PPP’s: Theory & Practice SANPSHOTS: Manila Water Company, Inc. (MWC) MainstreamingPublic-PrivatePartnerships Anouj Mehta, Senior Infrastructure Finance Specialist (PPPs), Asian Development Bank Bhopal, 26 th 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 to privatise water utilities, including MWSS 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 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  Bid process 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 MWSS Zone West (60% population) Maynilad Water Services Inc (MWSI) Zone East (40% population) Manila Water Company Inc (MWCI) METRO MANILA

The East Zone Concession Framework  To rehabilitate, expand, & operate the east zone of Metro Manila’s water utility for 25 years,  Targets increase coverage of water and sanitation services for 5 million people, Improve continuous water availability, Meet quality standards and service quality, Reduce NRW  User tariff set by competitive bidding - the lowest price of water 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

 Ayala Group (33.5%)  United Utilities (11.7%)  Mitsubishi Corporation (7.8%)  IFC (7.3%)  Employees (2.7%)  Public (37%) The East Zone Concession Framework: Won By Manila Water Company Embarked on heavy Capex Program

Manila Water Company: Then (1997) & Now (2007)… Source: Building Viable Water Utilities: The Manila Water Experience Virgilio C. Rivera, Jr., Group Director, Regulation and Corporate Development Manila Water Company, Inc.

3.1 million (58% of population) 5.6 million (99% of population) Customer Base Water Coverage Availability of Water Hours per Day Manila Water Company: Then (1997) & Now (2007)…

Providing 24 by 7 Water Supply Manila Water Company: Then (1997) & Now (2007)… Doubled billed water from 440 MLD to 1000 MLD

Source: Building Viable Water Utilities: The Manila Water Experience Virgilio C. Rivera, Jr., Group Director, Regulation and Corporate Development Manila Water Company, Inc. Manila Water Company: Then (1997) & Now (2007)…

 Costs of production might initially increase - modernisation and upgradation, risk capital with initial turn around phase; generally later should drop with productivity enhancements etc  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 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: Affordable?

Private Vended Water  Was getting about 6 cu. m per month from trucks Price 1000 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 Real cost of water under the pre PPP scenario - poor mostly using private low quality trucked water supplies MWC Piped Water  Now getting around 30 cu. M per month from pipesPrice 300 Pesos per month Average Household in East Zone: MWC: Helping The Poor?

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.