Sona 2013: Silent on water tax, all-out on LRT/MRT fare hike

Photo by Cheryl Favila/Reuters
Photo by Cheryl Ravelo/Reuters

Two things stood out in the State of the Nation Address (Sona) that reaffirmed the big business and neoliberal bias of President Benigno Aquino III. First, which stood out because of its conspicuous absence in the Sona, is the issue of passed on income taxes and other expenses by Manila Water and Maynilad. Second is the all-out push by Aquino to hike the fares in LRT and MRT, which is tied to the regime’s public-private partnership (PPP) or privatization program.

Incidentally, both involve two influential business interests that are widely seen to have close ties with the Aquino administration – the Ayala family and the group of Manny V. Pangilinan (MVP). The Ayalas control Manila Water while the MVP group controls Maynilad. These big business interests have also set up the Light Rail Manila Consortium, one of the bidders in the scheduled privatization of LRT 1 this month.

Double standards

Aquino’s evasion of the water income tax issue underscores the double standards of his daang matuwid and anti-corruption rhetoric, which as usual was again prominent in his speech. In his Sona, the President praised the Metropolitan Waterworks and Sewerage System (MWSS) for instituting reforms in the agency. It will be recalled that in his first Sona, Aquino hit the water agency for hefty bonuses enjoyed by its officials. Such anomaly has already been addressed, said Aquino, citing the almost P2-billion income of MWSS last year from a P34-million deficit in 2010. He also praised Sec. Rogelio Singson, who used to be president and CEO of Maynilad, for addressing corruption in the Department of Public Works and Highways (DPWH).

But while extolling the MWSS and Singson for the supposed good governance reforms in their agencies, Aquino did not mention the onerous Concession Agreement that involved MWSS and Singson and made consumers pay for the income taxes, corporate donations, advertisements and other expenses of Maynilad and Manila Water. More importantly, the President said nothing on what he intends to do with the said anomalous PPP contract. Did Sec. Rene Almendras, who as former Manila Water president was also involved in implementing the controversial Concession Agreement had a hand in determining the content of the Sona in his capacity as Secretary to the Cabinet?

The presence of former top executives of the Ayalas and MVP in key Cabinet positions and the PPP as centerpiece economic program of the Aquino administration explain the deliberate silence of the President on the controversy hounding Manila Water and Maynilad. While the MWSS-Regulatory Office is disputing the private water concessionaires on the issue of income taxes and other pass-on charges, it is still Malacañang that will be decisive ultimately.

Through their paid ads weeks before the Sona, Manila Water and Maynilad have warned not only the regulators but Malacañang itself on the supposed sanctity of privatization contracts. They know that the privatization of MWSS is regarded as the barometer of PPP in the Philippines and a decision detrimental to the water concessionaires (and favorable to the consumers) will seriously undermine the PPP initiatives of Aquino. Aquino’s refusal to issue a categorical statement backing the widespread public clamor against the questionable charges of Manila Water and Maynilad in his Sona speaks volumes about where the President’s loyalty lies. Malacañang apparently does not want to upset the Ayalas and the MVP group which have been among the most aggressive in securing PPP contracts from government.

Fare hike and privatization

While Aquino was silent on the abusive pricing of Manila Water and Maynilad and the oppressiveness of the Concession Agreement, the President was clear in his relentless push to increase the fares in LRT and MRT. Like the MWSS, the LRT and MRT fare hike was also among the controversial issues raised by Aquino in his first Sona.

Reiterating his position in 2010, Aquino claimed that increasing the LRT and MRT fares to approximate air conditioned bus fares is justified. He raised the argument repeatedly pointed out by Department of Transportation and Communications (DOTC) officials – that government is supposedly subsidizing P25 (LRT) to P45 (MRT). Freeing up such subsidies means more funds for social services that will benefit the entire country and not only the Metro Manila commuters, argued the President. The DOTC has earlier announced that it will implement a P10-fare hike to be implemented in two tranches.

But it has been pointed out that the supposed subsidies, in the case of MRT, actually go to service debts arising from the guaranteed profits and sovereign guarantees given by government to the train system’s former private operators. LRT lines, on the other hand, are generating enough revenues to cover its maintenance and operation, although debts also bloat the total costs. Debts, however, should not be passed on to commuters as mass transportation is a public investment that generates economic and social gains.

Aquino and his transportation officials are not saying it, but the real reason behind the persistent drive to raise LRT and MRT fares is the government’s grand PPP program for Metro Manila’s light rail system. It will start with the P60.63-billion LRT 1 extension and privatization, the biggest PPP project so far of the administration. Increasing the fares would demonstrate government’s resolve and ability to regularly adjust fares, despite its unpopularity, to make the system profitable as planned in the draft 35-year Concession Agreement for LRT 1.

The said LRT 1 Concession Agreement is as onerous as the MWSS Concession Agreement. Its latest draft (as of June 27) still contains the so-called regulatory risk guarantee. Section 20.4.a of the draft agreement allows the private LRT 1 operator to secure “deficit payment” from government (i.e., taxpayers) when the approved fare is lower than the “notional fare”. The notional fare is a pre-determined fare level set out in the Concession Agreement that will ensure the commercial viability of LRT 1 and the profits of its private operator. This effectively deregulates the setting of fares and renders meaningless any intervention from Congress, the courts and other regulatory agencies.

Aside from the Ayala-MVP group, other LRT 1 bidders are presidential Uncle Danding Cojuangco’s SMC Infra Resources Inc.; the Consunjis’ DMCI Holdings Inc., which also lists Japanese giant Marubeni Corp. as one of its partners; and the MTD Samsung Consortium of Malaysia and South Korea.

Aquino packaged his Sona as the Sona of the people. He claimed that inclusive growth is behind every initiative of his administration. The past three years say otherwise. His silence on the Manila Water and Maynilad controversy, his all-out push for LRT and MRT fare hike, his rabid promotion of neoliberal privatization, all say otherwise. (END)

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Prices, profits and poverty: Three years of the Aquino presidency

gutom at dukhang pilipino

Two weeks before the fourth State of the Nation Address (SONA) of President Benigno Aquino III, the National Statistical Coordination Board (NSCB) revealed that the income gap between the rich and poor in the country continues to widen. The high-income class saw their income grow much faster (10.4% between 2010 and 2011) than those of the middle (4.3%) and low-income (8.2%) groups. To be sure, the NSCB’s “revelation” is nothing new, but nonetheless, it affirmed widespread criticisms that the economic growth being hyped by the three-year old Aquino administration merely benefited the rich and has been meaningless to the poor.

But as always, Malacañang was quick to dismiss any claim that challenges the illusion of economic prosperity it is trying to sell, even if it comes from an official government body like the NSCB. The gap is not widening, said the Palace’s chief spokesman, because all income classes have posted growth. Never mind if simple math says that a 10%-increase in a company executive’s monthly salary of P200,000 and an 8%-increase in an ordinary employee’s monthly income of P10,000 means that their income gap has widened by P19,200 a month. There is a serious problem when government readily distorts basic facts and logic to suit its propaganda.

Indeed, the glaring reality in the first three years of the Aquino administration is that the number of poor and hungry families and jobless workers has been constantly rising while a handful of super-rich amass wealth at unprecedented levels. All the publicity about high gross domestic product (GDP) growth, unparalleled trading in the stock market and historic investment grade rating merely points to how profitable the economy has become for the country’s elite and their foreign patrons.

This phenomenon can only be adequately explained by examining the political and economic structures of Philippine society. For starters, Aquino did not re-orient the economy and created conditions that will dismantle its semi-colonial (i.e., export-oriented, import-dependent economy) and semi-feudal (i.e., vast countryside with backward production and intense land monopoly) character. Industries remain stunted and vast haciendas remain intact depriving millions of Filipinos of long-term, gainful and productive employment and livelihood. Infrastructure development, which has become the favorite investment destination of big compradors and foreign banks and corporations under Aquino’s public-private partnership (PPP), is being pursued not for national industrialization but to facilitate the plunder of the economy by big local and foreign business interests. This also explains why Aquino’s “kung walang corrupt, walang mahirap” (without corruption, there is no poverty) is fundamentally flawed and deceptive.

Such underlying reality is being aggravated by the neoliberal policies of privatization and deregulation that result to ever rising prices, with big business groups and families that control privatized and deregulated sectors of the economy massively accumulating wealth while the people are oppressed and impoverished by soaring cost of living. This has been one of the easily discernible trends in the first three years of the Aquino presidency.

Prices

The prices of basic goods and services have sustained their steep rise due to the continued implementation by Aquino of neoliberal privatization and deregulation programs. This has been most felt in the sectors of water, electricity, petroleum and education. The average inflation rate (i.e., the pace of change of prices) of water, electricity, gas and other fuels (plus housing) from July 2010 to June 2013 is 4.3 percent. The inflation rate of education during the same period is 4.6 percent. Both are higher than the overall inflation rate of 3.6 percent. Only alcoholic beverages and tobacco posted a higher inflation rate with10.4% mainly due to the Sin Tax Law, also a neoliberal reform, which took effect this year. (See Chart 1)

inflation rate, by commodity

Note that the costs of water, power and oil products are rising at a much quicker pace today. The mentioned 4.3% inflation rate of utilities and fuels posted in the first three years of Aquino is faster than the 3.4% recorded in the last three years of Arroyo. It does not mean, however, that Arroyo was better than her successor at keeping prices in check. They both adhere to the same neoliberal policies of privatization and deregulation that let prices spiral. It’s just that Aquino is a more ardent implementor of neoliberalism than his former Economics teacher at the Ateneo.

Prices have soared as government ditched its regulatory duties like in the case of oil, and turned over to profit-oriented private firms many of its key functions like in the case of water and electricity. These paved the way for the profiteering of huge private monopolies. Among the first challenges to Aquino when he assumed power was to reverse these neoliberal prescriptions of the International Monetary Fund (IMF) and the World Bank that his mother Cory first implemented in the late 1980s.

Alas, when pump prices escalated in 2011, Aquino immediately defended the Oil Deregulation Law amid mounting calls for price control. He also rejected demands to scrap or at least reduce the 12% value-added tax (VAT) on petroleum products as an immediate relief. For Aquino’s inaction on skyrocketing oil prices, youth activists popularized Noynoying or lazing around. (Read more on oil deregulation here) Under Aquino, the pump price of diesel has increased by 24%; gasoline, 17%; and liquefied petroleum gas (LPG), 7-14 percent.

When Mindanao faced a power crisis in 2012, Aquino pushed for the full implementation of the Electric Power Industry Reform Act (Epira). The solution, said Aquino, is to privatize the region’s hydropower plants and for Mindanaons to pay more for electricity. His administration also started imposing this year Epira’s universal charge on stranded costs to pay for the post-privatization residual debts of the National Power Corp. (Napocor). These debts arose from the sweetheart deals of Napocor with independent power producers. (Read more on Napocor privatization here)

Since Aquino became President, the distribution charge of the Manila Electric Co. (Meralco) has already jumped by 43 percent. The transmission charge of the National Grid Corp. of the Philippines (NGCP) has already increased by 28 percent. Due to the imposition of the universal charge on stranded costs, the universal charge being imposed by Meralco has ballooned by 213 percent.

Meanwhile, Malacañang has remained silent on the raging controversy surrounding the privatization contract of the Metropolitan Waterworks and Sewerage System (MWSS). But it is noteworthy that the Aquino administration has been showcasing the privatization of MWSS to lure investors to its public-private partnership (PPP) program. The public now understands why MWSS is such an appealing model to PPP investors. In their Concession Agreement with MWSS, Maynilad Water Services Inc. and Manila Water Co. Inc. have been allowed to pass on to consumers billions of pesos in past and future income taxes, corporate donations, advertisements, projects, etc. and earn guaranteed profits from such onerous charges. This is on top of automatic adjustments in the basic rates as well as the collection of questionable items. (Read more on MWSS privatization here) The all-in water tariff being charged by Manila Water has already gone up by 24% and Maynilad by 41% since Aquino took over.

Table 1 below sums up the movement in prices of oil products and water and electricity rates in the first three years of the Aquino presidency.

oil prices, power & water

Tuition’s steady increase resulted in the high inflation rate of education. In the past three years, the Aquino administration approved almost nine out of every 10 applications for tuition hikes by tertiary schools. For this school year, the Commission on Higher Education (CHED) approved the tuition hike application of 354 tertiary schools and of at least 903 private elementary and high schools. In 2011 and 2012, CHED allowed 281 and 267 tertiary schools, respectively to increase tuition.

Profits

Big business has been cashing in huge amounts of profits due to the ever increasing prices of basic goods and services (and continued depression of wages). Due to rising electricity rates, for instance, the net income of Meralco has been growing by 42% or P3.67 billion annually from 2010 to 2012 and that of the National Grid Corp. of the Philippines (NGCP), by 17% or P2.91 billion (from 2010 to 2011).

Meanwhile, oil companies’ net income during the period has been weighed down by relatively lower prices in 2012. Petron’s net income, for instance, grew by 46% a year from 2010 to 2011 but declined by 73% last year, pulling down its annual net income expansion to just 7% in the last three years. Nonetheless, it still averaged an annual net income of P6.23 billion during the period. As an industry, electricity and oil and gas firms that belong to the top 1,000 corporations posted a collective 48% or P42.64 billion yearly net income growth from 2010 to 2011.

Similarly, because of rising water rates, Maynilad’s net income has been increasing by 36% or P1.33 billion every year and Manila Water by 19% or P737 million from 2010 to 2012.

Another indicator of the robust financial health of these firms is the gross profit margin. Among all industries in the top 1,000 corporations, electricity, oil and water companies registered some of the largest gross profit margins. In 2010 and 2011, the average annual gross profit margin of electricity and oil firms reached 32%, higher than the 27% they registered in 2008 and 2009. On the other hand, water firms posted a gross profit margin of 36.1% in 2010 and 2011, slightly lower than the 36.7% it recorded in 2008 and 2009. Other profitable industries include mining (50% profit margin in 2010 and 2011), banking and other financial activities (47%), information and communication technology (42%), and real estate (36%).

All in all, the average gross profit margin of the top 1,000 corporations improved from 21% to 23% in the periods being covered.  Also, their total net income grew from P755.97 billion in 2009 to P804.07 billion in 2010 to P868.08 billion in 2011, or an annual expansion rate of more than 7 percent.

Richest

Not surprisingly, a small group of super-rich families, which together with their foreign partners and financiers, control the country’s utilities, energy and oil companies, banks, mining firms, and real estate and infrastructure development among others, are amassing unimaginable wealth.

Forbes’ annual list of the world’s richest people shows a steadily and immensely growing wealth of the super-rich in the Philippines, who control the country’s largest companies, in the first three years of the Aquino administration. From $16.4 billion in 2009, the combined wealth of the 40 richest Filipinos has ballooned to $47.4 billion in 2012, or a 189%-increase. (See Chart 2 and Table 2) Forbes listed only 11 richest Filipinos for 2013 but their combined wealth has already reached a whopping $39.9 billion.

forbes richest filipinos 2009-2012

Table 2

Richest Filipinos as listed by Forbes Magazine ($ billion)

Name

2006

2007

2008

2009

2010

2011

2012

2013

Henry Sy

4.00

1.70

3.10

3.50

5.00

7.20

9.10

13.20

Lucio Tan

2.30

1.60

1.50

1.70

2.10

2.80

4.50

5.00

Enrique Razon Jr.

0.29

0.82

0.53

0.62

0.98

1.60

3.60

4.90

John Gokongwei

0.70

0.43

0.68

0.72

1.50

2.40

3.20

David Consunji

0.15

0.21

0.11

0.30

0.72

1.90

2.70

2.80

Andrew Tan

0.48

1.10

0.70

0.85

1.20

2.00

2.30

3.95

Jaime Zobel de Ayala

2.00

2.00

1.20

1.20

1.40

1.70

2.20

George Ty

0.83

0.87

0.44

0.52

0.81

1.10

1.70

2.60

Roberto Ongpin

3.00

1.30

1.50

1.20

Danding Cojuangco

0.84

0.54

0.61

0.66

0.76

1.40

1.40

Roberto Coyiuto Jr.

0.29

0.31

0.40

1.30

1.60

Tony Tan Caktiong

0.58

0.79

0.69

0.71

0.98

1.00

1.25

1.40

Lucio & Susan Co

1.20

2.00

Inigo & Mercedes Zobel

0.66

0.43

0.44

0.73

0.98

1.15

Emilio Yap

0.35

0.45

0.42

0.51

0.67

0.93

1.10

Jon Ramon Aboitiz

0.13

0.13

0.36

0.76

0.96

Andrew Gotianun

0.28

0.86

0.24

0.31

0.50

0.80

0.83

1.20

Manny Villar

0.11

0.94

0.43

0.53

0.38

0.62

0.72

Beatrice Campos

0.16

0.22

0.33

0.41

0.84

0.69

0.70

Vivian Que Azcona

0.08

0.67

0.36

0.39

0.45

0.56

0.69

Alfonso Yuchengco

0.23

0.37

0.20

0.23

0.26

0.37

0.57

Mariano Tan

0.10

0.14

0.20

0.18

0.33

0.38

0.42

Enrique Aboitiz

0.28

0.38

0.05

0.15

0.31

0.40

Eric Recto

0.20

0.37

Jose Antonio

0.25

0.30

Glibert Duavit

0.21

0.19

0.13

0.16

0.15

0.19

0.27

Menardo Jimenez

0.21

0.19

0.13

0.16

0.14

0.19

0.27

Frederic Dy

0.07

0.07

0.04

0.07

0.11

0.26

Manuel Zamora

0.08

0.11

0.13

0.11

0.12

0.15

0.26

Alfredo Ramos

0.13

0.12

0.12

0.18

0.25

Oscar Lopez

0.28

0.25

Felipe Gozon

0.16

0.24

Betty Ang

0.17

0.24

Wilfred Uytengsu Sr.

0.15

0.23

Juliette Romualdez

0.16

0.20

Bienvenido Tantoco Sr.

0.10

0.20

Jacinto Ng Sr.

0.12

0.19

Tomas Alcantara

0.16

0.16

Michael Cosiquien

0.15

Edgar Sia II

0.09

0.14

2006-2012 data as compiled by Rappler
2013 figures as reported by The Philippine Star

Cojuangco

Among the country’s richest based on the Forbes list is presidential uncle Danding Cojuangco, whose San Miguel Corporation (SMC) has stakes in Petron and Meralco as well Jaime Zobel de Ayala, whose many business interests include Manila Water. Cojuangco has a declared wealth of $1.4 billion in 2012, or 112% higher than his recorded wealth in 2009. Manned by his right-hand man Ramon S. Ang, Cojuangco’s San Miguel Corp. (SMC) registered a 61%-increase in its net income between 2010 and 2012. Originally a food and beverages company, the conglomerate has aggressively expanded into oil and energy (Petron, SMC Global Power Holdings, and San Miguel Energy Corp. and Meralco) as well as infrastructure. Taking advantage of Epira, SMC now holds the largest share, about 20%, in the country’s power generation capacity. SMC is also investing in mining through a stake in the Sagittarius Mines Inc., operator of the controversial $5.9-billion Tampakan copper-gold project in South Cotabato.

Ayala

Meanwhile, Ayala’s total wealth was pegged at $2.2 billion in 2012, 83% higher than his wealth in 2009. Aside from Manila Water (which is also lists as investors the World Bank’s International Finance Corp., UK’s United Utilities, Japan’s Mitsubishi Corp., as well as American and European investment firms), the Ayala group has interests in banking (Bank of the Philippine Islands), real estate (Ayala Land) and telecommunications (Globe).

Pangilinan

While conspicuously absent in the Forbes list, Manny V. Pangilinan is widely considered as among the richest billionaires in the country due to his various business interests including Maynilad and Meralco. Aside from utilities, Pangilinan also has interests in telecommunications (PLDT, Smart), infrastructure and tollways (Metro Pacific Tollways Corp. which operates SCTEX and NLEX), media (TV5 and various newspapers), mining (Philex Mining Corp.) and a growing number of hospitals (Makati Medical Center, Cardinal Santos Medical Center and Asian Hospital, among others). However, it must also be noted that these business interests are under the Hong Kong-based First Pacific Company Ltd., which is part of the corporate empire of Indonesia’s largest conglomerate, the Salim Group.

Top 5

The richest Filipino, based on the Forbes list, is Henry Sy, known for his chain of SM malls (the Philippines’ largest retail business) with a declared wealth of $13.2 billion in 2013. His wealth has increased by 277% since 2009, boosted by his expansion in the power industry through the NGCP, which because of Epira now has a monopoly over the country’s transmission system. His holding company, SM Investments Corp., saw its profits grow by 34% between 2010 and 2012. Sy’s BDO Unibank Inc., the largest bank in the country, posted a 61%-increase in its net income during the same period while SM Prime Holdings, which handles the SM malls, had a 29%-increase.

Following Sy is Lucio Tan, whose wealth jumped by 194% to $5 billion during the same period. Tan’s Fortune Tobacco and American giant Philip Morris have partnered under the PMFTC Inc. to monopolize the local cigarette market. Between 2010 and 2012, PMFTC Inc. saw its net income swell by 3,189 percent. Tan also controls Tanduay, Asia Brewery, Eton Properties (notorious for occupational hazards), the recently merged Philippine National Bank (PNB) and Allied Bank, as well as the University of the East (one of the educational institutions included in the top 1,000 corporations). Enrique Razon came in a close third with $4.9 billion, an enormous 690% expansion from his wealth in 2009. Razon is known for his International Container Port Terminal Services Inc. (ICTSI), which makes its fortune from privatized ports here and abroad, but is also expanding into casino operation through Bloomberry Resorts and Hotels Inc., which operates the recently opened Solaire Resort and Casino.

The fourth richest Filipino based on the Forbes list is Andrew Tan ($3.95 billion, 365% higher than 2009). He lists among his business interests the Alliance Global, which controls property developer Megaworld and the local franchise of US-based global food chain giant McDonalds. Like Razon, Andrew Tan will soon build and operate hotel and casino facilities at the so-called Pagcor Entertainment City in Manila. Completing the five richest Filipinos is David Consunji whose $2.8-billion wealth in 2013 an enormous 833% increase from his reported wealth in 2010. His main business interest is construction giant DMCI Holdings, which has also expanded to mining (Semirara Mining Corp.), energy (DMCI Power Corp.) and water (Maynilad). The Consunji group is among the most active in the privatization of power plants and IPP (independent power producer) contracts under Epira.

Poverty

Wages and incomes could barely cope with the ever rising prices of basic goods and services. In Aquino’s first three years, the daily minimum wage in NCR has increased by just P52 – from P404 (June 2010) to P456 today. The family living wage, which approximates the cost of living or the amount needed by a family to meet daily basic food and non-food needs, was pegged at P983 in end-2010 and at P1,034 in end-2012, using think tank IBON Foundation’s estimates, or an increase of P51. This means that the wage hikes have just been wiped out by the increase in the cost of living. Thus, the minimum wage remained way below the amount needed for a family to live decently, pegged at 44% of the cost of living today.

Based on SWS surveys, the number of poor families (annual average) climbed from 8.9 million in 2010 to 9.9 million in 2011 and further to 10.5 million last year. In the first quarter of 2013, the SWS reported that 10.6 million families consider themselves poor. This means that under Aquino, the number of poor families has increased by 1.7 million, or about 8.5 million Filipinos. Even official statistics indicate that poverty, at best, did not improve under Aquino. The National Statistical Coordination Board (NSCB) reported that poverty incidence among families stood at 22.3% in the first semester of 2012, which it described as practically unchanged from 2006 (23.4%) and 2009 (22.9%) figures.  (See Chart 3)

sws poverty 2010 - 2013 q1

SWS surveys also show that the number of families experiencing hunger has increased as well under Aquino. From 3.6 million families in 2010 (annual average), the number rose to 4 million in 2011 and further to 4.1 million last year. The first quarter 2013 SWS report indicates that hunger has not tempered, with 3.9 million families reporting that they experience involuntary hunger. In Aquino’s first three years in office, about half a million families or some 2.5 million Filipinos were added to those who go hungry. NSCB data, on the other hand, indicate that the incidence of food poor families (i.e., those who live in extreme poverty, with incomes not enough to buy even basic food needs) remains unchanged as well. In the first semester of 2012, it stood at 10% of families, identical with 2011’s 10% and just a bit lower than 2010’s 10.8 percent. (See Chart 4)

sws hunger 2010 - 2013 q1

The supposed economic growth is not creating jobs. SWS survey shows that the number of unemployed workers remained at 9.5 million in 2010 and 2011 (annual average), then jumped to 11.6 million in 2012. In the first quarter of 2013, SWS reported that there were 11.1 million jobless workers. This trend is being affirmed by government’s official unemployment data. Based on figures from the National Statistics Office (NSO), unemployment rate increased from 7.1% when Aquino took over (July and October 2010 average) to 7.3% this year (January and April 2013 average).  (See Chart 5)

sws unemployment 2010 - 2013 q1

Worst is yet to come

Aquino, in a recent speech, confidently declared that “the best is yet to come”. He promised that services will gain more speed in the second half of his term. Claiming to have realized that so many things still need to be done, the President said that his SONA will reflect the true state of the nation.

But if Aquino will stick to the same neoliberal policies that further impoverish the poor, the people should expect the worst. After the SONA, those who live in Metro Manila face the prospects of higher water rates and fares in LRT and MRT. Maynilad and Manila Water are seeking basic rate hikes of P8.58 and P5.83 per cubic meter, respectively. The planned increases are part of the so-called rate rebasing under the privatization of MWSS, which has been further exposed as a highly onerous PPP deal. Consumers in other parts of the country like Bacolod and Davao are also confronted with higher fees due to privatization efforts aimed at their water districts.

Meanwhile, LRT and MRT commuters will shoulder an initial P5 average fare hike that officials reportedly want to implement by August. Another P5-increase is set for next year. The fare hikes are part of Aquino’s plan to privatize the light rail system. LRT 1 is already slated for bidding this July with the groups of Pangilinan, Ayala, Cojuangco and Consunji as well as South Korean and Malaysian investors participating. The draft LRT 1 privatization contract provides for a regulatory risk guarantee wherein taxpayers will shoulder the cost in case the private operator could not implement a fare hike due to intervention by the courts or Congress.

Power rates, on the other hand, will again rise as another round of increase in the universal charge is expected soon to recover Napocor’s stranded debts as mandated under Epira. This is on top of the regular increases in the generation, distribution, transmission and other charges. Oil prices will remain artificially high and volatile due to foreign monopoly control and deregulation. Even the price of rice is starting to climb up, increasing by as much as P2 a kilo last week due to the continued operation of rice cartels and privatization of the functions of the National Food Authority (NFA).

The second half of Aquino’s term is shaping up to be three more years of increasing prosperity for the elite and worsening economic exclusion of the poor. Thus, while the Aquino clique savors the illusion of having consolidated its power after the midterm elections, in reality, social contradictions will surely further intensify and challenge the regime. (End)

PNoy and the Big Water monopolies

big water and pnoy
Daang matuwid pa ba when big business is practically running the government and profiting immensely at the expense of the people?

By July, the 14.2 million consumers of Maynilad Water Services Inc. and Manila Water Co. Inc. will have to shell out more for their water bill. If your household is consuming 30 cubic meters (cu. m.) a month, be ready to pay an additional P234 (if your service provider is Manila Water) to P342 (Maynilad). That’s how huge the looming rate hikes are. Apparently, the 42% annual increase in the profits of Maynilad and 18% for Manila Water in the past five years are not enough for the Big Water monopolies. They want more, at our expense, of course.

The increases are due to the so-called “rate rebasing”. It’s a rate adjustment process mandated by the 1997 privatization contract or the Concession Agreement between the MWSS and its private concessionaires – Maynilad and Manila Water. Under the Concession Agreement, the concessionaires are entitled to adjust their basic rates every five years throughout the 40-year contract to achieve a guaranteed rate of return. During the rate rebasing exercise, the concessionaires submit their previous five-year performance, their new five-year business plans and their proposed tariffs to implement it, which the MWSS-Regulatory Office (MWSS-RO) reviews and approves. Since the last rate rebasing exercise in 2007, Maynilad has been posting annual profits of P3.92 billion and Manila Water, P3.68 billion. During the public consultations, Manila Water said they expect to earn P5 billion annually in the next five years after the rate rebasing; Maynilad refused to disclose its anticipated profits.

Planned increases

According to regulators, Manila Water wants a rate hike of P5.83 per cu. m. and Maynilad, P8.58 (revised from the P10.30 reported earlier). But these refer to the basic charge only. If you look at your water bill, there are other items in it that will also increase when the basic charge is raised. The environmental charge, for example, is 20% of the basic charge. Then, there’s the foreign currency differential adjustment (FCDA), which accounts for the quarterly fluctuations in the foreign exchange (forex). The FCDA is negative when the peso gains against the dollar and is positive when the peso weakens. The FCDA is currently at negative 0.37% of the basic charge for Manila Water and negative 0.98% for Maynilad. The FCDA is expected to be positive as the dollar is gaining strength in recent months. Then, there’s also the value-added tax (VAT), which is 12% of the basic charge plus the environmental charge. Factoring in these other charges, the rate hike of Manila Water could reach P7.81 per cu. m. and Maynilad, P11.41 per cu. m. Thus, the estimated P234 to P342 increase for households consuming 30 cu. m.

The table below compares our estimated monthly bills today and after the rate hikes are implemented. (Note: The table has been revised to adjust the estimated monthly water bill for Maynilad customers using 10 cu. m.)

water rates current vs hiked revised

Unreasonable rate hikes

The rate increases being sought by Maynilad and Manila Water are unreasonable for two major reasons. First, the rate hikes cover not just the cost of past projects (which consumers also finance through water tariffs) but also include future expansion and improvement plans. This means that the private concessionaires want to charge consumers the cost of projects that are yet to be implemented. This is clearly anti-consumer and allows the abuses of Maynilad and Manila Water. In their previous rate rebasing exercises, the private concessionaires charged the costs of unimplemented projects to their consumers such as the Laiban Dam Project and the 15 CMS Water Source Replacement Project, among others. According to the MWSS-RO, the costs of unimplemented projects are recovered through succeeding rate rebasing exercises. If that is the case, then water rates should have been reduced during the 2007 rate rebasing. But this did not happen because the cost of new future projects as well as new assumptions in the business plans (population growth, demand, etc.) of the concessionaires negate the supposed cost recovery of unimplemented projects in favor of the consumers. The same scenario is expected in the ongoing rate rebasing exercise.

Second, the private concessionaires are earning profits at unreasonably rapid pace. Using the return on rate base (RORB), for instance, it appears that Maynilad and Manila Water are earning beyond the 12% limit imposed on public utilities. Estimates peg the RORB of the concessionaires at more than 14 percent. The rate base is computed by adding up the value of all the assets used in the operation of the public utility and from it, the allowed rate of return is calculated. Thus, the RORB of Maynilad and Manila Water could further go up beyond the estimated 14% if the total value of the old MWSS assets already built prior to privatization is excluded. Meanwhile, using the return on equity (ROE) as standard, it also appears that Maynilad and Manila Water are profiting tremendously from their operations. It is estimated, for instance, that Manila Water has an ROE of around 19% while Maynilad has about 45 percent. These are way higher than the ROE of those in other public utilities such as telecommunications (16%) and electricity (15%). The ROE is a measure of profitability wherein the net income is computed as a proportion of the equity or the investments poured in by the investors. Maynilad and Manila Water has a very high ROE because of the very high tariffs they set while a very large chunk of the cost of MWSS privatization is financed by loans (which are fully passed on to consumers) and not by their actual investments.

Big Water running the government

Alas, despite this really onerous burden awaiting us, we should not expect the Aquino government to step in and restrain the greed of Big Water. Maynilad and Manila Water managed to put their top officials in strategic Cabinet positions, advising the President on key government policies. Secretary Rogelio Singson used to be the president and chief executive officer (CEO) of Maynilad. He now heads the Department of Public Works and Highways (DPWH), where the Metropolitan Waterworks and Sewerage System (MWSS) is an attached agency. Secretary Rene Almendras used to be the president of Manila Water. He is now the so-called “Little President” of the Philippines, after a stint as chief of the Department of Energy (DOE). Almendras is reportedly one of the closest to Aquino, being in the innermost of the inner circle of the President.

Singson has the notoriety of generating the first political controversy faced by the Aquino administration. Just a week after taking over as DPWH Secretary, Singson appointed himself as ex-officio chairman of the Board of Trustees of the MWSS. While the move was obviously sanctioned by Malacañang through Executive Secretary Paquito Ochoa, Singson was forced to backtrack after his self-appointment as MWSS head was widely criticized due to conflict of interest. Prior to his appointment as DPWH Secretary, Singson, as Maynilad CEO, tried to seal a midnight deal with Efraim Genuino, Gloria Arroyo’s appointed chairman of the Philippine Amusement and Gaming Corp. (PAGCOR). It involved a water concession deal for the Bagong Nayong Pilipino Entertainment City in Parañaque City that would have reportedly deprived government of an estimated P3.6 billion in water fees. Days before Aquino’s inauguration, Genuino and Singson allegedly teamed up to lobby the MWSS Board to approve the deal because Maynilad was concerned that the new PAGCOR leadership under Aquino might not be as accommodating as Genuino. President Aquino, however, defended Singson, saying that he was satisfied with the Cabinet official’s, as well as PAGCOR’s, explanation that there was no contract yet.

Almendras, meanwhile, enjoys a close friendship with Aquino, which dates back to their Ateneo days. His current office, Cabinet Secretary, was created by the President to accommodate Almendras, whom Aquino had to remove from the DOE after a dismal performance underlined by the Mindanao power crisis. The office of the Cabinet Secretary used to be the office of the Cabinet Secretariat which simply facilitates information in Malacañang, according to a Philippine Daily Inquirer report. But Aquino transformed the office through Executive Order (EO) No. 99 and gave Almendras the mandate to among others, determine priorities in the Philippine Development Plan (PDP) and sit in the National Economic and Development Authority (NEDA) board executive committee and subcommittees on infrastructure, social development and investment. NEDA approves public-private partnership (PPP) projects such as MWSS’s Concession Agreements with Manila Water and Maynilad. Changes in the contract between the MWSS and the private concessionaires, including those that concern water rates, also require NEDA sanction.

Aquino indeed has deep ties with the Big Water monopolies. The Ayala family, which controls Manila Water, has a long history of close association with the Aquino family, dating back to the time of Aquino’s late mother Cory as Philippine President. Manny V. Pangilinan, who controls Maynilad, has done a number of mega business deals with presidential cousin and officially declared top Aquino funder in the 2010 polls, Tonyboy Cojuangco such as the PLDT and TV5 deals. MVP and the Ayalas are seen as among the major backers of Aquino in his presidential bid. So don’t be surprised that the chief executives of their business interests landed strategic Cabinet positions.

Don’t be surprised as well that Aquino made PPP or privatization his centerpiece economic program. PPP creates more opportunities for MVP and the Ayalas to further expand their business empires. In fact, Pangilinan’s group and the Ayala family are among the most aggressive in cornering PPP contracts being offered by administration. The Ayalas, for instance, clinched the very first PPP project of Aquino – the P1.96-billion Daang Hari-SLEX Link Road Project. Meanwhile, MVP and the Ayalas have teamed up to bid for the P60-billion extension and privatization of LRT 1, the largest PPP project of the Aquino administration. Incidentally, Malacañang is even using the privatization of MWSS as a showcase in promoting PPP. MWSS privatization is truly a showcase of how PPP can be so profitable for big business. But it’s also a showcase of how privatization can be so oppressive and onerous.

MVP’s Metro Pacific Investments Corp. (MPIC) holds 43% of Maynilad. The Consunji family, which also has close ties with Aquino, controls 25% through DMCI Holdings. Big foreign companies have a substantial share in Maynilad as well with MCNK JV Corp., a unit of Japanese giant Marubeni Corp., and Lyonnaise Asia Water Limited, a unit of French firm Suez, one of the world’s largest water companies, each holding a 16% stake. The Ayala Corporation, on the other hand, has a direct 43%-stake aside from the share being held by Philwater Holdings Co. Inc., which is 60% owned by Ayala and 40% by UK-based United Utilities. Other investors in Manila Water include another Japanese giant, Mitsubishi Corp. (8%) and the World Bank’s IFC (6%) as well as First State Investments of the UK (10%), Singapore-based global fund manager Aberdeen Asset Management plc (5%) and US-based equity mutual fund Smallcap World Fund Inc. (5%).

Daang matuwid pa ba when big business is practically running the government and profiting immensely at the expense of the people? Water rates today are about 585% to 1,119% higher than the initial rates when MWSS was privatized. Our water bill is now among the most expensive in Asia. Still, we face more increases that the Aquino administration will allow despite the harsh impact on the people and despite rising poverty and joblessness.

The Aquino administration, Maynilad and Manila Water must be held accountable for exploiting and oppressing the consumers. We have to end the greed of the Big Water monopolies of Ayala and Pangilinan and their foreign partners, and reverse the anti-people policy of MWSS privatization. (END)