Manila A Case Study In Private Water Crisis

by Marites Sison

With four grown children in her household, the water she saves is still not enough. She buys water from a supplier every week, pushing her monthly water bill to $47.

This does not include the distilled drinking water she has to buy -- what comes out from her perennially dry faucet is not potable.

"It's exasperating," she says of her daily ordeal for the last 25 years. It is a burden made heavier by the fact that her family lives in an upper-middle class subdivision in Paranaque, south of Manila, which ideally should not have to worry about water.

"Why can't we even have this simplest basic necessity at all times and at reasonable cost?" she asks.

Her sister, she points out, lives in a plush condominium in central Manila and enjoys uninterrupted water supply for only $3.70 a month. "I don't understand it," she says.

Over in the slums of San Andres, also in Manila, Simeon is thankful that he has running water. But his water bill keeps getting higher, rising to $9.40 a month from $3.70 in 1998.

Why the inequality in water supply and water costs? This is what many have been asking recently, following another wave of water price hike this month in Metro Manila, a megacity of 10 million people.

The question has become more nagging given the fact that in 1997, under the World Bank's advice, the Philippine government privatized the government-owned Metropolitan Waterworks and Sewerage System (MWSS) to reduce the cost of water, improve service, and expand connections to waterless areas.

Metro Manila was divided into two zones, each run by a concessionaire to encourage competition. The contracts were awarded to two oligarch families -- the Ayalas and the Lopezes, each with major international water companies as partners.

The Ayala and International Water consortium runs the East Zone concession called Manila Water Co. Inc., and the Lopez and Lyonnaise des Eaux's Maynilad Water Services, Inc. runs the West Zone area.

Five years after the privatization that was expected to improve water services, consumers' and activist groups say, Manila's water crisis has only become worse.

Water prices have not gone down but up, even as private concessionaries failed to comply with the expansion and service targets they set in their contracts.

"Less than a year after the awarding of their contracts, both concessionaires applied for rate increases. Fiercely opposed by citizens' groups, it was not granted," Maria Victoria Raquiza wrote in the report The Water Case: Increased Rates for Poorer Services.

The chapter appears in the Social Watch 2003 report, which is being released at the World Social Forum in Brazil this week, prepared by an international citizens' group that monitors government commitments to fight poverty.

In early 2001, the concessionaires asked the government to amend their contracts to allow them to adjust water rates without going through a state regulatory body. Maynilad and Manila Water cited as reasons the effects of the Asian crisis, and losses due to large-scale water pilferage. Their request was granted on October 2001.

By 2002 -- four years after privatization -- Maynilad customers were paying an average basic charge of 30 cents per cubic meter of water, 76 percent higher than the pre-privatization rate, Raquiza said.

She said that Manila Water residents pay a cheaper rate of 13 cents per cubic meter, but "additional costs" such as the 10 percent value-added tax and a 10 percent environmental charge push consumers' bills up.

The actual rate of Maynilad is 39 cents per cubic meter and for Manila Water, 20 cents. Both "rates that are higher than before privatization", she found.

Early this year, the two concessionaires announced another price hike -- 61 percent more for Maynilad consumers and 150 percent for Manila Water areas.

Manila's experience "belies the claim that privatization automatically provides additional funds to government or improves the efficiency and effectiveness of the management of companies," Raquiza said. "What it bolsters, however, is the concern that cost-recovery and profit-making are the primary goals of privatization, even at huge economic and social costs to consumers and citizens."

A study by the NGO Freedom from Debt Coalition also noted that "a fifth of the residents in the East and West Zones are still not connected to the water systems."

The amended contract also allowed concessionaires "to lower or postpone their performance targets," Raquiza said.

Manila Water Co. maintains that it has met the terms of its contract and more. It cited its Water for the Villages programme, which it claims has brought water to 300,000 people in depressed villages in the metropolis.

As for Maynilad, Raquiza said there were some breaches of contract, including its failure to absorb the financial obligations of the state-owned MWSS.

In December 2002, Maynilad filed a notice of termination of its water contract, citing lack of support from MWSS. To critics' consternation, the government offered it a compromise -- a five-year moratorium in payment of concession fees of $264 million.

"It's really abusive! It's a failure and yet it asks for a prize!" Bantay Tubig (Water Watch), a coalition of consumers' and citizens groups, said in a statement.

Raquiza added that according to citizens' groups and the MWSS, "Maynilad enjoyed too many concessions and had only to look at its own backyard to explain its economic woes; inefficiencies in disbursement of funds, misprioritised spending (e.g. higher-than-average salaries of executives)."

Maynilad President Rafael Alunan, a former interior secretary, has denied that inefficiency and greed were responsible for the company's dire straits.

An arbitration panel has yet to decide on Maynilad's request. But serious doubts have been raised on the viability of privatization in a country like the Philippines where rules have been flouted, especially by those with access to the corridors of power.

"What emerges from an investigation of this debate is a corporate muddle, a process that was not the 'win-win' solution it was hyped up to be, after all," wrote Jude Esguerra for the NGO Institute for Popular Democracy.

He added: "Rather, it could well be a case of street-smart companies making unrealistic and unsustainable bids just to win the tender, and gambling on the possibility that the rules of the game could change later in their favor, given the weakness of regulation in the country and the state's historical permeability to private interests."