Dominguez: ‘Review’ of water contracts won’t affect investor confidence in PH

DAVAO CITY — President Rodrigo Duterte’s chief economic manager on Tuesday allays fears that the review of the contracts with the two water concessionaires in Metro Manila and nearby areas would negatively impact on investor confidence in the Philippines.

“People have to understand that what is being reviewed are terms that are onerous to the Philippines, to the nation. It’s not the government—it’s the taxpayer. And what I have seen is that the concessionaires have signaled that they’re willing to revisit those terms. So I think that should be a good signal to the rest of the investing community that people look at the interest of the nation as a whole. And this is not abrogation of the contracts, but a review of the contracts, which I think should be done regularly,” Finance Secretary Carlos G. Dominguez III said on the sidelines of Sulong Pilipinas Agribusiness Summit 2019.

Pangilinan-led Maynilad Water Services Inc. told the bourse last Monday that banks had suspended lending money to the company due to uncertainties over its concession contract with the government.
Hundreds of billions of pesos in short-term investments in the stock market were also wiped out during the past two weeks after President Duterte ordered a review of the concession agreements signed over two decades ago with Ayala-led Manila Water Company Inc. and Maynilad, which operate the east and west concessions, respectively, for the state-run Metropolitan Waterworks and Sewerage System (MWSS).

The President had alleged the contracts were laden with “onerous provisions” that were disadvantageous to taxpayers.

Asked if the ongoing review of the water contracts could set a precedent to other existing contracts between the government and the private sector, Dominguez replied: “If they were made with onerous contracts, I think it’s only right for the administration to review them. And in this particular case, the concessionaires have signaled that they are willing to review, right? It should be a signal to everybody that the private sector and the government are working together for the benefit of the nation, of all the taxpayers.”

Dominguez remained confident that potential future investors will not be turned off as he pointed out that the two water concessionaires “have themselves said that they are willing to do the review.”

“In fact, let me tell you, just to show you that this review is acceptable: when we bid out the contract for the water concession in New Clark City, these onerous terms were not there. And yet, Manila Water bid, so it must be acceptable to them. So there’s no issue, or should not be an issue,” Dominguez said.

Last week, Dominguez said he preferred a frequent assessment and fine-tuning of long-term contracts entered into by the government with private firms amid changing economic conditions.

“This is my personal opinion: the contracts should recognize that times change, and you cannot fix the return on a fixed basis. It should be referenced to what the interest rates are at that particular time,” Dominguez said last Friday.

Former officials say the agreements signed in 1997 reflected the economic developments back then when water distribution was not appealing to private firms and the MWSS was in a disarray, hence the now allegedly onerous provisions acting as sweeteners to lure in investors during that time.

“That’s probably correct, but times have changed so you must change with the times,” Dominguez said.

In that regard, Dominguez said contracts should be flexible so they could be frequently reviewed.

“At that time [in 1997], the Philippines was paying 700 basis points over the benchmark of 6 percent. So we were paying 13-percent interest rate when we borrow. So 12 percent looks OK. But 12 percent doesn’t look OK now. Our best spread is now 32 bps over benchmark of 1.7-1.8 percent. You have to adjust also to be fair to consumers,” Dominguez pointed out.

Asked if he was open to regranting the contracts to the same concessionaires in case negotiations go well, Dominguez replied: “We have to look at the entire contract. I’ve actually talked to the Ayalas and one of the partners of Maynilad, and I already told them: ‘You guys should also put yourselves in our position, and see what items are disadvantageous to the government. Then, you should make your proposals already so we don’t have to go through this long, drawn-out discussions.’”

“In fact, during the bidding for the water concession for New Clark City, there are no terms there that are unfavorable to the government—and Ayala bid. So obviously, they can accept those. They lost, but they bid. Obviously, they know the terms there are totally different from the MWSS’s. So if those terms are acceptable to them as evidenced by their bid, they should be open to looking at their contracts. They must know,” Dominguez added.