Our water supply may soon be unsustainable. There is a dearth of clean water in certain parts of our country. The adverse impact of climate change puts pressure on our water security and ultimately on our health, safety, and economy. This is a call to action. It is time to act. Let us secure water for the future.
Water.org, ACCRALAW, the Financial Executives Institute of the Philippines (FINEX), and the Management Association of the Philippines (MAP) brought together the various stakeholders in a forum on Sept. 20 entitled, Sustainable Path to Water Security for the Philippines. As one of the panelists, I highlighted the existing framework in financing water infrastructure.
The National Economic and Development Authority (NEDA) has provided its blueprint for universal access to a safe, sufficient, affordable and sustainable water supply, hygiene, and sanitation in its Philippine Water Supply and Sanitation Master Plan. Local government units (LGUs), financial institutions, and non-government organizations (NGOs) play a role in its implementation.
LGUs, first and foremost, provide the bulk of the funding for most of the infrastructure projects, especially in the far-flung communities of their locality. They have sufficient autonomy, and with the Supreme Court’s ruling in Mandanas v. Executive Secretary (2018), expanded revenue sources to embark on needed water projects. They may also solicit the active participation of the private sector.
Private sector investment in water security means investment in the community. The US case of Shlensky v. Wrigley (1968) provides a parallel scenario. An investment like this, in the long run, translates into sustainable growth and profitability.
Financial institutions may design and offer water development financing. It can be part of their sustainability initiative. It is neither a dole out nor corporate waste. It is part of their social responsibility and is consistent with the Sustainable Finance Policy Framework of the Bangko Sentral ng Pilipinas (BSP). It will help if the BSP will complement its policy framework with regulatory incentives. For example, the BSP may lower the risk weight for water financing, especially when the loan is guaranteed by PhilGuarantee.
The Rural Development Financing Act (RA 11901), the milder version of the Agri-Agra law, considers the financing of canals, dams, and irrigation facilities. Its liberal interpretation may cover small-scale agri-business related projects, such as the construction of rainwater harvesters. Government financial institutions may expand the coverage of their programs promoting the “welfare and economic prospects of beneficiaries in rural communities.” Better yet, bespoke schemes may be included in water security related bills that are pending in Congress. These make extending the required financing compelling.
Private investors may provide the technology needed. They may consider the legal framework and incentives set out in the Philippine Innovation Act (RA 11293). They can participate through the Public-Private Partnership (PPP) scheme. Government incentives and support may cushion investors’ risks and potentially limited returns. The Build Operate Transfer (BOT) law’s 2022 implementing rules (Rule 13) flesh them out. Investors may avail themselves of tax incentives, credit enhancements, and government subsidies. The Government may tap official development assistance (ODA) of foreign governments or institutions. LGU-PPP projects enjoy Tier 1 incentives priority, save those qualifying for green ecosystems and food-security-related activities that enjoy Tier 2 priority. Foreign investors may participate as contractors or operators. The Supreme Court (in Philippine Contractors Accreditation Board v. Manila Water, 2021) and Congress, with the passage of measures amending the Foreign Investment Act (RA 11647) and Public Service Act (RA 11659), have paved the way for their broader participation.
Cooperatives and MSMEs may also throw their hats into small-scale water projects. They can access the special credit windows and serve as conduits of financial institutions. This arrangement permits financial institutions to avoid a deep dive and costly credit investigations on the target beneficiaries.
Lending cooperatives and microfinance NGOs may help and extend the required financing for the truly informal or marginalized sector of the community. The Rural Development Financing Act mandates them to apply minimum interest rates on loans obtained from GFI wholesale financing. They enjoy government subsidy by way of tax exemptions or incentives, obviating the need to factor in substantial tax costs in their pricing.
The members of the community may make their counterpart assistance, no matter how small they may be, through the concerned NGOs. They are trustees of funds for the intended beneficiaries. They also enjoy tax exemptions for pooling funds and performing activities that are natural objects of government services. ACCRALAW, as part of its social responsibility, is collaborating with Water.org in identifying and unlocking regulatory constraints in this type of financing.
Now more than ever, the country needs water security. We must maintain healthy human capital and ultimately a thriving and robust economy. We demonstrated our bayanihan (civic) spirit in fighting the pandemic. We must present the same spirit for our country’s water security.
The views and opinions expressed in this article are those of the author. This article is for general information and educational purposes, and is not offered as, and does not constitute, legal advice or legal opinion.
Eric R. Recalde is a partner and the head of the Tax department of the Angara Abello Concepcion Regala Cruz Law Offices.