By Cai Ordinario, December 19, 2019

http://businessmirror.com.ph/2019/12/19/neda-water-concession-contracts-must-be-shorter/

Image Credit to Business Mirror

The National Economic and Development Authority (Neda) said on Wednesday the water concession period must be shorter than 25 years to avoid creating the same problems that are now plaguing the country’s water sector.

Socioeconomic Planning Secretary Ernesto M. Pernia said in a news briefing that water concession contracts must be shortened to 15 years instead of the 25 years given to concessionaires.

This should be complemented by efforts to remove other “onerous provisions” in the concession agreement signed by the government in 1997 with Manila Water and Maynilad.

“The length of the concession was 25 years, maybe that should be shorter, maybe 15 years. I think Secretary of Justice [Menardo] Guevarra cited about a dozen onerous provisions in the contract. But I cannot fathom all those because they are quite legalistic in terms so those are the standout items,” said Pernia.

Other items in the concession agreements that should be changed, Pernia said, are provisions that prevent the government from intervening in the setting of water rates.

He added that the tax exemption of water concessionaires must also be removed. Pernia said, “The concessionaires are exempt from taxes because the taxes they are levied on are shifted back to the people.”

Pernia also said the concession agreements must be reviewed periodically or be subjected to a mid-term review. He said the current concession agreement should have been reviewed at least 10 years ago.

The agreements can be changed at this time, Pernia said, given the strength of the economy. This was not the case in 1997, when the government entered into a contract with the two water concessionaires.

“I can understand that in 1997 the government was at the mercy of investors because our economy was considered a high-risk economy,” said Pernia.

“I think what should have been done and this should have also been in the conscience of water concessionaires that in 2009 and 2010, the economy was doing better so there was really no need to continue with the same conditions in the concession agreement,” he explained.

Pernia said the “most objectionable thing” regarding the whole issue was that the contract is being extended 13 years before expiration. The contract was extended by 15 years, or until 2037, from 2022.

He lamented that there was no renegotiation or a review of the concession agreement prior to the extension. A review could remove “onerous provisions” in the contract.

“I’m sure the investors will understand that there was something fishy, or something wrong with how concession agreements were handled by the concessionaires, as well as the MWSS [Metropolitan Waterworks and Sewerage System] which is their regulator,” Pernia said.

The Neda chief also expressed concern that Social Security System and the Government Service Insurance System will be negatively affected by their investments in the water concessionaires.

“I guess there will be a setback on those investments but it will recover. They will recover in time with the adjustments that will be made especially now that the concessionaires are contrite. They have apologized and they are willing to renegotiate for new contracts,” said Pernia.

Malacañang had insisted on the revocation of the 15-year extension of the 1997 concession agreements of the water concessionaires with the government.

This, despite reports quoting MWSS Administrator Emmanuel Salamat as saying that the extension of the concession deals until 2037 has not been “out rightly revoked” but is still up for renegotiation.

Presidential Spokesman and Chief Presidential Legal Counsel Salvador S. Panelo told reporters in an interview on Tuesday that the concession deals would expire in 2022 since MWSS has already revoked the extension.

The Palace is also unfazed by reports that the capital expenditure program of Maynilad is now put on hold since the banks have suspended lending money to the water concessionaire.

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