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No to Privatization

Water Districts: To Privatize or Not To Privatize, To Integrate or Not To Integrate
By:  Arnold G. Valencia

So much have been discussed regarding the constitutionality of Section 47 of PD 198.  Most recently, it has been the focal point of the case betweenTawang Multi-Purpose Cooperative (TMPC) and La Trinidad Water District (LTWD).  TMPC was formed to provide water services to Brgy. Tawang, La Trinidad,Benguet LTWD opposed the application of TMPC for a certificate of public convenience to operate and maintain a waterworks system it filed with NWRB. LTWD claimed that, under Section 47 of P.D. 198, as amended, its franchise is exclusive. And once again, the Court declared Section 47 of Presidential Decree No. 198 unconstitutional.

Fortunately, Associate Justice Arturo D. Brion had a different view of the case.  In his dissenting opinion, Justice Brion states:

“The majority insists that Section 47 of P.D. 198 indirectly grants an exclusive franchise in favor of local water districts.  In their reading, the law “allows the board of directors of a water district and the Local Water Utilities Administration (LWUA) to create franchises that are exclusive in character.”  I disagree, as the majority opinion does not all specify and is unclear on how any franchise can be indirectly exclusive.  What the law allows is merely the regulation of the grant of subsequent franchises so that the government – through government-owned and controlled corporations – can protect itself and the general public it serves in the operation of public utilities.”

He also added that:

“Without a clear showing that the Constitution was violated by the enactment of Section 47 of P.D. 198, the Court cannot validate it without infringing on government policy, especially when Congress had not seen fit to repeal the law and when the law appears to be based on sound public policy.  P.D. No. 198 requires an applicant to first obtain the consent of the local water district and the LWUA for important reasons.  First, it aims to protect the government’s investment. Second, it avoids a situation where ruinous competition could compromise the supply of public utilities in poor and remote areas.”

By his opinion, it can be sensed that Justice Brion felt the dilemma that water districts are facing.  By allowing and encouraging private entities to compete with the existing water districts, the government is killing the very institution it once created.  Justice Brion also stated that “These local water districts are heavily regulated and depend on government support for their subsistence.  If a private entity provides stiff competition against a local water district, causes it to close down and, thereafter, chooses to discontinue its business, a problem of finding a replacement of water supplier for a poor, remote area will recur.”  This is very true.  No private entity, with the goal of generating income and fast investment recovery, would dare put up a water distribution facility where people have low income and can barely make both ends meet.

On a deeper perspective, one should realize that the true essence of P.D. 198 is not just to provide potable water to communities but also to prevent the deterioration of water quality and supply through the creation of local water districts.  The water district’s role is clearly stated in Section 32 of this decree. Furthermore, in Section 39, the law authorizes the water district to levy a ground water production assessment to entities extracting water within the district’s jurisdiction if it injures or reduces the district’s financial condition. Clearly, even if Section 47 is perceived unconstitutional, Sections 32 and 39 will still be formidable bases for the inherent authority of the water districts over its territorial jurisdiction.

At present, water districts are on a verge of politically motivated transition.  But water districts are not new to this so-called “reforms”.  In 1994 NEDA, in its Board Resolution No. 4, approved the recommendation of the Infrastructure Committee (INFRACOM) that “Privatization of all existing Water Districts should be vigorously pursued whenever feasible and large commercially viable water services areas like Metro Manila, Cebu, Zamboanga and Davao should be formed or converted into SEC-style private water corporations, independent of LWUA and other government funding institutions but subject to regulation by NWRB.”  Then in 1997, MWSS was privatized and transferred to private concessionaires Manila Water and Maynilad Water districts are closely watching these events and are already aware of the repugnant scheme that lies ahead.

Privatization: The promise of better service and cheaper water?

The discussion on water privatization will never be complete without mentioning the mother-of-all water privatization in the Asia-Pacific region – the privatization of Metropolitan Waterworks and Sewerage System (MWSS).  A ten-year-period overview (from 1997 to 2008) of the privatization scheme published by Freedom from Debt Coalition (FDC) best described the status of the said scheme.  FDC stated that:

Upon commencement of the concession agreement between MWSS and its two concessionaires, a drastic reduction in water tariff was immediately implemented in Metro Manila. In the West zone, Maynilad’s winning bid of Php 4.96/m³ resulted in a 43.5% reduction from MWSS’ previous 1996 rate. In the East zone, Manila Water’s dive bid of Php2.61/m³ redounded in a reduction of 73.6%. By January 2008, however, water rates in Metro Manila have already risen by at least 665 percent for West Zone consumers and 891 percent for East Zone consumers from the original bid rates submitted by the two concessionaires. Ten full years after the commencement of the concession agreement between MWSS and the two concessionaires, Manila Water and Maynilad’s all-in-tariffs had risen to Php26.98 and Php 32.032, respectively.”

In the eyes of a paying consumer, these figures are the ones that make somebody want to pick up a placard and join a rally.  But in the eyes of a capitalist, these spell P-R-O-F-I-T.

Had it not been privatized, MWSS rate will be a lot lower for sure.  But will water service improve under the management of MWSS?  The definite answer is “it can be improved”.   The only sad thing is that the government lacks the initiative to educate and motivate itself.   Therefore, it resorted to privatization.

Now the question is, do water districts all over the country need to be privatized?  If yes, then for what reasons?  Are water districts suffering the same fate that MWSS suffered back then?  Are water districts performing below par compared to private utilities?  What would be the solid basis for the government to favor privatization?

To gain an overview of the performance of the different water service providers in the country, NWRB in cooperation with LWUA, DILG, the World Bank’s multi-donor partnership Water and Sanitation Program (WSP), and the World Bank launched the Benchmarking of Towns Water Utilities in the Philippines.  The following table is the result of the benchmarking study involving 45 water service providers:

 

Performance Indicators

(No. of Utilities)

Water Districts

(18)

 

LGU’s

(10)

RWSA’s/

Coops

(9)

Private

Operators

(8)

Overall

Average

(45)

Coverage (%)

69.4

53.2

65.8

68.8

64.7

Availability (hrs/day)

22.8

17.8

20.1

21.9

21.0

Consumption (lpcd)

119.7

94.9

127.2

135.9

118.6

NRW (%)

26.8

36.2

17.7

43.4

29.6

Metering (%)

98.0

92.7

97.3

92.8

95.7

Operating Ratio

0.93

1.58

1.00

0.94

1.10

Collection Period (mo.)

1.3

2.3

2.6

1.6

1.8

Staff/1000 connections

6.9

8.7

6.6

5.8

7.1

Source: Philippine Towns Water Utilities Data Book 2004

 Based on the results above and as presented by Mr. Cesar Yñiguez (Benchmarking Adviser, Water Sanitation Program) at World Bank Water Week 2009,Water Districts perform better than all other management models in all performance indicators except for NRW and Staff/1000 connections, nevertheless,  both are still lower than the overall average.

According to Mr. Yñiguez, these are the reasons why Water Districts perform better than other management models:

  • Water districts have access to loan financing from the Local Water Utilities Administration (LWUA) sourced mostly from ODA funds ;
  • Loans are for performance improvement, capital development and expansion ;
  • Loans include provision for management and operational/technical assistance ;
  • Water District staff can avail of LWUA’s training programs; some large and mature water districts also provide training through the Philippine Association of Water Districts (PAWD);
  • LWUA advisers are available on call to Water Districts to help them with management and operational/technical problems;
  • Regulation of performance and tariff reviews are consolidated under the National Water Resources Board (NWRB); and
  • Metering is almost universal and tariffs cover O&M costs and some expansion leading in some cases to higher coverage and 24 hour water supply.

 

The benchmarking study only shows that Water Districts outperforms LGU’s, Coops, and the Private Operators in terms of coverage, water-availability, metering, cost-profit ratio, and accounts receivable turnover.  But one thing that is not mentioned in the performance indicator is the most important rationale why Water Districts perform best overall – the dedication of the management and employees who embraced the principle of “public service before profit”.

Instead of encouraging privatization, the government should give its full support to all water districts and to all local government units who are aspiring to put up their own water district. Water district is the best management model for a water utility company.  Hence, Section 2 of PD 198 states that “the formulation and operation of independent, locally controlled public water districts is found and declared to be the most feasible and favored institutional structure”. 

The Future of the Consuming Public

There is now a bill in the Senate, Senate Bill 2997, that seeks the eventual privatization and integration of all water districts in the country.  The bill was passed by Sen. Edgardo Angara.  One of the reasons why he passed this bill is stated below:

The State assumes the burden of ensuring that the water located in our lakes and rivers reaches our faucets. The past 30 years have shown us that the fragmented water district model of P.D. No. 198 has failed. Instead, it has given rise to little water fiefdoms where small operators, in cahoots with local officials, monopolize water services with no incentive to provide quality service. There is impetus to consolidate, and there is little reason not to.”

This statement hurts the image of water districts as a whole.  To be classified as “little water fiefdoms” and to be branded as “in cahoots with local officials, monopolize water services with no incentive to provide quality service” is very much degrading.  It is also disheartening to know that these words came from an elected government official, occupying one of the highest posts in the land.  These accusations of Sen. Angara should be accompanied by concrete evidence.  Otherwise, his accusations will only be deemed as a “baseless personal opinion” propelled by an unknown impetus.

Sen. Angara also mentioned in the bill that “the fragmented water district model of P.D. No. 198 has failed”.  Again, this is a claim without any basis. Water Districts have been and still performing well compared to other water management models.  And without any significant financial support from the national government, Sen. Angara should be happy that water districts are still alive and kicking up to this day.  Water districts thrive through loans and grants but never were they subsidized by the national government.

Senate Bill 2997 also promotes the amalgamation or integration of existing water service providers (including water districts), as mentioned in Section 7 of the said bill.  This integration scheme is not as efficient as it is pictured in the bill.  Again, it is best to let the data gathered from reliable researches, studies, and surveys speak for themselves.  In the study titled “Prospects and Pitfalls in Integrated Water Services in the Philippines” conducted by The Water Sanitation Program (WSP) and released in August 2009, 35 integrated and 109 nonintegrated water districts were studied and analyzed. An excerpt of the executive summary of the study asserts that:

Using data from 35 integrated and 109 nonintegrated water districts, the study confirms the potential advantage of increasing scale to the reduction of unit costs. However, the study notes that integrated water districts did not perform as well as nonintegrated water districts of the same size because of higher fixed costs and greater inefficiency.”

To better understand what is meant by this statement, the tables below (all taken from WSP Reports) shows the result of the study.

Water Districts were classified into nine (9) groups according to number of connections illustrated in Table 2 of the said study.

Table 5 shows the comparison of integrated and nonintegrated water districts as regards to operating cost. The study notes that the operational efficiency of integrated systems consistently fell short of their nonintegrated counterparts in all size groups Operating cost of integrated water system is higher than those of nonintegrated water districts.

Table 7 shows the comparison on average tariffs paid by customers.  The study further notes that, “Although poised to benefit from significant economies of scale, integrated systems did not perform as well as their nonintegrated counterparts. Customers within integrated systems are paying more for their water than customers in nonintegrated service areas, and growth in connections is slower in integrated water districts than in nonintegrated water districts.”

This study by WSP is a clear gauge of what will be the possible outcome of the proposed amalgamation of water service providers in the country.  Amalgamation spells higher operating cost followed by eventual higher tariffs.   It should also be noted that the subjects of this study are water districts, a management model under heavy supervision by LWUA and regularly checked by the Commission on Audit (COA).   If integrated water districts, whose primary purpose is public service and not profit, were not able to prevent the increase of tariff due to integration, much more a private water service provider operating mainly for profit.  Bottom line? Consumers will bear all the burden of increased water rates.  And this is what is poised to happen all over the country if Senate Bill 2997 is enacted into law.

 

What is Happening Today

Even if studies and researches are proving that privatization and amalgamation are not the answer to better water distribution services, it seems that some government bureaucrats are keen on pursuing their goal of privatizing and integrating the water distribution system in the country.  Private water companies are now slowly but audaciously imposing themselves on water districts.  They have nothing to dread for they have the backing of powerful people who are allies to the equally powerful government officials.

 In Laguna, the local water district of the town of Cabuyao is currently experiencing the daunting momentum of the privatization scheme.  On one side of the road, one will see the pipe-laying project of the local water district.  On the other side of the road, Laguna AAA Water Corp. (a subsidiary of Manila Water) is doing the same thing, as if Cabuyao Water District does not even exist at all.  Laguna Water also managed to obtain from some subdivision developers their consent to transfer the management and ownership of their water system. This is clearly against Section 31 of PD 198 (as amended) which states that the water district has the right to:

“(b) Require a developer or builder of any structure within the service areas of the district to extend or connect its pipeline facilities to the district facilities whenever such development or structure is within one hundred meters of existing district facilities or whenever the district is willing to extend its facilities within one hundred meters of said development or structure. For the purpose of this section, development shall include the subdivision of land for any purpose other than agricultural purpose, and structure shall mean any building or facility to be used for residential, commercial or industrial purposes.(c) Prohibit any person, firm or corporation from vending, selling, or otherwise disposing of water for public purposes within the service area of the district where district facilities are available to provide such service, or fix terms and conditions by permit for such sale or disposition of water.”

 Furthermore, Laguna Water claimed to have struck a 25-year concession deal with the Provincial Government of Laguna to supply water to the cities of Sta. Rosa and Biñan, and the municipality Cabuyao The Board of Directors of Cabuyao Water District have already filed a civil complaint against the Provincial Government of Laguna and Laguna AAA Water Corporation for illegally entering into a concession agreement in violation of the provisions of R.A. 6957 as amended by R.A. 7718 for failing to comply with the publication and bidding requirements stated in the said law.

Water has an economic value and it is a finite resource.  For these reasons, it should be conserved and protected so that our future generations will also benefit from it.  However, some people are also espousing these rationales to profit from this valuable resource.  Private companies are jockeying for position and lobbying to have a piece of the impending (as they see it) privatization scheme.

Water districts have been serving local communities for more than thirty years now, facing different problems such as finding potable water resource, reaching the isolated, servicing the poor, financing expansion projects, and enduring the brunt of local politicians who are favoring private water service providers.  Water districts remain silent over the years.  Never complaining. Never griping. Hoping that silence will yield positive results. Regrettably, that silence was capitalized by the business-minded. So now, the time has come to be noticed.

“NO TO PRIVATIZATION!” This is the battlecry of the more than 800 water districts in the country today.  To some extent, this rallying call has reportedly been heard in the Senate.  But it’s not enough to be heard.  There is also a need to be understood, to be taken seriously, to be recognized, and to be acknowledged as an important component of the society.  And this time, silence will never be an option.

(Arnold G. Valencia is the Officer-In-Charge of the Finance and Commercial Division and heads the Groundwater Production Assessment Committee of Cabuyao Water District.  This article is the Cover Story of Aquarius Magazine Vol 35 No. 2, April-June 2012 Issue)

REFERENCES:

 

  1. G.R. No. 166471, March 22, 2011 – Tawang Multi-Purpose Cooperative, Petitioner vs.  La Trinidad Water District, Respondent
  2. Justice Arturo Brion’s dissenting opinion, G.R. No. 166471, March 22, 2011
  3. Board Resolution No. 4, NEDA 1994
  4. Recalibrating the Meter:   A Ten-Year Overview of the Privatization Deal of the MWSS Privatization Deal, Freedom from Debt Coalition
  5. Philippine Towns Water Utilities Data Book 2004
  6. Philippines Small Towns Water Utilities Performance, presented and authored by Mr. Cesar Yñiguez, Benchmarking Adviser WSP-SA,  World Bank Water Week 2009, February 17-19, 2009
  7. Senate Bill 2997 – Introduced by Senator Edgardo J. Angara
  8. Prospects and Pitfalls in Integrated Water Services in the Philippines, Water Sanitation Program (WSP),  August 2009
  9. Presidential Decree No. 198
  10. Engr. Dominador K. De Castro, Jr. – General Manager, Cabuyao (Laguna) Water District
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