Addressing labor concerns during privatization : Lessons from The Metropolitan Waterworks and Sewerage System (MWSS), Manila, Philippines

34501 ADDRESSING LABOR CONCERNS DURING PRIVATIZATION: LESSONS FROM THE METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM (MWSS), MANILA, PHILIPPINES WILFRED CRUZ JULY, 2001  W. Cruz Revised July 12, 2001 Addressing Labor Concerns During Privatization: Lessons from the Metropolitan Waterworks and Sewerage System (MWSS), Manila, Philippines Part 1. Introduction and Methodology 1.1 State-Owned Enterprises and Labor Force Issues The Philippines, like many other developing countries, depends upon a large governmental role for the provision of services that have public goods characteristics. These often are services where the price that producers would be able to charge will not reflect production cost and where private incentives are likely to result in a less than socially optimal level of production. Thus, national governments have traditionally intervened through establishment of state-owned enterprises (SOEs), in this case, the Metropolitan Waterworks and Sewerage System (MWSS), a public water utility. In recent years, there has been growing realization that depending solely upon government utilities or SOEs to provide services, such as water supply and sewerage, results in too much inefficiency1. However, the practical steps needed and the various efficiency and social implications of privatizing such utilities are still not well known, and many governments remain reluctant to experiment. This report hopes to contribute to improving the understanding of the process and implications of privatization. Specifically, it will address a particular aspect, labor impacts, of the privatization process for a large water utility, MWSS, in Metropolitan Manila, Philippines. 1.2 Labor Impacts of Privatization The traditional concerns associated with the privatization of state-owned enterprises have included improving efficiency, promoting social equity, and protecting national security. The potential efficiency gains from privatization are usually well understood. However, with respect to equity, there is the concern that if utilities were in the hands of the private sector, service would be concentrated only in densely populated areas and would be biased for the richer households or consumers. Respecting national security, a common view is that utilities, such as water and power, are so important that private interests should not control their production and distribution. In addition to these, there has been growing interest on the implications of privatization on employment. In many instances, workforce expansion has been associated with SOEs and government agencies. While there may be inefficiencies associated with the large labor force, the privatization process cannot ignore the economic and social impact of labor force reduction. When public utilities or SOEs are privatized, the presumption is that service efficiency would improve. Indeed in the case of the MWSS privatization program, the indicators all show improvement in water supply. 2  In addition, there is indication that equity goals are also being served as more lower income households have access to the water system. However, the concern regarding the employment impacts of privatization persists, that the process leads to laying off a substantial number of public utility workers and that this may have been achieved without attempts to compensate or assist those who are negatively affected. 1.3 Approach and Scope This report will assess the particular issue of labor impacts resulting from privatization. While the focus on labor issues is very specific, the assessment will also describe the overall objectives and processes associated with the privatization program, to set the appropriate context for the discussion. Background information on the utilities sector in general and on the MWSS in particular are available from published reports and government data. However, the detailed information on the MWSS privatization process is based on interviews and personal records that have been provided by various individuals who were directly involved in the privatization program. The list of interviews conducted during the study is attached below. To focus the assessment, the time period identified for the assessment has been classified into three: (1) the preparation of the privatization effort, starting about August 1996; (2) the transfer of MWSS to two concessionaires, January to August 1997; and (3) the probationary employment period under the new concessionaires, August 1997 to January 1998. 1.4 Outline of Sections In Part 2, the key features of the MWSS privatization are described to set the context for the labor force reduction process. Both efficiency and social equity improvements are associated with the privatization process and help put the social concerns associated with loss of jobs in better perspective. Part 3 presents the detailed process of work force reduction that was carried out as part of the privatization process. This is divided into two main periods