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DOJ: Gov’t not replacing water concessionaires

But it wants to renegotiate the contracts

DAVAO CITY, Philippines — Finance Secretary Carlos Dominguez III on Tuesday expressed confidence that potential investors would not be turned off with the government’s push to renegotiate the onerous provisions of the concession agreements with the two water distributors in Metro Manila and nearby areas.

Dominguez sought to calm the markets as Justice Secretary Menardo Guevarra assured Manila Water Co. Inc. and Maynilad Water Services Inc. that the government was “not even thinking” of replacing them as water concessionaires.

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The administration wants to renegotiate their concession agreements to remove the onerous provisions, Guevarra said.

Dominguez said Manila Water and Maynilad, which operate the east and west concessions, respectively, “have themselves said that they are willing to do the review.”

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“In fact, let me tell you, just to show you that this review is acceptable: when we bid out the contract for the water concession in New Clark City, these onerous terms were not there. And yet, Manila Water bid,’’ the finance secretary said on the sidelines of Sulong Pilipinas Agribusiness Summit 2019 in Davao City.

“So it must be acceptable to them,” he added.

Regular review

Dominguez said the review would be “a good signal to the rest of the investing community that people look at the interest of the nation as a whole. And this is not abrogation of the contracts, but a review of the contracts, which I think should be done regularly.”

Maynilad told the Philippine Stock Exchange on Monday that banks had suspended lending money to the company for its new projects due to uncertainties over its concession contract with the government.

Temporary negative effects

The market valuation of four companies with interest in water distribution in Metro Manila and in Cavite and Rizal provinces had declined by more than P128 billion in the past 11 trading days after President Rodrigo Duterte threatened to arrest officials of the concessionaires and charge them with economic sabotage.

After the Department of Justice examined the contracts, the President claimed that these were laden with onerous provisions disadvantageous to taxpayers, including barring the government from intervening in setting rates and allowing the concessionaires to seek compensation should they be barred from raising tariffs.

Another provision allows the companies to pass on to consumers expenses not directly related to water distribution.

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In Manila, Guevarra acknowledged that the administration’s ultimatum to the two concessionaires had resulted in “temporary negative effects” in the business community.

But the government “couldn’t care less” anyway about foreign investors who are only after profit, he said. “What we want are foreign investments with a sense of corporate social responsibility.”

Last week, Dominguez said he preferred a frequent assessment and fine-tuning of long-term contracts entered into by the government with private companies amid changing economic conditions.“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 were at that particular time,” he said on Friday.

Former officials said the agreements signed in 1997 reflected the economic situation then when water distribution was not appealing to investors and the state-run Metropolitan Waterworks and Sewerage System (MWSS) was not delivering water to many residents of the metropolis.

Hence, the allegedly onerous provisions served as sweeteners to lure in investors at the time.

“That’s probably correct, but times have changed so you must change with the times,” Dominguez said.

Adjust rate of return

“At that time [in 1997], the Philippines was paying 700 basis points over the benchmark of 6 percent. So we were paying a 13-percent interest rate when we borrow. So 12 percent looks OK. But 12 percent doesn’t look OK now. Our best spread is now 32 basis points over benchmark of 1.7 to 1.8 percent. You have to adjust also to be fair to consumers,” he pointed out.

Asked if he was open to grant the contracts to the same concessionaires in case negotiations go well, Dominguez replied: “I’ve actually talked to the Ayalas and one of the partners of Maynilad, and I already told them, ‘You guys should also put yourselves in our position, and see what items are disadvantageous to the government. Then, you should make your proposals already so we don’t have to go through this long-drawn-out discussions.’”

Guevarra said the government would entertain new concession bids if the renegotiation with the two companies fell through and only after a court had officially rescinded the existing agreements.

Amid the threats hurled by the President against them, Metro Manila’s water concessionaires are carrying on.

Not for sale

Earlier this week, Maynilad chair Manuel V. Pangilinan reportedly said at a company gathering that his group would neither sell its business nor bow down to pressures to do so.

When sought for comment, Maynilad president Ramoncito Fernandez declined to elaborate on Pangilinan’s statement.

“It was a simple statement that is being spun around and sensationalized,” Fernandez told the Inquirer in a phone interview.

“Company morale is good, but we need to take care that their (employees’) morale [will remain] good,” he added.

In a regulatory filing, Manila Water said that based on initial evaluation of its cash flows, “we will still be able to sustain our operational needs, while negotiations with the MWSS are [going on].”

“We will discuss with the MWSS regarding the programmed projects and proper disposition of those during this period of dialogue,” the Ayala group subsidiary said. “We look forward to the early resolution of issues so we can resume execution of the approved projects that will require additional funding.”

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TAGS: Carlos Dominguez, Manila Water, Maynilad Water, Menardo Guevarra, water deals, Water firms
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