Bad bargain in the making

In public governance, the distinction between a partnership and a capture is often found in the fine print. When a government builds infrastructure, the social contract implies that the asset eventually belongs to the people who paid for it.

The proposed Concession Agreement between the Iloilo City Government and Aboitiz InfraCapital, Inc. (AIC) regarding the Bulk Water Supply Project inverts this logic. It does not secure a public asset; rather, it effectively privatizes a public necessity in perpetuity.

The City Council is currently poised to ratify a deal that will bind Iloilo not just for a political term, but for generations. On the surface, the promise is enticing: a solution to the city’s chronic water shortages. But a forensic review of the legal provisions* against market benchmarks reveals a different reality. This is not a standard Public-Private Partnership (PPP) but a lopsided extraction of public value that violates the core economic principles of risk and reward.

THE FINANCIAL DISPARITY

The most immediate offense is the price tag. The agreement sets the Bulk Water Charge at Php 40.20 per cubic meter, exclusive of VAT and based on 2024 pricing. In isolation, numbers can be abstract. In context, they are damning.

Comparable joint ventures in the region have established a market benchmark of approximately Php 16.83 per cubic meter. Iloilo City is preparing to pay nearly 140% more than the going market rate before a single drop of water flows. This is not a marginal premium for quality; it is a distortion of market value. When distribution costs and value-added tax are layered on top of this base charge, the end-user tariff will likely double. This places a heavy, unjustified financial burden on Iloilo residents compared to their neighbors.

Furthermore, this tariff is not static. The contract ensures it is a moving target, designed to climb. Through automatic annual inflation adjustments tied to the Consumer Price Index and pass-through mechanisms for power cost fluctuations, the financial risk is transferred entirely to the consumer. Every three years, a periodic review offers another window for upward adjustment. The price has a floor, but no ceiling.

THE OWNERSHIP TRAP: BUILD-OWN-OPERATE

Beyond the cost, the structural flaw of this agreement lies in its modality. Most infrastructure projects of this magnitude utilize a Build-Operate-Transfer (BOT) model. In a BOT, the private sector recoups its investment over a fixed period, after which the facility—the treatment plant, the pipelines—reverts to government ownership.

This agreement, however, is a Build-Own-Operate (BOO) transaction. The Concessionaire retains ownership of the assets forever. The 33-year concession period is essentially a long-term service contract, not a path to public ownership.

Consider the implications. The City Government is using its political capital and legal authority to assist in acquiring rights-of-way and permits. Yet, the infrastructure built on this public goodwill remains private property. Thirty years from now, when the contract expires, the City will own nothing.

It will have no leverage, no asset base, and no alternative infrastructure. Iloilo will be a strategic hostage, forced to renegotiate with a private monopoly to keep the taps running. We are clearing the land for a house we will rent forever.

SKEWED RISK ALLOCATION

A fundamental tenet of the Philippine PPP Code (Republic Act No. 11966) is “Appropriate Risk Allocation.” Risks should be borne by the party best able to manage them. Commercial demand is traditionally a private sector risk. If a business builds a factory, it worries about finding customers.

This agreement flips that logic. Through the “Take-or-Pay” provision, the City guarantees the demand. The Grantor is obligated to secure Bulk Water Supply Agreements for 60 million liters per day (MLD) initially, rising to 80 MLD. If the water distributors do not buy this volume—perhaps because cheaper alternatives surface—the City pays the difference. The taxpayer becomes the insurer of private profit.

Simultaneously, the agreement shields the Concessionaire from supply-side risks. Under the “Water Supply Assumption,” if the raw water from the Jalaur River becomes unavailable or insufficient, AIC can terminate the agreement without penalty. Even worse, the City has “Step-In Rights,” effectively obligating the government to act as the guarantor of raw material. If the river runs dry, it is the City’s problem. If the market shrinks, it is the City’s bill. The private partner enjoys the upside of a monopoly with the risk profile of a treasury bond.

REGULATORY STRAITJACKET

The contract further insulates the Concessionaire through broad “Grantor Compensation” provisions. If the City or any government entity enforces a “Material Adverse Government Action” (MAGA)—such as new environmental regulations or permitting delays—the City must compensate AIC to ensure its expected rate of return is met.

This creates a regulatory chilling effect. The City becomes financially penalized for governing. If public welfare requires a regulatory shift that impacts the Concessionaire’s bottom line, the public treasury must pay for it.

THE COUNTER-ARGUMENT

Defenders of the deal will argue that Iloilo is in a crisis. They will claim that the City lacks the capital to build this infrastructure independently and that the premium price buys speed and reliability. They will assert that a top-tier partner like Aboitiz brings necessary technical expertise that justifies the BOO model and the cost. To them, the high tariff is the price of water security.

This is a false dilemma. Desperation is not a procurement strategy. “Value for Money” is not a suggestion; it is a legal requirement. Neighboring jurisdictions have secured water supplies without agreeing to tariffs double the market rate or surrendering asset ownership in perpetuity. The choice is not between this specific bad deal and no water at all. The market is awash with liquidity and competitors capable of executing a Build-Operate-Transfer arrangement at competitive rates.

Efficiency is the hallmark of the private sector, but this agreement does not incentivize efficiency. It guarantees revenue regardless of market conditions and offloads operational risks onto the government. That is subsidy, not a partnership.

CONCLUSION

The Concession Agreement in its current form is a liability, not a legacy. It violates the basic principles of competitive neutrality and public benefit. It subjects the citizens of Iloilo to exorbitant costs while stripping the City of long-term strategic control.

The City Council must withhold ratification. A renegotiation is necessary—one that shifts to a BOT model, aligns the tariff with regional benchmarks, and removes the onerous “Take-or-Pay” guarantees. Iloilo needs water, but it does not need to drown in debt and dependency to get it. We must build infrastructure that serves the public, not a contract that services a monopoly. (ADV)

*The analysis is based on documents and deliberations of the proposed bulk water project provided by sources who are familiar with the matter.