The privatization of MWSS

"On the origins of this water crisis"


Part 1

It was the Ramos administration that pushed for the privatization of the country’s water system. To realize that, the first thing the Ramos government did was to enact R.A. No. 8041 on June 7, 1995 known as “The Water Crisis Act.” The title was a misnomer much that there was no water crisis as what the country is reeling from today. Still, it was there to emphasize to the consuming public the need to dispose a vital industry.

Since the privatization focused on the media-created crisis, it was purposely exaggerated. The cry for the disposition of Metropolitan Waterworks and Sewerage System (MWSS) and the Local Water Utilities Administration (LWUA) soon ensued a loud crescendo that banged the ears of the consuming public.

The public was flooded with lies and propaganda that allegedly Metropolitan Manila suffered an acute water supply principally due to rampant pilferage; failure on the part of water filtration plant to meet the standard of providing clean and potable water; inefficient system of collection; ridden with graft and corruption due to illegal water connection; and on the whole, that MWSS was a losing government corporation.

To justify the disposition, it enumerated in Section 8 of R.A. No. 8041 or acts that constitute water pilferage. While the provision was meant to remind the public of the precious value of water, many wondered why it was included in the Act when that could have been added as a special criminal law punishing water pilferage. More than that, it provided what constitutes “prima facie evidence” and penalties for water pilferage.

The public, however, failed to see that the Act was an enticer to local and foreign buyers to grab the state-owned corporation with a guarantee that upon its handing to private hands, the cost of water per cubic meter would be deregulated. The deregulation in the cost of water was a condition sine qua non without taking into account it was an assurance for the buyers to recover their investment in the shortest possible time.

Since the franchised area covered the whole of Metropolitan Manila, Ramos issued Executive Order No. 311 on March 20, 1996 “Encouraging Private Sector Participation in the Operations and Facilities of the MWSS.” The sweet talk was a litany of promises: that in private hands water pilferage will be minimized; the cost of water will be reduced and made available at all times; that graft and corruption will be eliminated as there will be a vigorous campaign against illegal connection; and an end to the inefficient collection system. All that, according to its supporters, will redound to the government in terms of higher revenues.

E.O No. 311 was misleading because MWSS was retained, but its duty wholly confined and limited only in supervisory work and in collection of the franchise fee. So to attract investors concessionaires were given franchise to operate based on the following terms: (i) franchising, concession, management, or other arrangements; (ii) privatization; or (iii) contracts for projects to be implemented under Build-Operate Transfer (BOT) and/or related schemes for the financing, construction, repair, rehabilitation, improvement, and operation of water facilities and projects related to consumers.

It was apparent that the terms upon which investors could be given franchise was their demand for the deregulation in the price of water; that there should be a guarantee that the build-operate-and transfer scheme is fully complied with before the turnover of the water utility to the government; that private water utility firms are allowed to borrow from local and foreign financial institutions; and that the currency exchange rate adjustment (CERA) now called foreign currency differential adjustment (FCDA) clause should allow utility operators to collect from their customers the difference in the adjusted amount caused by the devaluation of the peso against the dollar on top of the usurious interest on their loan concessionaires pay.

Soon after MWSS was divided into two zones—Manila Water Company, Inc. in the west, and Maynilad Water Services Inc. in the east, the original MWSS rate charged. The prince immediately soared by 100 percent from P2.50 to P5.00 per cubic meter. In fact, that constituted the first and immediate violation of the promise to improve our water distribution system.

The greatest irony is that the MWSS was only accorded the power and authority to supervise the operations of the two private water utilities. Many consider the power of the MWSS a farce for instead of monitoring the functions of the two private utility firms whether they are complying with the franchise contract granted them, its attention now is focused on the amount of franchise fees being paid. Such is the case because the MWSS is now completely depended for its subsistence on the said franchise fees. It does not even have the power to regulate the price of water per cubic meter as it was before MWSS was dismembered and awarded to the two companies.

The duty to regulate the price of potable water which is inseparable to public service has all but been neglected. On the average, customers pay an average of P35 per cubic meter. The socialized pricing scheme introduced by the Marcos administration which charged at lower rate for residential users as against commercial users was reversed in favor of commercial users. This means the poorer sector in our society pay more for their water consumption. This has been justified in the name of accelerating economic development and to attract foreign investors, which unfortunately, never materialized.

For instance, the Manila Water Company Inc. which is owned by Ayala Corp. employed a scheme that would compel subdivisions to pay in bulk their water consumption. This means that for whatever amount of water that is lost through to leakage and pilferage would be shouldered by the homeowners association. In addition, while said water utility operator undertakes to install, widen and improve their service, it charges every homeowner a fee for the installation of pipe and water meter. This means all are automatically charged on the customer. In that, the water utility operator simply rolled over whatever it collected from its customers plus the loan borrowed to widen and improve its service with the government guaranteeing them.

This formula allowed Manila Water Company Inc. it to greatly expand its collection by charging their captive customers the burden of what it promised to it as an investor. Today, that is seen by the acute water shortage without the company undertaking the necessary measures to expand, improve and build additional, dams, reservoir and aqueduct in anticipation to increase in population and demand for potable water.

On the whole, the operations of the two water utilities operators as a condition for the grant of franchise were effectively tossed back to the consumers when the same could have been carried out by MWSS before it was handed to the oligarchs to give them additional and lucrative source of income.

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Topics: Rod Kapunan , Waterworks and Sewerage System , MWSS , The Water Crisis Act , water crisis , Manila Water Company Inc. , Maynilad Water Services Inc.
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