Strongman politics and the water crisis

Theoretically, the market should run unimpeded and uninterrupted with little to no intervention from the government for it to attain a certain level of efficiency dictated by market forces. Fundamentally, the absence of micromanagement from the State will be the driving force for growth, competition, and innovation. The Philippines has constantly been a laggard on the Ease of Doing Business Report and infrastructure development for decades, which this administration has vowed to solve. Yet, when looking back over the last few months, we see that these initiatives have not really panned out as previously projected and have had little to marginal contributions to the over-all business environment. Buoyed by Duterte’s hardline politics and strongman persona, his economic and business policies have been polarizing at best and divisive at worst.

Due to the compounding problem of a water shortage in Angat Dam which currently supplies 98% of the metro’s water supply, the pressure is on the administration to deliver as soon as it can while keeping rates bearable for consumers. The current problem is further heightened because of the ever-growing urban sprawl which has made supply higher. Duterte and his administration’s main task is to solve the impending crisis and come up with a solution that will be quick to implement and at the same time be sustainable, to which the government’s only answer as of now is the Kaliwa River Dam that will only be operational in the next five or so years.

Duterte’s leadership has been debated during the last three years of his administration and has garnered both praises and derision from the population. For the sake of argument and to encapsulate the over-all tone of this article, I dare say that his politics have hurt more than helped the Filipino people. I argue this on three basic platitudes and will go by it by using three themes which will be its effect on business confidence, infrastructure development gridlock, and intergenerational equity.

THE ARBITRAL RULING
The President’s latest outbursts against water concessionaires have had significant effects on the market which are both tangible and intangible. It can be remembered that the Ramos administration called for a solution to the Metro Manila water crisis in the 1990s which was all due to the incapability of the MWSS to maintain its operations because of financial debt and technical complications.

With a P166-billion investment, Manila Water was able to solve the water crisis in the East Zone after being awarded a Concession Agreement, therefore serving millions and effectively lowering the cost of water. After years of foregone revenue due to delayed rate hikes, the concessionaires — Manila Water and Maynilad, which is in charge of the West Zone — were pushed to raise the case with the Permanent Court of Arbitration in Singapore that then favored the concessionaires with awards amounting to P11 billion.

ERODING BUSINESS CONFIDENCE
After the PCA’s ruling, the President responded with threats ranging from filing charges of economic sabotage, to expropriation and military takeover of water services, after which the concessionaires backed off and stated that they will no longer push for the P11 billion award and are ready to seek possible compromises.

Just as the concessionaires responded, the MWSS stated that it was cancelling the concessionaires’ contract extension — from 2022 to 2037 — an agreement signed under then-President Gloria Macapagal Arroyo in 2008.

The government’s power move has affected the over-all confidence of investors, not only in the stock prices of the water firms but also of the market as a whole which lost P127 billion in value from Dec. 5 to 13.

GRIDLOCK IN INFRASTRUCTURE DEVELOPMENT
The President’s tirade against the water firms — after they pleaded for rate hikes to recoup billions in investments after improving its water services — raised a red flag for would-be investors who wish to infuse cash into our water sector.

Once investor confidence is further lessened and the company value of concessionaires drop, it will pose a greater risk to infrastructure development of waterworks and will considerably worsen the water crisis in Mega Manila. The tight squeeze against the concessionaires will eventually push them out and, as history has taught us, the government does not have the capability to maintain the water services it is to take over.

INTERGENERATIONAL EQUITY IN PERIL
With cash drying up and no incentive to invest, our infrastructure development would push the country back by decades. Water is one of the necessities of life; Mega Manila’s growth potential can come to a screeching halt if the metro itself is to become uninhabitable thanks to an inability to supply one of the most important resources.

The inability of our government to solve the water debacle today will be consequential to our growth as a nation, and Duterte’s strongman politics will further exacerbate the problem.

Ren de los Santos is a Research Manager at Stratbase Group and a Resident Fellow for Global Politics, Stratbase ADR Institute.