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Five years after the winning bids to privatize Manila’s water promised to effectively cut Manila water tariffs in half, increase connections to provide for millions of thirsty residents, improve infrastructure to the tune of $7.5 billion, and reduce non-revenue water (water lost as a result of leakage and illegal connections) by 32 percent to save the city $4 billion over 25 years, privatization in the Philippines has proven to be an unmitigated disaster.
In 1997, the World Bank and the Asian Development Bank succeeded in sponsoring the privatization of Metro Manila’s water and sewage system, granting two 25 year concession contracts to two different groups. At the time, only 75 percent of Manila’s 11 million residents had household water connections, and the public enterprise, Metropolitan Waterworks and Sewage Systems (MWSS), was hugely inefficient, corrupt, and unpopular. The system was in disarray, and Filipinos were eager for improvement of water service by any means. As only the International Financial Institutions were capable of funding the development of the water sector, a policy of privatization was aggressively pushed and instituted. The winning privatization scheme split Manila’s water sector into two sections. The western part of the city was given over to Maynilad Water, owned by a subsidiary of the huge French water corporation Suez and by the oligarchic Philippine Lopez family. The eastern part of the city was contracted to Manila Water, owned by the notorious American corporate giant Bechtel and the oligarchic Philippine Ayala family.
Initial reports of the privatization were favorable. Service improved, connections increased, and tariffs dropped. However, many pundits took issue with the calculations and contexts which produced these conclusions. The private companies used a formula which multiplied one connection by 9.2 (a number created by a French consultancy firm during contract negotiations) to estimate service coverage. MWSS responded that such claims were exaggerated and did not correspond to established census figures.
Photo courtesy of Ibon
The companies also counted the connections they had provided by a fallacious method. Maynilad and Manila Water would extend a water main into a (often poor) subdivision and then depend on a neighborhood association to provide for running piping into homes. The private company would then bill the association and count for itself the connections provided by the association. Not only did this practice result in an inflation of the private companies’ achievements. More importantly, because water tariffs were graded to increase as consumption increased and the private water company metered consumption once at the water main, the usually poor members of neighborhood associations paid more than three times the amount paid by the richest Filipinos who had direct household connections, even though each family consumed at the lowest tariff grade. As for the rate-cuts, privatization advocate President Ramos had in August of 1996, five months prior to privatization, increased rates by 38 percent to make the subsequent privatization process look like a great deal.
Not that it even mattered. Five years later, tariffs are up 300 to 700 percent, depending on the area and citizen served. This represents a substantial portion of most Filipinos’ income. Non-revenue water actually increased under Maynilad, from 64 to 66 percent in 1997. Manila water had forecasted to reduce non-revenue water to 16 percent by 2001 but by that time was still losing half of its water.
In December 2002, after being denied permission to raise rates (the only denial after several approvals), Maynilad pulled out of it privatization contract. Far from bringing about the efficiency promised by privatization experts and advocates, Maynilad’s operations proved extraordinarily inefficient. The private company agreed to exorbitant consultancy fees and payments for firms associated with the Lopez family and the Suez corporation, severely under-spent on infrastructure, ignored regulators, failed to absorb financial obligations from MWSS, and misrepresented the impact of the Asian financial crisis on their loan financing. Rather than express contrition to the water consumers that Maynilad had abandoned or just run for cover, the company turned around and promptly sued the Philippine government for over $300 million.
The ruling on that case, released by the Paris-based International Court of Arbitrations on November 7, 2003, states that the concession agreement between Maynilad and MWSS must remain “in full force and effect.” The court recognized the Maynilad claims as being absurd and Maynilad must now pay $150 million in concession fees outstanding since the company unilaterally withdrew from its service and fiscal responsibilities in 2002. While much of Maynilad’s malfeasance was recognized by the court, the people of Manila are now still stuck with a water company with a demonstrated record of incapability in managing water service. Further struggle is ahead. President Arroyo, in the coming months, will be faced with immense political pressure to rescue Maynilad and ensure corporate and oligarchic profits.
Today, studies show that a fifth of residents in the east and west zones still lack water connections, and Maynilad’s negligence has resulted in cholera and gastroenteritis outbreaks which have killed six people and severely sickened 725 in Manila’s Tondo district (as of 11 November, 2003). Sanitary Inspector Clemente San Gabriel said the contamination which caused the illness resulted from the lack of chlorine in the water and from the failure to maintain adequate pressure in the system. Yet the Philippine government has not learned its lesson. Water systems in provincial cities are now being leased to firms on concessionary contracts.
Jude Esguerra of the Institute for Popular Democracy has said, “[This] could well be a case of street-smart companies making unrealistic 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.” Will Maynilad and the concessionaires be allowed to cash in on this gamble?
In the News:
Water for All initiated a new collaborative website to help coordinate our global campaign focusing on the water transnational, Suez. The website is tri-lingal and collects information regarding the abuses, problematic projects, community protests, and exploitative policies of Suez, Go to:
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