[ANALYSIS | Point of Law] Water contracts mess: Fiasco for the investing public
On December 5, the Metropolitan Waterworks and Sewerage System (the “MWSS”), through its Board, revoked the extension of the concession agreements of both Maynilad Water Services Inc. (“Maynilad”) and Manila Water Company Inc. (“MWC”). The concession agreements which were extended by the MWSS though its board resolution in 2009, were set to expire in 2037, but due to the revocation, the firm’s concessions are now set to end abruptly in 2022.
The two concession agreements carry the signatures of no less than two presidents of the Republic of the Philippines, the original one signed by then-president Fidel V. Ramos, and the extension by former president Gloria Macapagal Arroyo.
As expected, investors of both MWC and Maynilad, who have invested and borrowed substantial amounts of capital in infrastructure and technological development, with the expectation that they had until 2037 to see their investments through, are shaken by the sudden revocation, to say the least. This is not even to mention the employees of both companies whose job security and stock investments therein are now in jeopardy.
As of last Friday, December 13, the share prices of the firms plummeted, with MWC shares falling to PhP10.02 per share, as against its 52-week high of PhP28.25 per share, its lowest in ten (10) years; the share price of Metro Pacific Investment, Inc (“MPIC”), which owns a majority of Maynilad, falling to a low of PhP3.01 per share, as against its 52-week high of PhP5.28 per share, its lowest in eight (8) years.
In layman’s terms, shareholders of MWC and MPIC respectively lost 64% and 43% of the value of their investments.
It is significant to highlight, at this point, that MPIC is owned 42.3% by the public investors with foreign investors owning more than 18% of the company. MWC is owned more than 55% by the public while 33% by foreign investors.
The knee-jerk revocation of the contracts sends a very negative message that the Philippines is an unsafe investment destination – significantly affecting investor confidence and the attractiveness of the Philippines as an investment proposition. (READ: Manny Pangilinan gears up for battle: Maynilad not for sale)
Reasonable exercise of power
This arbitrary act has a “chilling effect” on potential and current investors. The country stands to suffer from significant and long-lasting effects as far as confidence in the Philippines as an investment destination is concerned.
To be fair, it is well settled in law that government franchises are not “rights,” and that the government may revoke them at any time. But it is equally true that this power must be exercised cautiously and reasonably following the rule of law, weighing its practical consequences, and must be supported by adequate justification and take into account its long term repercussions on the country.
This is more so when a franchise rises to the level of a contract because the sanctity of contracts is protected no less than by the Constitution.
While the government must not be beholden to investors, it is essential that it does not trivialize their investments, must treat them with fairness and reason, and exemplify stability and confidence to attract investments.
The government cannot appear to be impulsive, tyrannical, or terroristic, as that would not only be deeply disturbing but would have a catastrophic effect on the country's competitiveness to attract and retain investors.
As an economy that relies heavily on foreign investments, we must tread carefully, to ensure that onerous contracts and corruption are not tolerated, but at the same time, that investors are treated fairly and with due respect.
Otherwise, the price would be too much to pay, and too much to bear. – Rappler.com
The author is a trustee of the Shareholders’ Association of the Philippines. The views in this column are exclusively his and may not be attributed to the organizations he is affiliated with. He may be contacted at email@example.com.