Water Services for the Poor –
the Manila experience
Global Forum on Sustainable Development
Paris, France
December 18, 2003
Manila experience



2 concessions granted to the private sector for
water utility in 1997
After 6 years, more than a million poor people
have received direct connections.
Poor received numerous benefits:
Financial savings
 Health improvement
 Time
 Space

The need for institutional reform




After more than a century and in spite of massive
donor assistance, Manila water services remained poor.
The basic problem: The water utility (MWSS) was
policy maker, regulator and implementor. It had little
accountability to its customers.
PSP transferred implementation to the private sector
and created a regulatory office while MWSS remained
as policy maker.
Two concessions were established to increase
accountability through benchmarking.
Protection for the Poor in the
Concession Agreements




Aggressive service targets for water coverage
Connection fees covered only marginal cost of
connection and poor were allowed to pay
connection fees over 2 years.
Commercial tariffs cross-subsidized residential
tariffs.
Essentially a “Rate of Return” regulation – the
concessionaire is guaranteed to make money as
long as he is reasonably efficient.
The Poor Rejected “Free Water”



The Concession Agreement gave an option to
provide free water from standpipes for poor.
The poor rejected this option and requested
direct connections.
Their reasons:
“Free water” is not really free
 Health hazards
 Time
 Convenience

Private sector incentives for
providing water to poor






Substantial amounts of non-revenue water were
suspected to come from poor areas.
Lower marginal capital cost to provide water to poor
due to high population density.
Greater number of people per household meant more
consumers per connection.
“Rate of Return” regulation meant that the investments
would be profitable.
The residential tariffs covered O&M cost + a small
margin.
Media and political mileage
Private sector resourcefulness





Concessionaires worked with NGO’s and local
governments.
Connections were made for poor who lived in public
lands where no relocation was planned for three (3)
years.
Part of labor force hired from poor area itself
Meters installed in visible areas and distribution pipes
laid above ground
One mother meter shared per 5 households to reduce
connection fee
Results




More than a million poor people have direct
connections after five (5) years.
In 2003 alone, around 300,000 poor people
received direct connections.
Average monthly consumption per household is
around 27 cubic meters, equal to system-wide
residential average.
Average cost to poor is US$4 per month, less
than 3% of their income.
Lessons: The Poor are Willing to Pay



In one district in Sri Lanka, a few thousand
families were provided free water through
standpipes. When asked, all of them agreed to
have direct connections and pay the regular
tariff.
Surveys in India reveal that the poor are willing
to pay for a good water service.
The Manila experience is not uncommon. The
poor are willing to pay for a good water service.
Lessons: The private sector can be
motivated to service the poor



The design of the Manila concession provided
the private sector an incentive to serve the poor.
Faced with these incentives, the concessionaires
voluntarily strove to improve services for the
poor.
The result was a win-win situation wherein all
parties benefited – the poor, the concessionaires
and the government.
Lessons: Institutional reform is basic
and essential


PSP brought about the institutional reform that
resulted in improved services for the poor.
Accountability was established by separating the
roles of policy maker, regulator and
implementor, as well as by creating two
concession zones.