Paolo Romero, Edu Punay, Robertzon Ramirez