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Duterte Approves New Contracts For Manila Water Concessions

MANILA, Philippines

New water concession agreements for the two suppliers to Philippnes capital city Manila have been approved by the administration of President Duterte. The terms of the agreements, drafted by four governmental departments in consultation with the Asian Development Bank, were presented to Duterte by Justice Secretary Menardo Guevarra on 11 November.

The suppliers, Manila Water Company Inc. and Maynilad Water Services Inc., will now review the new terms with a view to signing before expiry of existing 25-year contracts in 2022.

Details of the new agreements have not been disclosed but the justice secretary indicated that the contracts would be more equitable by improving transparency, particularly with respect to pricing mechanisms, and eliminating some of “onerous provisions of previous contracts”, including an easing of government contingent liabilities.

The news has been viewed as favourable with positive movements in the companies’ share prices on the Philippines financial markets. Manila Water has indicated that things can now “move forward”.

The existing contracts have been regarded by the government as being far more favourable to the companies. In 2008 they had been extended to 2037, which extension was subsequently revoked by the Manila Water and Sewerage System (WMSS, the local water authority), thereby invalidating the contracts and making them “illegal”.

The companies have not accepted this position but Duterte has canceled the extensions and confirmed that the contracts expire in 2022.

In December 2019, Duterte threatened to suspend the concessions and/or take over the operations and arrest water company executives, which actions were confirmed by the Justice Secretary to be in the public interest. (OOSKAnews).

The companies interpreted the threats to be serious and separately expressed their willingness to participate in negotiating amendments to the contracts. In support of this position, both companies deferred price increases scheduled for January 2020 and agreed not to pursue collection of up to $195 Million USD in compensation that had been awarded by a court of arbitration for previously denied and unpaid rate increases.

The government’s current position is that rates are too high particularly in light of the fact that service is curtailed about 50 Percent of the time. The companies contend that the rate increases are valid and are required for continuation of the capital investment necessary to maintain service to the city of approximately 12.5 million people. The service curtailments could be due to water shortages caused by state-owned upstream dam operations.

In March 2020, the government had to request help from the water companies to assist in COVID-19 crisis response. That may have diluted the somewhat bellicose stance at the end of 2019. This time, it is expected that the government and the companies will at least engage in talks about the documentation. The term of any new contract will be part of the discussions.

Nevertheless, the Justice Secretary is quoted in Phil Star as having texted the following:

“There are some provisions in the proposed new contracts that I believe are non-negotiable from the government’s viewpoint on grounds of public policy, but I cannot elaborate on these for now.”

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