Concession pacts turned over water rate setting to foreigners

PRESIDENT Fidel Ramos in effect surrendered the Republic’s sovereign powers to foreigners in the water concession agreements that his government entered into in 1997 with two oligarchs that had been close to all Yellow administrations: the Ayalas and the Lopezes.

The agreements that turned over the running of the water and sewerage system in metropolitan Manila and several adjacent provinces had provisions that ultimately gave foreigners the ultimate authority to determine how much they could charge their 12 million customers, their captive market, as Manila Water and Maynilad Water Services are monopolies in the areas they serve.

While the government agency Metropolitan Manila Waterworks and Sewerage Water (MWSS) sets the basic tariff rates every five years in the so-called rate-rebasing procedures, the concession agreements gave the two companies the right to appeal the government’s decision in two ways.

One was for them to appeal to a so-called appeals panel, as provided for in the concession agreements’ Article 12. This panel has three members, with the concessionaire and the MWSS each appointing one member. The third member though, the panel’s chairman, is appointed by the president of the International Chamber of Commerce (ICC). In all the appeals so far, the two concessionaires appointed foreigners, who together with another foreigner appointed by the ICC president, outvoted the sole Filipino designated by the MWSS.

One would be too naïve to think that conglomerates like the Ayala Corp. and the Hong Kong First Pacific Group (which bought out the Lopezes in Maynilad in 2007) do not have strong connections with the ICC. And why would a social club of global capitalists like the International Chamber of Commerce have a say in determining how much water Filipinos should pay for?

Photos, chart, data from First Pacific 2018 annual report and Maynilad 2017 report

Secret
How could a panel of three people, whose identities have been kept secret, throw to the wastebasket the decisions made by the seven-man board of trustees of the MWSS, which even include such respected personalities as the former finance undersecretary with a PhD in economics Cecilia Soriano and Ateneo University President Jose Villarin? The MWSS Board’s decisions are based on recommendations of another five-man collegial body, the MWSS Regulatory Office, which has teams of auditors, accountants, engineers and other technicians to determine the reasonable tariffs the water companies should charge?

And the MWSS decisions are overturned by a three-man secret panel, most of whom do not know anything about the water business, but are mainly into international law arbitration?

A second venue gives foreigners the authority to ultimately determine how much Filipinos would be charged for that basic human need, clean water, because the Ramos government agreed to a provision in the concession agreement for the two water firms to take their case, in case of disagreements, to a formal arbitration procedure under the provisions of the United Nations Commission on International Trade Law, with the arbitration tribunal similarly constituted as the appeals panel.

The P11 billion that the two water companies are asking the government to pay them, which made President Rodrigo Duterte blow his top, is the result of the Republic’s giving up its sovereign power to determine the rates that a public utility can charge.

On Sept. 12, 2013, the MWSS Board made history. It proved to be an independent regulatory body when it rejected the two water companies’ demand for an increase in the basic rates they could charge from 2014 to 2018. Maynilad asked for a 28-percent increase in its water rates; the MWSS instead ordered a 5-percent decrease. Manila Water asked for a 23-percent increase; the MWSS ordered a 30-percent decrease.

Appeals
Less than a month later, on Oct. 4, 2013, Maynilad asked the Appeals panel, consisting of two foreigners, to reverse the MWSS decision. The Appeals panel granted Maynilad’s demand the following December, although slightly reduced.

When the MWSS allowed increases in its tariffs, but less than what it had demanded, Maynilad demanded in March 2015 an international arbitration under the auspices of the Singapore branch of the Permanent Court of Arbitration (PCA). The Arbitration tribunal consisted of a Korean as the presiding administrator, a Britisher, and retired Philippine Supreme Court Justice Roberto Abad. Maynilad claimed that the MWSS’ refusal to grant its rate increases made it lose P3.4 billion.

The Arbitration panel ordered the government in July 2017 to pay Maynilad P3.4 billion. The desperate government asked the Singapore Supreme Court to set aside the arbitral award in February 2018. In September the Singapore court ordered the Philippine government to cough up the P3.4 billion.

Similarly, the mainly Ayala-owned Manila Water, days after the Sept. 13, 2013 rejection by the MWSS of its petitions for rate increases, asked a similar Appeals panel to reverse it, which it did in April 21, 2015. Two days later, Manila Water asked an international Arbitration tribunal under the auspices of the PCA in Singapore to order the Philippines to pay it P7.4 billion, which it claimed as the losses it suffered because of the MWSS refusal to allow it to increase it rates. The foreign-dominated panel issued its decision two weeks ago, ordering the Philippine government to pay Manila Water P7.4 billion.

What the hell has happened to our country?

Foreigners in proceedings kept secret from the public, ordered the Philippine Republic to agree to the water rates that two private firms want to charge 12 million Filipinos. It is only water rates that are ultimately determined by panels that include the water firms themselves, and dominated by foreigners. Electricity rates, toll fees, even cellphone rates, are determined solely by government regulatory bodies, and only Philippine courts can stop them.

There’s worse news. Even if the Constitution categorically says public utilities like water services should be 60 percent owned by Filipinos, Manila Water is slightly over 40 percent foreign-owned. Maynilad Water Services is 53 percent owned by Hong Kong-based First Pacific Co., which is 44 percent owned by the Indonesian tycoon Anthoni Salim, and another 20 percent by the Japanese Marubeni Corp. (through its subsidiary MCNK JV Corp.) That totals 73 percent foreign. (I’ll explain how they get away with that through a legal device, in subsequent columns.)

Foreigners determine rates that enrich foreigners running firms that distribute Filipinos’ basic need, water.

Are we still a sovereign Republic, or merely a place where foreign capitalists — in Maynilad’s case hiding behind a renowned Filipino executive — extract profits through monopolies? What am I missing here?

 

 


 

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