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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Economy, Privatization

“Growth” for big business, at the people’s expense

growth under aquino - ayala-pangilinan-ppp.gov.ph

The Ayala and Pangilinan groups team up in a bid to bag the ₱60-billion LRT 1 privatization project, so far the biggest PPP initiative of the Aquino administration. San Miguel Corp. of presidential uncle Danding Cojuangco is also bidding for the contract. These groups, which enjoy close ties with Aquino, have made a fortune by cornering privatization deals that burden the people with high user fees. (Photo from www.ppp.gov.ph)

Read first part

Structural issues

With the rapid and steady decline of the domestic labor market, labor export has further intensified under Aquino who deploys an average of 1.58 million OFWs a year, a significant jump from the 1 million during Arroyo’s term. If you stretch the comparison to the 1980s, the country is exporting about 3-4 times more OFWs today. In addition, OFW deployment relative to the number of domestically employed workers has steadily increased through the years – from just 2.9% in 2001 to 4.5% in 2011 – indicating the deepening reliance on labor export of the Philippines.

Their remittances (which for the first time breached the $20-billion mark in 2011 and as of September 2012 is reported at $15.57 billion but expected by the World Bank to reach a new record high of $24 billion for the full year) have been keeping the economy afloat in the past three decades by providing means for domestic consumption and payments for our import-dependent production (trade deficit stood at $6.8 billion as of October) and massive foreign debt (pegged at $61.72 billion as of September, which is also the quick and straight answer to one of the favorite 2012 highlights of the administration – the Philippines supposedly being a creditor nation).

In fact, while exports and FDI inflows have increased this year, OFW remittances, the third largest in the world behind remittances from Chinese and Mexican migrant workers, remained the single largest source of dollars for the economy. In the past 10 years, annual OFW remittances are almost 90 times the size of net FDI while the trade balance, as in previous decades, remained perennially in the red, meaning that the neocolonial import-export sector continues to take out invaluable resources from the country, while others in the region like Indonesia, Malaysia, South Korea and Singapore are posting trade surplus of between $25 to $43 billion. Like neocolonial trade, labor export actually takes away more from the economy than the remittances it brings as highly-skilled and trained Filipino workers render their productivity to foreign economies instead of ours. The social costs of labor export such as disintegrating families, issues left unmeasured by statistics, should not be ignored as well.

While actually symptomatic of the permanent and structural crisis that forever besets the Philippines, labor export and remittances drive “growth” as measured by the GDP. This is perhaps one of the biggest anomalies of our maldevelopment. The surprising third quarter expansion, for instance, was mainly driven among others by the 24.3% growth in construction gross value-added (GVA) and 24.8% growth in construction expenditure as record-breaking inflows of remittances fuel demand for residential property. The so-called real estate boom is also being pushed by the BPO sector that according to industry insiders has been driving up demand for new office space which is expected to hit a record 400,000 to half a million square meters this year, or an increase of as much as 25% from 2011.

Like labor export, growth stimulated by BPO is an aberration because its predominance in economic production is actually indicative of the country’s continuing failure to develop and industrialize. Both are the results of the domestic economy’s longstanding structural inability to generate sustainable and productive jobs from vibrant local industries including the manufacture of consumer and industrial goods and modernized agriculture. Without a national industrialization plan, we are forced to rely on what the US and other rich countries require us to do for their advanced economies, whether as production workers in their global assembly lines and factories or as call center agents to service the various needs of their clients. Certainly, they do create some (low-paying, insecure) jobs but just enough to meet their needs while the jobs generated are totally detached from our own development needs.

Furthermore, the so-called resilience amid the global crisis is not because the economy is internally-driven by sustainable, job-generating domestic industries but because our main drivers of growth – BPO and labor export – are precisely useful cost-cutting schemes for the crisis-hit economies of the First World to cope with the economic crunch. In other words, we may continue to “grow” amid the global crisis, but at the great expense of our workers who will be forced to accept further exploitative arrangements in the form of more depressed wages and lack of social protection whether as an irregular call center agent here or an undocumented migrant worker in the US.

At our expense

“Growth” indeed has been at our expense. Not only is the supposed growth not creating enough jobs, it is also being pushed by skyrocketing costs of basic needs and vital economic services. At current prices, electricity, gas and water grew the second fastest in the third quarter among all major industries, just behind construction as the year as usual saw the regular rate increases in privatized electricity and water. While this meant additional burden for the public, it meant more profits for the private corporations that control them.

The nine-month profits of the Manila Electric Co. (Meralco), for instance, increased by 7.9% to ₱12.89 billion, which the company expects to hit ₱16 billion for the full-year. Similarly, In the first nine months of 2012, Maynilad Water Services Inc. has amassed more than ₱5 billion in profits (13% higher than last year) while Manila Water Co. has raked in ₱3.9 billion in profits (26% higher than last year). Due to the never-ending surges in user fees, Manila already has the most expensive electricity rates and the fifth most expensive water rates among major Asian cities.

These utilities are controlled by the country’s richest clans and individuals who are closely associated with Aquino such as presidential uncle Danding Cojuangco and political supporters Manny Pangilinan and the Ayala family. Aside from electricity and water utilities, they also control other key infrastructure such as toll roads, telecoms and power generation. Together with other close Aquino allies like the Lopezes, Aboitizes and Consunjis, among others, these groups have positioned themselves to further expand their business empire through Aquino’s PPP scheme.

growth under aquino - table

The Ayalas have already bagged the ₱1.96-billion Daang Hari – Slex Link Road project earlier this year; Pangilinan/Ayalas, Cojuangco’s San Miguel Corp. and the Consunjis are all vying for the ₱60-billion LRT 1 extension and privatization project, which is also tied to government’s adamant plan to raise LRT/MRT fares by next year; even hospitals are not spared such as the ₱5.6-billion privatization of the Philippine Orthopedic Center which Pangilinan is eyeing to add to his growing list of hospitals.

The much ballyhooed credit rating upgrades are also being achieved at the people’s expense. Credit rating agencies cite the fiscal reforms being undertaken by Aquino that tame the national budget deficit. This includes, among others, raising government fees and imposing new charges through Administrative Order (AO) No. 31 and imposing more taxes like the newly-signed Sin Tax Law to generate additional revenues. Most of these revenues, however, will go to debt servicing as Aquino needs to gain favorable reviews from creditors and credit rating agencies.

Since Aquino took over up to September this year, government has already shelled out ₱1.59 trillion for debt servicing, equivalent to 70.2% of total revenues and 53.3% of total expenditures plus principal amortization. For comparison, debt servicing under Arroyo was equivalent to 65.8% of revenues and 41.5% of expenditures. These belie claims that the national budget under the Aquino administration is now being redirected towards social services to empower and benefit the poor. The expenditure program from 2011 to the recently signed ₱2-trillion 2013 national budget shows that the budget for debt servicing (including principal amortization) is equivalent to an average of 2.5 times that of the budget for education; 6.4 times, health; and 11.2 times, housing.

For elite interests

While the Aquino administration is harping on good governance as being behind the supposed drastic economic turnaround, much of the so-called reforms it is undertaking – with substantial backing from the US government and multilateral institutions like the World Bank – have been more about protecting elite and big business interests and less about curbing big-time systemic corruption or democratizing government. The reforms are all about creating a more conducive atmosphere for investors, i.e. stable and predictable policy environment, less business risks and reduced costs, etc. to reinforce liberalization, deregulation and privatization. The false assumption is that when business is thriving, the people will ultimately benefit through more jobs and income opportunities and improved living conditions. But clearly, this is not happening as the gains from a supposedly expanding economy have remained monopolized by a handful of big local businessmen and their foreign partners and funders.

On top of promoting the interests of big business, the good governance rhetoric is also being used to advance the agenda of the Aquino clique of the political elite. The successful ouster of Renato Corona as Supreme Court (SC) Chief Justice and the appointment of Ma. Lourdes Sereneo, for instance, were more about the consolidation of the political power of the ruling Liberal Party (LP) than making Mrs. Arroyo accountable. Executive hegemony over government branches that formulate policies (Congress) and review the legality of such policies (Judiciary) makes an even more ideal political setting to push for retrogressive economic programs that promote certain big business interests.

In the run-up to the 2013 midterm polls, the LP further heightened their political consolidation under the guise of daang matuwid. Aquino appointed Grace Padaca to the Commission on Elections (Comelec) while LP President and 2016 presidential wannabe Mar Roxas is leading the campaign to unseat non-LP governors in the vote-rich provinces of Cebu and Pangasinan through his powerful post as Secretary of the Department of Interior and Local Government (DILG). The LP is obviously laying the groundwork for their prolonged rule and continued imposition of their brand of elite governance and economics beyond the 2016 term of Aquino.

However, contradictions will surely heighten as the crisis gripping the great majority of Filipinos intensifies. The deception of good governance is good economics and the popularity of Aquino will certainly reach their threshold if joblessness, poverty and hunger continued to deteriorate. The significant 12-point drop in Aquino’s latest satisfaction rating despite the scorching speed of GDP growth could be a portent of things to come. ###

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