Promoting Financial Sustainability in the WSS Sector: The Case of the Philippines Jeremias N. Paul, Jr. Undersecretary Department of Finance World Water Forum Istanbul, Turkey March 18, 2009

Presentation Outline Overview of the water supply and sanitation (WSS) sector Government’s actions to promote financial sustainability in the WSS Sector Philippine Water Revolving Fund Concluding Remarks

Overview of WSS Sector Water supply coverage high (80.2% in 2004) but only 44% have piped connections Access to basic sanitation is at 86.2%, but very few waste water treatment facilities Only 4% of the population has sewerage connection (mostly in Metro-Manila Source: World Bank-Manila

Overview of WSS Sector Huge investment gaps PhP 6-7B annual requirement for water supply PhP 35B annual requirement to meet Clean Water Act standards Historical public investment around PhP 3-4B Historically, investments mostly through public sector (IRA, ODA, ICG of water districts). Until 2007, limited access to private finance by water districts outside Metro Manila.

Government’s actions to promote financial sustainability Formulated Philippine Water Sector Roadmap ( ) Established legal framework for PPPs including BOT Law and Joint Venture Guidelines Rationalized water sector financing Adopted IWRM approach in the formulation of the Medium Term Philippine Development Plan

Government’s actions to promote financial sustainability Established facility for efficiency improvement and project preparation Embarked on institutional and capacity building program (e.g., strategic business planning, ring- fencing of LGU utilities, training on performance contracting) Established Forum for GOP-donor coordination Pursued innovative financial schemes

Philippine Water Revolving Fund (PWRF) Public resources not enough to finance WSS projects; need for public-private sector partnership Leverage ODA (JICA)/public sector funds with private sector resources; provide credit enhancement mechanisms (guarantees: USAID-DCA & LGUGC; liquidity risk cover: GFIs/MDFO) Increase awareness in private sector of opportunities in the WSS sector through advocacy and capacity building

Philippine Water Revolving Fund (PWRF) Objectives Leverage ODA with funding from private financing institutions Develop financing mechanism acceptable to PFIs but at the same time affordable to water utilities Develop financing mechanism with revolving capacity Provide a mechanism to implement the government’s financing policy in a practicable manner

Development Bank of the Philippines administers Philippine Water Revolving Fund Creditworthy Water Service Providers (LGUs and Water Districts) DBP/ MDFO provides Stand-By Credit Line to cover liquidity risk of PFI loan (if 20 year tenor) USAID/DCA co-guarantees LGUGC LGUGC provides partial credit Risk guarantees of PFI loan GOP provides sovereign guarantee for JICA Loan PFIs lend through PWRF/DBP to WDs, LGUs JICA lends to DBP reflows DBP collects repayment and distributes to the PFI, DBP general fund, JICA and PWRF Credit enhancers Lenders Borrowers The Stand-by credit line will be used to refinance the PFI loan if it decides not to extend the tenor beyond the original seven-years. One loan agreement; two promissory notes PWRF Financing Structure

10 Concluding Remarks Promoting financial sustainability is work in progress and made more challenging because of the global financial and economic crises. Promoting financial sustainability is work in progress and made more challenging because of the global financial and economic crises. Fortunately, local financial markets remain very liquid and can potentially finance WSS projects. Effective demand needs to be increased. Fortunately, local financial markets remain very liquid and can potentially finance WSS projects. Effective demand needs to be increased.

11 Concluding Remarks Philippines can certainly take advance of its strengths in promoting financial sustainability in the WSS sector: Philippines can certainly take advance of its strengths in promoting financial sustainability in the WSS sector: –Public awareness of cost recovery principles. –High willingness to pay for better water services. –Financing framework that encourages public private sector partnerships. –Tradition of broad based consultations.

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