Onerous to the bone

“Rody is running after the two firms and the onerous contracts they have with the government since it is the public who is being made to suffer while water services have not improved over the years.

To better appreciate the grudge of President Rody Duterte with the water companies and the Lopez conglomerate which owns broadcast giant ABS-CBN, a review of what happened after the privatization policy of former President Fidel Ramos in 1997 should provide a good perspective.

Sometime in 2004, Lopez flagship Benpres chairman Oscar Lopez claimed the Lopez family was being persecuted and being made “whipping boys” for their participation in the utility business, referring to Manila Electric Co. and Maynilad Water Services Inc.

“We have too seldom been recognized for the good that we have done. We are proud to have accomplished much in Maynilad. We are not leaving a desolate and financially unsound company as the misinformed wish to believe, and definitely there was no mismanagement of the water utility,” the late Lopez patriarch said.

Concession agreements for water services were auctioned off by the government in 1997, with the west of Manila going to the Lopezes, while the other half went to the Ayala group, which formed the Manila Water Services Inc.

The privatization was then billed as the biggest ever to be achieved since it involved services in a huge swath of Luzon.

Shortly after the awarding of the deals, both concessionaires demanded revisions in their contracts, which require water rate increases that were not part of the original contract.

The main reason for the amendments was the supposed weakening of the peso, which both groups claimed had raised the cost of their foreign borrowings.

The revised deal, thus, was not even related to improving services but to assure that risks for both firms were reduced.

Maynilad, however, suffered from poor management despite the favorable concession agreement.

A study presented to the United Nation’s Department of Economic and Social Affairs then indicated that “the concessionaire in the west zone, which involved the joint venture between the Lopez family and the French conglomerate Ondeo, was encountering serious problems in its performance.”

Maynilad heaped the blame on the government for its financial difficulties, yet there was sufficient information to show that poor management played a significant part in its poor performance.

The paper noted that in March 2001 the company stopped paying its concession fees to the government, “claiming it had insufficient funds to do so.”

The Lopezes stopped paying the fees on its own “after it had obtained all the revisions to the contract in its favor.”

“The company continued to collect the higher tariffs from consumers without remitting the concession fees to the government,” it added.

The paper was among those used by the international arbitration court in France in ruling that Maynilad was at fault in the aborted deal with the government, which it unilaterally ended in 2002.

The international court ordered Maynilad to pay P8 billion in concession fees to the government.

In the Lopez deal to drop Maynilad, the government received the controlling 59 percent stake owned by the Lopezes, but the P8 billion in concession fees it owed as a result of the court ruling was converted into equity in the then losing water firm.

The government also assumed P10 billion in borrowings obtained by the Lopezes for Maynilad.

In turn, the Lopez group wrote off something like $80 million or about P4.5 billion from its books. If the assets were acquired through the loans the Lopezes got for Maynilad which the government assumed, the supposed write-offs meant nothing to the conglomerate.

The Lopezes also got a huge windfall on the day news broke that it was dropping Maynilad after all of the stock prices of its listed companies shot up.

The two concessionaires then filed cases against the government with international courts using the previous revisions in its contracts that entitled them to a rate increase.

Maynila filed an arbitration case seeking compensation for P3.6 billion in foregone revenues after the Metropolitan Waterworks and Sewerage System ignored an ICC decision in December 2014 granting this concessionaire’s 2013 petition for a rate adjustment, while Manila Water assessed the government P79 billion for projected total losses from 2015 until the end of its concession in 2037 on the same issue.

Both firms also obtained a renewal of their 25-year contracts in 2012 despite their initial deals still to end in 2025.

Rody is running after the two firms and the onerous contracts they have with the government since it is the public who is being made to suffer while water services have not improved over the years.

The concession deals were classic examples of the Filipino adage of the public being fried in their own fat.