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When water utilities behave like cartels

“Ironically, the corporate desire for profit was allowed to prevail in a business sector which, as discussed above, is supposed to be regulated by the State.

Victor Avecilla

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Under the law governing public utilities, the operations of a public utility, a term which includes water, power, telephone and public transportation utilities are strictly regulated by the State for the protection of public welfare.

Because of the huge investments involved in the business, a public utility is protected by the State from cut-throat. As long as the public utility meets the needs of the public for the service it renders, no other similar business may operate in the concession area awarded to the public utility. In exchange for that extraordinary protection from the State, the public utility is allowed only a reasonable profit from its operations.

That system had been blatantly and repeatedly ignored by past administrations over the preceding three decades.

Undoubtedly, those past three decades were trying, expensive times for Filipino consumers, most of whom were at the mercy of commercial monopolies and business cartels, with no relief in sight. The government back then either sided with the monopolies and the cartels, or didn’t care about the plight of consumers.

Such monopolies and cartels even infiltrated the public utilities sector, such as the power and water utilities. These monopolies and cartels made the cost of their services very expensive.

Ironically, the corporate desire for profit was allowed to prevail in a business sector which, as discussed above, is supposed to be regulated by the State for the purpose of keeping the cost of public utility services affordable to the average citizen.

For instance, electric power distribution in the Philippines is a huge monopoly. There was a time when this monopoly succeeded in passing on its own income tax obligations to its subscribers, even as the monopoly’s officers and employees are among the highest paid in the local industrial sector. About a decade ago, a group of consumer protection advocates questioned that inequity by way of a class suit filed in the Supreme Court. The monopoly was eventually ordered to refund the unauthorized income tax passed on to its subscribers.

Over the past two weeks, a problem concerning two water concessionaires in Metropolitan Manila made it to the news.

During the administration of President Fidel Ramos, the business of providing water to the National Capital Region, which used to be the responsibility of the Metropolitan Waterworks and Sewerage System, was privatized. In 1995, two cartels, the Manila Water Company and the Maynilad Water Services Inc. obtained from the government separate concession agreements to provide water to the metropolis. Both cartels are owned by powerful and influential business interests in the country.

Critics claim that the twin deals were entered into by the Ramos administration without prior public bidding.

That notwithstanding, the concession agreements seemed lopsided from the beginning.

The contracts allowed the concessionaires to demand compensation for losses and damages that may arise from their inability to charge higher rates for water consumption. Likewise, they required resort to arbitration proceedings in the Permanent Court of Arbitration in Singapore to resolve disputes arising from any provision of the contracts.

The concession agreements concerned a public utility service in the Philippines, which pertains to water found in the Philippines, to be handled by two corporations based in this country, with Filipinos as customers. Moreover, overseas arbitration is more expensive than local arbitration. Why the Ramos government, therefore, allowed compulsory resort to overseas administration instead of local arbitration is unexplained.

It also looks like the concessionaires were subtly authorized to pass on their income tax obligations under the concession agreements to the consumers.

Both concession agreements were set to expire in 2022. Sometime before President Rodrigo Duterte assumed office, they were mysteriously extended to 2037.

In other words, how those onerous contracts ever got approved by the government looks like an anomaly by itself.

That’s not all.

Several months ago, this newspaper uncovered the failure of both concessionaires to construct the sufficient wastewater treatment facilities which their contracts require them to do. They were required to pay a hefty fine by the government for that failure.

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