50837 July 2009 Note Number 28 Output-Based Aid in the Philippines: Improved Access to Water Services for Poor Households in Metro Manila | Iain Menzies and Mario Suardi T his project aims to provide access to water services through individual household connections to several low-income communities in Rizal province (Anti- polo City, Baras, Rodriguez, and San Mateo) and Taguig City in the Manila Metropolitan Region through a collabo- ration with the concessionaire for Manila's east zone, the Manila Water Company (MWC). The GPOBA interven- tion supports Manila Water's flagship program, launched in 1998, the "Water for the Community" or Tubig Para sa Barangay (TPSB) program, which provides a regular supply of clean, safe, and affordable drinking water to the urban poor. The scheme builds on the successful track record of the TPSB program and seeks to speed up rollout of individual connections to poor households through one-time subsidies Photo courtesy of Manila Water Company to cover the cost of the connection fee. Background Connections for the Poor: One of the Remaining Challenges The delivery of water supply and sewerage services in the Metro Manila region is the responsibility of the govern- MWC has instituted a number of programs in pursuit ment-owned Metropolitan Waterworks and Sewerage of its stated vision to "become the leader in the develop- System (MWSS). Since 1997, MWSS has contracted out ment and provision of water and wastewater services in provision of services via two 25-year concessions based ways that help build sustainable communities..."1 Com- on a geographic division of the urban area: the east zone munity programs include water and sanitation for service was contracted to the Manila Water Company (MWC), institutions such as hospitals, prisons, and schools, and and the west zone to Maynilad Water Services (MWSI). the cooperative development program, which helps The required service performance of both conces- develop backyard cooperatives that provide products sionaires is defined in the 1997 concession agreement, as and services for its works programs. MWC's flagship amended over time. Since 1997 MWC has enjoyed great program, launched in 1998, is the "Water for the Com- success in improving services; it has reduced nonrevenue munity," or Tubig Para sa Barangay (TPSB) program. water from 63 percent to 19.6 percent from 1997 to 2008 Since its launch, more than 1.5 million urban poor have and has met and exceeded its major service obligations. been given a regular supply of clean, safe, and afford- Most notably, both access to and reliability of services, able drinking water. The GPOBA project builds on the particularly to low-income households, has increased substantially, and reliability in terms of 24-hour availabil- ity increased from 26 percent to 99 percent of custom- Iain Menzies is a Senior Infrastructure Specialist in the World Bank's Finance, Economics and Urban Development Department. Mario ers from 1997 to 2008. MWC now supplies 5.1 million Suardi is a Senior Infrastructure Specialist in the Global Partnership residents with water and sewage services. on Output-Based Aid. Supporting the delivery of basic services in developing countries successful track record of the TPSB program, as well officially certified (in accordance with national gov- as concerns identified in various independent evalua- ernment directives for poverty surveys) as "indigent" tions conducted by the Asian Development Bank, the by the respective Barangay leader, indicating that a World Bank, and other organizations. majority of households fall under the national pov- The TPSB program sought to speed up rollout of erty line. connections to poor households by tapping the com- munity culture in the Philippines, and by working Setting the Right Level of Subsidy through local community leaders to achieve commu- nal solutions for water supply. Initially, MWC offered OBA subsidies will be paid directly to MWC on a per communal meter or shared meter options (among new connection installed and operating basis. With- five to seven households) to reduce the connection out the GPOBA subsidy, the total connection charge fees for individual households, while placing more payable by a household to MWC for a service connec- responsibility on those individual households/com- tion would be relatively high: PHP 7,531.73 (US$167). munities for connecting households downstream of This charge, set for 2007, consists of three parts: the meter and maintaining that "private" infrastruc- ture. Subsequently, MWC switched to provide bulk supply or shared bills, placing the pressure and costs PHP US$ of bill collection partly on the beneficiary communi- ties. At first, communities were also charged higher Meter deposit 1,020.00 23 "bulk" tariffs, a practice MWC later modified by using social tariffs, with the consent of the Regulatory Office Guarantee deposit 600.00 13 (MWSS-RO). Connection fee 5,911.73 131 Several evaluations, while clearly crediting this approach with much faster improvements for poor Total PHP 7,531.73 US$167 households, have pointed out equity concerns. More- over, MWC's experience operating such schemes has demonstrated a number of the drawbacks of the shared billing approach for individual poor house- From the household survey data and MWC's holds. Some individual households have not paid experience working with indigent communities, it their share of the billings, and significant customer was clear that poor households could not afford such management and credit issues have arisen with this connection charges. However, community feedback approach; however, MWC has been reluctant to indicated that low-income households could afford disconnect the whole community. Therefore, in this to pay the meter deposit and guarantee deposit of output-based aid (OBA) scheme, MWC is proposing PHP 1,620 (US$36) if this could be paid in install- to connect all beneficiary households with individual ments. MWC proposed and is currently offering an connections. This project would then provide the installment scheme over 36 months. The OBA sub- basis for a meaningful side-by-side comparison of the sidy, at 2007 prices, was therefore set at PHP 5,911.73 two approaches. (US$131). The GPOBA subsidy will be paid directly to MWC as a single payment, conditional on the Targeting the Poor independent verification of three months' satisfactory service delivery. The GPOBA project targets small pockets of house- Under the terms of the concession agreement, the holds/communities that are located within larger connection fee is indexed on an annual basis in line service areas of MWC that are already being served with Consumer Price Index (CPI) data produced by or will be served shortly. Moreover, subsidies are the MWSS-RO. To mitigate the risk of cost inflation, targeted to reach households predominantly below it was agreed that the unit subsidy would be similarly the poverty line for the Metro Manila area (National indexed. The unit subsidy (or other aspects of the Capital Region, NCR). MWC has adopted two ap- scheme design) may also be adjusted to reflect modi- proaches to assess/confirm low-income community fications to the connection fee resulting from tariff eligibility. Manila Water, with its community-based and charge reviews undertaken by the MWSS-RO. partners, surveys potential communities, leverag- Subsidies will not be substituting for MWC invest- ing the expertise accumulated through the TPSB ment obligations that form part of its five-year plan program. In addition, target communities must be approved by the MWSS-RO. The MWSS-RO has been July 2009 Note Number 28 fully informed of the terms of the grant agreement Independent Verification Agent is appointed by Ma- that governs the OBA subsidy and has provided a let- nila Water, the terms of the appointment and actual ter of endorsement for the OBA scheme. procurement require GPOBA approval. GPOBA also explicitly funds the IVA through the grant agree- Defining Outputs and Ensuring ment. Performance Results So Far The output for this OBA scheme is sustainable access to modern water services, as evidenced by working The potential number of beneficiaries within the connections to the MWC network and three months targeted communities totals some 21,000 poor house- of satisfactory service provision. To ensure that MWC holds (about 105,000 people). The project became has delivered these outputs, the Independent Verifica- effective on January 18, 2008 and 10,642 connections tion Agent (IVA), appointed by Manila Water, must were completed by the end of the year. Disbursements confirm the following four outputs on a representative have been somewhat delayed, however, because of sample of beneficiary households: difficulties in verifying water pressure output compli- ance. The Manila Water Company has now provided · installed water meter pressure maps so that the independent output veri- · 24-hour water supply (beneficiary confirmation) fication can be completed, and disbursement will · water pressure of at least 5 psi (pounds per square proceed shortly. inch) (from MWC operational records) · water bill delivered, demonstrating consumption/ Scale-up Potential service delivery (confirmed by beneficiary and MWC billing records) Given the success of the Manila Water OBA pilot scheme, initial discussions have been held with Contractual and Institutional the National Economic and Development Author- Arrangements ity (NEDA) on scaling up through the creation of a national OBA water facility. Such work has recently Figure 1 summarizes the contractual and institu- been incorporated into the work program agreed with tional aspects of the scheme design. Although the NEDA for FY09/10. Figure 1. Contractual Arrangements and Funds Flow MWSS Regulatory Office MWSS GPOBA No objection to TOR Concession and appointment Regulation contract Manila Water Direct payment Connections Independent verification agent Contracts Control Customers Funds Lessons Learned internal plumbing necessary to bring the water to a kitchen sink and toilet. This arrangement, while Following successful implementation of the first stage improving water supply service access, would signifi- of the project, a number of aspects of the scheme cantly increase the volume of wastewater produced design are under review. In particular, MWC has by each household. Many of the poorer communities observed that many beneficiary households have not lack facilities for wastewater collection/treatment. modified water consumption patterns following con- Thus GPOBA and MWC are now working on the nection; they continue to use water in the same way as development of a comprehensive design proposal to they had previously by filling water containers for use incorporate wastewater management. inside their homes. As a result, some of the planned benefits of an individual household connection to a potable water supply network are not materializing. MWC has proposed an alternative design that 1 Manila Water Company, Sustainability Report 2007. involves providing beneficiary households with the About OBApproaches OBApproaches is a forum for discussing and disseminating The case studies have been chosen and presented by the au- recent experiences and innovations in supporting the delivery thors in agreement with the GPOBA management team and are of basic services to the poor. The series focuses on the provi- not to be attributed to GPOBA's donors, the World Bank, or any sion of water, energy, telecommunications, transport, health, other affiliated organizations. Nor do any of the conclusions rep- and education in developing countries, in particular through resent official policy of GPOBA, the World Bank, or the countries output-, or performance-, based approaches. they represent. To find out more, visit www.gpoba.org e Global Partnership on Output-Based Aid e Global Partnership on Output-Based Aid Supporting the delivery of basic services in developing countries