Consumer issues, Privatization, Water crisis

Water rate hikes: Maynilad, Manila Water want P153 B in future income tax passed on to consumers

water protest 1

Income tax is not a form of investment and is in fact an obligation of Manila Water and Maynilad. Yet, they charge it on consumers and even profit from it.

Manila Water and Maynilad are not only charging consumers the costs of unimplemented and future projects. They are also passing on the costs of their income tax to us, including those that they will have to pay for in the future. Worse, the water firms are even profiting from such practice because they are allowed to apply a certain rate of return on their operating expenses (Opex), which include income tax.

This unconscionable practice of Manila Water and Maynilad was disclosed by the Water for the People Network (WPN). According to the group, from 2008 to 2012, the amount of income tax being passed on to us by the concessionaires of the Metropolitan Waterworks and Sewerage System (MWSS) could reach P3.1 billion a year. We paid for it through our monthly water bills. Out of the P3.1 billion, Manila Water customers shouldered P1.5 billion; and Maynilad customers, P1.6 billion.

(Read the WPN statement here.)

Incidentally, Maynilad enjoyed an income tax holiday during the period. Thus, its collected income tax from consumers had been retained by the company as extra profits. Add to this the approved rate of return, called appropriate discount rate (ADR), of 9.3% enjoyed by Maynilad and Manila Water, which they can apply on their income tax (as part of Opex) and other expenses.

In the ongoing rate rebasing (an exercise that adjusts water tariffs based on past and future expenses and a guaranteed ADR), Manila Water wants to pass on an estimated P76.96 billion in income tax from 2013 until the end of its Concession Agreement (CA) with the MWSS in 2037. Maynilad, meanwhile, wants to pass on an estimated P75.92 billion during the same period of its own CA.

That’s a total of P152.87 billion worth of future income tax – or about P6.11 billion a year until 2037 – that they want us to shoulder starting today. They also want an ADR of 8.9% applied on these expenses. These amounts are included in their proposed rate hikes – P5.83 per cubic meter (cu. m.) for Manila Water and P8.58 for Maynilad.

The WPN called this practice “parasitic”. Imagine, income tax is not even a form of investment and is in fact an obligation of the concessionaires. Yet, they charge it on us and even profit from it. Parasitic indeed!

From 2008 to 2012, Manila Water has accumulated a net income of almost P20 billion and Maynilad, around P22 billion, due to rising water rates. Manila Water’s profits have been growing by about 18% annually and Maynilad, more than 40%, in the last five years. And they did not shell out a single centavo to pay for their income tax obligations. We, the consumers, paid it for them. And again, we will shoulder the tax on their future corporate income if their proposed hikes will be approved by the MWSS-Regulatory Office.

While they amass billions of profits, the water concessionaires invest very little and assume practically no risk. Consumers pay for the impact of inflation on their operation. Consumers pay for the impact of foreign exchange losses on their foreign-denominated loans. Consumers pay for any event that will affect their income, from calamities to changes in our laws. Consumers pay for the cost of protecting the environment from possible hazards of the concessionaires’ operations. Consumers pay for their past (including unimplemented) and future capital expenditures (Capex). Consumers pay for their past and future Opex, including income tax.

The concessionaires justify their action of passing on their income tax by arguing that they are not public utilities and that the Meralco ruling does not apply on them. In April 2003, the Supreme Court (SC) issued a ruling that prohibited the Manila Electric Co. (Meralco) from including income tax as a recoverable operating expense.

(Read the SC decision here.)

Following is the pertinent portion of the SC decision:

“Income tax, it should be stressed, is imposed on an individual or entity as a form of excise tax or a tax on the privilege of earning income. In exchange for the protection extended by the State to the taxpayer, the government collects taxes as a source of revenue to finance its activities. Clearly, by its nature, income tax payments of a public utility are not expenses which contribute to or are incurred in connection with the production of profit of a public utility. Income tax should be borne by the taxpayer alone as they are payments made in exchange for benefits received by the taxpayer from the State. No benefit is derived by the customers of a public utility for the taxes paid by such entity and no direct contribution is made by the payment of income tax to the operation of a public utility for purposes of generating revenue or profit. Accordingly, the burden of paying income tax should be Meralco’s alone and should not be shifted to the consumers by including the same in the computation of its operating expenses.”

But for Manila Water and Maynilad, they are not public utilities and are merely “agents” of the MWSS, which in the concessionaires’ distorted logic remains the public utility. It’s pretty obvious that such argument is garbage. When the MWSS was privatized in 1997, it turned over all its functions as a public utility to Manila Water and Maynilad – from operating and improving the water service system to charging and collecting tariffs from consumers.

For the sake of argument, however, let us accept that MWSS is the public utility and Manila Water and Maynilad are just its agents. It therefore follows that as mere agents, the concessionaires derive their authority and functions from the MWSS. But by insisting that they are not covered by the SC ruling on income tax, which only supposedly covers the MWSS as the public utility, Manila Water and Maynilad have put themselves in a more privileged position than their supposed principal.

A similar case can be raised on the issue of 12% limit on the return on rate base (RORB) for public utilities. 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. A cap is imposed to prevent user fees from soaring too much because a public utility provides an essential service. The concessionaires claim that they are not covered by the cap, again because supposedly they are not public utilities. So, the 12% RORB applies to MWSS only as the public utility but not to its agents, again making the concessionaires more privileged than MWSS.

And there’s more. If you look further at their Opex, you’ll find items such as Advertising, Promotions and Recreation. This is how Maynilad described the said item: “This pertains to the cost of enhancing and promoting the image of Maynilad, developing harmonious relations with different local government units, establishing rapport with tri-media, advertisement and publication of notices in newspapers and magazines of general circulation, TV/Radio broadcasts, website, public consultations on ground and cost of sponsorships. It also includes athletic, recreational and annual cultural celebrations.”

As part of the Opex, it’s passed on to us. So we’re paying to enhance and promote the image of Maynilad? We’re paying so that they can have harmonious relations with LGUs and media? We’re paying for public consultations stage-managed by the concessionaires to justify their onerous rate hikes and where critical consumers are not allowed to participate? And what exactly are sponsorships, athletic, recreational and cultural celebrations and what do they have to do with the provision of water services?

All of these highlight the fundamental problems of MWSS privatization and the concept of public-private partnership (PPP), especially on key infrastructure and services like water. Big business will squeeze every centavo from consumers, pitilessly bloating our water bill and draining our pockets. Private profits don’t have a concept of public interest and public accountability. This oppression and injustice must stop. (End)

More on MWSS privatization:

PNoy and the Big Water monopolies

PH water rates among Asia’s highest

Water shortage in Metro is beyond El Nino

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Consumer issues, Cronyism & patronage, Privatization, SONA 2013

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)

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Consumer issues, Privatization, Water crisis

PH water rates among Asia’s highest

Don’t be surprised if soon we will not just have the most expensive electricity rates in the region but the most exorbitant water rates as well (Photo from gmanetwork.com)

Because of privatization, don’t be surprised if soon the Philippines will have not just  the most expensive electricity rates in Asia but the most exorbitant water rates as well (Photo from gmanetwork.com)

We already know that power rates in the Philippines are the most expensive in Asia. What we do not know yet which will certainly make our collective blood pressure rise is that water rates in the country are also among the highest in the region. Using the same 2011 survey conducted by the Japan External Trade Organization (JETRO) on power rates in major Asian cities, I found out that the water rates in Cebu City and Manila rank fourth and fifth, respectively behind Sydney, Singapore and Jakarta. Yes, we are paying more expensive water than more developed cities like Hong Kong, New Delhi, Beijing, Seoul and others. (See Chart 1, click on image to enlarge) (Download the JETRO survey here)

ph water rates - chart 1

I bring this up after hearing the news that the private water concessionaires of the Metropolitan Waterworks and Sewerage System (MWSS) have been allowed again to jack up their rates next year. A report by the BusinessWorld said that by January 2013, the ordinary customers of Maynilad Water Services Inc. or those with a monthly consumption of 30 cubic meters will see their bill increase by ₱22.52. Meanwhile, the customers of Manila Water Co. Inc. with the same level of monthly consumption will bear a ₱6-spike in their water bill. What a way to greet the New Year for some 13.3 million people in Metro Manila and nearby provinces who get their water from Maynilad and Manila Water.

Prior to these latest increases, Maynilad has already increased its average tariff from ₱4.96 per cubic meter when it first took over the MWSS’s west zone service area in 1997 to ₱32.92 this year. During the same period, Manila Water which services the east zone has hiked its average tariff from ₱2.32 per cubic meter to ₱27.44. This means water rates have already ballooned by 564% to 1,083% since the MWSS was privatized 15 years ago. (See Chart 2, click on image to enlarge)

ph water rates - chart 2

Like in the case of the power sector, privatization and the numerous anomalous perks granted to corporations are behind the incessant rise in our water bills. The concession agreement between the MWSS and the private water concessionaires allows automatic adjustment to protect the profits the Manny V. Pangilinan group (Maynilad) and the Ayala group (Manila Water). In case you did not know, these big business groups with close ties to President Benigno Aquino III do not only control our cellphone networks, roads, electricity, hospitals and soon our LRT and MRT, but also our water.

Anyway, what are some of these automatic adjustments? Take the case of the most recent water rate hike. Maynilad and Manila Water are increasing their basic charge to reflect the movement in the inflation rate as provided under their respective concession agreements with the MWSS. The said agency’s Regulatory Office allowed a 3.2% adjustment in the consumer price index (CPI) to be applied to the private water concessionaires’ current basic charge. What does this mean? It’s a double whammy. Inflation rises because the costs of basic goods and services like food and utilities have gone up. And then water rates will further rise because of higher inflation. Another is the foreign currency differential adjustment (FCDA), which covers fluctuations in the exchange rate and affect the foreign-denominated loans of the concessionaires.

That’s what the water privatization contract stipulates. It doesn’t make sense to us poor consumers but it makes perfect sense for the Pangilinans and the Ayalas. Just look at their soaring profits to see why. In the first nine months of the 2012, Maynilad has amassed more than ₱5 billion in profits (13% higher than last year) while Manila Water has raked in ₱3.9 billion in profits (26% higher than last year).

Meanwhile, the water distribution system in Cebu City which has the fourth most costly rates in Asia is being managed by the Metro Cebu Water District (MCWD). Though not yet privatized, MCWD like the rest of the other 860 water districts nationwide has also been under constant threat of privatization. This was the intention of Senator Edgardo Angara’s Senate Bill (SB) 2997. Fortunately, the proposal has been effectively derailed by the strong campaigning of the Water System Employees’ Response (WATER), a national federation of water district employees. But the bill will certainly be revived after the midterm elections.

In the meantime, the water privateers continue to make inroads through other means. Earlier this year, the provincial government of Cebu has privatized its bulk water system through an agreement with guess who? Manila Water. Manny Pangilinan Manila Water has been on a buying spree of potable water systems around the country. Aside from the MWSS east zone and the Cebu bulk water project, his group it also controls the Boracay Island Water Co., the Laguna Water Co. (servicing the towns of Biñan, Cabuyao and Sta. Rosa) and the Clark Water Corp. in Pampanga.

The bad news is that the buying spree of our potable water systems and even water resources itself by the Pangilinans, the Ayalas, etc. and the consequent soaring user fees and marginalization of the poor will not end any time soon. In fact, the direction is the further expansion and consolidation of wealth and power of these big business groups through more privatization under the public-private partnership (PPP) of Mr. Aquino.

Just recently, the PPP Center announced that the administration’s first PPP water project – the New Centennial Water Source Project – is already in progress. This mega-project costs about ₱25 billion and is seen to provide an additional water source for Metro Manila. Needless to say, a project this big to be undertaken by a profit-oriented consortium will translate to even higher user fees for us under the privatization principle of full-cost recovery. Government has lined up a total of 14 PPP projects that could affect our access to water including four multi-purpose projects or the construction of dams for hydropower, irrigation and domestic water uses which cost some ₱50.75 billion; three hydropower projects, ₱39.24 billion; and three projects for potable water; ₱26.47 billion. The costs of the four other PPP projects have yet to be determined. (See Table at the end of this article)

These are big-ticket items that will surely provide a bottomless well of profits for those who will bag them, which are most likely the same elite families and their foreign funders and partners that have been taking advantage of past privatization projects and Aquino’s current PPP program. For us, it simply means even further exploitation and marginalization as most of us will find it increasingly harder to afford our basic human right to water for domestic use, for our livelihood and decent living.

Don’t be surprised if soon we will have not just the most expensive electricity rates in the region but the most exorbitant water rates as well. ###

Click on table to enlarge

ph water rates - table

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Consumer issues, Power industry, Privatization, SONA 2010, Water crisis

SONA 2010: Water, power crises

Aquino just inherited from previous administrations the country’s water and power insecurity but the challenge is will he overhaul the existing policy framework that has allowed the privatization and deregulation of the country’s utility sectors and created the mess we are in right now? (Photo from Reuters/Cheryl Ravelo)

First published by the Philippine Online Chronicles

Part 1

President Benigno Aquino III will hold his first State of the Nation Address (SONA) on Monday, July 26 amid a water shortage engulfing a substantial portion of Metro Manila, with long queues for rationed water becoming a common sight.

Meanwhile, about two weeks ago, around the same time when the Manila Electric Co. (Meralco) announced another rate hike, a brownout hit the President’s residence at Times Street in Quezon City which he blamed for arriving late for an appointment. Rotating brownouts have been just as frequent as power rate hikes in the past couple of months.

“Wala nang kuryente, wala pang tubig, ang taas pa ng singil” is the common man’s complaint.

The double whammy of water and power crises, of supply disruptions and skyrocketing rates is being felt not only in the metropolis but nationwide. Government officials and private utilities have pinned the blame squarely on force ma jeure like the prolonged dry spell and slow dam replenishment due to lack of enough rains.

However, there are obvious policy issues that the latest episodes in water and power supply insecurity have brought to the fore. Considering their immediate and long-term effects on the people’s welfare and overall economic development, Aquino is expected by the public and policy makers to outline in his SONA how the administration plans to address these recurring problems.

Magnitude of the water shortage

According to the latest update from the Department of Public Works and Highways (DPWH), 344 barangays (villages) with close to 3 million people in the service area of Maynilad Water Services Inc. are already affected by the water shortage. The number is almost half (49 percent) of the entire West Zone concession area of Maynilad, which together with its East Zone counterpart Manila Water Co. Inc., took over the water distribution function of the privatized Metropolitan Waterworks and Sewerage System (MWSS) in 1997.

Maynilad chief operating officer Herbert Consunji disclosed that as of July 20, at least 18 percent (equivalent to some 450,000 people) of those affected by the water shortage in the West Zone can be considered as “severely affected”. This means that these areas have available water supply for only up to six hours at most or none at all.

In an earlier advisory posted on its website, Maynilad said that among those severely affected are 22 barangays in Quezon City, 13 barangays in Caloocan City, 4 barangays in Malabon, 4 barangays in Valenzuela City, 2 barangays in Las Pinas City, and 1 barangay in Navotas. The Pangilinan-Consunji-controlled water utility has already deployed 28 tankers to ration water in these areas. Reports say that residents are forced to line up as early as 5 AM and wait for Maynilad’s tankers.

In the service area of Manila Water, a smaller 21 percent is being affected by the water shortage, according to DPWH Secretary Rogelio Singson as quoted in a news report. The Ayala-led water firm in a separate report admitted that there is already a gradual reduction in water pressure in elevated within its concession area such as in parts of Pasig, Marikina, Cainta, Rodriguez, Taguig, and San Mateo in Rizal province. Manila Water may also have to resort to water rationing if the water level in Angat Dam – where they and Maynilad get 97 percent of their water supply for the domestic needs of Metro Manila and parts of Cavite and Rizal – will not improve in the coming months.

Blame it on the (lack of) rain

Due to a depleted water level because of the El Niño phenomenon, the private water concessionaires said that their water allocation from Angat Dam has substantially declined. DPWH reported that at present, Maynilad is actually receiving 1,800 million liters per day from Angat Dam, down from its normal level of 2,400 million liters per day (a 33.3 percent reduction). Manila Water, on the other hand, has seen its allocation dwindle to 1,245 million liters per day from 1,600 million liters per day, or a 28.5 percent reduction.

Latest update from the MWSS on the water level in Angat Dam pegged it at

Among the many promises of water privatization was 24/7 access to water for all (Photo from Raffy Lerma)

158.2 meters above sea level (masl) as of July 21. A day before that, it dropped to 157.56 masl, lower than its historic low of 158.15 masl in September 1998 which was also an El Niño year. Authorities said that recent typhoons “Basyang” and “Caloy” did not substantially replenish Angat Dam, adding up a combined 27 centimeters only. The critical level of Angat Dam is pegged at 180 masl, which was breached in April during the height of the latest El Niño. Without heavy rains, the dam’s water is expected to further recede to 147 masl by September. At 120 masl, the dam could no longer provide water for Metro Manila’s domestic consumption.

Rotating brownouts, power rate hikes

The lack of rains and depleting water level in the country’s major dams because of the El Niño have also been blamed for the power crisis – characterized by rotating brownouts and spikes in electricity rates – that has hit the country this year. In March, the power supply deficits reached record highs with Luzon experiencing a shortfall of 641 megawatts (MW) and Mindanao, 700 MW, according to the National Grid Corporation of the Philippines (NGCP).

Meralco had to implement a 90-minute power supply disruption throughout the day because of the supposed deficiency in available electricity. In Mindanao, blackouts have lasted by up to 12 hours a day, a situation that began as early as February. The southern island heavily depends on hydro power for its electricity needs, with hydropower plants accounting for 53.1 percent of Mindanao’s generating capacity, according to data from the Mindanao Economic Development Council (MEDCO).

But low water levels derailed the operation of these power plants. The 727-MW Agus and 255-MW Pulangi hydroelectric power plants, for instance, experienced an 80 and 90 percent reduction in capacity, respectively because of the prolonged drought. The water level in Lake Lanao, source for most of the hydropower plants in Mindanao, has breached its critical level of 699.15 meters in early March and dropped to 699.08 meters.

In addition, reduced power supply due to depleted dams amid high electricity consumption because of the hot temperature brought about by El Niño has also pushed up power rates throughout the country. Meralco, for example, has increased its rates several times in the past six months, with the latest rate hike of 5.8 centavos per kilowatt-hour (kWh) announced in the first week of July, supposedly because of high generation charges at the Wholesale Electricity Spot Market (WESM). Overall, Meralco’s generation charge has already jumped by P1.84 per kWh between January and July.

Part 2

The double whammy of water and power crises – major issues that require urgent response and actions from President Benigno Aquino III

Policy issues

While the private companies and government agencies concerned have conveniently blamed natural phenomenon for the water and power crises, a deeper look will show that the conditions for the crises have been laid out and at the same time aggravated by wrong policies.

Both the water and power sectors have been deeply privatized, a process that was set off by Aquino’s mother, the late President Corazon Aquino in the late 1980s, accelerated by the Ramos and Estrada administrations in the 1990s, then continued and intensified by former President and now Pampanga Representative Gloria Macapagal-Arroyo.

Among the many promises made by the private water concessionaires and hyped by the then Ramos administration to justify the privatization of the MWSS was upgrading the decrepit water system infrastructure. Such upgrade intends to substantially reduce non-revenue water (NRW, or water lost due to leaks and pilferage) and help achieve universal and 24/7 water supply for an increasing number of households. In their original concession agreement with MWSS, the private water firms promised to provide universal access by 2001.

But until today, less than 60 percent of 790,000 households in Maynilad’s service area have 24-hour water service while only 74 percent receive water at 7-pound per square inch (PSI) or stronger pressure. More than half (53 percent) of water allocated to Maynilad continues to get wasted because of leaks and pilferage. Meanwhile, Manila Water, claims 99 percent water supply coverage in its service area but will not say how big the portion is with individual and direct household connection and those serviced by private water suppliers or “middlemen”. These areas served by a third party private contractor are often poor communities and most vulnerable to water supply disruption.

Amid water supply problems, Maynilad and Manila Water jacked up their rates tremendously, taking advantage of full-cost recovery mechanisms offered by privatization. Since MWSS was privatized, Maynilad’s basic charge has already soared by 449 percent and Manila Water, by 845 percent.

Private monopolies and manipulation

The power crisis that the country has been facing is also more man-made than natural. Plant shutdowns and supposed fuel constraints have combined with the impact of depleted dams on hydropower generation to substantially constrict available capacity throughout the islands. The implementation of Republic Act (RA) 9136 or the Electric Power Industry Reform Act (Epira) of 2001, which facilitated the privatization of power generation and transmission as well as deregulated the setting of power rates, has not addressed the country’s energy security issues.

Under Epira, hydro and other power plants have been privatized and sold to foreign and local firms (Photo from napocor.gov.ph)

Epira merely transferred the state monopoly on power to private companies, which has set the stage for various forms of possible abuses and manipulation. Cross-ownership, for instance, between distributors like Meralco and power producers made electricity rates more blurred than transparent.

Take the case of the WESM, which Epira created to supposedly allow freer competition among industry players but in fact has become a venue for speculation and rigging of prices. Among the so-called independent power producers (IPPs) trading in the WESM is First Gen Power Corp. that runs two natural gas-fired power plants (1,000-MW Sta. Rita and 500-MW San Lorenzo) and two hydropower plants (100-MW Pantabangan and 12-MW Masiway). The Lopez family, which controls 13.4 percent of Meralco, owns First Gen which aside from the WESM transactions also supplies 35.7 percent of Meralco’s power requirements.

Plant shutdowns

Furthermore, another Meralco owner, San Miguel Energy Corp. (SMEC) which has a 34-percent stake in the utility giant, also operates the biggest power plants in the country like the 620-MW Limay Combined Cycle Power Plant, the 1,000-MW Sual Coal-Fired Power Plant, and the 1,200-MW Ilijan Combined Cycle Power Plant. During the height of the El Niño, SMEC shut down, along with other privately operated plants, one unit of its Sual plant (with a capacity of 540 MW) due to “coal supply problems”. Its Limay plant also went offline for about three weeks early this year for “inspection purposes”.

The unscheduled outages in its power plants fueled talks that SMEC may have intentionally decommissioned the Sual and Limay to constrict power supply and jack up rates. After the SMEC plant shutdowns, First Gen followed suit with its own maintenance shutdown of its natural gas-fired Sta. Rita and San Lorenzo power plants in mid-February to early March.

The cost of generation has gone sky-high because of these plant shutdowns that artificially reduced available capacity. Meanwhile, power retailers like Meralco have been able to easily pass on the charges to unfortunate end-consumers. Under Epira, they are allowed to automatically adjust generation charges on a monthly basis through a cost recovery mechanism called Automatic Adjustment of Generation Rates (AGRA).

Is Noynoy up to the challenge?

Despite the recurring problems caused by its flawed policies on water and power, the previous Arroyo administration has continued the relentless march towards the neoliberal restructuring of these sectors. In fact, among what can be considered a midnight deal, is the April 28 bidding of the Angat Dam which was won by a South Korean power company. If this deal will be completed, consumers fear of more water supply woes even as the country’s energy needs are not necessarily guaranteed.

To be sure, President Aquino just inherited from previous administrations these problems besetting the country’s water and power security. The challenge, however, is will he overhaul the existing policy framework that has allowed the privatization and deregulation of the country’s utility sectors and created the mess we are in right now?

He will have the chance to do this in his first SONA on Monday when he outlines his vision for the country in the next six years. People who have been abused long enough by private water and power utilities, who suffered endless brownouts and lack of water amid skyrocketing monthly bills, will certainly be interested to listen.

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Consumer issues, Privatization, Water crisis

Water shortage in Metro is beyond El Niño

A depleted Angat Dam (photo by Raffy Lerma)

The water shortage in Metro Manila has been conveniently blamed by the private water concessionaires and authorities on everything else but themselves. They blamed it on El Niño for drying up the Angat Dam. They blamed it on “Basyang” for not pouring enough rains on Norzagaray, Bulacan to replenish the dam’s water (read news report here).

But how much of the current shortage can be blamed on natural phenomenon and how much should be attributed to policy errors like water privatization? True, the prolonged dry spell depleted water to precarious levels not only in Angat but in several major dams around the country. The impact on domestic water supply in Metro Manila, however, could have been tolerable or at least not as bad as it is now if not for structural issues related to the privatization of the Metropolitan Waterworks and Sewerage System (MWSS) almost 13 years ago.

All-time low

According to the latest report, Angat Dam’s water, which supplies 97 percent of the domestic water needs of some 14 million people in Metro Manila and parts of Cavite and Rizal, has already dropped to an alarming 157.59 meters as of Sunday (July 18). This is an all-time low, with the previous record pegged at 158.15 meters recorded during the 1998 El Niño episode. The critical level of Angat Dam is 180 meters.

One of the private companies that took over the water distribution function of MWSS, Maynilad Water Services Inc., has already resorted to rationing water to some areas in its concession area. (Maynilad serves the West Zone of the old MWSS service area, while Manila Water Co. Inc. serves the East Zone)  Maynilad said that its water allocation has declined by 30 percent, causing supply disruptions since last week.

But many of these areas in Maynilad’s west zone have long been experiencing water supply problems even before the current El Niño. “Unfortunately, the reduction in our water allocation has forced us to ration water in elevated areas, in areas with a lot of water loss usually due to illegal connections, and in areas that need further service upgrade,” a Maynilad official said, describing the areas currently experiencing water supply disruption.

A failed policy

Among the many promises made by the private water concessionaires and hyped by the then Ramos administration was upgrading the decrepit water system infrastructure. Such upgrade intends to substantially reduce non-revenue water (NRW, or water lost due to leaks and pilferage) and help achieve universal and 24/7 water supply for an increasing number of households. In their original concession agreement with MWSS, the private water firms promised to provide universal access by 2001.

But until today, less than 60 percent of 790,000 households in Maynilad’s service area have 24-hour water service while only 74 percent receive water at 7-pound per square inch (PSI) or stronger pressure (read here). More than half (53 percent) of water allocated to Maynilad continues to get wasted because of leaks and pilferage (read here). Meanwhile, Manila Water, claims 99 percent water supply coverage in its service area but will not say how big the portion is with individual and direct household connection and those serviced by private water suppliers or “middlemen”. These areas served by a third party private contractor are often poor communities and most vulnerable to water supply disruption.

There is no available data that break down NRW into leaks and pilferage. But the continued pervasiveness of illegal connections may be explained by skyrocketing water bills due to full-cost recovery under water privatization. Since MWSS was privatized, Maynilad’s basic charge has already soared by 449 percent and Manila Water, by 845 percent. Put that in a situation of worsening job scarcity, stagnant wages and income, and rapid increases in the overall cost of living and you will get the picture. (See Chart)

 

Reverse privatization

Maynilad and Manila Water must be held accountable for failing to provide, after more than a decade of privatization, reliable and universal access to water for the people – a situation that has just been aggravated today by the El Niño.

Certainly, there is a need to reverse water privatization, a neoliberal policy that has already been discredited worldwide. Public control must be asserted especially over water which is not a simple commodity or service that we can afford to leave in the hands of profit-seeking companies.

The Aquino administration can start this by suspending the sale of the Angat Dam itself, which has been auctioned to a Korean power company last April. The further privatization of water through the sale of Angat Dam will mean worse water shortages in the coming months and years, with or without an El Niño.

These issues must be included in the medium-term policy agenda of the new administration.

Stopgap measures

But in the meantime, as a stopgap measure, Malacañang, the private concessionaires, MWSS, National Water Resources Board (NWRB) and other concerned government agencies must come out with a detailed plan on how they will ensure that water for domestic use will be available. Due focus must be given to vulnerable communities as they tend to be displaced under a privatized water system by well-off customers and commercial establishments even during times of abundant water supply.

Authorities must also strictly monitor and regulate the wasteful use of water by golf courses, malls, hotels, private parks, car wash shops, and other commercial establishments. An 18-hole golf course, for instance, consumes an average of 2.3 million liters of water per day, according to the United Nations (UN), causing an enormous impact on water withdrawals, and competing with the basic water needs of as much as 115,000 people.

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Privatization, Water crisis

Today is World Water(less) Day

"Water for the people now!"

Unknown to most Filipinos, today (March 22) is the international observance of the World Water Day. This initiative grew out of the 1992 United Nations Conference on Environment and Development (UNCED) better known as the Earth Summit held in Rio Janeiro, Brazil.

For this year, the theme is “Clean Water for a Healthy World”, with a campaign, said the UN, “to raise the profile of water quality at the political level so that water quality considerations are made alongside those of water quantity”.

According to the World Health Organization (WHO), water, together with sanitation and hygiene, have important impacts on both health and disease. In a 2008 report, the WHO noted grim facts on the health situation in relation to access to water, to wit:

  • 3.575 million people die each year from water-related disease
  • 43 percent of water-related deaths are due to diarrhea
  • 84 percent of water-related deaths are in children ages 0 – 14
  • 98 percent of water-related deaths occur in the developing world

Meanwhile, a more recent (2010) report by the WHO and the United Nations  Children’s Fund (Unicef) noted disparities between countries, regions, and urban and rural areas in terms of access to sanitation:

  • 2.6 billion people or 39 per cent of the world’s population live without access to improved sanitation. The vast majority live in Asia and sub-Saharan Africa.
  • In the developed regions almost the entire population (99 per cent) used improved facilities as compared to 52 per cent in developing regions.
  • At current rates of progress the world will miss the MDG sanitation target by almost 1 billion people, which claims to: “halve, by 2015 the proportion of people without sustainable access to safe drinking water and basic sanitation,” by 13 per cent. And the MDGs are not the end of the sanitation challenge. Even if the target is met some 1.7 billion people will still not have access to improved sanitation facilities.
  • Rural/urban disparities are particularly apparent in sub-Saharan Africa, and the Caribbean, Southern Asia and Oceania where improved sanitation coverage is highest among the urban population despite the vast majority living in rural areas.
  • 751 million people share their sanitation facilities with other households or only use public facilities.

Such appalling global reality is reflected in the Philippines where the poor have been increasingly deprived of access to water for basic domestic use due to neoliberal policies such as privatization of water services and resources. The situation continues to deteriorate today due to the El Niño that has further limited water supply available for the people, especially the poor.

According to the 2007 Annual Poverty Indicator Survey (APIS) of the National Statistics Office (NSO):

  • 17.1 percent of all families in the country do not have access to safe drinking water and are forced to get water from unsafe sources such as unprotected well (5.7 percent); developed spring (4.8 percent); undeveloped spring (1.9 percent); river, stream, pond, lake or dam (1.1 percent); rainwater (0.4 percent); tanker truck or peddler (2.3 percent); and other sources (0.8 percent).
  • Access to water is expectedly lower for poor families as the same NSO survey show that 30 percent of the poorest 30 percent of Filipino families do not have access to safe water supply.

The advocacy group Water for the People Network (WPN) intends to draw public attention to this situation of lack of access to water for basic domestic use and for people’s livelihood amid the El Niño and continuing privatization of the country’s water resources.

Tomorrow, March 23, the WPN will hold a roundtable discussion on Angat Dam’s privatization together with the Commission on Human Rights (CHR) and other stakeholders including farmers from Bulacan, consumers as well as water agencies including the Metropolitan Waterworks and Sewerage System (MWSS).

More on the Angat Dam privatization and the WPN’s roundtable later.

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