Price, profit, and water tariffs: Ne’er the twain shall meet?

PRICE AND PROFIT.

Or, price vs. profit?

These are the two sides of the water equation that is at the heart of ongoing “rate rebasing” talks between the Metropolitan Water and Sewerage System (MWSS) and the two private water concessionaires serving the capital region and surrounding areas.

A fortnight ago, they engaged in a noisy row over the possible disallowance of claims for income tax payments, but yet again they are locking horns.

This time, it is over the level of guaranteed returns that the water companies are entitled to get — a major factor in setting water tariffs.ntitled to get — a major factor in setting water tariffs.

How this debate ends will determine not only what price customers will have to pay for water but also how much profit the water firms could make in the next five years.

Manila Water Co., which provides water service in the eastern half of Metro Manila and surrounding areas, wants to increase rates by P5.83 per cubic meter or 21 percent to P34.12 per cubic meter.

Maynilad Water Services, Inc., which runs the water system in the west zone, is proposing to increase average basic rates by P8.58 per cubic meter or 25 percent to P42.55 per cubic meter.

PCIJ Figure 2. ASEAN Water (1)

Since MWSS was privatized in 1997, water rates have soared nine-fold in Manila Water’s east zone and more than six-fold in Maynilad’s west zone.

Apart from being allowed to recover past expenses and future costs from tariffs paid by customers, the two water companies are also allowed to earn a return on those cash outflows.

For the next five years until 2017, they want a return, also called the appropriate discount rate or ADR, of 8.99 percent, according to people privy to the discussions.

However, MWSS water regulators find the proposed discount rate of 8.99 percent too high, given that yields on long-term Philippine government bonds have plummeted, especially in the last five or six years as the country’s economic fundamentals have gotten better alongside falling U.S. interest rates.

The regulators are said to have initially set the ADR at 6.16 percent, according to people familiar with the discussions between the MWSS and water firms.

PCIJ Figure.. THE WATER FIRMS' RETURNS. QUICK TO RISE, SLOW TO FALL, july 2013 (1)

In plain terms, water rates increased faster in the early years of privatization as a result of big jumps in the ADR, because of higher interest rates and the peso’s decline.

Today, amid lower interest rates and a stronger peso, the returns of water firms are expected to also fall proportionately, thus tempering any increase in the price of water.

However, by many accounts, the water firms’ proposed ADR of 8.99 percent does not seem to reflect this changed reality.

So, what “guaranteed returns” for water service is best in the next five years?

Should it be 8.99 percent, according to the water companies?

Or, should it be 6.16 percent only, according to MWSS’s estimate?

Is there a perfect balance here between the profit that water firms should make, and the price that customers should pay for water, in the next five years?

Read our latest report, MWSS, water firms clash over ‘guaranteed returns’.

Check it out also on BusinessWorld Online and ABS-CBNnews.com.

DATA A DAY: SONA in Filipino

EVERY YEAR, the President of the Republic must deliver his State of the Nation Address before Congress and the Filipino people. In that address, the President has always been expected to apprise the country of its current state – political, social, and economic. As well, the President is expected to map out his administration’s plans and priorities for the coming year.

In short, the SONA really is the President’s report to the nation.

Interestingly, though, the State of the Nation Address has almost always been delivered in a language other than the mother tongue.

In today’s Data a Day:

Which president was the first to deliver his State of the Nation Address entirely in Filipino?

Visit our MoneyPolitics Online website for the answer, and for more interesting information, from little bits of trivia to thousands of databases. Or you may just want to check out the answer through this direct link.

Benchmark Booster found in Samsung Galaxy S4

The battle for the best and most powerful Android smartphone in the world is sometimes heavily fought in benchmark scores. This is how the Galaxy S3 was known to be the better Android phone. Same is true with the Galaxy S4.

However, in a recent investigation by AnandTech, the Samsung Galaxy S4 was found to have been optimized for specific benchmark tools.

These are the apps where the Galaxy S4 is instructed to run at full power:

  • Quadrant (standard, advanced, and professional)
  • Linpack (free)
  • Benchmark Pi
  • AnTuTu Benchmark

When these apps are running, the GPU of the Galaxy S4 is forced to run at 532MHz. Everything else, even graphics-intensive games, will only trigger a maximum GPU frequency of just 480MHz.

The same is true with the CPU (both Exynos 5 and Snapdragon 600) — when those benchmark apps are running, the system triggers the CPU to run at maximum frequency on all 4 cores.

In our review of the Galaxy S4, we saw the handset clocking in the highest scores in benchmark tests by Quadrant and Antutu.

This means that the environment in which regular apps and games would run on the Galaxy S4 is not the same as the settings put forth while running these specific bench-marking apps. While we cannot categorically conclude that Samsung is over-clocking their chips just to score higher/better in these benchmarks, there is certainly evidence of benchmark optimization.

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Should the Philippines build a Cyber Army?

Cyber threats are real. Countries like the U.S., Iran, North Korea and China have been subjects numerous times when it comes to cyber security, warfare and espionage. While we’re not as big and as powerful as those countries, do you think we should also develop a way to defend our country from cyber attacks?

pc cyber flag

Let me paint you a picture. What if the Philippines gets attacked. Government and private websites are hacked, defaced, or shut down. Computer systems get compromised, information leak, especially those in the financial sector, rendering ATMs and bank computers useless as a result. Logistics, remittance systems and air transportation gets hammered as well due to disabled networks.

Suddenly, the whole power grid shuts down and backup power systems fail. Major establishments, institutions and hospitals can’t function properly for without power. News outlets fail to broadcast except on social media and some few AM radio stations. Then telecommunications go down. No signal means no calls or text and no mobile data. So here you are with no electricity, no way to withdraw cash, with limited means of communication and little information on what’s happening. To top it all off a strong typhoon is about to hit the Metro. Just imagine what will happen next.

Sounds like a plot for a movie? Yes. But far-fetched? I don’t think so. While these scanarios are often times linked to countries with highly-developed (yet vulnerable) IT infrastructures, it’s not impossible that the Philippines will have to deal with the same issue in the future. What if this happens in the near future and in a global scale? What can we do?

The first thing that came to mind when thinking of a possible solution to defend the Philippines against a cyber attack is to have our own cyber army. If we have our conventional military, no matter how meager, to defend us in times of war, why not have a cyber army to defend country from foreign or domestic cyber attacks? This question, however, raised more questions than answers.

ph cyber army

What is cyber warfare?

According to Wikipedia, cyberwarfare refers to politically motivated hacking to conduct sabotage and espionage. It is a form of information warfare sometimes seen as analogous to conventional warfare and in 2013 was, for the first time, considered a larger threat than Al Qaeda or terrorism, by many U.S. intelligence officials.

Or, according to U.S. government security expert Richard A. Clarke, “actions by a nation-state to penetrate another nation’s computers or networks for the purposes of causing damage or disruption.” Compared to conventional warfare, cyber warfare is faster and cheaper.

Who will make up the Cyber Army?

The Philippine government’s cyber army can be a mix of civilian contractors, government agents and uniformed soldiers who have undergone years of training in cyber warfare. And since there’s no doubt that the Philippines have plenty of citizens with really brilliant computer skills, it’s no longer a question of “who has the skills?” but rather a question of “who can be trusted?”

Our nation’s infrastructure should be protected by a cyber force that is strictly bound by laws and ethics. Not by those who wear a white hat from 9 to 5 and a black hat for the rest of the day. Integrity is still an important factor.

What will they do?

A cyber army’s primary objective is the secure the country’s networks from cyber attacks. It can also involve finding and identifying cyber threats, cyber criminals and terrorists and rogue hackers. The concept could be similar to a military unit guarding a structure with the ability to operate outside the gates (firewalls) if necessary.

Who will govern them?

It’s similar to asking the question “Who will guard the guardians?” which is a concern of trust rather than question of authority. The government might assign the cyber army to an existing branch or agency like the Department of National Defense or create a new one specific for the task. In addition to this, a citizen-approved cyber law should be a top prerequisite. And of course, a less corrupt administration and better legislators.

Should we have a cyber army?

To answer the question at the beginning of this article, yes we should. And eventually we will find no reason why we shouldn’t. Just last year, YugaTech.com was attacked which caused quite an inconvenience on our end. While I won’t go to the specifics of the attack it is obvious that it cost the site precious time and a lot of money. Now try to multiply that attack on a scale proportionate to our country’s IT infrastructure. Imagine how much will that hurt and how many people will suffer the inconveniences.

Cyber attacks have been a looming problem for a quite some time now and a cyber army is another way of trying to solve (or manage) that problem. China has been very open about their cyber warfare unit called the “cyber blue team”. Iran boasts of having the world’s second-largest cyber army. Pakistan and India already have their own. Indonesia has announced a couple of months ago that it will create its own cyber army. Why not the Philippines?

But can we?

Seems like it still falls down on the head of the largest proverbial elephant that just won’t leave the room – the budget. This year’s National Budget only has 4.5% allocated on Defense which amounts to Php89.7 Billion. On the other hand the Department of Science and Technology (DoST), the organization that supports projects in life sciences and technological advances, only has Php10 Billion to work with.

2013 national budget allocation

Although it’s relatively cheaper to enter the cyberspace (or engage in cyber warfare), where will the Philippines get resources required to fund an effective cyber army? Where will this fall in the government’s list of priorities? To put it bluntly, how can we build a cyber army when our government cannot even equip every single policeman with a standard issue firearm.

What happens now?

Maybe we can start by accepting that the world is rapidly changing and expanding towards cyberspace where everything is less secure. I believe we have the right to protect that space as well. The next question to ask now is, “Is a cyber army even feasible to begin with?” If so, “How are we going to build it?”

Although I don’t see it being prioritized anytime soon due to more pressing matters, I’m still optimistic that our country will be able to reach such advancement. As to when it will happen, we can only guess. I only hope that when that time comes, it’s not too late.

References:
ArmyTimes, DesignNews, Zdnet 1, Zdnet 2, Zdnet 3, DesignNews 2, FCW, GMANetwork, Wikipedia, Economist, BudgetngBayan, On CyberWarfare by Fred Schreier

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Why should the burden of truth on MRT-3 be on Czech envoy?

Czech Ambassador Josef Rychtar

Czech Ambassador Josef Rychtar

What if Czech Ambassador Josef Rychtar refuses to cooperate in the investigation of alleged $30 million shakedown by officials of the Department of Transportation and Communication in connection with the Metro Rail Transit expansion project? Is that the end of it?

Under the Vienna Convention, the international treaty that governs diplomatic relations, ambassadors cannot be compelled to appear in any investigation conducted by the host country.

MRT Gen. Manager Al Vitangcol III

MRT Gen. Manager Al Vitangcol III

The National Bureau of Investigation under orders of the President is investigating the reported shakedown which even dragged the name of presidential sister Ballsy Cruz and her husband, Eldon.

“I wish to state that the allegations that members of your family were involved with discussions with Inekon on any projects in the Philippines are simply untrue and malicious,” Rychtar said in a letter to the President last June 29.

The Cruz couple visited Prague in 2011 upon the invitation of Rytchar. They reportedly met with Czech businessmen during their visit.

A Czech company, Inekon, is bidding for the P3.77 billion MRT-3 project that would involve purchase of 48 new trains for the line that spans the EDSA from Pasay-Taft to North Avenue.

But Rychtar,in a meeting with DOTC Secretary Joseph ‘Jun’ Abaya named MRT general manager Al Vitangcol III as one of those involved in the extort attempt, according to Abaya.

Vitangcol has gone on a one month leave starting July 24.

Reports said the DOTC officials’ demand for commission went down to $2.5 million to $30 million. In his June 29 letter to the President, after the extortion try was exposed by media, Rychtar said: “The Czech proposal for the MRT3 capacity expansion and modernization is a government-to-government deal which cannot contain any provisions for commissions.”

But Rychtar complained about the non-action of DOTC under Abaya, whom he first met last April.

Presidential Spokesperson Edwin Lacierda one again took his usual defensive stand every time allegations of anomalies involving officials of the Aquino administration is involved.

Lacierda puts the burden of getting the truth into the extortion try on Rychtar. “Every time there is an issue on corruption we have always asked the party to present us evidence. It is no different just because an ambassador said it,” he said in a radio interview.

Lacierda further said:“It requires every person, including the Czech ambassador, to submit allegations of corruption – to submit evidence to prove these allegations, and that’s what due process is all about.”

Lacierda has not thanked Rychtar for exposing the extortion attempt, which we are sure was not easy for a diplomat to do.
The government has an extensive network which it can mobilize to find out the truth if it really wants to. Aside from the NBI, each department has its own intelligence budget.

They should not give us the line that without further cooperation by the Czech ambassador, the investigation would not push through. Is that “tuwid na daan”?