Friday, 29 April 2011

Questioning Again the Gains of Privatizing Water and Electricity Provision in Bohol

In one book that I recommend to be read by all development workers in the world (Deconstructing Development Discourse: Buzzwords and Fuzzwords), much has been said about privatization. Below are some of those noteworthy passages:

“The words ‘privatisation’ and ‘social protection’ have come together with increasing ease. In the early 1990s, in developing countries and in the newly defined ‘transition countries’, the main reform promoted by the international
financial institutions was the privatisation of pen sions, with dreams of privatising health care and other aspects of social protection soon afterwards.” (Standing, 2010, pg. 73).

“Thus the wave of privatisation, denationalisation,elimination of subsidies of all sorts, budgetary austerity, devaluation,and trade liberalisation initiated a deep social desperation throughout the Third World.”(Leal, 2010, pg. 90).

Bohol had its share of this buzzword, especially in the context of utilities, when in December 2000, the Provincial Government of Bohol turned over what was once publicly managed service providers, the Provincial Water System and the Provincial Electric System to two special purpose companies, the Bohol Water Utilities, Inc. and the Bohol Light Company, Inc. In this essay, I focus on the former, as this is a basic commodity that affects widely health outcomes of people. I reprint below what were then the findings of a study that my mentor, Cynthia Reyes-Ayco and I did, with technical input from Atty. Cambangay, then Provincial Planning and Development Coordinator.

Water supply in Tagbilaran, from the 60’s till mid 1995, went from bad to worse. At its worse time (between the late 80’s till mid 90’s)), the residents had to find on their own, alternatives to solve the water crisis. The residents along Remolador and Gallares Streets in Poblacion 2 and those of Graham Avenue in Cogon were the most affected and had been most vocal in terms of expressing their concerns. Cogon and Poblacion 2 are the two densely populated urban barangays of the city. Most residences in the area no longer had faucets in their houses even when Tagbilaran was on Level III (with faucets inside the house). It became an ordinary sight to see people out on the sidewalk, waiting for their turn to get their pails or containers slowly filled up with the tiny drop of water coming out from a common faucet. People were willing to wait even during the wee hours of the night.

This was when the “Water boy” business of a private entrepreneur started and flourished. “Water boy” started its business in 1990 with one truck and delivered water by containers (20-liter capacity) or by drums (about 10 20-liter container capacity) to the residents of Tagbilaran and Dauis. One truckload had a capacity of 6,000 liters or equivalent to 300 20-liter containers. Service was available 24-hours. The owner added another truck to its business one year after initial operation, At its peak, it delivered 5- 10 truckloads a day. Its only limitation to its service capacity was time. Loading and unloading of one truckload took about 2 hours. Its services could even hardly satisfy the needs of the residents of Graham Avenue and Remolador and Gallares Streets alone.

The residents paid P1.00 per container. This supply was largely for cooking, washing, and bathing and does not include drinking water. Residents lined up, as they did while waiting for water to come out from their common faucets. Despite the cost, the “Water boy” was the best option. Three other water delivery service businesses also opened following the successful venture of “Water Boy”.(note: I can still remember, when I was studying accountancy at HNU, that there were days that I failed to take a shower because the Water Boy did not deliver water in the boarding house where I stayed along Hontanosas St.)

The provincial government commissioned a study for the rehabilitation of the Provincial Electric System (PES) and the Provincial Waterworks System (PWS). The study yielded out challenging results. It was found out that to fully capacitate PWS to meet demands of consumers, the province needs 967 million pesos in 1998 to establish two water treatment plants in Uhan and Loboc, lay main and transmission lines and establish several reservoirs to facilitate the distribution of water to municipalities. In the case of the PES, the province needs 212 million pesos in the same year to purchase and install additional transformers and substations, replace rotten electric posts, purchase and install reconductoring lines and equipments. (PES Capital Expansion Program)

Obviously, the financial requirements are way above the capabilities of the provincial government because of its limited resources and its thwarted capacity to enter into borrowing agreements due to the propensity of financing needs. It was estimated that the provincial government would need around P175 million pesos to fund the rehabilitation plan. The LGU through donations and pledges of national and local politicians had only around P100million as ready funds. Thus, the provincial government decided to proactively respond to the challenge by exploring other options that may help realize the plan. (PES Expansion Plan)

A Technical Working Group (TWG) was organized by the province to conduct the study. The local team consisted of the technical staff from the Governor’s office and the Provincial Planning and Development Office (PPDO), in close coordination with the chiefs of the PES and PWS. The consultants from the Associates for Rural Development (based in Manila) provided the local team with technical assistance including legal and financial consultants.

The Provincial Government of Bohol, after a review of its options decided to privatize the water and electric services through a joint venture agreement. The province entered into a contract with the private sector represented by the Consortium of Salcon International, Inc., Salcon Limited and Salcon Philippines. The parties entered not into a pure joint venture (governed by Rules of Partnership) but one characterized by a rehabilitate-own-operate- and-maintain scheme. In this agreement, the JV is set to rehabilitate first the power and water facilities of the defunct Provincial Water System and Provincial Electric System before it shall purchase the latter and subsequently operate and maintain the facilities under newly created special purpose companies. Consequently, the Provincial Government of Bohol shall maintain its stake in the utility companies to protect the interests of the local citizens and consumers (The Bohol Privatization Initiatives, 2000).

But the move was not without social costs. There was heavy rejection of the move, for different reasons, primary of which was the loss of control of the utilities and the fear that people would no longer have a control of the price of water and electricity. The privatization became an election issue and was believed to be one of the causes of the defeat of then Gov. Relampagos (now Congressman) in his bid for another term.

Gov. Rene Relampagos stepped down from office on June 30, 2001, which happened to be the end of the transition period of the special purpose companies. The fuss about the privatization plan died down almost as quick as the election fever died down. Business went on as usual at the provincial capitol and at the BWUI and the BLCI.

With certainty, the water services had improved especially in terms of (longer) hours of service. “Water Boy” went out of business and its competitors had shifted to providing services to ships, hospitals and hotels. There continued to be complaints about the services of the two companies but this is relatively lesser than what the government normally got from the public during the PPUD days. However, this was not contingent to the JV since the rehabilitation of the water services was already in place long before the JV was to take effect.

While there are claims of improved water quality, BWUI staff themselves admit that it remains to be below the national standards set by the World Health Organizations. There is no tangible indicator that water is “safer and cleaner”. There are still reported cases of water-borne diseases, which however, had notably reduced since 1999. There had to be increased efforts in setting this condition in place.

The effect of the JV to poverty reduction is the most difficult thing to measure up at this point. Firstly, if verified against cost for the consumer, both BLCI and BWUI claim that there has been no increase in the rates so far, owing to the fact that this is part of the stipulation of the MOA. It is unrealistic for the consumers to insist that the rate will not be changed but the best hope is that the new rate will be set at reasonable level.

Secondly, how the revenues or would be revenues from the JV shall be used is still unclear as there are no guidelines provided. In the last few months, the local news carried the information on the query about the P155M which was received by the current administration from the JV partners. The provincial accountant has stated that it remains in the provincial coffer and has not been used. As to how the government intend to spend the money and to which activities or expenditures it shall go, it has not been decided yet. For now, a utilization plan of the amounts that the provincial government received and will receive as a consequence of the JV project, is not yet drafted.

Thirdly, the gain in terms of revenue is not in place yet. There is no profit sharing since the JV companies claim that they still incur losses due to high investments on facilities.

However, the potential benefits from savings and revenues remains but there has to be a proper monitoring of the budget and expenses to effectively establish cost and benefit analysis. Otherwise, it will always be mere speculations.

The only way by which the government can exercise control over the JV is on its representation in the two companies. The manner by which the representatives were to be selected is critical to the protection of government interests. Till now, there has been no direct mechanism implemented to guide representatives in the exercise of their stake in the company. No guidelines were drafted on how the selection process shall be undertaken and on how these representatives are to decide on major issues affecting the project. Currently, no tangible evidence is available on how these representatives are accountable not only to the provincial government but to the Boholanos. Interestingly, politicians of old cornered the seats in the Board. Whether or not this has an effect on how province’s stake is protected, much is still to be seen.

I am reprinting the above to bring again into the table a very important question. What have we gained from the privatization? If we did gain something, how has it benefitted the provincial government in particular, and the Boholano community in general. It seemed that the concerns highlighted in a research paper written 8 years back are still valid up to now and these concerns bring up questions that still remain unanswered.