64756 the world bank Private Concessions The Manila Water Experience IBRD Results SynopSiS In the Metropolitan Manila area, IBRD has supported two utilities in expanding affordable and efficient water and sewerage services to benefit some 107,000 poor households since 1997, relying on an ap- proach that encourages private sector investment and support and greater community involvement. The Challenge Results In the past fifteen years, Metro Manila’s growing urban Through capital infusion, debt restructuring and infrastruc- population demanded a significant increase in water sup- ture rehabilitation, both concessionaires—and especially ply and sanitation (WSS) services and facilities. Before the MWCI serving Manila’s East Zone—managed to accelerate 1997 Manila Water concession, only 6.3 million of Metro and enhance supply provision across their franchise areas. Manila’s 11.8 million residents had water service connec- tions. Only 67 percent of households had water available In terms of 24-hour water availability, MWCI posted a for 24 hours per day, while only 13 percent had adequate dramatic increase to 99 percent in 2009 from 26 percent in sewer and sanitation coverage. 1997. Its aggressive civil works and pipe-laying endeavors almost doubled the number of people served with potable Even with some investment coming into the sector, more water, to 6.1 million in 2009 from 3.1 million in 1997. Wa- was required to provide an affordable and efficient service to ter previously lost to leaks and pilferage was used to supply address these shortfalls. The local concessionaires—the Ma- MWCI’s expanding coverage area. Meanwhile, it reduced nila Water Co. Inc. (MWCI) and Maynilad Water Services its non-revenue water (NRW) to 16 percent in 2009 from Inc. (MWSI)—had challenges in upgrading their piped wa- 63 percent in 1997. Its organization was also streamlined to ter supply and sanitation coverage because of the expanding 1.5 staff per 1,000 connections in 2009 from 9.8. MWCI franchise areas. The proliferation of informal households was able to strengthen its collaboration with business pa- and the lack of institutional preparedness in implementing trons and Metro Manila local governments, which con- new and complex projects on the part of water service pro- tributed to the ease of redeveloping key water supply and viders (WSPs) exacerbated the problem. distribution systems. To address the challenge, the International Bank for Re- On the other hand, MWSI encountered financial difficul- construction and Development (IBRD) set out to promote ties in 2000–2001that affected its operations. It was unable greater private sector participation to undertake improve- to increase its sewerage coverage due to the deferment of ments in the sector and improve the sustainability of WSPs. targets in line with its rehabilitation plan. Currently, it has March 2010 2 THE MANILA WATER EXPERIENCE maintained its sewerage coverage at 8 percent of the total Water Services, the public performance audit system ex- population. Nevertheless, it has developed its capacity in panded its coverage to include wastewater services. managing and maintaining septage collection and treat- ment projects, and has also operated high-quality laborato- ries. The Approach improved Facility for Urban environmental IBRD’s involvement in water concessions was based on the Management, Community development and rationale that the private sector can play an important role poverty alleviation in delivering services because of the financial incentives that can be generated from an improvement in efficiency. Pri- By expanding the provision of reliable and affordable ser- vate utilities in the Philippines remain a major provider of vices to customers, the program has benefited some 107,000 formal WSS services in urban areas, particularly in Metro poor households since its inception in 1997. Near-to-reg- Manila. Both MWSI and MWCI were expected to resolve ular access to potable/piped water supplies and increased lagging performances in critical areas (such as arrears collec- community sanitation facilities has been achieved in low- tion, non-revenue water (NRW) usage, and cost-recovery income residential centers. Furthermore, the program es- ratios) and to improve management across all areas of busi- tablished customer facilities to encourage communities to ness. IBRD has assisted the concessionaires by providing discuss and participate in the process of expanding services, financial and technical support to improve access to and de- and to resolve their concerns. livery of wastewater treatment and both septage and solid waste management services. MWCI’s investment program for water and sanitation also reduced the risk of sicknesses from exposure to sewage con- MWCI and IBRD implemented the US$57 million Ma- tamination, which is estimated to have reduced mortality nila Second Sewerage Project (MSSP) to improve the qual- by 20 percent. The project’s focus on expanding coverage ity of wastewater and septage management service in Metro through useful and alternative arrangements for connec- Manila from 2001–2005. With over PhP1 billion in invest- tion and payment (such as deferred payment schemes and ments, the MSSP allowed MWCI radically to expand its early payment discounts) also amplified its positive impact sewerage and septage management program. During the in poor urban communities. project, 26 septage treatment plants were constructed and more than 20 de-sludging trucks were procured for sanita- enhanced institutional Capacity for regulation tion services. Moreover, the implementation of the MSSP policy, investment and Service delivery was instrumental in giving MWCI the capacity to envisage and design succeeding projects. The Bank supported the development of a transparent and stable regulatory framework of the Metropolitan Water- The Manila Third Sewerage Project (MTSP) was devel- works and Sewerage System Regulatory Office (MWSS- oped for the 2005–2010 period to build on the results of RO) to achieve a balance between investor concerns and its predecessor. The public-private partnership (PPP)-led consumer welfare. The IBRD-assisted Water Districts De- wastewater project is a US$85 million initiative to extend velopment Project (WDDP) extended a US$2.5 million improvements in sewerage and sanitation across the East loan for technical assistance designed to pilot and field- Zone concession area. Assisted by a US$64 million loan test a public performance audit system in the MWSS in from the IBRD, the MTSP further enhanced the septage the post-privatization phase. To improve the regulation of management program, piloted the combined sewer-drain- water supply, the project provided statistical and on-the- age system approach and promoted advocacy campaigns on ground information to local politicians, consumers and po- the negative environmental impacts of wastewater. The goal tential private sector partners on the relative performance of the septage management component of the MTSP was of WSS utilities. Later renamed the Public Assessment of realized in 2007 through the completion and operation of IBRD RESULTS 3 [5] In the context of operations carried out by private com- panies, particular attention should be paid to: i. Maintaining the dialogue with operators to en- sure their ownership; ii. Reaching agreement with all parties on well- defined performance indicators and monitoring systems; iii. Ensuring that the operators’ role in the project is fully compatible with (and integrated into) their business plans; and iv. Entrusting procurement to private operators, pro- vided that it is in accordance with IBRD guidelines. [5] Stringent standards for monitoring and the integrative two septage treatment plants. De-sludging vacuum trucks approach to project development adopted by MWCI- were also procured, bringing the fleet’s number to more IBRD serve as precautionary measures against negative than 90. Meanwhile, sewer coverage in the East Zone is ex- environmental effects and water- and sanitation-related pected to increase to 30 percent when the MTSP is com- sicknesses that inflict severe burdens on the urban envi- pleted. The project is proposed to be extended to 2012. ronment, public health and community hygiene. Lessons Learned IBRD Contribution Lessons learned from the IBRD-financed projects with MWCI are distilled into the following: IBRD’s technical assistance on the policy reforms in the sector and IFC’s support to MWCI made it possible for the [1] Community sanitation projects can be successful in private utility to continue initiatives in improving services low-income communities, provided that regular and and planning for infrastructure investments in Metro Ma- timely public information campaigns are carefully con- nila’s East Zone with its six million residents (as of 2009). ducted and the benefits well-explained. IBRD established the financial and technical viability of [2] Dialogue with the government, the borrower and the new approaches for sewage management in Metro Manila operating entities is necessary but not sufficient, partic- by providing construction supervision, environmental ularly when the local population or local government monitoring and management assistance. units are likely to be affected by project activities. The issues of disposal of septage and excavation/building permits highlight the critical importance of local gov- World Bank Group Engagement ernment cooperation. [3] Land for sewerage facilities was difficult or costly to The World Bank Group maintains an active role in financ- secure. Problems associated with land acquisition pri- ing development opportunities and technical assistance marily caused project delays. Careful planning for land projects that improve urban WSS coverage, sub-sector in- acquisition must be made part of the project develop- vestment programming, capacity-building and private sec- ment process. tor participation processes. By supporting a concessionaire [4] Final options for project implementation must be that has ably demonstrated efficiency and client responsive- arrived at considering not only the technical and fi- ness, IBRD and the World Bank Group’s private sector arm, nancial aspects but also the required institutional ar- the International Finance Corporation (IFC) hope to send rangements and the social and other risks. a positive signal to the market and to other governments 4 THE MANILA WATER EXPERIENCE that are considering either an infusion of private capital technical and management practices, financing options and and expertise into a public sector exercise or a fully-fledged technologies to urban water utilities outside Metro Manila privatization. For its part, MWCI asserted that further in- and even beyond the Philippines. New businesses, which volvement in a private sector participation approach with exceed PhP 3 billion in investments, include: urban WSS is seen as an attractive business prospect for lenders and other investors. Ô A concession agreement with Cabuyao, Santa Rosa, and Binan in partnership with the provincial govern- The IFC-backed US$218 million investment with the ment of Laguna. MWCI for the period 2002–2005 focused mainly on the Ô A management contract for water and wastewater sys- concessionaire’s supply expansion and water sources de- tems that serve Boracay Island in partnership with the velopment. Similarly, another loan under IFC (MWC II) Philippine Tourism Authority, was provided to support MWCI’s expenditure program Ô Separate ventures in Vietnam and India. for 2004–2007 which was estimated at US$292 million. The loan further helped to attain the WSS service targets These operations outside the Metro Manila core are im- set out under the original concession agreement. Through portant drivers of MWCI’s long-term growth and stability, a specially-designed facility, MWC II was able to provide and support the company’s earnest commitments towards lower-income households with access to piped water at a raising corporate social responsibility and meeting environ- rate sensitive to their capacities to pay. mental and sustainable growth targets through corporate governance, sound investment planning and infrastructure- In support of the MTSP, the Global Environment Facility led expansion. also extended a US$5 million grant option in 2007. It prior- itized assistance to the government in identifying essential adjustments to administrative/institutional practices and to Next Steps existing legislation in order to generate private investment in the wastewater sector. In line with a Philippines Supreme Court ruling in De- cember 2008 that ordered the clean-up of Manila Bay, both Metro Manila concessionaires are obliged to acceler- Good Practices Developed ate the implementation of proposed sewerage projects and wastewater treatment initiatives. Accordingly, MWCI and and Replicated MWSI have submitted their programs to MWSS and have sought the extension of their concession periods in order to There has been strong interest in the replication and expan- meet their sewerage and wastewater treatment targets. sion of PPPs for urban water, especially as the privatization of MWSS has resulted in dramatic improvements in terms Because of the huge capital investment requirement under of operating efficiency, water loss recovery, wastewater the program, MWSS granted MWCI a fifteen-year exten- treatment and management, and general service delivery sion of its contract to 2037. Similarly, MWSI has request- across the utility’s coverage area. A recent privatization ef- ed the extension of its contract. Both MWCI and MWSI fort directed at the Metro Iloilo Water District is a prime requested IBRD to extend a new financing window that example, in which the IBRD was requested to provide tech- would support and expand their respective initiatives. In re- nical assistance in the preparation of a study to explore pos- sponse, IBRD is preparing a programmatic lending facility sible private sector involvement as a means for improving centered on sewerage and wastewater treatment. WSS service performance. To ensure the continuity of satisfactory results of private MWCI has also begun to capitalize on the effectiveness sector participation projects , IBRD is presently aiming of its experience by adopting and bringing over replicable for an annual lending program of between US$700 mil- IBRD RESULTS 5 lion and US$1 billion through 2012 that would support MWSS’ successful privatization with the MWCI; IFC ser- the replication of successful PPPs practices and schemes, vices would be responsible for maximizing and catalyzing and key performance improvements. The IBRD, through the developmental impact. the IFC, is expanding its advisory services in light of the learn More InternatIonal FInance corporatIon www.ifc.org Summary of Project Information (SPI) Project 11232 – MWC Project 22621 – MWC II ManIla Second Sewerage project Project ID: P004611 http://web.worldbank.org/external/projects/main?pagePK=104231&piPK=73230&theSitePK=40941&menuPK =228424&Projectid=P004611 ManIla thIrd Sewerage project Project ID: P079661 http://web.worldbank.org/external/projects/main?pagePK=64283627&piPK=73230&theSitePK=40941&menuP K=228424&Projectid=P079661 ManIla thIrd Sewerage project – global envIronMental FacIlIty (geF) Project ID: P089082 http://web.worldbank.org/external/projects/main?Projectid=P089082&theSitePK=40941&pagePK=64283627& menuPK=228424&piPK=73230 lgU Urban water and SanItatIon project apl2 Project ID: P069491 http://web.worldbank.org/external/projects/main?pagePK=64283627&piPK=73230&theSitePK=40941&menuP K=228424&Projectid=P069491 6 THE MANILA WATER EXPERIENCE Key Figures FIg. 1 MWCI’s Operating Improvements as a Result of Privatization (Selected figures, 1997–2009) 1997 2001 2007 2009 (3rd Qtr) Expanded Coverage, % 67 89 98 99 Improved 24 hour supply, % 26 83 100 100 Reduced NRW, % 63 51 24 15 Water Quality Standard Compliance, % 91 100 — 100 FIg. 2 MWCI Efficiency Indicators 1997–2009 1997 1998 1999 2000 2001 2009 No. of Household Connections (‘000s) 325 340 390 409 428 1,007 Population Served (millions) 3.0 3.1 3.6 3.76 4.05 6.0 Staff per 1000 connections 6.3 5.1 4.8 3.8 3.6 1.5 Total Operating Cost per cubic meter of billed water 5.95 5.47 5.21 4.77 4.73 — FIg. 3 Other Development indicators 2007 2008 SOCIAL Individuals Benefiting from Water for the Community Program (million) 1.3 1.5 Schools and institutions included in the wE care Program 60 233 ENVIRONMENTAL Percentage Reduction in Water Losses 23.8 19.6 Volume of Septage Treated 74,855 225,804 Percentage Compliance to Wastewater Volume 100 100