PPP’s: Theory & Practice PPP’s: Theory & Practice
SANPSHOTS: Manila Water Company, Inc. (MWC)
Mainstreaming Mainstreaming Public-Private Public-Private
PartnershipsPartnerships
Anouj Mehta, Senior Infrastructure Finance Specialist (PPPs), Asian Development Bank
Bhopal, 26Bhopal, 26thth February 2009 February 2009
Backdrop: ManilaBackdrop: 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 OperationsBackdrop: 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 :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)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 ApproachNot “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 MWSSRe-organisation MWSS
MWSSZone West(60% population)
Maynilad Water Services Inc
(MWSI)
Zone East(40% population)
Manila WaterCompany Inc
(MWCI)METRO MANILA
The East Zone Concession FrameworkThe 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 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 The East Zone Concession Framework: Won By Manila Water CompanyManila Water Company
Embarked on heavy Capex Program
Manila Water Company: Manila Water Company: Then (1997) & Now (2007)…Then (1997) & Now (2007)…
Reduction in Non-Revenue Water (NRW)
25.2
30
35.5
43.4
50.754
5251
55.2
53
63
20
25
30
35
40
45
50
55
60
65
70
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Sep-07
Year
NR
W(%
)
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
19972007Water CoverageWater Coverage
Availability of WaterAvailability of Water
16 24Hours per Day
Manila Water Company: Manila Water Company: Then (1997) & Now (2007)…Then (1997) & Now (2007)…
Providing 24 by 7 Water SupplyProviding 24 by 7 Water Supply
Manila Water Company: Manila Water Company: Then (1997) & Now (2007)…Then (1997) & Now (2007)…
Doubled billed water from 440 MLD to 1000 MLDDoubled billed water from 440 MLD to 1000 MLD
Manila Water Tariff Rates
20.4819.7218.55
14.0213.88
9.37
4.02 4.37 4.55 4.77
0
5
10
15
20
25
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Year
Pes
o p
er c
u. m
eter
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: Manila Water Company: Then (1997) & Now (2007)…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
Tariff Comparison - Manila Water
0
5
10
15
20
Pes
o pe
r cu.
m
MWSS Projected Rate Manila Water Rate
Monthly water bill much less than 5% income of a low income household 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 (IFC) – affordable (1% of low income household’s income and 1.4% of
middle income houshold incomes)middle income houshold incomes)
MWC: Affordable?
Private Vended WaterPrivate Vended Water Was getting about 6 cu. m per month
from trucks
PricePrice1000 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 thenGiven 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 Real cost of water under the pre PPP scenario - poor mostly using private low quality trucked water supplieswater supplies
MWC Piped WaterMWC Piped Water Now getting around 30 cu. M per
month from pipes
PricePrice300 Pesos per month
Average Household in East Zone:
MWC: Helping The Poor?
Tariff Adjustment ProvisionsTariff 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)