Water Forum: Ayala's Carmen Bulk Water Supply Project

12 July 2006
MCWD Social Hall, Metro Cebu Water District
Cebu City, Philippines
[Organized by MEU, AGWWAS & PSI Asia-Pacific]

In September 2004, the Metro Cebu Water District/MCWD Employees Union (MEU) declared their strong opposition to the take-or-pay Carmen Bulk Water Supply contract, as proposed by the Ayalas. MEU cited several lopsided provisions of the draft agreement, which they described as a 'backdoor method of privatization':

- MCWD to TAKE OR PAY 50,000-60,000 cu m/day of treated water from the Ayala-Stateland consortium, whether or not this amount of water is actually sold by MCWD; however, contract is so stated such that there will NEVER be an instance where the consortium pays liability if it fails to deliver on the contracted amount;

- AUTOMATIC (usually upward) adjustment in water rates due to inflation, power costs, and other cost adjustments, but adjustments/changes due to factors which could pull down water rates (e.g., decrease in construction-based risks, savings) are still SUBJECT TO NEGOTIATION;

- A performance bond for construction security for ONLY ~2 YEARS required for the private proponent, vs a surety bond to cover ALL its undertakings for 25 YEARS required for MCWD in case of unfavorable changes in law or circumstances, MCWD is not provided any relief; but private proponent is safely cushioned with a proviso on the buy-out price more than adequate to cover a handsome return of investment;

- When the private proponent defaults, MCWD may assume all assets and LIABILITIES of the system; but when MCWD defaults, private proponent can take-over all or part of the operations, EXCEPT its LIABILITIES. Moreover, MCWD take-over may be occasioned by the simple failure to pay the monthly dues for allocated water; additionally, there is no fixed timeframe within which the take-over is to take effect.

- Moreover, the dislocation of the affected civil servants would not be unlikely nor farfetched.

Overall, MEU opposed the Carmen bulk water draft agreement because it was inimical to the interests of MCWD’s concessionaires (customers), a threat to MCWD’s own existence and the security of tenure of its employees.

(Read related paper at: http://www.tni.org/water-docs/waterdemocracyasia.pdf?, pp 58-59)

PSI Southeast Asia Subregional Secretary KATHERINE LOH welcomed participants to the July 2006 forum. Water Forum speakers were (L-R):

ATTY MICHAEL ENRIQUEZ, President, Freedom from Debt Coalition-Cebu;

VIOLETA CORRAL, Public Services International Research Unit (PSIRU-Asia);

ENGR ED BORELA, President, Manila Water Company Employees Union;

ENGR ARMANDO PAREDES, MCWD General Manager, discussed the status of the MWCD-Ayala negotiations -- Carmen project would be a 4-year BOOT; water priced at PhP 25.55/m3 for daily delivery of 28,000-39,000 m3; reduced hydrology risk; and other issues.

VIOLETA CORRAL raised the following issues:

- Carmen project is not a prudent expense since Ayala's water wouldbe 70% more expensive than MCWD water, cost of which would be passed on to consumers;

- At 68% System Recovery Rate, 32% of expensive Ayala water -- or ~PhP11 million/month -- would go down the drain, another cost to be borne by customers;

- Project costs include PhP700 million to build 30-km transmission pipeline, a cost that would be better channelled to repair leaks and reduce NRW, improve collection efficiencies, and hence increase water supply;

- Risky take-or-pay provisions, as in the Philippine power utility's deals with independent power producers, eventually led to the bankruptcy and privatization of the utility;

- EIA and social acceptability issues, including availability of raw water supply and other community water uses;

- Conflict of interest where World Bank's International Finance Corporation/IFC was MCWD transaction adviser, while at the same time holding 7.4% equity shares in Ayala's Manila Water Company;

- Undertake a full options approach, including looking into Public-Public Partnership (PUP) options between MCWD and local governments, to ensure that access to and control over water resources remain in public/community hands.

ED BORELA informed the forum of challenges faced by their union in the privatized Manila Water Co -- massive contractualization; Discrimination; No more security of tenure; Rduced income and benefits of workers; Exploitation; Union membership erosion; Unions are weakened or threathened.