PRIVILEGE SPEECH ON THE REPORT, FINDINGS, AND RECOMMENDATIONS FOR COA AUDIT OF MWSS

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Mr. Speaker; my distinguished colleagues of the 15th Congress; friends, guests, ladies and gentlemen: I deliver this privileged speech because there are times when action and effort are ripe and propitious, and it is precisely this very moment which calls for that combined, coordinated effort in the name of truth, transparency, and honesty. Mr. Speaker, honorable colleagues, the results of our legislative inquiry since September, uncovered a whole range of violations committed by the Concessionaires of MWSS, along with key officials of MWSS – all these I have submitted to the Committee on Good Government and Public Accountability last July 25, the day the President delivered his SONA. In my Report, I state our findings and recommendations. The subject matter of my Report is impressed with a kind of public urgency which cannot be exaggerated. Mr. Speaker, in my report, I call upon you, my colleagues, and our friends at the Commission on Audit, the Department of Justice, and all interested and relevant government bodies and persons great and small to commence a full-blown legal and transactional audit of our MWSS concession system. We have uncovered a whole chain of errors and offenses which will lead any of us here today, Mr. Speaker, if we are of reasonable minds, to conclude that certain MWSS officials and their concessionaires are in breach—and are continually breaching—not only contractual stipulations, not only statutory law, but the very norms upon which our Constitution is based. Not only constitutional, not only administrative, but criminal action might well proceed against certain people, in light of the facts we have uncovered. While the privatization of key services – services which are normally reposed in public utilities
Privilege speech of Representative BH Herrera-Dy, House of Representatives, Philippine Congress, delivered during the plenary session on September 5, 2011, based on the Findings and Recommendations (re: MWSS) submitted to the Committee on Good Government and Public Accountability on July 25, 2011
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– can be a good, rational undertaking, since 1997 however the MWSS and its so-called Regulatory Office, and the two MWSS concessionaires, have all failed to live up to the tasks according to the great public standards expected of them. It is not mere failure, but failure implicating the very wrongs which the President himself personally feels are of utmost importance in his core executive agenda since he assumed office. Mr. Speaker, in what follows, I invite your attention to the salient points of my July Report to the Committee on Good Government. All the discreet, dubious dealings which we all have suspected in our heart of hearts, right from the beginning, are correct. In what follows, I lay to you the foundations for our Honorable Chamber to call upon both the Commission on Audit and the Department of Justice immediately—now, today—to deploy to the fullest extent their auditing functions and criminal justice processes, along with the exertion of any and all necessary reasonable public force, as mandated by no less than the provisions of our Constitution itself, to correct the whole chain of errors and wrongs which the MWSS concessionaires and their collaborators sitting in government office have all committed, and are still committing, to this very minute. Not only criminal and constitutional errors, but social errors to which all of us, knowingly or unconsciously, fall victim. Each minute our water meters run, the entire public, including everyone of you here today, is being robbed. The cause of this robbery is not mere neglect or inefficiency, but a conscious, systematic undertaking to deliberately avoid public duty. In what follows, I may have to make accusations, but they are accusations based on strong probable causes no less, and they are all very well founded on empirical fact, in expert testimony, in rational empirical formula, and in law. Even non-experts will agree. My Report is clear. • Mr. Speaker, our Committee hearings confirmed, as President Aquino himself revealed in his first SONA, that the officers and board members of MWSS were

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receiving compensation and remuneration which are scandalous by any standard you may have in mind. • The Committee hearings confirmed the conversion and subdivision into housing lots, great portions of the Balara and La Mesa Dam to favor certain employees and officers of MWSS and other agencies of government collaborating with MWSS. These acts of malfeasance were made by mere MWSS Board approval, no more. There was no review process. Indeed they want no review process, because the MWSS Board and their private counterparts know fully well that their actuations will not pass muster under any standard of review. • Mr. Speaker, my honorable colleagues, since March 2001 Maynilad defaulted in the payments of its concession fees. The default of Maynilad led to an award by the Supreme Court of 8.5 billion Pesos in favor of MWSS. All this is settled fact. However, the problem lies in that Maynilad filed for a relief for rehabilitation which resulted in a conversion of the PHP8.5 Billion award to an equity share of MWSS of about 16% more or less in Maynilad through the intercession of then President Gloria Arroyo. • Mr. Speaker, after Maynilad’s default, there occurred an outright substitution of parties. In place of Maynilad, in 2006 a consortium consisting of DM Consunji, Inc. and Metro Pacific Investment Corporation bought the 87% share of Maynilad in the MWSS concession system. It must be stressed that the MWSS did not renegotiate its PHP8.5 Billion receivable from Maynilad that was converted to equity. This 8.5 billion amount remains outstanding to this very day and no one wishes to account for it. • Mr. Speaker, our Committee hearings found the two Concessionaires consistently fail to meet the minimum performance benchmarks of the Concession Agreements. After 15 long years of privatization the concessionaires are far from being on target, as per contract, and as per law. They are far from 100% water coverage, which should have been done in 10 years. The 3

water and tariff increases, as we all very well know, have been horrendous. These rates have no basis. They have not achieved uninterrupted 24-hour water service. They refuse to make interconnections. The list is long. They are commitments under contract, under law, and they have failed to live up to them. And yet up to this very minute we see the Concessionaires and their substitutes and dummies strutting around, silent about their malfeasance, hiding beneath public scrutiny, locking up their finances and financial records—if indeed there are any—while the whole public, including you and me, fall victim to the escalation of crazy water rates to which there can be no rational factual basis or justification. I must say that their silence, their utter lack of cooperation, and their complete lack of disclosure, by themselves make these persons of dubious character, hence the immediate Congressional, institutional, and executive action I recommend today. • Mr. Speaker, the Regulatory Office, a key office under the regime of the concession agreements, holds too much power. The Committee hearings found the Regulatory Office as wanting in transparency, diligence and independence, particularly in treating rebasing systems as confidential, with the public as blind; in not ascertaining the accuracy of assets assumed by the concessionaires; and in a whole array of other self-serving transactions which are resulting in unnecessary and unconscionable increases in tariff rates. The deeper particulars of these findings are in my Report. • Mr. Speaker, we found many dubious items in the three (3) rate rebasing agreements of 1998, 2003, and 2008. These items include, among others, the inclusion of assets which were revalued but had not passed audit by COA, nor verified by the Regulatory Office; the non-verification of assets actually in use for the concession; the absence of a determination of the Return of Rate Base (RORB) as also required by the Concession Agreements; and, also, the crafty avoidance of the 12% limit on investment return or profit imposed on

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public utilities, by relying on a mere pronouncement by a Technical Working Group which ruled that the Concessionaires are not public utilities but are mere agents of MWSS, which is a wrong legal classification. This erroneous legal classification is self-serving. It allows the Concessionaires to circumvent all the laws otherwise applicable to public utilities. Aren’t water service providers, like the telecommunications and electricity sectors, public utilities? Aren’t they so impressed with public interest that they ought to be regulated as entities impressed with public interest? It all sounds very obvious to me, Mr. Speaker. • The Committee hearings reveal a multitude of acts of misfeasance, non-feasance, neglect, and even conspiracy, between and among the Regulatory Office, the MWSS board, and the two private concessionaires, all of which lead to undue favoritism and self-dealing. This self-dealing has resulted to the water rates we are being charged today. This must all stop. • Mr. Speaker, the Committee stands four-square on the fact that the MWSS concessionaries are public utilities. Our Supreme Court cases are well settled and classify water supply and irrigation companies as public utilities. There is no question to that. All this is in my Report. So this ruling by a so-called Technical Working Group, which was a unilateral creation of the MWSS itself perhaps to save its own hide, is a ruling seeking to circumvent the laws on public utilities, including applicable ROI caps. In short, because of this self-serving ruling by a MWSS puppet technical group, the concessionaires feel confident that they are not public utilities and therefore they can enjoy any profit margin they think fit. Mr. Speaker, I do not think our privatization efforts intended runaway profit margins to be the rule rather than the exception. I do not think that this is a proper economic and business model at all, nor will it

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benefit any constituency, moreso the public at large. This is an embarrassment. Mr. Speaker, we have expert evidence and testimony, including recomputations under well-settled actuarial and accounting standards, showing that the two Concessionaires are consistently overcharging us for more than a decade with scandalously high water rates. These rates and the dubious basis for those rates remain unaudited by the Commission on Audit to this very day. I wonder why, Mr. Speaker? • Mr. Speaker, the Committee also questions why the 25-year concession agreements, slated to end in 2022, were unilaterally extended for another 15 years. The extension was granted long before the expiration of the concession agreements. The extensions were made without any public consultation, without any notice and hearing. These extensions were made with no compelling reason. They were done with a suspicious degree of haste, without any form of public participation and review, and with all the markings of silence in which any conspirator likes to find shelter. • Mr. Speaker, my honorable colleagues, there are a host of other problems with our MWSS concessionaire system, and a host of other wrongs attributable to key people working through and around this concessionaire system, which can be found in my Report.

In view of this deplorable state of affairs in our water sector, I thus recommend that this Honorable Chamber, Mr. Speaker, immediately call upon and begin mobilizing the Commission on Audit to commence a fullblown legal and transactional audit of our MWSS concession system. Here, today, I recommend that we trigger that long-awaited chain of legal events so we can put an end to this systematic abuse by the Concessionaires and complicit officers of the MWSS, including their so-called Regulatory Office.

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In particular, Mr. Speaker, I recommend that we continue and complete our Committee hearings in aid of legislation within six (6) months, because although these proceedings have given us a good deal of information, much remains to be seen.

I recommend that we ask the COA to make a full audit, not just of MWSS, but also of the 2 concessionaires and declare them as public utilities. This is a move which, as you will expect, will likely be resisted by the respondents. I hold in my hands constitutional doctrine and Supreme Court cases which will bring confidence to our friends at the COA that they will be doing only that which is expected of them, and no more. This audit should commence immediately, with all the dispatch and due diligence expected of anyone who acts in the name of moral right, which, to me, can be even greater than the formalism of constitutional duty.

Beyond and in tandem with the COA, Mr. Speaker, I recommend that we refer to the Department of Justice and request them to review the position and transactions of the Regulatory Office, the MWSS and the 2 concessionaires, and to rule definitely on whether the 2 concessionaires are public utilities or not. No doubt they are, but it will be good to have the Executive Department join hands with us. If need be, I recommend that the Department of Justice take all necessary action, including seeking a Declaratory Judgment through our courts of law, if our case is challenged. That way, not only the Executive Department, but the Judiciary as well, will join hands with us. As I intimated, I have in my hands a great corpus of constitutional doctrine and Supreme Court cases which will bring confidence to our allies in the other great departments of government that it will be doing only that which is expected of them, under law and moral right, no more.

I also recommend that the COA or the DOJ issue an order to the MWSS to immediately cease and desist from collecting under the current rates that are

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irregular, after either body has established the correct rates that ought be charged, led perhaps by the findings of the Committee. • I recommend that the COA or the DOJ order the concessionaires to immediately put in escrow all amounts that had been found to be overcharges, and to direct the return or crediting of such amounts to the consumers in a speedy and orderly manner. • I recommend that all our findings be published and aired in the public fora, including newspapers of general circulation, and to encourage all writers of these papers to extend our argument, because this unhappy state of affairs is charged with great public interest. Mr. Speaker, my dear colleagues, ladies and gentlemen, I thank you for your time and prompt attention.

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