The opportunism exposed by President Rody Duterte on the two water concessionaires has opened the avenue for a possible expropriation, which is likely the last recourse that government will take on the abusive deals.
The specter of foreign investors being turned off by the recent developments, mainly the revocation of the Metropolitan Water Sewerage System resolution in 2009 prematurely extending the service contracts by 15 years, is now being floated using foreign chambers and other groups allied with the powerful companies of the water firms.
Taking a painful hit are the share prices of the parent companies behind Maynilad and Manila Water, which have dropped an even 13 percent on Wednesday.
During the House hearing on the water concession contracts, officials of the two firms warned that the moves of the government would result in a further increase in the water rates, since they have used as an assumption the extended deal wrangled during the term of former President Gloria Macapagal-Arroyo.
The biggest source of Rody’s exasperation was the agreement allowing the water firms to pass on their income tax payments that in effect makes the public pay for their obligations to the government.
He learned of the onerous provision after he sought the deals reviewed in the aftermath of the Singapore-based Permanent Court of Arbitration order for the government to pay Maynilad about P3.6 billion in damages for the company’s losses over its refusal to implement tariff adjustments for 2013 to 2017. The court also asked government to pay P7.4 billion to Manila Water as compensation for losses and damages from delayed water rate increases since 2015.
Rody refused to pay this amount, saying he would file economic sabotage or plunder cases against all those involved in the crafting of the water deals.
A Department of Justice (DoJ) review of the contracts indicated that the dues to government were collected from water users as consumption charges.
Based on their 2018 financial statements, the two water firms have passed on to its consumers nearly P5 billion in corporate income tax.
Some P20 billion of the water firms’ total expenditures are passed on to consumers based on the financial records of the companies.
Socioeconomic Planning Secretary Ernesto Pernia said fears being floated on the backlash of the government moves, however, depends on the quality and fairness of contracts.
He noted the principle of the sanctity of contracts ceases when the agreement is faulty.
“As long as we are implementing correct policies, fair policies… that should lure investors,” Pernia said.
“We have had so many policy reforms that are really attracting investors. This is just a little blip on the radar,” he explained.
He went on describe the water concession deals entered into by government were “unconstitutional.”
“The concession agreement is unconstitutional. Essentially, the government is surrendering its power to regulate. It’s a sovereign surrender,” Pernia said.
The economic manager said investors are not gullible entities and they will understand why the government is revising the concession agreements.
“Concessionaires should have some conscience. If the contract is onerous on government, it becomes onerous on the people because their obligations and expenses are being passed on to the people,” Pernia said.
The DoJ and Office of the Solicitor General are now crafting new water concession agreements that are favorable to the State and the Filipino people.
The moves taken thus far resulted in the water firms waiving the P11 billion claims and an admission of the onerous deals that would have been impossible had Rody not put his foot down.
Fair is fair, that’s all that Rody wanted to underline in running after the oppressive deals.