33159 January 2004 Field Note The Experience of Small-Scale Water Providers in Serving the Poor in Metro Manila Increasing Access Effectively Meeting Consumer Demand Small-scale water providers are effectively providing water services to the poor in Metro Manila. This Field Note describes their ability to remain financially viable while providing the poor with water supply that is both affordable and accessible. Small-scale water providers in Metro Manila are diverse and cater to different groups of customers--some affluent, others poor, but all with varying needs. Executive Summary unfortunately myths persist around their offering poor quality services at exploitative prices. Small-scale water providers continue to supply water to many parts of Metro Manila. Some providers cover all the water needs of a household, To explore the way SSWPs function and to while others supplement the services of the major water concessionaires gain a candid understanding of the factors that contribute to their sizeable presence in operating in the city. A WSP-EAP study of 10 small-scale water providers Metro Manila, WSP-EAP undertook, with in Metro Manila identified five different types of water providers, with support from AusAID, a study, "Small-Scale each type employing its own business model and catering to different Independent Providers: Are They Here to groups of customers. Some providers show an exceptional ability to Stay?" 5 A major objective of the study was to determine whether SSWPs play an serve poorer segments of the city. The study found that a high proportion important role in providing water services of the poor rely on water services supplied by small-scale water to the poor. providers, but that these households pay a higher unit rate for the water In summary, the study found that SSWPs than their more affluent neighbors. The study yields a number of in Metro Manila are diverse and cater to recommendations, including rationalizing the price of water for poor different groups of customers--some customers, improving service efficiencies to reduce the costs of affluent, others poor, but all with varying supplying water, and developing collaborative relationships among the needs. As a result, business practices differ among them, as do their overall government regulator, utility, and small-scale water providers. performance in delivering water supply services to customers. Some SSWPs, however, showed they are very effective Introduction providers (SSWPs) were already filling the in serving a higher proportion of poor gaps in service coverage left by the former customers within the same service area Twelve cities and five municipalities make up water utility--as much as 30 percent of the as the utility companies serve. The study Metro Manila. This mega-metropolis has a population relied on these SSWPs.2 The highlighted that SSWPs play an important population of 11 million people.1 In 1997, the concessionaires in Metro Manila now have role in serving the underprivileged metro government awarded 25-year concessions high service coverage--85 percent in the dwellers, especially in the context of for the provision of water and sanitation West Zone and 93 percent in the East rapid urban development where acute services in the East Zone and West Zone Zone.3 Yet, a number of households capital shortages constrain short- to of Metro Manila to two private parties--the continue to depend on SSWPs.4 In many medium-term investment. This finding Manila Water Company and Maynilad Water cases, SSWPs provide water to cover all draws attention to the need for better Services respectively. These companies took households' needs. Some supplement the understanding of the measures needed over the operations from the state-owned service of concessionaires when the latter to effectively draw SSWPs into the supply Metropolitan Waterworks and Sewerage are unable to provide a sufficient or reliable system as key partners in providing System, which was struggling to expand its supply. Though SSWPs in Metro Manila services to the poor in Metro Manila. This services in the burgeoning metropolis. and those in other metropolitan cities in the Field Note therefore explores some of the developing world fill a critical need by constraints and policy implications related At the time the concessions were providing water supply services, little is to engaging SSWPs in providing water awarded, a number of small-scale water known about their operations, and services to the poor. Philippines National Statistics Office (2000) 1 David and Innocencio (1996) 2 1 Metropolitan Waterworks and Sewerage System (2001) 3 Van den Berg and others (2002) 4 Readers can access the full report online at www.wpep.org. 5 Increasing Access Measuring the levels affect profit margins, and consequently different types of providers. The percentage affect the operations of a water system, of poor customers served differs Performance of while also affecting the affordability of significantly among SSWPs. SSWPs services, especially for poor consumers. · Housing estate providers (real estate This Field Note focuses on the social developers or homeowners associations) In order to measure the performance of a performance of the SSWPs in delivering serve a much more affluent segment of broad range of SSWPs, the Metro Manila water services. Three indicators were used the population than all other SSWPs SSWP study selected different types of to measure social performance--access, combined. On average, just 7 percent of SSWPs from different locations. These customer satisfaction, and affordability their customers live below the poverty level. included real estate developers, home- (see Box 1). owners associations, local entrepreneurs, · In contrast, local entrepreneurs (private and water truckers in 10 locations primarily The Access of the Poor to Water parties who are engaged in constructing in the East Zone of the city. The Supply Services and operating independent water supply performance of SSWPs was measured systems) seem to serve the highest against predetermined financial, institutional, SSWPs serve a significantly higher number of poor, with 38 percent of their operational, social, and environmental proportion of poor households. In 2000, for customer base at or below the poverty indicators. In each of these aspects, SSWPs example, 23 percent of SSWP customers line. One firm, Inpart Engineering, were scored and then ranked from worst to were living below the prevailing official particularly stands out in its coverage of best. These scores were then aggregated poverty threshold,6 while the total level of the poor, as nearly half of its customers to demonstrate overall performance. In many poverty in the metropolis was only 11.4 live at or below the poverty line. Eighty cases, the impact of chosen parameters percent. Figure 1 disaggregates the percent of its customers who receive was viewed as interlinked. For example, tariff question of access in relation to the water delivered through hoses are poor. Figure 1: Access of the poor to water supply services 0% 20% 40% 60% Local Entrepreneurs Durian 30 Inpart 46 Homeowners Associations Pasig 8 Meralco 7 Cooperatives Pantok 23 Pag-Asa 35 Water Truckers Kabisig 39 Maneja 14 Real Estate Developers Cainta 10 Cittadela 2 The official poverty threshold for Metro Manila for 2000 was based on a household income of Php 9,450 a month, 6 2 or approximately US$170 (National Economic and Development Authority, 2000). Some customers who do not have house connections spend up to 16 percent of their monthly household income on water, while those with house connections spend about 6.1 percent of their monthly household income. · Cooperatives are legally registered associations of water users. Thirty-two Box 1: SOCIAL PERFORMANCE INDICATORS percent of their customer base is poor, and thus rank second to local Indicator Ranking Procedure entrepreneurs in providing services to poor customers. Access of the poor to water supply The higher the access of the poor to services water supply services, the higher the · Though water truckers are commonly ranking perceived as a caterer to the poorest segment of the population, the profile of Customer satisfaction with The higher the customer satisfaction, quantity delivered their customers varies significantly. In the the higher the ranking Kabisig Floodway (a kilometer-long Affordability of water tarrifs (user's The lower the affordability, the higher diversion strip in Cainta in eastern Metro capacity to pay for water tariffs) the ranking Manila that is home to many informal settlers), for example, as much as 39 percent of those relying on trucked water shortages) and among the members of the significant considering that the latter group are poor. However, in Maneja, Taguig (in Pag-Asa Water Cooperative in Binangonan, also tend to be poorer. southern Metro Manila), only 16 percent Rizal (where water is supplied only four of the truckers' customers are poor, as hours each day). Notably, consumers with Among the sampled SSWPs, the percentage the truckers serve a large customer base or without piped water show no difference of household income spent on water is that includes higher-income groups. in the level of satisfaction with the quantity highest for customers served by local of water available. entrepreneurs. Some customers who do Customer Satisfaction with the not have house connections, for example, Quantity of Water Delivered Affordability of Water Tariffs spend up to 16 percent of their monthly household income on water, while customers Customer satisfaction was measured as Affordability or ability to pay is measured as with house connections spend about 6.1 satisfaction with the quantity of water the amount households spend on water as percent of their monthly household income. delivered. Though satisfaction clearly a percentage of their monthly household relates not only to water availability but also income. Services are considered more Customers relying on water truckers spend to other aspects, such as price, quality, affordable if the percentage of income about 5.3 percent of their monthly household and continuity, it was not feasible to spent on water is lower, as this means the income on water. Customers served by incorporate these variables in the analysis. poor will have more to spend on other cooperatives, real estate developers, and essential goods and services. homeowners associations spend about 2 Figure 2 illustrates that customer satisfaction percent or less. Meanwhile, poor households with the quantity of water delivered is similar Figure 3 indicates that overall affordability that are served by the private and consistent across all types of SSWPs, (cost of water) averages about 3.2 percent concessionaires pay much less for water including real estate developers, home- of monthly household income. However, (based on a unit rate) due to the lower levels owners associations, local entrepreneurs, disaggregated data suggest that of tariffs charged. Poor households served and water truckers. The two exceptions customers with piped water pay much less by Manila Water in the East Zone spend being among residents of Cittadela (2.4 percent of monthly income) than those less than 1 percent of their monthly income, Executive Homes in Las Pinas (where without piped water (6.6 percent of while those served by Maynilad Water in satisfaction is low because of serious water monthly income). The difference is the West Zone spend about 1.7 percent. 3 Increasing Access Ranking of that community management can assist in Conclusion and delivering services to a high proportion of Small-Scale Water poor customers without having to resort to Recommendations Providers high prices. Several types of SSWPs, most notably In Durian, bulk water is supplied by the the local entrepreneurs, truckers, and Figure 4 combines the three indicators-- utility through a main line at the road head cooperatives, tend to serve a access to water by the poor, affordability of and a bulk water meter. This is known disproportionate number of poor. With water tariffs, and customer satisfaction with as a "mother" meter and is installed to the exception of the cooperatives, these quantity delivered--and ranks the overall keep track of the aggregate consumption SSWPs also tend to charge the most social performance of the SSWPs. Social of water. A resident entrepreneur, acting expensive rates, largely because they performance differs significantly among the as a "retailer" of the water supply for use many intermediaries in the provision cases studied. Importantly, there seems to the community, pays for the meter, of their services, which adds to the cost be a trade-off between serving the poor connects individual houses to the main of delivering the service. and affordability. In general, serving the line, performs billing and collection, and poor correlates with charging higher rates. maintains and repairs the network. The combined evaluation of the financial, However, the position taken by the institutional, operational, social, and However, community-managed systems resident entrepreneur is actually one of a environmental performance of SSWPs, seem to present an alternative to this trustee and manager of the community and the analysis of their financial, economic, general observation. Members of the water supply. He or she does not profit and stakeholder environment does not Pantok Water Cooperative in Binangonan, from the sale of the water and regularly appear in this Field Note but the broader Rizal, and residents of Barangay Durian in reports on the financial status of the analysis was taken into consideration to northern Metro Manila, for instance, show venture to the community. propose the following specific measures Figure 2: Customer satisfaction with the quantity of water delivered 20% 40% 60% 80% 100% Local Entrepreneurs Durian 98 Inpart 92 Homeowners Associations Pasig 98 Meralco 94 Cooperatives Pantok 88 Pag-Asa 28 Water Truckers Kabisig 90 Maneja 88 Real Estate Developers Cainta 82 Cittadela 46 4 Though the local entrepreneurs and water truckers serve the highest proportion of the poor, they also charge the highest tariffs because of the high price they pay for bulk water from the concessionaires. that can be taken to reduce the burden cheaper to provide than water directly hand, the key to improving efficiency will be on the poor. supplied to residential consumers, the poor reducing labor costs. In most SSWPs, could benefit significantly. labor costs are the chief factor in keeping Rationalize Bulk Water Rates the price of water high. Water truckers and Improve Efficiencies of cooperatives tend to have particularly high Though the local entrepreneurs and water Concessionaires and SSWPs labor-intensive operations, with labor costs truckers serve the highest proportion of the making up more than 50 percent of their poor, they also charge the highest tariffs A decline in non revenue water can total operation costs. because of the high price they pay for bulk significantly reduce the costs of operation water from the concessionaires. and maintenance and hence the water Reduce Connection Fees rate. The poor, especially those depending for the Poor The study suggests it would be better if the on water delivered through bulk water regulator, the Metropolitan Waterworks and arrangements, can benefit directly from The study found a strong negative Sewerage System (MWSS) Regulatory such efficiency improvements. correlation between the numbers of poor Office, could help reduce the burden on served and the amount of connection fees SSWP customers by rationalizing water The percentage of non revenue water across charged to customers by SSWPs. The rates through the introduction of bulk water the SSWPs is low, with average losses higher the connection fee, the lower the prices. The study suggests that this would ranging from 1 to 20 percent. In contrast, percentage of poor with access to SSWP be far more advantageous in the short- to there is ample room for improvement in the services. This suggests that connection fees medium-term than trying to connect the concessionaires' operations. In 2001, for are a significant hindrance to poor families poor to the utilities. example, non revenue water for the in accessing the water supply from existing concessionaires stood at 51 percent for systems. In some countries, such as Brazil, By reducing the cost of bulk water, taking Manila Water and 68.2 percent for connection fees are often considered as part into account the fact that bulk water is Maynilad Water. For SSWPs, on the other of the investment costs that are charged Figure 3: Expenditure on water as percentage of household income 2% 4% 6% 8% 10% Local Entrepreneurs Durian 3.26 Inpart 8.07 Homeowners Associations Pasig 1.95 Meralco 1.74 Cooperatives Pantok 1.91 Pag-Asa 2.31 Water Truckers Kabisig 5.03 Maneja 5.55 Real Estate Developers Cainta 1.49 Cittadela 0.69 5 Increasing Access Figure 4: Ranking of SSWPs by social performance 7 14 21 Local Entrepreneurs Durian 7 10 4 Inpart 10 7 1 Homeowners Associations Pasig 3 9 6 Meralco 2 8 8 Cooperatives Pantok 6 4 7 Pag-Asa 8 1 5 Water Truckers Kabisig 9 6 3 Maneja 5 5 2 Real Estate Developers Cainta 4 3 9 Cittadela 1 2 10 Score for Access Score for Satisfaction Score for Affordability through the tariffs. This reduces the barrier definite potential in bringing more universal Another rationale for regulating SSWPs, to connect but may be less of an option service to the Metro Manila region. however, is rooted in public health when relatively large parts of the population concerns over the quality of water they are not being served. Hence, it may be Review Existing Regulations provide. Notably, water quality regulation is advisable to introduce the connection fees already in place--the Sanitation Code of as part of the total investment plan, and let Whether the tariffs charged by SSWPs the Philippines requires all municipalities to all customers pay for them. This option should be regulated depends mainly on have a local drinking water quality may be more appropriate than what was whether they are excessive. A review of the monitoring committee, and other practiced in the past where connection average price per cubic meter of water legislations provide for routine water safety fees were often waived to entice charged by SSWPs provides little evidence testing. In general, however, the households to connect to the system. that SSWPs charge excessive prices. enforcement of regulatory provisions Consequently, the need for their economic requires improvement. Nonetheless, it is Explore Cooperatives as a regulation may not be as pressing as often interesting that the majority of SSWP Management Model thought. In fact, from the current pricing consumers tend to rate the quality of the policies of the SSWPs investigated in the water high, with about 80 percent Although the sample of cooperatives in the study, it is not obvious whether the cost of customers characterizing the water present study is limited, they do appear to regulation would exceed its benefits. It supplied to them as drinkable. offer a viable management model, at least seems the threat of competition, either in the less densely populated areas. This from the concessionaires or from other Collaborate to Serve the Interests conclusion is also supported in a separate SSWPs in the market, is a good substitute of the Poor study on management models for small for economic regulation, as it keeps the towns water supply in the Philippines.7 price of water competitive, albeit not In the prevailing context, the study Consequently, this type of SSWP has necessarily low. concludes that SSWPs have a comparative Robinson and Test (2003) 6 7 East Asia and the Pacific Jakarta Stock Exchange Building Tower 2, 13th Floor. Jendral Sudirman Kav. 52-53 Jakarta 12190 Indonesia Phone: (62-21) 5299 3003 Fax: (62-21) 5299 3004 E-mail: wspeap@worldbank.org by third parties as a means to expand Web site: http://www.wsp.org ABOUT THE SERIES: coverage, but when SSWPs take over that responsibility from the concessionaires in WSP Field Notes describe and the future, the regulator needs to confirm analyze projects and activities in that this is acceptable. This transfer is water and sanitation that provide bound to have an impact on the service lessons for sector leaders, levels provided and the pricing policies of administrators, and individuals the concessionaires. tackling the water and sanitation challenges in urban and rural References areas. The criteria for selection of David, C., and Innocencio, A. 1996. January 2004 stories included in this series are Water and Sanitation Program-- "Understanding Household Demand and East Asia and the Pacific large-scale impact, demonstrable Supply of Water: The Metro Manila Case." sustainability, good cost recovery, Policy Notes No. 96-04. Philippines WSP MISSION: replicable conditions, and Institute for Development Studies, the To help the poor gain sustained access to leadership. Philippines. improved water and sanitation services. Government of the Philippines, National WSP FUNDING PARTNERS: Statistics Office. 2000. Philippines National The Governments of Australia, Belgium, Census. Manila. Canada, Denmark, Germany, Italy, Japan, advantage in the delivery of water services Metropolitan Waterworks and Sewerage Luxembourg, the Netherlands, Norway, Sweden, Switzerland, and the United to poor customers. The potential for System. 2001. "Metropolitan Waterworks Kingdom, the United Nations Development collaboration between SSWPs and and Sewerage System Report." Regulatory Programme, and the World Bank. concessionaires is thus high, especially for Office, Quezon City. SSWPs that take water from the National Economic and Development ACKNOWLEDGMENTS: concessionaires through bulk supply and This Field Note was based on a report Authority. 2000. Family Income and then sell to clients. "Small-Scale Independent Providers: Are Expenditure Survey. National Statistics They Here to Stay?" by Caroline van den Office, Manila. Berg, former regional team leader in WSP- By making the arrangements between Robinson, A., and Test Consultants, Inc. EAP, RADIAN Technology Inc., and Coffey SSWPs and concessionaires more 2003. "Management Models for Small Philippines Inc., and edited by Elisa Knebel. transparent and efficient, it is possible to This work was funded by AusAID, the Towns Water Supply: Lessons Learned use SSWPs to serve poorer populations, Water and Sanitation Program--East Asia from Case Studies in the Philippines." Field and hence lower costs for the consumers. and the Pacific (WSP-EAP), and the Note. Water and Sanitation Program--East Expansion from a Build, Operate and Government of the Philippines through Asia and the Pacific, Jakarta. [Available at Transfer (BOT) arrangement with the local the Department of Interior and Local www.wsp.org]. government to an arrangement that more Government. explicitly includes the concessionaires can Van den Berg, C., RADIAN Technology, be helpful in accelerating service provision Inc., and Coffey Philippines, Inc. 2002. to the poor. However, such collaboration "Small-Scale Independent Providers: Are requires an agreement with the regulator as They Here to Stay?" Water Supply and to what constitutes an acceptable quality Sanitation Performance Enhancement of service for the poor. The current Project, Manila. [Available at concession contracts allow service delivery www.wpep.org] The findings, interpretations, and conclusions expressed are entirely those of the author and should not be attributed in any manner to Cover Photo by Caroline van den Berg The World Bank, to its affiliated organizations, or to members of its Board of Executive Directors or the companies they represent. Layout by setiaputra Printed at Subur Jaringan Cetak Terpadu