President Rodrigo Duterte’s strong demands with regards to the modified water contracts with Manila Water Co. Inc. and Maynilad Water Services Inc. and his threats against ABS-CBN’s franchise renewal could prove detrimental to public-private partnership deals for infrastructure projects.
This warning was aired by Global Source Partners’s Romeo L. Bernardo, country analyst for the Philippines, in an e-mailed report sent recently.
“The continuing rants cannot but put these business groups in a somber mood, especially given the President’s strong one-sided demands,” said the report by the emerging-markets consulting firm.
Bernardo was referring to Duterte’s offer of a new water-distribution agreement with Maynilad and Manila Water, on the condition that should the two water firms reject the new deals, their existing concessions will be cancelled and the government will take over water services in the country.
The President also threatened to file plunder or fraud charges against those who negotiated the supposed onerous water deals on behalf of the companies and the government.
The analyst was also alluding to the President’s threat not to renew the franchise of ABS-CBN Corp. which expires in March.
In response to these developments, Bernardo expressed belief that investors and creditors will be more watchful of the regulatory environment and may eventually lead to higher loan rates — with parent firms being forced to agree to robust guarantees on their project loans.
Such scenario will not be favorable to public-private partnership (PPP) projects and thus will affect government efforts to develop and go full blast on infrastructure, Bernardo noted.
Bernardo also cited the need to be “more watchful of political and regulatory risks in long-term infrastructure projects.”
“Higher risk assessments that lead to larger risk premia on lending and/or stronger parent firm guarantees to secure credits would spell bad news for PPP projects and government efforts to build up the country’s infrastructure, something that would extend well beyond the term of this administration,” the report said.
Last month, Fitch Solutions Macro Research virtually gave the same warning, saying the government’s decision to unilaterally revise the water contracts with Maynilad and Manila Water puts private firms contracting with the government at “high regulatory risk.”
However, Fitch Solutions Macro Research still expressed optimism that investor confidence may recover in the long run if the country continues to develop its PPP deals.
Bernardo meanwhile expressed apprehension that Maynilad and Manila Water may be “facing problems financing future investments” if constrained to accept all the “10 or so” revisions in the new water deals allegedly crafted on government’s terms.
“Hence, we cannot totally rule out the dreaded wild card, i.e., nationalization of water distribution services,” he said.
The initial list of nine PPPs out of 75 government infrastructure projects has been revised to 26 PPPs out of 100, showing addition of 17 PPPs.
Projects to be funded through PPP will cost some P1.77 trillion of the total flagship project value of P4.2 trillion.