MANILA - The government's move to renegotiate the contracts of Metro Manila's water concessionaires will undermine investor confidence and affect foreign direct investments in the Philippines in the short term, a subsidiary of credit ratings firm Fitch said in a statement Monday.
Investors will be concerned over the possibility of similar instances of government intervention, which would create uncertainty for their business operations, Fitch Solutions said.
"As such, as mentioned earlier, there is a possibility that foreign direct investments may take a hit in the short term," the company said.
The cancellation of water concession extension agreements, Fitch Solutions said, shows that the government is willing to override contractual agreements if it deems necessary.
Fitch Solutions noted that "the Philippines has one of the largest regulatory risks compared to other major markets in the region."
The government's move to suddenly revoke the concession agreements also derails any long-term plans which these companies have devised, the firm noted.
In the short term, this will create a high degree of financial difficulties in aspects such as borrowing and attracting new capital, due to revenue uncertainty, Fitch Solutions added.
Investor confidence, however, will gradually improve as the Philippines continues to improve on frameworks for Public-Private Partnerships, Fitch Solutions said.
"Authorities will be able to gain experience and move up the learning curve, and improve on processes and frameworks to allow for fairer, more transparent and flexible agreements in the future," the company said.