What the "Manila Water outcome" is teaching us

 

The brouhaha over the Maynilad and Manila Water Company's win in the SIngapore arbitral court will be one for business case studies in our future MBA and Public administration classes. This should force us to be very careful about public private partnership contracts we enter into.

Central to this controversy is the reality of contingent liability in contracts such as theirs. These are an outcome of contracts that defined by Investopedia as a "potential liability that may occur, depending on the outcome of an uncertain future event. A contingent liability is recorded in the accounting records if the contingency is likely and the amount of the liability can be reasonably estimated. The liability may be disclosed in a footnote on the financial statements or not reported at all if both conditions are not met." (https://www.investopedia.com/terms/c/contingentliability.asp)

Often they are seen as product warranties, or sudden escalation of interest rates on loans, and can be broadened to include loan default penalties or the "recovery of unrealized income". Either way, they are seen as adverse outcomes that can impose a strong measure against one of the parties.

This matters even more when these are government contracts that supposedly benefit the people. Government should be very very careful engaging contracts that involve public utilities and infrastructure.  

Any contingent liability creating an adverse situation like a sudden hike in service fees can be seen as onerous since the public customers of what is essentially a monopoly business are disadvantaged.

In a recent forum on national and regional cooperation at the International Finance Forum (IFC) held recently in Guangzhou, China, Philippine Finance Secretary Carlos Dominguez III said projects undertaken together by the public and the private sectors should fulfill the two conditions he cited so the ventures would truly benefit Filipinos: deliver it quickly and avoid contingent liabilities.

In a phrase, it is speed and quality so that we, as taxpayers, will not bear unecessary future burdens.

This statement is timely, and forces us to pause. We hope the government particularly the Departments of Finance and Justice, like our lawyer and accountant, will scrutinize these contracts carefully, including the 100 or so Build Build Build projects so that we can avoid the "Manila water" outcome in the future.  That's why we pay our taxes.