Mainstreaming
Public-Private
Partnerships
PPP’s: Theory & Practice
SANPSHOTS: Manila Water Company, Inc.
(MWC)
Anouj Mehta, Senior Infrastructure Finance Specialist (PPPs),
Asian Development Bank
Bhopal, 26th February 2009
Backdrop: Manila

Metro Manila:

Capital of the Philippines and made up of 17
municipalities

Population of over 14 million

Intensely congested in parts – second most populous
in S.E. Asia
Backdrop: Water Operations


Prior to 1997, responsibility for water and sewrage
services rested with:

Metropolitan Water and Sewerage Services (MWSS), a
Government Corporation
Poor service performance parameters:

Years of under-investment by MWSS

MWSS was hugely indebted

Grossly inefficient services

Huge Non-Revenue Water as % of production

Severe problem of illegal connections

Low water pressure
• Coverage: Only 58% population
• 63% Non Revenue Water
• 24*7 Water Coverage: 26% only
• Poor Heavily Affected: poor piped coverage
Paying upto 13% of incomes, some Rs 1000 per mth
Government Response to Water Crisis :
Set out clear objectives:
 Improvement in quality and efficiency of
service.
 Expansion of service.
 Reduction in water tariff.
 End expensive government subsidies.

Promulgation of “National Water Crisis Act” 1995
National Water Crisis Act (1995)

Granting of authority to the President
privatise water utilities, including MWSS




to
CRUCIAL: Expression of political will and commitment
Create public awareness about benefits of
“privatization” (reduction in water tariff!).
Criminalization of water theft.
Re-organisation of MWSS
 Split Manila service area into two zones (East
and West zones)
 Introduction of PSP and competition and
Takeover policy between zones
 Performance Benchmarking encouraged
Not “Privatisation” But PPP Approach

It was not privatisation




Bid process




The government retained ownership of the assets of the
MWSS,
but followed a “lease” model to the private companies to
improve and operate assets for a fixed period,
and then to be returned to government
Aimed to bid out off the rights to operate and expand the
water and sewage network system,
With a set of performance targets to achieve,
And with the preferred bidder being the one offering the
lowest price of water, for the set performance targets.
Private companies responsibilities were

Raising finance, debt servicing, improving the network and
tariff billing and collection
Re-organisation MWSS
Zone East
(40% population)
Zone West
(60% population)
Maynilad Water
Services Inc
(MWSI)
MWSS
METRO
MANILA
Manila Water
Company Inc
(MWCI)
The East Zone Concession Framework


To rehabilitate, expand, & operate the east zone of Metro
Manila’s water utility for 25 years,
Targets





User tariff set by competitive bidding - the lowest price of
water




increase coverage of water and sanitation services for 5 million
people,
Improve continuous water availability,
Meet quality standards and service quality,
Reduce NRW
Manila Water offered to charge just over one quarter (26.39%)
of the existing rates
Tariff adjustments provisions.
Regulation by contract (no legislative regulation)
Subject to demand risks
Some Striking Features



Staggered works:
 Major capital expenditures commenced after 5 years;
 Initial focus on softer and cheaper measures to
improve services such as replacement of meters and
reducing water theft.
Increase in existing water tariff (August 1996) by 38%.
Reportedly;
 Overdue
 Would
have been implemented regardless of
privatization
Establishment of a Regulatory Office to
 Monitor and enforce concessions
 Implement rate adjustments
 Deal with customer complaints
The East Zone Concession Framework: Won By
Manila Water Company






Ayala Group (33.5%)
United
Utilities
(11.7%)
Mitsubishi Corporation
(7.8%)
IFC (7.3%)
Employees (2.7%)
Public (37%)
Embarked on heavy Capex Program
Manila Water Company:
Then (1997) & Now (2007)…
Reduction in Non-Revenue Water (NRW)
70
65
63
60
55.2
55
53
NRW(%)
51
52
54
50.7
50
43.4
45
40
35.5
35
30
30
25.2
25
20
1997
1998
1999
2000
2001
2002
2003
2004
2005
Year
Source: Building Viable Water Utilities: The Manila Water Experience
Virgilio C. Rivera, Jr., Group Director, Regulation and Corporate Development
Manila Water Company, Inc.
2006
Sep-07
Manila Water Company:
Then (1997) & Now (2007)…
Water Coverage
1997
3.1 million
(58% of population)
Customer Base
2007
5.6 million
(99% of population)
Availability of Water
16
Hours per Day
24
Manila Water Company:
Then (1997) & Now (2007)…
Providing 24 by 7 Water Supply
Doubled billed water from 440 MLD to 1000 MLD
Manila Water Company:
Then (1997) & Now (2007)…
Manila Water Tariff Rates
25
Peso per cu. meter
20.48
20
2005
2006
13.88 14.02
15
9.37
10
5
18.55
19.72
4.02
4.37
4.55
4.77
1998
1999
2000
2001
0
2002
2003
2004
Year
Source: Building Viable Water Utilities: The Manila Water Experience
Virgilio C. Rivera, Jr., Group Director, Regulation and Corporate Development
Manila Water Company, Inc.
2007
MWC: Affordable?


Tariffs reflective of costs will likely
increase for a period

Sustained tariff levels

Pricing can incorporate
affordable levels for consumers
(5% income)

Can incorporate poor
focused schemes to allow
affordability
Coverage of service, quality and
sustained accessibility will benefit
over time
Less pressure on government
budgets freeing up space for other
programmes
Tariff Comparison - Manila Water
MWSS Projected Rate
Manila Water Rate
20
15
10
5
0
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05

Costs of production might initially
increase - modernisation and
upgradation, risk capital with initial
turn around phase; generally later
should drop with productivity
enhancements etc
Peso per cu.m

Monthly water bill much less than 5% income of a low income household
(IFC) – affordable (1% of low income household’s income and 1.4% of
middle income houshold incomes)
MWC: Helping The Poor?
Real cost of water under the pre PPP scenario - poor mostly using private low quality trucked
water supplies
Average Household in East Zone:
Private Vended Water

Was getting about 6 cu. m per month
from trucks
MWC Piped Water

Now getting around 30 cu. M per
month from pipes
Price
1000 pesos per month
Price
300 Pesos per month
Specific Program for the Poor: WATER FOR THE POOR Programme:
•Supplying 1.5 m legal connections to slums and cluster areas
•Using the community including one metre for a cluster and sub meters which are
Monitored by the community and bills collected by the community also and then
Given to MWC
•Prior to TPSB, poor were paying P1000 per cu.m. – almost 11-13% of incomes
•Post TPSB, around P10 per cu.m.; less than 5% of the monthly incomes
Tariff Adjustment Provisions



Inflation. The regulator allowed for increases
according to annual rates of inflation.
Unforeseen events. Companies could change
prices once a year due to drastic or other
unpredictable events, such as the rapid
devaluation of the peso.
Rate re-basing. At the start of each five year
period, a review of tariffs could be made so
they can be adjusted to reflect “fair returns”
for the company agreed in the contract. (cost
recovery based tariff)
Thank you.