Michael Raeuber, president of the European Chamber of Commerce of the Philippines (ECCP), said on the sidelines of the 2nd EU-Philippines Business Dialogue at Makati Shangri-La yesterday the government should also clearly define what qualifies as “public utility” which has been the source of problems with foreign investors, referring to the ongoing issue of the water regulator and the concessionaires.

Henry Schumacher, executive vice president of ECCP, said the group is watching closely the developments unfolding between Metropolitan Waterworks and Sewerage System (MWSS) and the water concessionaires.

The MWSS re-interpreted major provisions of the concession contracts with Manila Water Company, Inc. and Maynilad Water Services, Inc. without their consent. The arbitrary change led to the filing of arbitration requests with two world bodies.

One arbitration group ruled in favor of Maynilad but reduced the rate increase the concessionaire had wanted. The request of Manila Water to increase its rate was denied.

An arbitration committee declared east zone concessionaire Manila Water a public utility, a ruling which it said differs significantly from government’s original representation during the 1997 bidding for private sector participation in the operation of MWSS – that Manila Water will be an agent and contractor of MWSS which will continue to be the public utility.

The decision fundamentally changed the concession agreement as this disallowed it to recover its corporate income tax.

After winning in the arbitration proceedings against Manila Water, MWSS refused to abide by the earlier ruling of another arbitration panel favoring Maynilad’s water rate hike.

In the end, MWSS only allowed a lower water rate hike for Maynilad.

Schumacher said the water issue ferrets out the need for the government to be clear in its rules so that these are not changed midstream. The issue, he noted, could reflect on how government would treat future project undertaken through public-private partnership specifically the build-operate-transfer scheme.

Schumacher cited the experience of German contractor Fraport AG which built Ninoy Aquino International Airport Terminal 3 as a case where government did not honor its obligation.

“Terminal 3 is now widely used but (the contractor) has not been paid,” he said.

“We are watching the (water issue) carefully. If we want European businesses to come and then you change rules after 10 years, you cannot (attract these investments). That inconsistency should not be repeated in the future,” Schumacher added.

The ECCP yesterday presented to the government an advocacy paper outlining the reforms they want to see.

“If European businesses are to increase investment and strengthen trade with the Philippines, and in the process support sustainable and inclusive economic growth in the country, the Philippines needs to become a competitive environment for foreign business,” Raeuber said.

He said legislative reforms that reflect changing market needs and match what competing markets are offering are crucial; a fair-competition law, the enactment of the Customs Modernization and Tariff Act, the adoption of the co-loading bill and the removal of professions from the Foreign Investment Priority List need to be prioritized.

The papers are compiled in a so-called White Book, which contains nine cross-sector and 13 sector specific industry-driven papers focusing on the legislative and operational changes which will increase the competitiveness of the Philippines and lead to win-win solutions which will drive sustainable and inclusive economic growth.

These include opening up for foreign direct investments; enactment of a national fair competition law; public procurement law reform; rationalization of fiscal incentives, customs and anti-smuggling; promoting integrity in the public and private sectors; justice reform; protection and enforcement of intellectual property rights; and proposed amendments to the Local Government Code of 1991.

Also included are agriculture, automotive, consumer goods and retail, energy and renewable energy, financial services, human capital, information communication technology-business process management-creative industries, infrastructure and transportation, manufacturing; and maritime, pharmaceuticals, tourism, and water and environment.

Trade Secretary Gregory Domingo in response said the list can be used as roadmap for the remaining 13 months of the Aquino government.

He noted while some of the advocacies need legislative action, some are a “matter of reforms.”

“The foreign investment negative list which would allow the practice of profession is now being reviewed. We are addressing that,” Domingo said.

Source: Malaya Business Insight