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National Sewerage and Septage Management Program

Full Report Final Draft

November 11, 2010

National Sewerage and Septage Management Program

NSSMP Full Report

__________________________________________

Department of Public Works and Highways

National Economic Development Authority

World Bank Water and Sanitation Program-East Asia and the Pacific

Asian Development Bank

AECOM International Development, Inc.

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Table of Contents

Executive Summary...................................................................................................................... 4 1 Introduction........................................................................................................................... 6 2 Current Situation and Needs ............................................................................................... 7

2.1 Obstacles to Implementing Sewerage and Septage Management Programs..............................................8 2.1.1 National Challenges...............................................................................................................................8 2.1.2 Local Challenges ...................................................................................................................................9

2.2 Sanitation and Sewerage Coverage..........................................................................................................11 2.3 Current Efforts and Best Practices...........................................................................................................11

2.3.1 Septage Management and Sewerage Master Plan for Metro Manila ...................................................12 2.4 Applicable Regulations and Role of Agencies ..........................................................................................16

3 Goal, Objectives and Scope................................................................................................ 22 4 Targets ................................................................................................................................. 23 5 Strategy ................................................................................................................................ 23

5.1 National Component.................................................................................................................................24 5.2 Local Component......................................................................................................................................25 5.3 National/Local Coordination ...................................................................................................................25 5.4 Sustainability ............................................................................................................................................25

6 Implementation Plan .......................................................................................................... 26 7 Institutional Framework .................................................................................................... 27

7.1 Organizational Structure..........................................................................................................................27 7.1.1 NSSMP Committee..............................................................................................................................31 7.1.2 NSSMP Office .....................................................................................................................................32 7.1.3 Project Facilitators ...............................................................................................................................33 7.1.4 Local Implementers .............................................................................................................................35

7.2 Implementation Arrangements..................................................................................................................36 7.3 Monitoring and Evaluation of the NSSMP ...............................................................................................37

8 Sanitation Planning and the Intervention and Investment Framework........................ 39 8.1 Developing Local Sustainable Sanitation Plans.......................................................................................39 8.2 Developing Sewerage and Septage Management Programs ....................................................................39 8.3 Designing Projects to Achieve Results .....................................................................................................40 8.4 Toolkits for Developing Projects ..............................................................................................................41 8.5 Project Intervention and Investment Framework .....................................................................................42

8.5.1 Framework Section 1: Information about the LGU .............................................................................46 8.5.2 Framework Section 2: Sanitation Plans and Project Priorities (Interventions) ....................................47 8.5.3 Framework Section 3: Preferred Technology – Infrastructure, Product or Service .............................47 8.5.4 Framework Section 4: Indicators .........................................................................................................48 8.5.5 Framework Section 5: Cost..................................................................................................................48 8.5.6 Framework Section 6: Supporting Environment..................................................................................48 8.5.7 Promotion Campaigns..........................................................................................................................49

9 Financing Projects .............................................................................................................. 50 9.1 NSSMP Financing Framework.................................................................................................................50 9.2 Funding Process.......................................................................................................................................51 9.3 Sources of Financing................................................................................................................................58

9.3.1 User Fee...............................................................................................................................................58 9.3.2 LGU Traditional Fund Sources............................................................................................................59 9.3.3 Public-Private Participation .................................................................................................................62 9.3.4 Official Development Assistance Fund ...............................................................................................63

9.4 Local Government-National Government Cost Sharing...........................................................................66 10 Project Implementation Risks ....................................................................................... 72

National Sewerage and Septage Management Program – Full Report

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Annex: Computation of Estimates and Targets............................................................................ 74

List of Tables Table 1. Combined MWCI and MWSI Septage Treatment Capacity .......................................... 13 Table 2. Role of Concerned Agencies in NSSMP under CWA-IRR (Rule 7) ............................. 17 Table 3. Concerned Agencies and their Mandates Related to Sewerage and Septage ................. 18 Table 4. Expanded Role of Concerned Agencies in NSSMP ....................................................... 28 Table 5. Examples of Public-Private Partnerships........................................................................ 62 Table 6. LBP Comparative 2007 and 2008 Loan Portfolio (in billion pesos) .............................. 64 Table 7. NG-LG Cost Sharing for Brown Environment............................................................... 66 Table 8. NG-LG Cost Sharing for Solid Waste Management Projects ........................................ 67 Table 9. Estimated 2010 Expenditures for Housing and Sanitation ............................................. 68 Table 10. Projected Capital Investment Requirement .................................................................. 69 Table 11. Estimated Annual Funding Gap for Sewerage Projects................................................ 69 Table 12. NG-LG Cost Sharing for Sewerage Projects ................................................................ 70 Table 13. Economic Indicators (EIRR, NPV) .............................................................................. 72

List of Figures Figure 1. Overall Implementation Schedule for the Metro Manila Sewerage Master Plan.......... 16 Figure 2. Organizational Chart for Implementing NSSMP .......................................................... 31 Figure 3. NSSMP Implementation Arrangements ........................................................................ 37 Figure 4. Monitoring and Evaluation of the NSSMP ................................................................... 38 Figure 5. Achieving Sustainable Results ...................................................................................... 41 Figure 6. Septage Toolkit: Sample Screen Shot ........................................................................... 42 Figure 7. Intervention and Investment Framework with Program Packages for Division 1 ........ 44 Figure 8. Septage Management Project Financing ....................................................................... 55 Figure 9. Sewerage Project Financing - Option 1......................................................................... 56 Figure 10. Sewerage Project Financing - Option 2....................................................................... 57 Figure 11. Percentage Distribution of Fund Sources .................................................................... 60 Figure 12. Source of 2007 LGU Regular Income......................................................................... 61 Figure 13. Source of LGU Regular Income by LGU Type .......................................................... 61 Figure 14. 2007 Distribution of ODA Loans ................................................................................ 63 Figure 15. LGU Credit Financing Policy...................................................................................... 66 Figure 16. 2007 LGU Distribution of Expenditures ..................................................................... 68 Figure 17. Proposed Cost Sharing for Sewerage Projects ............................................................ 70


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Acronyms BLGF Bureau of Local Government Finance BOD biochemical oxygen demand BOT build-operate-transfer DBM Department of Budget and Management DENR Department of Environment and Natural Resources DILG Department of the Interior and Local Government DOH Department of Health DOF Department of Finance DPWH Department of Public Works and Highways GAA General Appropriations Act GFI government financing institution HUC highly urbanized city INFRACOM Infrastructure Committee of NEDA IRR implementing rules and regulations JV joint venture LBP Land Bank of the Philippines LGU local government unit LWUA Local Water Utilities Administration MWCI Manila Water Company, Inc. MWSI Maynilad Water Services, Inc. MWSS Metropolitan Waterworks and Sewerage System NGA national government agency NGO nongovernmental organization NEDA National Economic Development Authority NSSMP National Sewerage and Septage Management Program ODA official development assistance PEN Philippine Ecological Sanitation Network PPP public-private partnership PWRF Philippine Water Revolving Fund SpTP septage treatment plant STP sewage treatment plant TWG technical working group USAID United States Agency for International Development WD water district WQMA Water Quality Management Area WQMF Water Quality Management Fund


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Executive Summary This Full Report of the National Sewerage and Septage Management Program (NSSMP) was prepared by the Department of Public Works and Highways (DPWH), in coordination with other government agencies, as required by the Clean Water Act (CWA). It is a more detailed version of the NSSMP Main Report and contains an annex summarizing how the estimates and targets were computed. The intended users of this Full Report are national government agencies, academe and donor agencies, while the intended users of the Main Report are local implementers such as local government units (LGUs), water districts and private service providers. The NSSMP is part of the National Sustainable Sanitation Plan (NSSP) and Philippine Sustainable Sanitation Roadmap (PSSR), which are broader, overarching frameworks that include the full spectrum of sanitation challenges. The primary focus of the NSSMP is sewerage and septage management infrastructure projects and the promotions and supporting environment needed to make them successful. The Philippines has invested very little in proper sewage collection and treatment. More than 20 million Filipinos do not have access to improved sanitation; many who have toilets do not have septic tanks; many septic tanks have open bottoms; and most septic tanks are not regularly desludged. Moreover, when septage is removed from septic tanks it is often not properly treated. Outside Metro Manila, sewerage systems are limited to very small systems in a handful of cities. The effects of this neglect include economic losses exceeding P78 billion per year, 55 deaths per day, and damage to ecosystems and biodiversity. Constraints to the development of sewage collection and treatment systems include a low level of awareness and demand from the public, low technical capacity to develop infrastructure, lack of enforcement of regulations, limited resources of the water districts and local government units and no national program or budget. There is a strong need for a national program that includes initiatives to address these constraints. The goal of the NSSMP is to improve water quality and protect public health in urban areas of the Philippines by 2020. The objective is to enhance the ability of local implementers to build and operate wastewater treatment systems for urban centers and promote the behavior change and supporting environment needed for systems to be effective and sustainable. The main strategy is to facilitate a bottom-up, demand-driven project development process by providing national government support and financial incentives. DPWH and Department of Health (DOH) will lead a nationwide training and promotions campaign using the toolkits contained in the NSSMP Guide for Local Implementers (Annex A of the NSSMP), and DPWH will create an information office. Capital costs for the NSSMP are estimated at P26.3 billion: P12.3 billion for septage management programs and P14 billion for 17 sewerage projects. Given the magnitude of these costs, it is not realistic to expect that LGU resources alone will be sufficient to fully fund sewerage infrastructure. Therefore, water districts will be expected to share in the costs, and the national government will provide 40% cost share for the 17 sewerage projects through DPWH’s annual general appropriations budget. This cost sharing will be in place for a limited period of ten years to encourage investments in a timely manner and will be consistent with the current national government cost sharing policy for solid waste management projects. Of the total


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infrastructure costs of P26.3 billion to meet the NSSMP targets, the national government’s cost share is estimated to total P5.6 billion for sewerage projects. The Department of Environment and Natural Resources (DENR) will take enforcement action against LGUs and water districts that do not develop septage management and sewerage projects as mandated by the Clean Water Act. DENR will support project development through the creation of the National Water Quality Management Fund (NWQMF). DENR regional offices will continue to lead the establishment of Water Quality Management Areas (WQMAs) and Area Water Quality Management Funds (AWQMFs) to support local project development. Local implementers will use the NSSMP Guide to develop infrastructure and services supported by effective policies, enforcement, promotion campaigns, and user fees. Implementation will begin with the creation of the NSSMP Office in DPWH and development of an operations manual. The National Economic and Development of Authority (NEDA) Infrastructure Committee (INFRACOM) Subcommittee on Water Resources will be convened as the NSSMP Committee to monitor the program. A three-part nationwide training and promotion campaign will be conducted, followed by development of projects by local implementers. The NSSMP Office will gather data on the number of projects developed, approximate number of people benefiting from the projects, amount of money spent nationwide, and approximate amount of pollution diverted from the environment. The Office may use the DOH, DILG or LGU scorecards to monitor septage management and sewerage activities at the LGU level. The Office will report this information to the NSSMP Committee annually starting in 2011. Success will be measured against the following targets for areas outside of Metro Manila (Metro Manila targets are listed in section 2.3.1): Target 1: By 2020, all LGUs have developed septage management systems and the 17 highly

urbanized cities (HUCs) have developed sewerage systems. Target 2: By 2020, approximately 43.6 million people have access to septage treatment

facilities and about 3.2 million will have access to sewage treatment facilities. Target 3: By 2020, P26.3 billion has been invested in sanitation improvement projects. Target 4: By 2020, about 346 million kilograms of BOD will be diverted from the environment

per year as a result of the sewerage and septage management projects. Achievement of these targets is dependent upon the provision of technical assistance for the nationwide training program and promotions campaign, incentives such as funding for feasibility studies and national government cost share for infrastructure (through DPWH up to 40% for sewerage projects), and effective use of the procedures and toolkits described in the Guide for Local Implementers (Annex A of the NSSMP). Toolkits and guidance for septage management project development is also contained in the in the Business Model for a Water District Septage Management Program published by the United States Agency for International Development (USAID) Philippine Water Revolving Fund Support Program.


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1 Introduction Improper management of sewage is a critical issue for most developing countries because of its impact on economic growth, the environment and public health. According to a recent study of four countries in Southeast Asia, inadequate sanitation costs these countries an estimated $9 billion each year and causes more than 50,000 deaths annually1. This study estimated annual economic losses for the Philippines at more than $1.6 billion, and deaths at more than 55 per year. The Philippine Clean Water Act (CWA) was passed in 2004 to address the need for improvement management of domestic wastewater. It requires the water districts and/or concessionaires in Metro Manila and other highly urbanized cities (HUCs), in coordination with LGUs, to connect existing sewage lines to available sewerage systems. In areas not considered as HUCs, DPWH in coordination with the DENR, DOH and other concerned agencies, shall employ septage or combined sewerage-septage management systems. Any person who commits any of the prohibited acts or violates any of the provisions of the CWA or its implementing rules and regulations, shall be fined by the Secretary of DENR between P10,000 and P200,000 for every day of violation. The CWA requires DPWH to lead the preparation of a National Sewerage and Septage Management Program (NSSMP) as part of the integrated framework for water quality management. This Full Report of the National Sewerage and Septage Management Program (NSSMP) was prepared by the Department of Public Works and Highways (DPWH), in coordination with other government agencies, as required by the Clean Water Act (CWA). It is a more detailed version of the NSSMP Main Report and contains an annex summarizing how the estimates and targets were computed. The intended audience of this Full Report is national government agencies, academe and donor agencies, while the intended audience of the NSSMP is local implementers such as LGUs, water districts and private service providers. The NSSMP Main Report contains two annexes: Annex A is the Guide to Local Implementers and Annex B is a listing of technology options for septage management and sewerage projects. The NSSMP is part of the National Sustainable Sanitation Plan (NSSP) and Philippine Sustainable Sanitation Roadmap (PSSR)2, which are broader, overarching frameworks that include the full spectrum of sanitation challenges such as ending open defecation and treating sewage from markets, agriculture, industry and other point sources and non-point sources of water pollution. While the NSSMP identifies six intervention areas to address all of these sources, its focus is the larger infrastructure projects that local implementers (mainly LGUs, water districts and private service providers/utilities) will develop to collect and treat wastewater from densely populated urban centers. The CWA mandated DPWH to lead preparation of the NSSMP within 12 months from the date the law took effect. DPWH created an interagency steering committee (ISC) and convened a technical working group (TWG) to prepare the NSSMP, facilitated by a consultant team

1 Hutton, G., UE Rodriguez, L. Napitupulu, P. Thang, P. Kov. “Economic Impacts of Sanitation in Southeast Asia: Summary Report.” World Bank Water and Sanitation Program, 2008. 2 The NSSP is being developed by DOH. The PSSR was drafted in cooperation with the Department of Health with support from the World Health Organization. As of May 2010 it was being finalized after initial approval by the National Economic Development Authority Infrastructure Committee’s Subcommittee on Water Resources.


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provided by a grant from the World Bank and Asian Development Bank. The TWG included representatives from the Department of Environment and Natural Resources (DENR), DOH, Department of the Interior and Local Government (DILG), Local Water Utilities Administration (LWUA), Metropolitan Waterworks and Sewerage System (MWSS) and National Economic Development Authority (NEDA). The NSSMP implementation plan includes training, promotions and funding from the national government. The Guide for Local Implementers (Annex A of the NSSMP) includes a planning process and toolkits to develop a local sanitation plan with short and long term strategies; and combine technology options with promotion campaigns, financing and local ordinances to ensure that wastewater management systems are sustainable over the long term. The toolkits and examples are included in the accompanying CD. A copy of the NSSMP Main Report is available upon request from the DPWH Central Labor Based Comprehensive Agrarian Reform (CLB/CARP) Program Office, tel. (02) 435-1839.

2 Current Situation and Needs The Philippines is a country of 88 million people, of which 61% or 54 million people live in urban settings3. The greatest concentration of population in the Philippines is in the Metro Manila area, which is composed of one municipality and 16 highly urbanized cities (HUCs), or population centers of more than 200,000 people. Of the 11.6 million4 people in the Metro Manila area, only about 15% have access to fully piped sewerage; the remainder relies on septic tanks or pit latrines or practices open defecation5. Many of the septic tanks are generally of poor construction with open bottoms, infrequently or never desludged, and designed to discharge poorly treated and pathogen-laden effluent to groundwater, combined sewers or surface waters. Additionally, many informal settlements exist along waterways where there are no sanitary facilities at all, and open defecation is practiced widely. While the two water utilities are increasing their provision of septage management services and constructing combined sewer interceptor systems, unserved populations are still contributing many tons of pollution and pathogens to the surface and ground waters every day, which either directly or indirectly finds its way to drinking water aquifers, Manila Bay or Laguna Lake. While this is indeed the grim reality of domestic wastewater practices in Manila, the problem is even worse outside of this metropolitan area. In other cities, urbanizing areas and rural settings, there is virtually no infrastructure for appropriate wastewater treatment and disposal. The Philippines has invested very little in proper sewage collection and treatment. More than 20 million Filipinos6 do not have access to improved sanitation; many who have toilets do not have septic tanks; many septic tanks have open bottoms; and most septic tanks are not regularly desludged. Moreover, when septage is removed from septic tanks it is often not properly treated. Outside Metro Manila, sewerage systems are limited to very small systems in a handful of cities. The effects of this neglect include economic losses exceeding P78 billion per year, 55 deaths per

3 World Health Organization and United Nations Children’s Fund Joint Monitoring Programme for Water Supply and Sanitation (JMP). Progress on Drinking Water and Sanitation: Special Focus on Sanitation. UNICEF, New York and WHO, Geneva, 2008, (hereinafter WHO/UNICEF JMP, 2008). 4 National Statistical Coordination Board, 2007 5 Metropolitan Waterworks and Sewerage System. Water Supply, Sewerage and Sanitation Master Plan for Metro Manila: Final Report. World Bank International Bank for Reconstruction and Development Grant No. TF053321, November 2005. 6 WHO/UNICEF JMP, 2008


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Lack of a national program for promoting proper sanitation and wastewater management is perhaps the

biggest impediment to wide-scale sanitation improvement in the Philippines today. This limits the likelihood of meeting the Millennium Development

Goal targets.

day, and damage to ecosystems and biodiversity7. Constraints to the development of sewage collection and treatment systems include a low level of awareness and demand from the public, low technical capacity to develop infrastructure, lack of enforcement of regulations and no national program or budget. There is a strong need for a national program that includes initiatives to address these constraints. The problem is compounded by sources of wastewater other than domestic sewage, including commercial, agricultural and industrial discharges in every socioeconomic sector of Philippine society. Hog farms, for example, are major contributors of pollution and pathogens to the environment in rural and urbanizing areas throughout the country, as this waste is either directly discharged untreated or only partially treated through unlined lagoon systems. The majority of hospitals, resorts, institutions and businesses discharge wastewater using methods that would be considered grossly inadequate by international standards. As precious groundwater resources are degraded, the reliance on pollution-laden surface waters increases, requiring higher levels of treatment and cost for producing potable water. Most LGUs also need to improve their drainage systems as a precursor to developing sewerage systems. In recent years, mainly through the efforts of international donor agencies, there has been some movement to implement appropriate models of sustainable sanitation for both septage management and sewerage. Some examples of these projects include wastewater treatment systems for hospitals and public markets, biodigesters for hog farms, and even comprehensive septage treatment systems supported by local ordinances. While these efforts provide good examples of best practices and appropriate technology, wide-scale replication has yet to occur.

2.1 Obstacles to Implementing Sewerage and Septage Management Programs

2.1.1 National Challenges

Cost, lack of space, flooding, poor soil, and lack of political will have all been identified as problems in implementing appropriate sewerage and septage management. However, the poor state of sanitation in the Philippines today is mainly caused by a lack of awareness about the benefits of wastewater treatment on health, wellbeing, livelihoods and the environment. Thus, the lack of an effective national program to promote proper sanitation and wastewater management, starting with basic education, is perhaps the biggest impediment to wide-scale sanitation improvement in the Philippines today. Sanitation programs are expensive. While many sanitation initiatives can be funded in full or in part through user fees, connection charges, and the sale of wastewater residuals (fertilizer, treated effluent and biogas), the initial capital needed to build infrastructure is often beyond a local government’s ability to borrow. While there are some financial mechanisms that local governments can tap into to provide some of the funding for projects, wide-scale implementation

7 Rodriguez, UE, N. Jamora, and G. Hutton. “Economic Impacts of Sanitation in the Philippines: Summary.” World Bank Water and Sanitation Program, 2008.


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The NSSMP aims to enable LGUs to plan for sewerage and septage

treatment through a process similar to what they use for planning other

infrastructure projects, such as roads and bridges.

of sanitation systems in the Philippines cannot happen without national government investments in the sanitation sector. Such national funds, either through direct grants, matching grants, loan guarantees or other funding mechanisms that provide money directly for feasibility studies or the procurement of civil works and infrastructure is required to alleviate this shortfall. Lack of capacity for planning and developing modern sanitation systems, in both the private and public sectors, is another limiting factor. Improving and strengthening educational opportunities in sanitary engineering in college curricula throughout the country will help develop a trained and skilled workforce that will provide knowledge of modern sanitation to both local government and the private sector. Many college programs in the Philippines currently have strong civil engineering curricula, but lack modern sanitary engineering courses. One way to fill this gap would be to develop a standardized sanitary engineering curriculum that can be widely adapted to existing engineering programs throughout the country.

2.1.2 Local Challenges

In addition to the lack of education, program finance, and capacity to plan and construct sewerage and septage projects at the national level, cities of different sizes face additional sector challenges specific to their localities. Urban Areas Urban areas in the Philippines face special challenges when developing wastewater infrastructure. In cities, buildings utilize septic tanks for primary treatment with effluent directed either to the groundwater through leaching chambers, or to surface or storm drains, which discharge to rivers, lakes or bays, transferring the pollution burden to a larger scale. This situation leads to several challenges to be considered when designing appropriate wastewater treatment solutions for urban settings:

Septic tanks. Septic tanks in the Philippines are generally inadequately sized, installed

and operated. The majority of septic tanks installed before 2000 have open bottoms. Many are located underneath homes or are otherwise difficult to access. Retrofitting old septic tanks is therefore a very difficult task that can typically only be accomplished during times of major building renovations;

Septage management. In most areas including Metro Manila, septic tanks are desludged reactively, or when tanks overflow, instead of proactively on a scheduled basis. This results in most tanks being full of sludge, a condition that prohibits proper operation. Recently several communities have begun implementing programs that provide routine and scheduled septage pumping, but most municipalities and cities are slow to adopt similar programs. Sewerage systems that rely upon septic tanks for primary treatment cannot be expected to function if septic tanks are not properly maintained;

Redevelopment challenges. In many areas, the real answer to appropriate wastewater treatment systems is to dig up roads and install modern sewerage systems, which may include interceptor pipes and treatment works. Major disruptions to cities for extended periods of time are politically unpopular, and therefore very difficult to accomplish;


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Space for wastewater treatment systems. In urban settings, there is very limited space for wastewater treatment works, which by their nature, should be located well away from population centers. Tracts of land that may be available are often located in flood-prone areas, or are being used as informal settlements, which would need to be relocated. Relocating informal settlers is another activity that requires strong political will. Other available tracts of land in the city are mostly small and expensive;

Lack of commercial pre-treatment programs. Pre-treatment is the process of reducing excessive pollutants from commercial wastewater discharges so that it becomes similar in strength and quality to domestic wastewater. A good example is a grease trap for a commercial kitchen. Grease, when not removed from the wastewater stream, will clog pipes, add organic matter to the sewage, increase operation and maintenance costs, and reduce the efficiency of sewerage systems. Although required by the Plumbing Code of the Philippines, grease is not always removed before discharge into the publically-owned sewerage system. Similar problems can also exist for other commercial wastewater components including lint from laundries and hotels, metals from galvanizing and jewelry shops, and toxic chemicals from dry cleaners, printing and photography operations; and

Lack of enabling environments. While there are many rules and laws on the books for regulating wastewater discharge, enforcement at the local level is often weak. Communities that develop their own sanitation ordinance will find it easier to levy fees for sanitation services, enforce local building standards for septic tanks, and assess penalties for non-compliance.

Urbanizing Areas Urbanizing areas have many of the same challenges in developing appropriate wastewater infrastructure as do urban areas, but can take advantage of opportunities for appropriate planning. Urbanizing areas may plan for wastewater treatment and reuse similar to the process they use for planning other infrastructure projects, such as roads and bridges. Land may be set aside, sewerage routes designed, and sewerage infrastructure installed in coordination with other on-going community development projects, instead of after-the-fact, which always costs more. Additional opportunities may be achieved through scaling up or phasing infrastructure to coincide with community growth, and decentralizing, which develops infrastructure near the communities to be served. Decentralizing sewerage works improves the efficiency of systems that reuse effluent by making the treated water readily available to the communities that generated the waste in the first place. Rural Areas

Rural areas have their own set of issues when developing sanitation projects. These areas often suffer from lack of potable water; a need that is generally prioritized over sanitation. Additionally, electrification and drainage infrastructure is often lacking in rural areas, which impacts upon the type of sanitation systems developed. Land-intensive sewage treatment systems that do not require electricity, such as lagoons and constructed wetlands, may be appropriate for areas where energy sources are not adequate or reliable. Often, however, rural communities first need to meet more basic sanitation requirements, such as installing toilets in homes, controlling


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Dumaguete City and Water District Collaboration

The LGU and the water district have signed a memorandum of understanding to jointly develop

a septage management program. The LGU and WD will equally share the cost of constructing

the treatment facility. The LGU has passed a city ordinance and will manage the facility and

enforce compliance, while the WD will own and operate a fleet of vacuum trucks and perform

billing and collection. Revenues from the collection of fees will be shared evenly.

groundwater pollution from poorly designed latrines, or preventing open defecation. In these settings, programs such as Community Led Total Sanitation (CLTS) and ecological sanitation (ecosan)8 are highly relevant.

2.2 Sanitation and Sewerage Coverage

Sanitation and sewerage coverage is very low. About 33% of the population of the Philippines does not have sanitary toilets, and open defecation is widely practiced in both rural and urban areas. Some homes have toilets that empty into a pit rather than a septic tank. Many septic tanks are improperly designed with open bottoms, commonly referred to as a leaching septic tank, or the second chamber is called the leaching chamber. Most septic tanks are not regularly desludged and the septage removed is not treated and disposed of properly. About 85% of the people in Metro Manila use septic tanks; nationwide figures are not available. Less than 10% of the population has access to piped sewerage systems, meaning that raw sewage and the polluted effluent from septic tanks flows into groundwater, combined sewers and surface waters. Of the 11.6 million people in the Metro Manila area, only about 15% has access to full piped sewerage. This puts Metro Manila fourth to the last among cities in Asia, behind Dhaka and Phnom Penh, in terms of sewerage coverage9. The Manila Third Sewerage Project will construct interceptor systems that will provide about 68% of Metro Manila residents with access to improved sanitation by the year 2012. In other cities, urbanizing areas and rural settings, there is virtually no infrastructure for appropriate wastewater treatment and disposal.

2.3 Current Efforts and Best Practices

There have been efforts in recent years to promote improved sanitation, and best practices exist that can be built upon and replicated. The Philippine Ecological Sanitation Network (PEN), which includes government and nongovernmental organizations (NGOs), donors, international organizations and private concessionaires operating in Metro Manila, has organized two national sanitation summits and celebration of the UN International Year of Sanitation in 2008. Best practices include the MWSS privatization of water supply and sanitation services in Metro Manila: both concessionaires are offering scheduled septic tank desludging services, developing interceptor collection and treatment systems, and building small full piped sewerage systems. A successful partnership between Marikina City and Manila Water Company has substantially increased cooperation of customers with the septic tank desludging program. Dumaguete City passed a septage management ordinance in 2006, which was replicated by Marikina City and the Municipality of Alabel in Sarangani. Dumaguete City and the local water district have jointly financed a septage treatment facility that will begin treating septage in

8 Ecological sanitation is a process that uses human excreta and household wastewater as resources to be recovered, treated, and reused. Human waste (as well as sometimes animal waste, and organic kitchen waste) is processed to recover nutrients (usually for growing crops) that would otherwise be discarded. 9 World Bank. Philippines Environment Monitor 2003.


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2010, and the water district will collect fees added to the water bill. Alabel is currently operating an LGU-wide septage collection and treatment program. Zamboanga and Cagayan de Oro Cities are currently developing public-private partnerships for septage collection and treatment. Many other LGUs have developed local sanitation plans and promotion campaigns, and are requiring properly designed septic tanks for all new building permits. The USAID Philippine Water Revolving Fund Support Program published a Business Model for a Water District Septage Management Program in 2010. These models can be replicated in other areas throughout the country.

2.3.1 Septage Management and Sewerage Master Plan for Metro Manila

Metro Manila and other fringe areas covered by the MWSS concession are governed by a separate master plan for sanitation and sewerage. The Sewerage Master Plan (SMP) has a 20 year time horizon and develops targets for 2010, 2015, 2020 and 2025. Currently, the MWSS concession areas are managed by two concessionaires: Manila Water Company, Inc. (MWCI) for the East Zone and Maynilad Water Services, Inc. (MWSI) for the West Zone. The Final Report on Water Supply, Sewerage and Sanitation Master Plan for Metro Manila was completed in November 2005. The sanitation (septage management) and sewerage plans are included in Volume 4 (Sewerage and Sanitation Master Plan – Master Plan Strategy). Following are excerpts from that report. At present, targets for septage management and sewerage under this master plan are being reviewed by MWSS and its concessionaires, given the 15-year extension provided the concessionaires. Most of the targets in sanitation and sewerage are being updated and fast-tracked to achieve higher coverage in relatively shorter periods. The septage volumes to be collected and treated for MWCI and MWSI have different future trends. The septage management requirements for MWCI will increase while the requirements for MWSI will decrease from 2015 to 2020. MWCI will need a treatment plant capacity of 1,600 m3/day by 2025 while MWSI will need a treatment capacity of 1,573 m3/day by 2015. If the excess capacity of MWCI can be utilized by MWSI between the years 2010 to 2015, it would not be necessary for MWSI to construct new septage treatment plants (SpTP) by 2015. The proposed septage treatment capacities are shown in Table 1 below.


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Table 1. Combined MWCI and MWSI Septage Treatment Capacity

Note: Based on the 2003 rate rebasing and proposed Septic Tank Effluent Disposal system.

For the above scheme, the Dagat-dagatan SpTP should be expanded to an additional capacity of 1,000 m3/day by 2025. The proposed new plant in Parañaque or Las Piñas area would be constructed to a capacity of only 500 m3/day. The Parañaque or Las Piñas SpTP should be located in the reclaimed area along Manila Bay where the proposed sewage treatment plant (STP) for the sewerage system will be located. Several constraints and issues were identified for the existing sanitation conditions and facilities in the MWSS service area, and on the implementation of the sanitation programs. The following options/strategies were formulated to address these issues: Options/Strategies

Short Term 1. Increase accessibility of septic tanks (so they can be desludged) 2. Conduct a survey on the actual sizes of the septic tanks 3. Review septic tank designs 4. Reconsider resumption of sea disposal 5. Interim use of STPs for septage treatment Medium Term 1. Advocate/recommend, to DOH/DA/DENR, improved CWA Implementing Rules and

Regulations (IRR) 2. Establish long-term agreements for application of septage on lahar areas (land covered

with volcanic ash) Medium to Long Term 1. Construct additional SpTPs

Septage Treatment Capacity (m3/day) Location Year 2005 Year 2010 Year 2015 Year 2020 Year 2025

MWCI Excess/(Backlog) (1264) 495 (162) (867) (1582) Prop. Plant Capacity at Rizal

- - 800 800 1600

MWSI Excess/(Backlog) (1047) (1131) (1573) (1123) (1490) Prop. Plant Capacity at Dagat-dagatan and Paranaque

- 600 1000 1200 1500

Combined Total Excess/(Backlog)

(636) (1735) (1990) (3072)

Total Prop. Plant Capacity

600 1800 2000 3100


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Bases for Sewerage Planning The bases for the sewerage planning in the 2005 master plan were: Sewerage coverage required by the Concession Agreements until 2021 and rate re-basings

approved by the MWSS Regulatory Office; Preliminary engineering criteria as set by planning and design guidelines of MWSS and

standard practices; Sewage and commercial dirty water projections for each city/municipality, where contractual

sewerage coverage is specified; Identification of critical areas (i.e., pollution “hot spots”) not covered by the concessionaires’

contractual sewerage coverage that need to be urgently addressed between 2021 and 2025; and

Longer-term strategy for sewerage coverage beyond the Master Plan period of 2025. Catchment Areas Using the topographic map of Metro Manila covering the East and West Zone service areas of the MWSS, some 31 sewerage drainage catchments were delineated. The total area of the 31 catchments is 63,197 ha of which 13% is covered by existing systems. The total catchment area exceeds the Metro Manila (or National Capital Region) area by about 6%. Sewerage and Treatment Strategies The 2005 Sewerage Master Plan includes the following recommendations: New developments should utilize traditional gravity sewerage and treatment where possible; Keep the existing septic tanks (there are over 2 million) but remove and treat the septage

regularly and collect and treat the liquid overflow (effluent); Have decentralized sewage treatment plants that are also capable of receiving septage solids

as opposed to separate SpTPs; Use combined and small-bore sewerage in a decentralized approach in the MWSS service

area; and Move sewage from east to west, away from Laguna de Bay in continually more centralized

plants. Sewerage Methodologies The multi-criteria analysis yielded the following systems as preferred in the following order: 1. Combined Gravity Drainage (Storm water and dirty water) This system provides the lowest cost option with the least disruption to traffic. It is in essence what is being practiced presently in most urban areas: using the storm drains as sewers. Its chief disadvantages are the negative human health impact, particularly with children that often play in the drains, and the fact that the inclusion of storm water complicates the hydraulics at any


15

downstream treatment facility. Many LGUs also need to make repairs and improvements to their existing drainage systems before this type of system can be developed. The drains can be covered in some areas to minimize human exposure and excessive flows can be bypassed during storm events. Flows in excess of 1.5 times the average dry weather flow bypass the treatment plant. It is recommended that combined drainage be used where possible but gradually replaced with separate systems. Where needed, larger bore sewerage piping (trunk mains) may be needed to convey the combined storm flow/sewage to a treatment plant. 2. Small Bore Gravity Sewerage, with Septic Tank This system, referred to as Septic Tank Effluent Disposal (STED) involves directing the overflow from septic tanks through small bore pipes to a small bore sewerage reticulation system. The system requires training of subcontractors to lay the small bore, gravity pipes. Sewage pump stations are needed when the gravity gradients become too steep. Septic tanks would have to be regularly pumped out. A larger institutional involvement is also required to manage the sewers for clogs, but 2 million septic tanks would favor its application in Metro Manila. Some septic tanks will require replacement/repair over time. Where possible, larger-bore gravity sewerage should be utilized for new developments. Although the analysis made this the second preferred option, the STED system has more applicability for Metro Manila due to the large number of septic tanks. 3. Small Bore Gravity Sewerage, No Septic Tank This system (called “Condominial” and carrying only dirty water) has been used mostly in Brazil to deliver sewerage services to a large sector of the population, including middle and upper income levels. The system also requires training of subcontractors to lay the small bore, gravity pipes. Moreover, institutional involvement is substantial as clogging does occur. Dirty Water Treatment Strategies The multi-criteria analysis yielded the following treatment preferences as preferred in the following order: 1. Anaerobic [UASBR] – Aerobic [SBR] The Upflow Anaerobic Sludge Blanket Reactor, followed by a Sequencing Batch Reactor (aerobic) was the preferred option for biologically treating sewage. This process combination eliminates the need for primary sedimentation and a sludge digester, produces far less sludge, and produces biogas that can be used for the generation of electricity in excess of what is used for treatment. The SBR “polishes” the treated effluent to produce DENR Class C effluent.10 This process combination has been used successfully in Brazil and India and has a particular advantage in tropical environments. 10 50 mg/l BOD and total suspended solids (TSS)


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2. Aerobic [SBR] In some drainage catchments, particularly those with considerable dilution, the use of only an SBR may be the preferred treatment choice. This would comprise a centralized system well beyond the Master Plan horizon of 2025. For the 31 catchments, a total of 25 trunk systems are recommended. The trunk system will form the backbone of the sewerage for a catchment or a cluster of catchments with the flow leading westward to Manila Bay. The trunk sewer system will be schematized by a pipe node network, where a node covers a reticulation area (or sub-catchment) where sewage is collected and inputted to the node. The pipe connecting the nodes conveys the flow. It should be noted that a number of the proposed trunk systems cross the current East-West Zone concession boundary. The 2005-2025 Sewerage Master Plan was developed on the basis of moving towards this long-term strategy.

Implementation Schedule The implementation schedule for the Metro Manila Sewerage Master Plan to 2025 is presented in Figure 1 below. For each of the time horizons (2010, 2015, 2020 and 2025), a five-year implementation period is provided to enable the planned sewerage to be on-line at the end of the planning horizon. Construction of the reticulation systems is a continuous five-year activity for each planning horizon. As mentioned above, the current targets and timeline are being reviewed and updated by MWSS and its concessionaires.

Figure 1. Overall Implementation Schedule for the Metro Manila Sewerage Master Plan

2.4 Applicable Regulations and Role of Agencies

Relevant regulations for sewerage and septage management include: Code on Sanitation of the Philippines – Septic tanks must be water-tight, inspected once a

year, cleaned when the sludge has reduced the liquid capacity by 50%, and the sludge must be treated/disposed of properly. It is unlawful to discharge untreated effluent of septic tanks and/or sewage treatment plants to bodies of water without approval of the Secretary of Health.

Clean Water Act – Within five years, all buildings must be connected to existing sewerage systems in highly urbanized cities (HUCs). For non-HUCs, septage management systems shall be employed. LGUs are required to provide land for treatment facilities.


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Operations Manual on the Rules and Regulations Governing Domestic Sludge and Septage – All septage haulers and septage treatment entities must secure an Environmental Sanitation Clearance (ESC) from the Center for Health Development of the DOH. Proper collection, treatment and disposal of the septage are required.

Plumbing Code of the Philippines – It is unlawful for any person to deposit into any plumbing fixture connected to the excreta and storm drainage systems any oils, greases or other things which could cause damage to the drainage system or public sewer.

Presidential Decree 198 – A water district may require, construct, operate and furnish facilities and services, within or without the district, for the collection, treatment and disposal of sewerage, waste, and storm water. The water district may require all buildings used by human beings to be connected to the sewer system within such reasonable time as may be prescribed by the district. Failure to connect can be a ground for the water district to deny water services to the non-complying building. A water district may prescribe and collect rates and other charges for sewer services furnished.

Local Government Code – Barangays are primarily responsible for general hygiene and sanitation services. Provinces, municipalities and cities are responsible for building drainage and sewerage infrastructure. LGUs may impose a special levy on the lands within their jurisdiction specially benefited by public works projects or improvements funded by the local government unit concerned. However, the special levy shall not exceed 60% of the actual cost of such projects and improvements.

The CWA mandated DPWH to lead preparation of the NSSMP within twelve months from the date the law took effect. From an institutional perspective, the difficult challenge of DPWH was to convene concerned agencies to put together a program that was not very clearly defined. Preparing the NSSMP requires long-term commitment among the agencies, all of which are independent of DPWH, and only two of which were identified in the law (DENR and LGUs). The Implementing Rules and Regulations of the CWA (CWA-IRR) identified some of the critical agencies and their potential contributions in the preparation of the Program, shown in Table 2 below. Table 2. Role of Concerned Agencies in NSSMP under CWA-IRR (Rule 7)

Agency Role under CWA-IRR DENR Provide environmental criteria and data for prioritizing

sanitation, sewerage, septage management and combinations of different systems and projects;

Present to LGUs, water concessionaires and water districts sustainable options and low-cost innovative means of managing sewage and septage;

Provide exemption from wastewater charges for pilot EcoSan programs of LGUs;

Enforce CWA regulations DOH Provide specific health criteria and data LWUA Provide guidance to water districts;

Submit proposals for projects to DPWH


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Agency Role under CWA-IRR MWSS Guide water concessionaires Department of Education, Commission on Higher Education (CHEd), Philippine Information Agency (PIA)

Develop and implement IEC program

LGUs Submit listing of priority projects to DPWH, based on a realistic assessment of their resources and contributions

The provisions of the CWA-IRR are merely suggestive and are drawn from the mandates of the concerned agencies under different laws, summarized in Table 3 below. These laws also identify the broader roles of the agencies in addressing sanitation and wastewater management. Their participation in the program is intended to bring together the separate sector/agency programs into a common framework, the NSSMP. Table 3. Concerned Agencies and their Mandates Related to Sewerage and Septage Agency Related Mandate/Responsibility Legal Basis DPWH Mandated to prepare a National Sewerage and Septage Management

Program (NSSMP), which shall be a framework plan formulated to address issues on sanitation and treatment and disposal of wastewater

To employ septage or combined sewerage-septage management systems in non-HUCs

Coordinates with water districts (WDs) and concessionaires in the preparation of a compliance plan for mandatory connection of establishments and households to the existing sewerage system

Mandated to ensure that the planning, design, construction and maintenance of infrastructure facilities such as national highways, flood control and water resource development systems are in accordance with the highest level of safety and efficiency and with the overall national development objectives

Exercises administrative supervision MWSS Through MWSS, and other urban water utilities, provides sewerage and

sanitation facilities and the efficient and safe treatment and disposal of sewage within their area of jurisdiction

RA 9275 – Clean Water Act (CWA) and its IRR; EO 387 (2004), amending EO 279 and EO 124

DENR Coordinates with DPWH in the preparation of the NSSMP by contributing specific environmental criteria and data for the prioritization of sanitation, sewerage, septage management and combinations of different systems and projects.

Enforces the CWA requirement for national implementation of septage management

Presents to LGUs, water concessionaires, WDs and other water service providers sustainable options such as community-based natural treatment systems, ecological sanitation concepts, water recycling and conservation systems and other low-cost innovative management solutions

Regulates effluent quality

CWA; EO 192

DOH Responsible for promoting safe water supplies and exercising PD 856 -


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Agency Related Mandate/Responsibility Legal Basis surveillance of water quality. Its major functions include the development and implementation of sanitation programs nationwide, and administration of a health education program.

To formulate guidelines and standards for the collection, treatment and disposal of sewage including guidelines for the establishment and operation of centralized sewage treatment system

Issue Environmental Sanitation Clearances for septage collection and treatment services (detailed in the Operations Manual on the Rules and Regulations Governing Domestic Sludge and Septage).

Approval of DOH is required for the following: (1) Construction of any approved type of toilet, including temporary toilets, for every house, including community toilets which may be allowed for a group of small houses; (2) Plans of individual sewage disposal systems and the sub-surface absorption system, or other treatment device; (3) Location of any toilet or sewage disposal system in relation to a source of water supply; (4) Plans, design, data and specifications of a new and existing sewerage system or sewage treatment plant; (5) The discharge of untreated effluent of septic tanks and/or sewage treatment plants to bodies of water; (6) Manufacture of septic tanks; and (7) Method of disposal of sludge from septic tanks or other treatment plants. In the preparation of the NSSMP, DOH shall provide specific health criteria and data.

Sanitation Code; CWA

DILG Its role in water supply and sanitation (WSS) lies in the Water Supply and Sanitation-Program Management Office (WSS-PMO), which provides capacity building support to local government units (LGUs) in their performance of water services provision.

Establish a system of coordination and cooperation among the citizenry, local executives and DILG, to ensure effective and efficient delivery of basic services to the public.

LGUs Appropriates land, including rights-of-way/road access to the land, for the construction of sewage and/or septage treatment facilities

Raises funds to subsidize expenses for the operation and maintenance of sewerage treatment or septage facility servicing the area

Identifies projects for inclusion in the NSSMP Drainage: for all cities and municipalities to provide and maintain in a

sanitary state and in good repair a satisfactory system of drainage in all inhabited areas where wastewater from buildings and premises could empty without causing nuisance to the community and danger to public health. Buildings or premises producing wastewater shall be connected to the municipal drainage system in all areas where it exists.

Basic services and facilities: (1) For a barangay: (iii) Services and facilities related to general hygiene and sanitation, beautification, and solid waste collection; (2) For a municipality: (vi). …services and facilities related to general hygiene and sanitation;… (viii). Infrastructure facilities intended primarily to service the needs of the residents of the municipality and which are

CWA; Sanitation Code; RA 7160 -Local Government Code; NEDA Board Resolution No. 5, s. 1994


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Agency Related Mandate/Responsibility Legal Basis funded out of municipal funds, including, but not limited to, …drainage, and sewerage and flood control;… (3) For a province: (vii). Infrastructure facilities intended to service the needs of the residents of the province and which are funded out of provincial funds including, but not limited to … drainage and sewerage, flood control (4) For a city: All the services and facilities of the municipality and province Primary implementers of the sanitation/sewerage programs with the

national government providing assistance to develop their capacities Responsible for planning and implementation of WSS programs,

preparation of WSS master plans, monitoring of local water supply and sanitation coverage and updating sector profile.

MWSS To provide water supply, sewerage and sanitation services, through Manila Water and Maynilad, in Metro Manila

To fix water rates and sewerage service fees Responsible for the planning, design, construction, operation and

maintenance of water supply and sewerage disposal systems within its jurisdiction

To connect existing sewage lines to available sewerage systems within 5 years from start of CWA

RA 6324 (1971); CWA

Water Districts

To provide, maintain and operate water collection, treatment and disposal facilities;

A district may require, construct, operate and furnish facilities and services, within or without the district, for the collection, treatment and disposal of sewage, waste and storm water.

Upon providing a sewer system in any area of the district, the district may require all buildings used by human beings to be connected to the sewer system within such reasonable time as maybe prescribed by the district, provided that the property upon which such building to be connected stands is located within 35 meters of an existing main of the district's sewer system.

Refusal to so connect with the district's sewer system, the district may declare the further maintenance or use of cesspools, septic tanks, or other local means of sewerage disposal in such area to be a public nuisance and, after notice and writing of at least 10 days, deprive said property owner of any and all services provided by the district.

A district may prescribe and collect rates and other charges for sewer services furnished.

A district may also fix, levy and collect a sewerage and wastewater service stand-by or availability charge in the event sewer service is available and no connection is made.

In HUCs, to connect existing sewage lines to available sewerage systems within 5 years from effectivity of the CWA.

PD 198 - Provincial Water Utilities Act (1973); CWA

Local Water Utilities Administr

Funds from prior and future appropriations of the national government for waterworks and sewerage systems in LGUs that are covered by duly formed WDs shall be released to the LWUA for the account of the WDs.

PD 198; NEDA Board Resolution No. 5 (1994)


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Agency Related Mandate/Responsibility Legal Basis ation (LWUA)

Central Sanitation/Sewerage Program Support Office (CPSO) created to coordinate subsector activities at the national level and to assist LGUs to plan and manage sanitation/sewerage programs at the community level shall be established.

CPSO is created and housed at LWUA with the LWUA Board exercising over-all jurisdiction over its operation.

An Inter-departmental Advisory Committee (IAC) composed of representatives from DPWH, DOH, DILG, Department of Finance (DOF), Department of Budget and Management (DBM), LWUA, DENR, MWSS and NEDA was created and acts as the coordination body in the implementation and monitoring of urban sewerage and sanitation programs particularly the five pilot areas (Davao City, Calamba, Dagupan City, Roxas City and Cotabato City).

The CPSO shall exist for a period of about three to five years or until its functions have been fully devolved to the LGUs.

MMDA Metro-wide services under the jurisdiction of the MMDA are those services which have metro-wide impact and transcend legal, political boundaries or entail huge expenditures such that it would not be viable for said services to be provided by the individual LGUs comprising Metropolitan Manila. These services include: Flood control and sewerage management, which includes the formulation and implementation of policies, standards, programs and projects for an integrated flood control, drainage and sewerage system.

RA 7924 – MMDA mandate

NWRB Regulation and monitoring of water utilities; Regulation of water service providers; tariff regulation coverage; and

service and management of the sector database.

PD 424 (1974)

National Anti-Poverty Commission-Water and Sanitation Coordinating Office

Enhance the programs, approaches and strategies to strengthen the partnership between government and the basic sectors (including sanitation).

To act as the “coordinating and advisory body” that exercises oversight functions in the implementation of the Social Reform Agenda and ensures that is incorporated into the formulation of national, regional, sub-regional and local development plans.

To operate on the principle and strategy of institutionalizing the basic sectors and NGO participation in the Social Reform Agenda management cycle.

Coordinates the implementation of the President’s Priority Program for Water (P3W): serves as the main vehicle to implement the water and sanitation agenda of the President; tasked to coordinate all water and sanitation-related programs in relation to the implementation of the P3W

NEDA Coordinate the preparation of national development plans and investments, formulation of sector policies and strategies and monitoring the implementation of policies, programs and projects.


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The NSSMP targets LGUs, water districts and private service providers as the major program

implementers. They have the mandate to address sewage and septage, and the greatest

ability to design, implement and manage projects.

3 Goal, Objectives and Scope According to Rule 7 of the Clean Water Act Implementing Rules and Regulations, the NSSMP shall be a framework plan which will be formulated to address various national issues on sanitation and treatment and disposal of wastewater, focusing on, among others, objectives, strategies, targets, institutional mechanism, financing mechanism, technology implementation, programming, monitoring and evaluation and other key national concerns. The program shall also include guidelines on sludge management for companies engaged in desludging operations. The NSSMP provides guidance and incentives (funding options) that should be attractive to project proponents, and a mechanism to monitor and evaluate progress.

More specifically, the NSSMP goal and objective are:

Goal: To improve water quality and public health in the Philippines by 2020.

Objective: Enhance the ability of local implementers to build and operate wastewater treatment systems and promote the behavior change and supporting environment needed for systems to be effective and sustainable.

Scope of the NSSMP

While the focus of the NSSMP is on septage management and sewerage, other sanitation and wastewater issues commonly faced by local governments are also presented so that LGUs can comprehensively address the complex reality that they face. Using the recommended planning process presented in Section 8, local governments determine their priority sanitation issues and develop local sanitation plans that fit sewerage and septage management into the larger context. This context includes the following six intervention areas: Septage management (collection, treatment and reuse of biosolids); Sewerage systems (interceptors, piped sewerage and centralized treatment plants); Ecological sanitation (dry sanitation or urine diversion dry toilet [UDDT], arbor loo, excreta

reuse); Toilets (public toilets, programs to reduce open defecation); Systems for point sources (factories, markets, high rise buildings, schools, slaughterhouses);

and Systems for non-point sources (open bottom septic tanks, backyard hog farms). The NSSMP will contribute to the Sanitation Sector Roadmap, which will include programs for the four intervention areas not covered by the NSSMP. The NSSMP targets local implementers—LGUs, water districts, and private service providers — to develop on-the-ground projects and programs. They have the mandate to address sewage and septage, and the greatest ability to design, implement and manage projects. Water districts and private utilities may be able to make use of the recommended planning process, but will be focused mainly on septage management and sewerage, rather than all the intervention areas. In areas where Water Quality Management Areas (WQMAs) have been established, local implementers can develop their


23

programs within the WQMA plan and also request funding from the WQM Fund. In most areas where water districts exist, it will be advantageous for the LGU and the water district to work in partnership, as has happened in Marikina City and Dumaguete City. In some cases, DENR, DOH and DPWH may take the lead in addressing regional septage management and sewerage programs that are deemed to have regional, provincial or even national significance. Options for LGU-water district-private sector partnerships should also be explored.

4 Targets Following the Clean Water Act mandates, the NSSMP targets for areas outside Metro Manila are: Target 1: By 2020, all LGUs have developed septage management systems and the 17 highly

urbanized cities (HUCs) have developed sewerage systems. Target 2: By 2020, approximately 43.6 million people have access to septage treatment

facilities and about 3.2 million will have access to sewage treatment facilities. Target 3: By 2020, P26.3 billion has been invested in sanitation improvement projects. Target 4: By 2020, about 346 million kilograms of BOD is diverted from the environment per

year as a result of the sewerage and septage management projects. For Metro Manila, please see section 3.4.1. These targets will only be achieved if the following occur: The NSSMP is disseminated nationwide through an effective training program and

promotion campaign; Technical assistance is available for local implementers through funders and government

agencies; Adequate incentives are available, such as funding for feasibility studies, and partial grant

funding for infrastructure from the national government (DPWH and DOH); Local implementers use an effective planning process, promotion campaign and supporting

environment (finance, policies, enforcement); and There is serious enforcement of the Clean Water Act. The targets are rough estimates based on calculations and assumptions detailed in the Annex. They only include projects and activities outside Metro Manila since Metro Manila’s needs are already covered by the existing privatization agreement between MWSS and the 2 concessionaires (Maynilad and Manila Water).

5 Strategy The main strategy to achieve the goal, objective and targets listed above is to facilitate a bottom-up, demand-driven project development process by providing national government capacity


24

building support and financial incentives, coupled with a sustained, effective promotion campaign.

5.1 National Component

Implementation will start at the national level and then move down to the local level. However, current project development efforts at the local level will continue. The NSSMP Committee will be convened and NSSMP Office will be designated within DPWH. An NSSMP operations manual will be developed that details the roles of each national government agency and how LGUs can access the national government cost share through DPWH. DOH, DENR, DILG and LWUA will be oriented and trained on the implementation of the NSSP, PSSR, and the NSSMP. DPWH will be oriented and trained on the implementation of NSSMP, particularly on evaluating and implementing sewerage projects. DOH will take the lead in conducting training for LGUs to develop Local Sustainable Sanitation Plans as described in the NSSP. DOH and/or DPWH will lead the conduct a 3-part training on developing septage management projects and one on sewerage projects. A nationwide promotion campaign will be undertaken to encourage mayors and water district general managers to invest in these projects, and to increase the public’s demand for and willingness to pay for these services. DOH will incorporate the promotions campaign into its national sustainable sanitation promotions campaign. Consultants and a budget for the campaign will be needed. The 3-part septage management training will make use of the NSSMP Guide for Local Implementers and the DOH Operations Manual on the Rules and Regulations Governing Domestic Sludge and Septage to develop projects, a supporting environment (policies, user fees, etc.) and promotion campaigns. After the first session, the participants will conduct a rapid assessment and stakeholder workshop and develop a first draft of the septage management plan and local ordinance, which they will present during the second session. During and after the second session they will work on developing the financial, institutional and technical aspects of the project. During the third session they will present their progress to date and get assistance and advice on how to finish developing their project. The 3-part sewerage system training will make use of the NSSMP Guide for Local Implementers and will describe the process by which the LGUs can apply for the 40% national government cost share. After the first session, the participants will conduct a rapid assessment and stakeholder workshop and develop a first draft of the sewerage project plan and local ordinance, which they will present during the second session. This assessment should include plans to improve the drainage system if needed. During and after the second session they will work on developing the financial, institutional and technical aspects of the project. During the third session they will present their progress to date and get assistance and advice on how to finish developing their project. To allow for the 40% national government-local government cost share, the Department of Finance will amend the current policy on solid waste management to include the sewerage sector. This allows for up to 40% national government funding for 1st and 2nd class cities (see Table 2 for details). To apply for the national government cost share, LGUs will need to first secure financing for the local portion, which can include 50% from the water district and loans


25

from Municipal Development Fund Office (MDFO), government or private financing institutions. The LGU will then submit their project plan and proof of financing to DPHW, which will review it and rank it according to a simple ranking system (see the CD for a suggested Project Prioritization Tool). Once approved in principle by DPWH, the project will be included in the department’s annual budget request and go through the budget process for Congressional then President’s approval. When the budget is approved, it will be released to the LGU according to the implementation schedule approved by DPWH. The NSSMP Office will gather data on the four targets areas: number of projects developed, number of people benefiting from the projects, amount of money spent nationwide, and amount of pollution diverted from the environment. This data will be collected assistance from government agencies and donor-funded initiatives that are providing assistance to local implementers. The NSSMP Office will report this data to the NSSMP Committee every year starting in 2011. Success will be measured against the targets listed above.

5.2 Local Component

Following the training, local implementers will finish developing their projects using the NSSMP Guide for Local Implementers and contact the NSSMP Office if they have questions or need referrals for financing or technical assistance. Depending on how many projects are developed compared to the targets, the government may decide to repeat the training after two years, or after the next national election in 2016 when there will be a new set of mayors. DENR regional offices will lead the creation of WQMAs, which will develop action plans and a local WQMF to finance project development activities.

5.3 National/Local Coordination

Once positive results have been achieved in a handful of cities, best practices can be shared throughout the country by communicating information to the NSSMP Office and through presentations at workshops and conferences. Local lessons will essentially be rolled-up to the national level to affect future policy and planning in a positive way and allow the national platform to be used to constructively direct other local implementers facing similar challenges. The NSSMP Office can become a national clearinghouse for best practices in sewerage and septage management, matching LGUs and water districts facing similar challenges that can assist one another.

5.4 Sustainability

To increase the sustainability of the septage management and sewerage projects that will be developed, the projects should be developed in such a way that they provide the highest level of project quality possible given local constraints. Project quality can be improved if the following service standards are in place:

Design standards; Performance standards; and Customer service standards.

The Philippine Sustainable Sanitation Sector Roadmap includes plans to establish benchmark standards on LGU performance and practice; create a National Water and Sanitation Sector Monitoring and Assessment Program; create a National Sanitation Agency; amend the National


26

Sanitation Code to include a strong and effective regulatory framework for sanitation; and integrate water and sanitation oversight functions at the national and local levels. Since these recommendations will take many years to implement, the short-term strategy of the NSSMP is for local implementers to develop project-specific standards. The NSSMP Guide to Local Implementers (Annex A of the Main Report) provides guidance and references on appropriate service standards that can be built into projects to enhance sustainability. Additionally, the NSSMP prioritization toolkit used by the national government agencies to rank projects considers these standards and overall project sustainability in prioritization decisions.

6 Implementation Plan Implementation will start at the national level and then move down to the local level. However, current project development efforts at the local level will continue. The NSSMP Committee will be convened and NSSMP Office will be designated within DPWH. An NSSMP operations manual will be developed that details the roles of each national government agency and how LGUs can access the national government cost share through DPWH. DOH, DENR, DILG and LWUA will be oriented and trained on the implementation of the NSSP, PSSR, and the NSSMP. DPWH will be oriented and trained on the implementation of NSSMP, particularly on evaluating and implementing sewerage projects. DOH will take the lead in conducting training for LGUs to develop Local Sustainable Sanitation Plans as described in the NSSP. DOH and/or DPWH will lead the conduct a 3-part training on developing septage management projects and one on sewerage projects. A nationwide promotion campaign will be undertaken to encourage mayors and water district general managers to invest in these projects, and to increase the public’s demand for and willingness to pay for these services. DOH will incorporate the promotions campaign into its national sustainable sanitation promotions campaign. Consultants and a budget for the campaign will be needed. The 3-part septage management training will make use of the NSSMP Guide for Local Implementers and the DOH Operations Manual on the Rules and Regulations Governing Domestic Sludge and Septage to develop projects, a supporting environment (policies, user fees, etc.) and promotion campaigns. After the first session, the participants will conduct a rapid assessment and stakeholder workshop and develop a first draft of the septage management plan and local ordinance, which they will present during the second session. During and after the second session they will work on developing the financial, institutional and technical aspects of the project. During the third session they will present their progress to date and get assistance and advice on how to finish developing their project. The 3-part sewerage system training will make use of the NSSMP Guide for Local Implementers and will describe the process by which the LGUs can apply for the 40% national government cost share. They will basically follow a similar process as the 3-part septage management training mentioned above. Following the training, local implementers will finish developing their projects and contact the NSSMP Office if they have questions or need referrals for financing or


27

technical assistance. Depending on how many projects are developed compared to the targets, the government may decide to repeat the training after two years, or after the next national election in 2016 when there will be a new set of mayors. To allow for the 40% national government-local government cost share, the Department of Finance will amend the current policy on solid waste management to include the sewerage sector. This allows for up to 40% national government funding for 1st and 2nd class cities (see Table 12 for details). An NSSMP operations manual will be developed that details the roles of each national government agency and how LGUs can access the national government cost share through DPWH. To apply for the national government cost share, LGUs will need to first secure financing for the local portion, which can include 50% from the water district and loans from Municipal Development Fund Office (MDFO), government or private financing institutions. The LGU will then submit their project plan and proof of financing to DPHW, which will review it and rank it according to a simple ranking system (see the CD for a suggested Project Prioritization Tool). Once approved in principle by DPWH, the project will be included in the department’s annual budget request and go through the budget process for Congressional then President’s approval. When the budget is approved, it will be released to the LGU according to the implementation schedule approved by DPWH. The NSSMP Office will gather data on the four targets areas: number of projects developed, number of people benefiting from the projects, amount of money spent nationwide, and amount of pollution diverted from the environment. This data will be collected with assistance from government agencies and donor-funded initiatives that are supporting to local implementers. The NSSMP Office will report this data to the NSSMP Committee every year starting in 2011. Success will be measured against the targets listed above.

Breakdown of Targets 1 and 2

Short-term: 2010-2016, the following are expected to be achieved.

Target 1: Half of all cities will have septage management programs.

Long-term: 2016-2020, the following are expected to be achieved.

Target 1: By 2020, all LGUs have developed septage management programs and 17 HUCs have developed sewerage systems.

7 Institutional Framework

7.1 Organizational Structure

As mandated by the CWA, DPWH has led preparation of the NSSMP and will play a major role in overseeing its implementation. However, given the cross-cutting nature of the sanitation sector, the CWA Implementing Rules and Regulations (IRR) requires other national government agencies to play key roles, and local implementers to plan and develop interventions on the ground. The expanded role of these agencies required for NSSMP implementation is presented below in Table 4.


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Table 4. Expanded Role of Concerned Agencies in NSSMP

Agency Role under CWA-IRR Additional Role under the NSSMP DPWH Lead preparation of NSSMP Implementation: Host NSSMP Office;

review and prioritize proposed LGU infrastructure projects <P500M that can receive subsidy from GAA (under DPWH ceiling); build or contract out infrastructure for projects selected for General Appropriation Act (GAA) subsidy; alternatively, enter into MOA with LGU for LGU to implement project funded by DPWH budget; Monitoring and evaluation: NSSMP Office will collect information on progress toward achieving the targets and submit annual reports to NSSMP Committee.

DENR Provide environmental criteria and data for prioritizing sanitation, sewerage, septage management and combination of different systems and projects; Present to LGUs, water concessionaires and water districts sustainable options and low-cost innovative means of managing sewage and septage; Provide exemption from wastewater charges for pilot ecosan programs of LGUs

Policy: Contextualize NSSMP in overall framework for clean water; apply water quality standards; Implementation: Align collection and use of WQM Funds to partly support NSSMP (e.g., IEC, feasibility studies, inter-LGU cooperation in a WQMA to develop common projects); Monitoring and evaluation: Measure impact of projects on improving water quality; submit report to NSSMP Office.

DOH Provide specific health criteria and data

Implementation: Provide training and promotions campaign on the NSSMP; provide performance-based grants for LGU project preparation activities, and limited grants for LGU projects <P500M that can receive subsidy from GAA (under DOH ceiling); Monitoring and evaluation: Monitor impacts of projects on improving health; submit report to NSSMP Office.

DILG Policy: Consider NSSMP in reviewing performance of LGUs; link LGU performance to priority for subsidies from GAA; Implementation: General supervision and institution building support to LGUs,


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capacity building through the Local Government Academy, support promotion campaigns and incorporate in LGU trainings such as those provided to Rural/Barangay Waterworks and Sanitation Associations (RWSAs/BWSAs). Share the sanitation technology options kit developed by the Water Supply and Sanitation Program Management Office (WSSPMO). Encourage inter-LGU cooperation on developing common projects; Monitoring and evaluation: Monitor LGU investments in sewerage and septage management; submit report to NSSMP Office.

DOF Revenue generation, resource mobilization and fiscal management

Implementation: Oversee the performance of government financing institutions such as the Development Bank of the Philippines (DBP), Land Bank of the Philippines (LBP) and LWUA that provide funding for sewerage and septage projects.

DBM Formulation of the annual national budget

Implementation: Allocate in the annual national budget funding necessary to address the financial requirements under the NSSMP.

LWUA Provide guidance to water districts; Submit proposals for projects to DPWH

Policy: Provide incentives for water districts to work together with LGU counterparts to propose septage management and sewerage projects; Implementation: Provide funding for septage management and sewerage projects proposed by water districts through its loan window; Monitoring and evaluation: Report number of projects implemented by water districts to the NSSMP Office.

MWSS Guide water concessionaires Implementation: Within its jurisdiction, monitor implementation of concessionaire contracts and measure impact on improved community access to sewerage and septage facilities, and improved water quality of water bodies within concession areas. Monitoring and evaluation: Report number of projects implemented by concessionaries


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The roles and relationships of these agencies are shown in the following organizational chart (Figure 2).

to the NSSMP Office. Department of Education, CHEd, PIA

Develop and implement IEC program

Implementation: In coordination with the NSSMP Office, incorporate information and knowledge into school curricula and government information campaigns.

LGUs Submit listing of priority projects to DPWH, based on a realistic assessment of their resources and contributions

Policy: Develop local ordinances to support septage management and sewerage projects; Implementation: Prepare local sanitation plan, collaborate with water districts in the area to design sewerage/septage management projects, evaluate projects for consistency with NSSMP, and if so, apply for incentives under the program, through local focal points, coordinate with NSSMP Office for information on NSSMP incentives (financial, technical assistance, etc) and process of availing of incentives; Monitoring and evaluation: Report progress to the NSSMP Office.


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Figure 2. Organizational Chart for Implementing NSSMP

7.1.1 NSSMP Committee

An NSSMP Committee will be convened to coordinate implementation of the NSSMP at the national policy level. The Committee is an inter-agency body that will assist the DPWH in the review and future revision of the NSSMP. Each member agency brings its perspective and concerns regarding targets, incentives, project evaluation and contribution in providing national funding assistance to project proposals submitted by LGUs. Instead of creating a new body, the existing NEDA Infrastructure Committee’s Sub-committee on Water Resources can be designated as the NSSMP Committee tasked to consider sewerage and sanitation projects for inclusion in national infrastructure programming. The NEDA Infrastructure Committee was created to advise the President and NEDA Board on matters regarding infrastructure development including flood control and drainage, and water supply and sanitation. The Committee is co-chaired by NEDA and DPWH and coordinates the activities of all government agencies and GOCCs concerned with infrastructure development. The


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Committee has created a Sub-committee on Water Resources to coordinate “all activities related to the water resources sector, including, among others, water supply, sanitation and sewerage.” 11 The NEDA sub-committee (sub-com) can function as the NSSMP Committee for the following reasons: a) It is pre-existing, and performs the same task mandated under the CWA; b) It has all key agencies represented, meets regularly with NEDA secretariat support; c) Its members are sufficiently motivated to work together to push for priority projects because

of the direct link of the outputs to the budgetary process; d) The sub-committee is well-informed of other relevant issues (public health, water quality,

water supply, development planning) and has the expertise and authority to make appropriate decisions on prioritization of septage management and sewerage infrastructure projects for funding.

The Subcommittee has flexible membership and can contract or expand depending on the issue being considered. In relation to the NSSMP, the sub-com can convene annually acting as the NSSMP Committee to consider sewerage and sanitation projects for inclusion in the national infrastructure programming.12 The Subcommittee on Water Resources has jurisdiction over water supply, sanitation and sewerage. The Subcommittee on Water Resources has two functions: 1) acting as the NSSMP Committee, it will review and revise the NSSMP based on monitoring and evaluation results; 2) acting as the Subcommittee of the Infrastructure Committee, it shall review sewerage and septage project proposals costing at least P500 million, and recommend the priority projects for funding support by the national government, either through general appropriations, loans or grants. Any policy recommendation required to facilitate the implementation of the NSSMP should be elevated to the INFRACOM for policy guidance.

7.1.2 NSSMP Office

An NSSMP Office will be designated within DPWH that will function as the hub of all NSSMP-related matters and be a one-stop shop for information on the NSSMP. It will be the secretariat of the NSSMP Committee and gather monitoring data needed for NSSMP review. As a focal point for information, the NSSMP Office will:

Conduct information campaigns targeting local implementers (LGU or cluster of LGUs

within WQMAs, working with water districts in the area) using the NSSMP Guide for Local Implementers;

Collect information from donor agencies, development financing institutions, and private funders on available funding options, capacity-building opportunities or technical assistance relevant to sewerage and sanitation programs and refer project proponents to them; and

11 INFRACOM Resolution No. 2, Series of 2008. 12 Executive Order No. 230


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Collect information from the PEN which includes national government agencies (NGAs), NGOs and donors; research and training institutions; consulting groups; technology providers and others on available technologies, trainings or technical assistance and refer project proponents to them.

Collect information on progress towards the NSSMP targets from LGUs, water districts, WQMAs, and other members of the PEN and report these annually to the NSSMP Committee. The Office may also use the DOH, DILG or LGU scorecards to monitor septage management and sewerage activities at the LGU level.

The NSSMP Office will not act as a clearinghouse for screening projects for funding. A proactive NSSMP Office would establish close links with the member agencies of the NSSMP Committee especially in gathering information to monitor whether the program is on track in achieving its goals. The existing regulatory framework, rules and regulations will apply to the septage management and sewerage projects that will be developed. The NSSMP Office will not have any regulatory powers, such as setting standards for technical designs, approving tariff or user fee rates or monitoring the compliance of LGUs and water districts. All builders of infrastructure projects must obtain the necessary permits and clearances, including an Environmental Compliance Certificate from DENR. For septage and sewerage treatment facilities, a discharge permit from DENR or the Laguna Lake Development Authority (LLDA) is also required, as well as an Environmental Sanitation Clearance from DOH. LGUs obtain approval for user fees through the city or municipal council after public hearings are held. Water districts and other private water providers registered with NWRB are required to obtain clearance from LWUA (for water districts) or NWRB (for others) and conduct a public hearing before charging fees for water services. However, neither LWUA nor NWRB has created procedures for setting fees for sanitation services from these water providers. Therefore, a public hearing is recommended in lieu of these procedures, which may be created in the future.

The NSSMP Office should be a physical office at DPWH, with a responsible point person and responsive information and communication facilities (phones, email, website, etc.). This may require a small investment from DPWH in designating personnel, office space and resources. However, there is nothing new in these functions that cannot be performed by existing units of the Department. It is only a matter of designation to ensure that somebody is accountable for this function. The creation of the office should be guided by the streamlining policy of government. The NSSMP point person also provides secretariat support for the NSSMP Committee. Since the NEDA INFRACOM also has a secretariat, the secretariat support will only be needed when the sub-com meets to discuss matters related to sewerage and septage.

7.1.3 Project Facilitators

Project facilitators are agencies that have supervisory, oversight or regulatory authority over the project implementers. Several agencies play the role: LWUA with respect to water districts; MWSS for the private concessionaires in Metro Manila; Province and Regional Development Council (for projects involving clusters of LGUs or regionally-significant projects); DPWH and


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DOH for projects in support of LGU priorities. The Centers for Health Development of the DOH also regulate private service providers such as septage haulers and septage treatment entities. As an example, LWUA prescribes minimum standards for construction, operations and maintenance of facilities of local water utilities, and provides technical assistance for the purpose. This function is critical in helping WDs identify, design and prioritize projects for inclusion in the NSSMP priority list. In addition, LWUA has extensive experience in providing funding support for water supply projects. This experience is valuable and easily translated to supporting sewerage and septage management initiatives. Project facilitators act as the extension of the NSSMP Office in providing information regarding the NSSMP. However, these agencies also exercise some supervisory or regulatory function over their constituents (also the project proponents) under different laws. These supervisory or regulatory powers can be used as incentive or guide to further push the local implementers to conform to the NSSMP framework of prioritizing projects that contribute to the overall national goal, objective and targets.

DILG completed the Rural Water Supply and Sanitation Project, Phase V from 2001 to 2007, through a loan provided by JBIC. The project was intended to assist LGUs in the mobilization of communities in assuming their responsibility for operation and maintenance of level 1 water supply system and sanitation facilities. An audit report by the Commission on Audit found that at the end of 2006, 56% of the original budgeted cost was expended but only 10.5% of the projected number of water supply and sanitation facilities was completed. The report further showed that DILG relied almost solely on consultant services, which accounted for 41% of project cost. The budget for consultancies was 94% spent by project completion, despite poor implementation performance.13 Additional technical assistance should be provided to DILG to improve its capacity to provide assistance to LGUs in implementing local water and sanitation programs. USAID supported the creation of the Philippine Sanitation Alliance, which brings together LGUs and private sector partners to develop affordable solutions to water pollution problems. Through a technical assistance component, LWUA and the League of Cities of the Philippines develop institutional capacity to provide guidance to LGUs to develop sewerage treatment facilities and septage management programs. The improved capacity of LWUA and the League of Cities of the Philippines (LCP) should enable these agencies to guide the LGUs and WDs in developing projects for the NSSMP. DENR and MWSS are implementing agencies of the Manila Third Sewerage Project funded by a grant from GEF. The project consists of seven components. The first four components aim to assist the DENR to identify impediments to cooperation among sector agencies, and to non-conventional investments in sewerage and sanitation. The fifth to sixth components will assist the MWSS to pursue higher investments in sewerage and sanitation by its concessionaires and in piloting suitable technology for septage treatment and disposal. The last component will provide technical assistance to help with project management, monitoring, evaluation and

13 Commission on Audit Report (Executive Summary, undated). www.coa.gov.ph/2006_AAR/NGAs/ES/DILG_ES06.pdf. Accessed 27Apr 09.


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dissemination14. The project, as designed, should give valuable insights on the motivations and necessary factors needed for an effective institutional mechanism for sewerage and sanitation management, including innovative financing mechanisms and market-based incentives. The project is expected to be extended until 2015. LWUA has facilitated the creation of 617 water districts nationwide, serving 14 million rural residents and investing P17 billion in water supply projects. It conducts regular trainings for water districts including Basic Policy, Development Planning, Business Plan, Customer Service, and Financial Management, among others. Since 1973, LWUA has been financing water supply projects through funds secured from national government subscriptions, bilateral and multilateral fund sources, and from internally-generated funds and second generation funds. Recently, LWUA has tapped government and private financing institutions as new fund sources. LWUA allocates and relends these funds to water districts at competitive terms, or as grants. Under recent amendments to its charter, LWUA assists water districts to graduate into creditworthy status and access non-traditional sources of funds.15 The vast expertise of LWUA in facilitating water supply projects can easily be adapted to the sanitation sector. In fact, LWUA has already begun extending its reach to include septage management and sewerage projects. LWUA implements the Water District Development Sector Project (WDDSP), which includes improving the capacity of water utilities outside Metro Manila to design sanitation system improvements using low-cost solutions (e.g., septic tanks and septage management, package treatment plants), and wastewater quality monitoring. The ADB-funded technical assistance project will analyze the role of water districts in providing sanitation services; and recommend options for increased involvement, including related institutional, organizational, and financial aspects.

7.1.4 Local Implementers

Local implementers include LGUs, water districts, and private water and sanitation service providers. LGUs and water districts have overlapping mandates to provide sewerage facilities to the public under different laws. The LGU and water district can collaborate rather than compete for projects serving the same constituency. For example, LGUs have the advantage of local legislative power to mandate septic tank desludging and connection to sewerage systems, charge fees and impose penalties and implement infrastructure projects; water districts have the capacity to collect fees and operate the facilities. The LGU can be the project proponent and pass on the facilities to the water district for regular operation and maintenance, while recovering its investment from fees collected by the water district. In each area, the two entities will need to discuss and agree on their respective roles and responsibilities. In areas designated as Water Quality Management Areas (WQMAs), a cluster of LGUs can collaborate on a common project that has been identified as a priority in the WQMA action plan. The WQMA governing board can also use the Area Water Quality Management Fund to provide incentives for member LGUs to initially develop projects, or use the fund for monitoring and evaluation.

14 World Bank. 2007. Manila Third Sewerage Project. Report No. 36936-PH http://go.worldbank.org/BVHDACOES0. Accessed 27Apr 09. 15 LWUA primer. http://www.lwua.gov.ph/primer/primer_body.htm. Accessed 27Apr 09.


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LGUs and water districts are recipients of technical assistance or capacity-development projects implemented through national agencies such as the DILG, DENR and LWUA as described above. Development partners have also implemented direct assistance to select LGUs in planning and implementation of sanitation, sewerage and septage management projects.

7.2 Implementation Arrangements

Engagement with the NSSMP is purely demand-driven. The NSSMP Office and project facilitators will do their best to promote the NSSMP and the benefits of following the intervention framework. However, local implementers will identify projects based on their needs. The local implementers will engage the NSSMP initially to gather information and possible technical assistance from development partners or private sector providers of technologies and services (Figure 3). Given that this is a new task and a new office, the NSSMP Office is not expected, initially, to be actively involved in substantive matters such as providing technical advice. This is better left to private sector or development partners who have the expertise and access to the latest information and technologies. LGUs may designate a counterpart office for coordination with the NSSMP Office. During the NSSMP consultations, the Office of the Building Official was identified as the appropriate focal point of the LGU since it is directly involved in granting permits for and monitoring new construction projects that should comply with sewerage and sanitation regulations (including linking up with the treatment facilities provided by the LGU or water district). Local implementers have the option to develop sewerage and septage projects on their own. The advantage of engaging the NSSMP process is for the local implementer to avail of financial incentives, guidance in implementing programs consistent with the CWA, and for monitoring purposes. The second opportunity for the local implementer to engage the NSSMP is when it conducts a self-evaluation to determine if the project it has prioritized is consistent with the NSSMP Framework, using the Guide for Local Implementers (Annex A of the NSSMP). If the project is consistent with the technical recommendations under the NSSMP (Section 8), it will be easier for the local implementer to avail of financial incentives (available funding at favorable terms) and technical assistance (from existing programs, especially with multilateral or bilateral donor support) to implement the sewerage or septage project.


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Figure 3. NSSMP Implementation Arrangements

7.3 Monitoring and Evaluation of the NSSMP

The flowchart below (Figure 4) describes the process of periodic review, monitoring and evaluation of the NSSMP. After the initial version of the NSSMP is adopted, review and updating becomes an iterative process anchored on reports from agencies tasked to gather relevant data on the pre-determined measurable indicators.


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Figure 4. Monitoring and Evaluation of the NSSMP

The NSSMP Office collects relevant information for tracking the progress of NSSMP implementation towards meeting the targets. Monitoring information should be available from and provided by the DENR, DOH, DILG and LWUA, as well as funders supporting project development, and need not be generated by the NSSMP Office itself. Since these agencies are key members of the NSSMP Committee, the task of providing the monitoring information should be easier.


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8 Sanitation Planning and the Intervention and Investment Framework

This section is a summary of how local implementers can develop sanitation plans and then develop a comprehensive program package for their top priority interventions. More detailed guidance and toolkits are contained in the Guide for Local Implementers (Annex A of the NSSMP) and the accompanying CD.

8.1 Developing Local Sustainable Sanitation Plans

The NSSP contains guidance on the development of Local Sustainable Sanitation Plans, including Local Sustainable Sanitation Communication and Health Promotion Plans. DOH will lead the conduct of nationwide training on how to develop these plans. Sanitation planning should be a participatory process that identifies and plans for the sustainable development and implementation of sanitation projects in the context of social, economic, health and environmental objectives. It brings stakeholders together to determine how to meet their community’s long-term needs for sanitation improvements through effective programs that combine infrastructure, promotions and supporting environments.

8.2 Developing Sewerage and Septage Management Programs

If an LGU’s Local Sustainable Sanitation Program identifies septage management as a high priority, it can join the 3-part NSSMP training on how to develop a septage management program. All 17 HUCs outside Metro Manila should attend the 3-part training on how to develop sewerage projects that will be organized by DPWH. The steps for developing sewerage and septage management programs include the following (more detailed information is available in Annex A of the NSSMP): Step 1: Determine the Baseline Review the baseline data that was collected during preparation of the Local Sustainable Sanitation Program. If data is still needed on septic tanks and sewage, conduct a rapid technical assessment using teams of barangay health workers, civil engineers and licensed plumbers. The health workers should first be trained to conduct knowledge, attitudes and practices (KAP)-style surveys focused on septic tank and sewage issues. The engineers and plumbers should be taught how to evaluate things like accessibility and desludgability of the septic tanks, distance between wells and septic tanks, proper and improper pit toilets, effluent drainage and greywater discharge. The teams then go out into randomly chosen areas of the community to evaluate sanitary facilities at the household level from a technical point of view and interview residents. This step also includes looking at relevant development plans done by the local government and the water utility, provincial development framework for municipalities under the provincial government, and regional master plans. Step 2: Stakeholders’ Workshop Involve stakeholders early on to turn them into partners that will actively support and help implement the plan. Organize a stakeholders’ workshop where the issues can be presented and outputs developed that include identifying program goals and objectives and a consensus on the priority issues and next steps.


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For planning purposes, septage treatment programs are typically developed prior to the implementation of sewerage systems, as properly functioning septic tanks help ensure the long term sustainability of down-stream sewerage works. Planners should consider the following general guidelines for timing septage management and sewerage projects:

Septage projects should be developed before sewerage projects; generally between years

1 and 3 of the sanitation planning cycle; Sewerage projects should be developed between years 4 and 10 in the planning cycle, or

once septage programs are in place; and For sewerage projects, interceptor systems may be built first, followed by piped sewage

collection systems. Step 3: Empowering a Technical Working Group The TWG is a formally recognized body that will define objectives and timeframes, review alternatives and based on evaluation of several options, recommend preferred projects for implementation. Members of the TWG should represent different stakeholder groups and be appointed by the mayor or water district general manager.

8.3 Designing Projects to Achieve Results

To effectively achieve results on the ground that will be sustained over time, sanitation projects must adequately address infrastructure, promotions and supporting environments simultaneously. These broad categories are defined as follows: Infrastructure, Products and Services: These are technologies and systems such as septic tanks and toilets, septage treatment plants, desludging services and interceptor sewers; Promotion: Promotion campaigns increase knowledge and awareness about sanitation issues, change behavior and help to drive the demand for sanitation services and increase the willingness to pay for these services;16 and Supporting Environment: Local conditions that promote change and provide information, resources and services that help the target audience sustain those changes. These include rules and regulations, access to financing and the social aspects of community that encourages proper behavior. It also includes the skills of staff and service providers. See Figure 5 for a diagram of the three categories.

16 See United States Agency for International Development. 2009. Ten Steps to Bringing About Positive Change Through Your Water and Sanitation Promotion Program (included in the NSSMP CD)


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Figure 5. Achieving Sustainable Results

8.4 Toolkits for Developing Projects

The CD included with this document includes interactive computer-based toolkits that help project planners determine the basic parameters of a given sanitation project. The toolkits help to determine the following:

Volume of wastewater generated per day from the activity or source; Area required for different wastewater treatment schemes; Cost estimates for wastewater treatment infrastructure and operations; Number of trucks for septage programs; Full cost recovery period; Recommended user fee or tariff to achieve full cost recovery; and Attractiveness of an investment through the use of discounted cash flow analysis.

List of Toolkits

Septage Management Toolkit – Used to determine sizing and costs of comprehensive septage management program;

Sewerage Toolkit – Used to size and cost interceptor sewer pipes based on flow, number and spacing of outfalls; and

Financial Toolkit – Used to estimate in more detail the financial feasibility of the project.

Infrastructure, Products, Services

Supporting Environment

Promotion

When activities are happening at the same time in the same places with the

same audiences, it increases the likelihood of behavior change and

sustained change


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Project Prioritization Toolkit – Used by DPWH and DOH to rank projects for funding. An example of the septage management toolkit is provided below in Figure 6. The user will fill in data from their baseline survey in the yellow boxes for such parameters as number of water district service connections and estimates of the number and average size of septic tanks. The toolkit will automatically calculate daily flows, number of trucks, cost estimate for construction and operations, and estimated time to achieve full cost recovery.

Figure 6. Septage Toolkit: Sample Screen Shot Instructions: Fill in the yellow boxes below. Find the calculated values for your program in the blue boxes.

Name of the LGU: _____________________________ Number of people in the coverage area: 650,000 people

1 How many households are there in the coverage area? 130,000

2 How many commercial/institutional establishments are in the coverage area 2,500 businesses/institutions

3 What is your compliance target? What percentage of the households do you think will participate? 90%

4 From the survey data, what percent of homes have septic tanks? 70%

5 From the survey, of the homes that have septic tanks, what is the percent of the tanks that are desludgable? 85%

6 From the survey, what is the average volume of residential septic tanks in the target community? 3 cu. m

7 From the survey, what is the average volume of commercial/institutional septic tanks in the target community? 10 cu. m

8 Septic tanks should be desludged every 3 to 5 years. What is the target desluding frequency for your program? 5 years

9 How many days a week will your program operate? 5 days per week

The design flow of your septage treatment facility is 191 cu. m per day* Working days per month: 20

Working days per year: 245

3,897 cu. m per month 46,769 cu. m per year

households

In addition to the toolkits, the CD also includes sample forms and templates, including a site plan checklist that can be used to verify that all of the required information is included on the site plan.

8.5 Project Intervention and Investment Framework

The outputs from the sanitation planning process include a listing of septage management and sewerage projects that are designed to address the priority issues and to achieve long-term improvements in the community. While the projects may have some commonalities for all cities and municipalities in the Philippines, specific projects must be customized for the communities they will serve. This is because there is great variability in population density, variance in settlement pattern, and dominant geophysical characteristics, all of which have a bearing on the specific nature of the project. The following intervention and investment framework (the Framework) shows how LGUs can combine program components to achieve long-term sustainability for their sewerage and septage management projects. These are simply examples for illustrative purposes. The Framework is divided into several sections to organize information about projects, which can then be used to develop project briefs and funding requests. Figure 7 below shows sample program packages for a Division 1 LGU. The entire Framework with


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sample program packages for all 4 divisions is on the CD that accompanies this report. And the NSSMP Guide for Local Implementers provides more detailed planning guidelines and timeframes for project planning, and guidance on selecting appropriate technologies given local constraints.


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Figure 7. Intervention and Investment Framework with Program Packages for Division 1 Part 1


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Part 2


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The following is a description of the Framework sections. Once compiled, an LGU can use this information for project briefs or funding requests.

8.5.1 Framework Section 1: Information about the LGU

In the Framework, LGUs are characterized primarily by population. Secondary characteristics of population density, population settlement patterns and geophysical characteristics should be considered by local planners. These secondary characteristics, and how they relate to developing effective sanitation programs, are discussed below:

8.4.1.1 Population density Densely populated urban areas generate large volumes of wastewater but often have

very limited land available for treatment plants. Sewage and septage treatment systems for these communities generally rely on technologies that are highly mechanized and energy intensive that take up less space. For planning purposes, septage treatment programs are typically developed prior to the implementation of sewerage systems, as properly functioning septic tanks help ensure the long-term sustainability of down-stream sewerage works. Planners should consider the following guidelines for timing septage management and sewerage projects:

o Septage projects should be developed before sewerage projects; generally between years 1 and 3 of the sanitation planning cycle;

o Sewerage projects should be developed between years 4 and 10 in the LGU’s sanitation planning cycle, or once septage programs are in place.

Moderately populated urban areas. LGUs with moderately dense population centers

may have more open space that would allow for less mechanized wastewater treatment systems. Moderately dense population areas generally require the following sanitation interventions:

o Septage management. Since most homes and businesses utilize septic tanks, septage management is still a priority for moderately dense communities. Septage programs should be developed between years one and three in the sanitation plan;

o Sewerage. Areas of moderate population density may have more open space, which could allow for decentralized sewage and treatment, and less mechanized treatment options. The sanitation planners should work closely with planning and zoning officials at the city level with sewerage implementation generally occurring during years 4 to 10.

Sparsely populated areas may have more land available but limited electrification.

Septic tanks and point source treatment systems for these communities may be less important than providing for basic sanitation needs. Community assessments can help make this determination. Sanitation interventions for these areas may include:

o Programs to address unimproved pit toilets or open defecation;


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o Point source treatment. Rural areas still may have institutions such as markets, slaughterhouses, schools and other public facilities that will require wastewater treatment; and

o Agricultural treatment. Discharges from agricultural operations such as pig farms and poultry houses should be evaluated and addressed.

8.4.1.2 Variance in settlement patterns. This refers to the number of rural versus urban barangays in the LGU. Understanding how population is spread out over the LGU will provide clues as to the prioritization of sanitation interventions:

Mostly urban barangays. These LGUs should focus on those interventions identified for urban areas – septage programs first, then sewerage;

Even mix of rural and urban barangays. These LGUs should focus on septage management and sewerage for urban areas, while at the same time, planning and implementing projects to improve rural sanitation; and

Mostly rural barangays. These LGUs should focus on reducing open defecation, upgrading unimproved pit toilets, institutional point sources and agricultural point sources.

8.4.1.3 Dominant geophysical characteristics. Understanding the topography, elevation and other geophysical characteristics provides clues to appropriate wastewater interventions and the challenges presented during implementation:

Coastal and low-lying areas. Common issues include high groundwater, localized flooding near coastal areas and rivers. Feasibility studies for sewerage infrastructure should include flood zone analysis and impact of interventions on drinking water aquifers. Mangrove forests may provide opportunities for low cost wastewater systems using constructed wetlands; and

Hilly and mountainous areas. Common issues include difficulty in implementing community-wide sewerage projects as the cost for pumping becomes the limiting factor. Explore opportunities of decentralizing wastewater treatment.

8.5.2 Framework Section 2: Sanitation Plans and Project Priorities (Interventions)

In this section, the project priorities are identified and should correspond to the local sustainable sanitation plan.

8.5.3 Framework Section 3: Preferred Technology – Infrastructure, Product or Service

Septage management and sewerage projects are technology intensive. They utilize systems for collecting wastewater (trucks for septage, sewer pipes for sewerage) and treating wastewater. Many interventions rely on services, such as those that organize septage collection, operation and maintenance of sewage treatment and collection systems. There is a great variety in the type of technology that might be used for a particular intervention. Selecting the specific product, technology or service is determined through a feasibility study where several options are compared and contrasted, and the most cost-effective and sustainable technology component is selected.


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Selecting a preferred technology relies on knowledge of the proposed site and characteristics of the wastewater to be treated. The NSSMP provides some guidance through the toolkits provided in the Guide for Local Implementers. Wastewater treatment technology choices are generally based upon five variables:

Available land for the treatment system; Physical characteristics of the site; Availability of reliable electrical power; The nature of the wastewater to be treated; and The classification of the receiving water.

Project implementers should use the guidance provided in the Guide for Local Implementers for more information on how to select technologies for particular projects.

8.5.4 Framework Section 4: Indicators

The NSSMP tracks the number of people with improved access to sewerage or septage. Determine the number of people in the coverage area and add this number to the framework. This will help to identify the cost of the improvements on a per capita basis.

8.5.5 Framework Section 5: Cost

Project costs are broken down into three categories that are related to the costs for installing, operating and maintaining the sewerage or septage system or other intervention. In general, septage programs can be fully cost recoverable through user fees. Sewerage projects can be very expensive and will generally require a mix of LGU-generated funding and share from national government. Other programs, such as controlling open defecation, may require funds from the LGU that may never be recovered. The Framework includes sections for listing:

Capital expenditures (CAPEX). This is the estimated cost to install the infrastructure; Operation expenses – wastewater treatment. Wastewater treatment systems require

continuous operation and maintenance for the life of the facility. The annual costs for operating and maintaining the system is provided here;

Operation and maintenance – collection system. Collection systems, including pipe lines and pumping stations for sewerage projects, or septage trucks for septage projects also require ongoing operation and maintenance expenses; and

Number of years for full cost recovery.

8.5.6 Framework Section 6: Supporting Environment

This refers to the user fees, funding sources including the amount of national government subsidy, and policies that make sanitation projects possible and sustainable.

User fees and connection charges o User fee. This is typically a monthly charge expressed as a flat fee, or

sliding scale based on a user’s ability to pay. The NSSMP recommends that user fees should be developed so that the combined cost for water and sanitation will not exceed 5% of the median family income; and


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o Connection charges. These are typically one time fees in addition to user fees that cover the cost of connecting a home or business to the sewerage system.

Funding sources and amount of national government subsidy. There are many funding

sources available to local implementers of sanitation projects. The list includes: o User fees and connection charges; o Co-financing from DPWH; o Funding from Water Quality Management Funds; o Private sector financing such as concession agreements, management

contracts and others ; and o Government and other private banks.

When completing this section of the framework, local implementers will determine which funding sources are most appropriate for their projects, and how much, if any, national government subsidy is required.

Policies, social aspects and skills. In this section of the Framework, project proponents will determine which policies and programs will be put into place to support the sustainability of the project. The following are some examples:

o Local sustainable sanitation plan. Each LGU should complete their plan,

which will identify the priority sanitation interventions, timeframe for implementation and number of people with improved sanitation;

o Local septage ordinance. Projects that include septage management should be accompanied by a local septage ordinance that is promulgated by the LGU. This will specify the program mechanics, user fee system and penalties for non-compliance; and

o Training and capacity building programs. Programs geared towards developing skills for local officials, sanitation workers and the private sector.

8.5.7 Promotion Campaigns

This section of the Framework is used to identify the type of promotion campaign that will support the project. The USAID “Ten Steps to Bringing About Positive Change Through Your Water and Sanitation Promotion Program” toolkit is included on the CD accompanying this report. Decision makers can utilize the toolkit to determine which campaigns are most appropriate for the project. Some examples include:

Promotion campaigns designed to increase willingness to pay for sanitation services; Promoting behavior change, such as desludging septic tanks; Campaigns that encourage proper use and maintenance of toilets; and Campaigns that target homeowners and their proper use of septic tanks.


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9 Financing Projects

9.1 NSSMP Financing Framework

The NSSMP financing framework draws from the lessons learned from the financing policies of other environmental projects in the Philippines. It can be used to attain project financial sustainability and ensure cost-effective utilization of funds by LGUs, water districts, WQMAs and concerned NGAs. The framework recommends the following principles:

The NSSMP adheres to the leadership of the private sector in the provision of infrastructure through the use of the public-private partnerships (PPP), particularly build-operate-transfer and its variant modes. This will enable the government to dedicate a greater amount of resources for basic services and other infrastructure which may not be financially viable for the private sector. The framework encourages LGUs and WDs to develop approaches to cooperate with the private sector. LGUs/WDs should prepare a Project Brief to be submitted to potential private investors. BOT variants applicable to septage management and sewerage projects are detailed in this chapter.

Promote cost sharing between the national and local governments for sewerage projects

that require significant investment requirements. DPWH will channel funds to LGUs to complement local appropriations. While cost sharing will give incentives to LGUs to proactively embark on sewerage projects, a cap of 40% national government share has to be imposed to rationalize distribution of national government resources. This may also include mainstreaming sanitation project financing in official development assistance (ODA)-sourced lending facilities.

Enhance the capacities of LGUs and WDs in project development and DPWH in project evaluation and monitoring by providing capacity building training, focused technical assistance and promoting best practices. The supervisory capabilities of concerned government agencies will be strengthened to ensure transparency and integrity in project-related transactions.

Recover costs to ensure project sustainability. The business models included in this

report integrate cash inflows from user fees that will meet not just the cash flow needs of the project but also achieve cost recovery of local investments over the long term. User fees must consider affordability, follow public consultations and be supported by a local ordinance. Costs must cover both capital and interest on infrastructure investments as well as operations and maintenance over the life of the project.

Encourage private commercial and thrift banks and not just government financing

institutions (GFIs) to lend more for sanitation projects. A loan guarantee scheme to expand the credit availability of private funds will not only enhance lenders’ interest but may also result in lower interest rates since another party acts as guarantor, thereby lowering the lenders’ risks.


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Encourage projects that are supported by local ordinances. One example of a

comprehensive ordinance is one that requires mandatory desludging of septic tanks and also gives guidelines on the type of sanitary facilities that may be built in the locality.

9.2 Funding Process

Figure 8 lays out the key aspects of the funding processes that have been built into the framework. NSSMP proposes different funding process for septage management and sewerage projects. While septage management requires smaller amounts, sewerage projects will need large investments and therefore merit cost sharing from the national government. The process follows these steps: A. Septage Management Projects

1. The LGU/WD, after it has determined the technology to be used in its project, estimates the capital and the related operating costs of the project. A spreadsheet-based toolkit, which is included in the accompanying CD, can be used to make rough estimates of the capital and operating costs and minimum user fee based on project parameters. A separate financial toolkit estimates the financial feasibility of the project. It contains financial models that approximate and analyze the impacts of the costs and benefits for four types of projects and LGUs. The models have several tabs and easy to follow input cells that automatically calculate the most frequently used decision criteria in business today, such as: net present value (NPV), internal rate of return (IRR) and payback period. The models use data and assumptions on the volume of water consumed in the service area, tariff, operating and maintenance costs and projected growth rates. They also present different financing sources and mix. It is an effective tool for making an initial, rough estimate of the financial parameters of project and whether it can pay for itself or not. When negative results are realized, a review of the tariff structure and expenditure items can be done.

2. An iterative process can be performed to calculate minimum user fees depending on loan

tenor, loan-grant-equity mix and scale of operations (size of service area to be covered, percentage of households that will participate, etc.).

3. After completing these analyses, the LGU/WD integrates the project into the LGU’s local

development plan or WD’s annual investment plan and indicates which components of the project it can fund. If the LGU determines that it can source all capital investment requirements from its own development funds, the local budgeting process of the LGU takes place (see box). The WD can likewise follow its usual budget and disbursement process if it has sufficient funds.


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The Local Budget Process

1. Pre-budget preparation (Annual Investment Program)

2. Budget call - signal to prepare proposals from departments

3. Budget forum - all departments explain policies

4. Technical budget hearings by finance committee

5. Finance committee prepares local expenditure program for budget year and sources of finance (Executive Budget prepared not later than July 15)

6. Budget message to Sanggunian - executive budget is submitted by the LCE to the Local Sanggunian for authorization not later than October 16

7. Budget authorization - ordinance passed by Sanggunian where budget estimate becomes annual appropriation

8. Budget review (next level LGU, HUC – DBM) - examination of the appropriation ordinance as to its compliance with the budgetary requirements, general limitations and other provisions of law

9. Budget execution - implementation of the budget to achieve the local government goals and objectives. Result: Funds are obligated for specific purposes; estimated incomes received and collected

10. Budget accountability -accurate recording and reporting of incomes and expenditures; monitoring and evaluation of financial performance,

11. Accomplishments with targets in the work plan

4. If the LGU decides that internal funding will not be used or is not adequate, it looks for a private sector investor and explores PPP options. At this point, the LGU/WD prepares a Project Brief for submission to the potential private investor/s. The LGU/WD gives investors an opportunity to react to the preliminary proposal, and to submit alternative or amended proposals to it. These are then discussed with the investors concerned. If it succeeds with the negotiation, it then follows prescribed procedures that are available in the NSSMP Guide.

5. If the PPP attempt is not successful, the LGU/WD can submit the project brief to

financing institutions such as Land Bank of the Philippines (LBP), Development Bank of the Philippines (DBP) or any private bank. Water districts may also borrow from LWUA while LGUs can access funds through the MDFO. The spreadsheet-based toolkit contains a tab that estimates the LGU’s borrowing capacity based on historical LGU data and assumed interest rate and tenor of the loan. WDs do not have a borrowing cap but are limited by its capacity to increase tariff through an internal policy of setting tariffs that are not more than 5% of the average household income in the community.

6. GFIs, MDFO and some private banks through bulk loans from GFIs are conduits of

Official Development Assistance (ODA) funds that give project loans on concessionary terms. For small water districts, thrift banks other than LWUA can also be sources of funding. These financing institutions make preliminary assessments of the financial


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capacity of the borrower and feasibility of the project and soon after, notify the proponent (LGU or WD) of their decision. The bank gives instructions on how to proceed with the loan application. In most cases, a pre-feasibility study is required by the banks.

7. Once financing is approved, the local implementer can now proceed to project

implementation subject to the provision of the Procurement Law.

8. In the event that a loan is not possible, the LGU/WD may review its Project Concept and consider phasing of project implementation.

DOH, having already taken the lead on regulating septage operations, can assist LGUs in septage management programs. DOH has performance-based grants available for LGUs to use for project preparation costs, and sanitation can be added to the annual operating plan of provinces so that funds can be allocated for sanitation projects. DOH also has local representatives on the ground, the sanitary inspectors, who can assist LGUs in project development for SMPs. B. Sewerage Projects Sewerage projects are considered major infrastructure projects like roads and bridges and are generally beyond the ability of the LGU to develop. DPWH is the natural choice to undertake and share in the cost of large infrastructure projects from its annual general appropriations. As proposed, the amount to be financed by DPWH is not more than 40% of the project cost. The remaining 60% can be sourced from any of the financing sources discussed in the succeeding topic (9.3). Presented below are steps that they can follow for either of the two options recommended by NSSMP. Option 1 suggests that the local implementer, after it has determined that it cannot fund the project with its internal resources, can look for a private sector partner that will finance 100% of the project cost. In the event that it cannot get the private sector to cover all the costs, the LGU and water district may enter into a partnership to share the capital costs. The LGU may then request up to 40% of the project costs from the national government. The remaining 60% will be financed by the LGU and the water district, mostly through credit financing. Option 2 considers the possibility that the LGU and WD enter into a partnership agreement first, then together secure financing for 60% of the project cost while the national government will finance 40%. In this case, either the LGU or WD considers the private sector as a potential source of financing to cover its share of the project cost representing 30% each of the total cost. In case no private sector partner responds to the invitation, the LGU or the WD or both can avail of credit financing.


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Option 1:

1. After completing step 3 of the SMP funding process, and the LGU decides that internal funding will not be used, it looks for a private sector investor to finance 100% of the project cost. The LGU follows the same procedure as stated under Step 4.

2. In the event that it cannot get a private sector to cover all the costs, the LGU and Water

District may enter into a partnership agreement to share in the 60% of the project cost and source the remaining 40% from the national government.

3. Both LGU and WD may source the 60% from financing institutions and follow step 5 of

the SMP funding process.

4. Once financing for the 60% is secured, the local implementers can submit the project proposal to DPWH for technical evaluation.

5. DPWH reviews the proposal and approves those that are found to be eligible for NG cost

sharing. When national cost share has been approved and budgeted, the LGU will develop a financial plan with the NSSMP Office to determine when drawdowns and disbursements will be made, and how the project will be implemented.

6. DPWH certifies to DBM that the LGU’s proposal has been approved and ready for

payment. DBM deposits funds to the bank with instructions to credit or deposit the amount to the account of the LGU. This arrangement is covered by a Memorandum of Agreement (MOA) between the LGU and DPWH.

7. LGU and WD proceed with project development and implementation. During

implementation, the LGU will submit accomplishment reports to the DPWH NSSMP Office and DPWH NSSMP office will monitor the completion of the project.

8. If a negative feedback is received at any point of the process flow, the LGU/WD may

review its Project Concept and consider phasing the project implementation. Option 2:

1. After completing step 2 and having determined that internal funding is not possible, the LGU and Water District immediately enter into a partnership agreement to share 60% of the project cost and source the remaining 40% from the national government.

2. The LGU and WD will separately secure financing for half or 30% each of the 60% local

share. Under this option, either the LGU or WD can look for a private sector to cover its share in the project cost, following the prescribed procedures that are available in the NSSMP Guide.

3. In the event that no private sector agrees to participate, the LGU or the WD or both can

avail of credit financing and follow Steps 2 to 8 of Option 1.


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Figure 8. Septage Management Project Financing


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Figure 9. Sewerage Project Financing - Option 1


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Figure 10. Sewerage Project Financing - Option 2


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9.3 Sources of Financing

9.3.1 User Fee

Cost recovery is essential for insuring that wastewater services will be sustainable and is consistent with the polluters’ pay principle. Local implementers should charge user fees not just to meet cash flow needs but also to achieve, over the long term full, cost recovery of the amounts they have invested. The share of the national government may not be recovered to bring down user fee and ensure affordability. For effective pricing, the LGU/WD will need to consider affordability, willingness to pay and the effects of the pricing scheme on revenues.17 They can estimate users’ willingness to pay by conducting surveys. Prudently prepared surveys must be used to generate data from the households and establishments that will be the basis of an acceptable and affordable user fee. A common way to collect user fees is by bundling it with the water utility bill. Each property owner pays for both water supply and sewerage or septage services through their monthly water utility bill. In this way, the cost of providing management services is spread out over five years (recommended regular desludging cycle). This approach works well if a water district is already providing sanitation services or has the capacity to provide the services under the new program. In areas unserved by the WD, septic tanks can be desludged and households or commercial establishments can pay for the service through monthly payments at the time of septage collection or the LGU can add the fee onto the property tax bill.

17 Two potential schemes are socialized pricing and a uniform volumetric charge based on the volume of water supply used.


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9.3.2 LGU Traditional Fund Sources

Figure 11 below offers a broad summary of fund sources of most local government units for their operating and capital financing needs. The percentages presented are based on the Commission on Audit’s report of the consolidated cash inflows of all LGUs in 2007. The diagram shows only those funds that have directly flowed to the treasury of the LGUs and were used to finance their operating, debt servicing and infrastructure needs. The funds include LGUs’ regular income, subsidies from national government agencies, borrowings and grants.

Recommendations on Cost Recovery Policy

1. Septage management and sewerage tariffs should be pro-poor: combined water supply and sanitation fees should generally not exceed 5% of the average monthly income;

2. Commercial, industrial, institutional, and agricultural dischargers should pay proportionally more for sanitation services based on the volume and strength of the wastewater discharged. This will encourage conservation and pre-treatment of high strength wastewater. Fees for these entities should be based on water consumption as well as the number of septage loads per 5 year period for septage projects, and the quality of the effluent discharged for sewerage projects;

3. Homeowners with larger septic tanks that require multiple loads for desludging should pay more for desludging services than homes with smaller tanks requiring only one load. It does not necessarily follow that those homes with larger tanks use more water, while in general terms this may be true. Larger tanks that require multiple trips by the desludging truck should pay a set fee for each additional load with only the first load being covered by the monthly charge;

4. When possible, septage tariffs should be structured so that there is a small surplus above full cost recovery. This can be used to build up a fund for future sewerage services or can be used by the local implementer to provide related services to the poor. These services may include:

a. Constructing septic tank access ports; b. Upgrading septic tanks where they pose a public health hazard; and c. Providing emergency response to septage spills as needed.


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Figure 11. Percentage Distribution of Fund Sources

Source: 2007 Commission on Audit Annual Report Regular Income Regular income is sourced mostly from national government transfers and locally generated receipts from real property taxes, fees, business taxes, licenses and economic enterprises. National government transfers to LGUs are of three types: 1) formula-based block grants such as the Internal Revenue Allotment (IRA); 2) origin-based share in national government revenues (i.e., share in national wealth and other taxes); and 3) ad hoc categorical grants. Under the Local Government Code (LGC), the aggregate IRA of LGUs is set at 40% of the actual internal revenue tax collections of the government three years prior to the current year. The aggregate IRA is then divided among different local government levels as follows: 23% to provinces, 23% to cities, 34% to municipalities and 20% to barangays. The IRA share of each tier of local government is then apportioned to individual LGUs based on population (50%), land area (25%), and equal sharing (25%). The IRA is the most significant revenue source, especially for third to sixth income class18 LGUs. LGUs are required to set aside at least 20% of their IRA for development projects or programs (Local Government Code) Bureau of Local Government Finance (BLGF) reports that in 2007, the ratio of IRA to non-IRA income is 2:1, which is similar to previous years. The figures are based on unaudited Statements of Income and Expenditure (SIE) that LGUs submit to BLGF quarterly. Figure 12 illustrates the LGUs’ continuous dependence on the IRA, which makes up most of the external funds. The proportion, however, changes significantly when broken down by LGU level. Provincial and municipal LGUs are still very dependent on external sources mostly the IRA, while cities are at a point where locally sourced income almost matches external sources (Figure 13). This only proves that, on average, cities are financially stronger

18 An Executive Order in 1987 divided LGUs into six classes according to the average annual income realized during the last four calendar years immediately preceding the year of reclassification. Reclassification is done every four consecutive years by the Bureau of Local Government Finance (BLGF) of the DOF.

Total Annual Cash Inflows of LGUs

(100%)

Regular income (93%)

Borrowings (4%)

Government subsidy (2%)

Others (1%)


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than municipalities and provinces and can therefore pursue more infrastructure projects such as sanitation. Sanitation awareness and technical assistance from concerned agencies should drive these LGUs to put sanitation on their priority list.

Figure 12. Source of 2007 LGU Regular Income

67%

33%

External Sources Local Sources

Source: BLGF 2007 Statements of Income and Expenditure (SIE) Publication

Figure 13. Source of LGU Regular Income by LGU Type

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Province City Municipality

External Sources (including IRA) Local Sources

Source: BLGF 2007 Statements of Income and Expenditure (SIE) Publication Non-IRA Transfers Non-IRA transfers can come from the Priority Development Assistance Fund (PDAF), which is allocated to members of Congress for discretionary spending at the LGU level; share of national wealth which comes from the 40% LGU share of tax collections and royalties; and general appropriations of other NGAs. These general appropriations are also channeled to LGUs to start


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up development projects especially if the final benefits of the project accrue to a large percentage of the population in a particular area.

9.3.3 Public-Private Participation

Since LGUs have other many competing demands for their funds, they may not be able to fund sanitation infrastructure solely from regular income. LGUs can look to the private sector for capital financing and delivery of septage collection and treatment services on a contractual basis. Table 5 presents a few examples of PPP schemes that have been used successfully by several LGUs in the Philippines. Table 5. Examples of Public-Private Partnerships Type of PPP Examples Concession contract MWSS (Manila Water and Maynilad) Joint Venture Subic Water in Subic Bay; Bohol Water

Supply Project Design, build and lease Tabuk, Kalinga; Castilla, Sorsogon Franchise to private operator General Trias, Cavite; Balibago Calapan

Waterworks Development Corp. Joint Venture Through a joint venture (JV) agreement, the LGU can jointly undertake sanitation programs and projects with another party who is willing to contribute assets and share in the risks. A JV between an LGU and a private sector partner contains some restrictions regarding implementation. These are: 1) the undertaking should be within the expressed or implied power of the LGU; 2) the project should operate within the territorial boundaries of the LGU concerned, unless several LGUs are grouped together as partners; and 3) the project must be included in the local development plan. In as far as the JV contract is concerned, the LGU must 1) validate the authority of the contracting official; 2) the contract must go through a general review and approval process (council resolution, posting, Commission on Audit (COA) review, conformity with approving authority); 3) the terms of the contract should not be grossly disadvantageous to the LGU; and 4) the LGU personnel or officers should have no direct or indirect financial or material interest in any transaction which requires the approval of their office. Build-Operate-Transfer A BOT is a type of arrangement in which the private sector builds an infrastructure project, operates it and eventually transfers ownership of the project to the government. In some instances, the government becomes the firm's only customer and promises to purchase a minimum, predetermined amount of the project's output. This ensures that the firm recoups its initial investment in a reasonable time span. A BOT arrangement is typically used in complicated, long-term projects such as power plants, roads and water and wastewater treatment facilities. To further improve the flexibility of BOT projects, the government continues to study other modalities like concession agreements,


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NGAs, 68.0%

GOCC, 25.0%

GFI, 7.0%LGU, 0.4%

management contracts and franchise agreements for possible inclusion as additional variants of BOT under the law.

Bonds

Bonds are usually issued to pay for capital improvement projects rather than current operating expenses. The principal amount of the bond is made out in standard denomination, payable at a fixed time in the future while the interest is given either periodically or at maturity. LGUs must meet three basic conditions for a bond issuance: 1) the project must be revenue-generating; 2) the project must be part of the local development plan; and 3) the amount must be within the limitations on debt service capacity and maximum borrowing limit prescribed to LGUs by the Local Government Code.

9.3.4 Official Development Assistance Fund

ODA funds that come from foreign governments have decreased by 29% from US$13.3 billion in 2000 to US$9.5 billion in 2006. Although it gradually picked up in 2007 by 3% (along with a decrease in world rank for GDP growth, a relative indicator for developing countries, from 2005 to 2006), it has still remained in the P7 billion level.19 But since ODA is given according to the need and income of the recipient country, the decreasing ODA is a positive indication that real GDP is increasing over time. The GoP’s ODA loans in 2007, as in 2006, were still mostly implemented by NGAs, getting 68% of the total loan (91 loans amounting to US$6.585 billion). The rest were implemented by GFIs while a very minimal 0.4% of the loan portfolio was implemented by the Provincial Government of Lanao del Norte (Figure 14).

Figure 14. 2007 Distribution of ODA Loans

19 16th ODA Portfolio Review, NEDA 2007.


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ODA Funds with Financing Institutions as Conduits GFIs on-lend ODA funds, sometimes complemented by their internally-generated funds, directly to LGUs through focused project financing programs. Some private financing institutions (PFIs) also offer loans using ODA funds (borrowed by these private banks from GFIs on a wholesale basis) supplemented by their own funds. The MDFO of the Department of Finance (DOF), on the other hand, provides a mix of grants and loans to LGUs (depending on income class) to finance revenue generating projects, social infrastructure and environmental projects. In 2007, the government appropriated a total of P1.1 billion to MDFO to be used for lending operations to local governments. Generally, the loans to LGUs by either the GFIs or MDFO have a repayment period of 15 years with a three-year grace period on the amortization of the principal. Although LGUs are allowed to borrow, the Local Government Code (LGC) puts a ceiling on debt servicing which should not exceed 20% of their regular income. While the amounts disbursed by banks specifically for sanitation are not immediately available, there are records of disbursements that went to environment-related projects indicating that the GFIs have recognized the sector as an investment area. LBP reported an increase of 2% in 2008 loans to the sector compared to 2007. This translates to additional investments of P4 billion in one year funded by LBP (Table 6). Moreover, its share in the total loan portfolio is relatively significant compared to the other sectors. LBP’s Support for Strategic Local Development and Investment Project (S2LDIP), under the $100 million facility from the World Bank, offers loans for sanitation projects to LGUs, utility operators and private sector in cooperation with LGUs (see details in the NSSMP Guide for Local Implementers). Table 6. LBP Comparative 2007 and 2008 Loan Portfolio (in billion pesos)

Sector 2008 % 2007 %

Farmers and fisherfolk 21.4 12% 18 10%

Micro enterprise and SMEs 18.6 10% 19.9 11%

Livelihoods 3.3 2% 2.3 1%

Agribusiness 20.4 11% 13.7 7%

Agri-infrastructure (LGUs) 19.7 11% 17.4 9%

Agri-related projects (GOCCs) 24.9 13% 13 7%

Environment-related projects 16 9% 12.2 7%

Total sector loans 124.3 67% 96.5 52%

Others 60.4 33% 38.1 21%

Total Regular Loan Portfolio 184.7 100% 134.6 73%

DBP’s Environmental Development Program (EDP) offers loans for the construction of wastewater and sewerage treatment facilities and pollution prevention initiatives. DBP is also the administrator of the Philippine Water Revolving Fund (PWRF), a joint undertaking of the governments of Japan, Philippines, and the United States. PWRF aims to leverage ODA/JICA funds with private sector money for water supply and sanitation financing. The leveraging is


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implemented through a co-financing arrangement, between DBP and a private financing institution (PFI). PFIs will be given two types of credit enhancements: credit and liquidity risk covers. On the former, partial credit risk guarantee is provided by LGUGC and the USAID Development Credit Authority. For the latter, liquidity cover is provided by DBP and MDFO through stand-by credit lines to PFIs, to enable lengthening of the PFI loan tenor beyond the current 10 years20. The PWRF will initially provide funding for about $30 million worth of water and sanitation projects for both public and private water service providers. PWRF and EDP have the potential to finance a large number of septage management and sewerage projects across the country. Most of the lending windows of the MDFO that are now using second-generation funds (loan repayments from LGUs) and ODA funds offer maturities up to 15 years. MDFO, through its PWRF-Standby Credit Facility (PWRF-SCF), will also deepen the leveraging of private funds, starting with water supply and sanitation projects by extending the stand-by credit line to LGUs in order to lengthen the tenor of PFI loans to make financing affordable to LGU water service providers. Hence, LGUs can now tap private bank funding at long-term tenors. Moreover, the stand-by credit line may also be tapped for interest rate caps. Floating interest rates (currently low and thus favorable to borrowers) are offered by private banks; should the interest rate increase to a pre-determined cap, MDFO will re-finance the PFI loan at a fixed interest rate, equivalent to the cap. ODA Grants Grant elements of concessionary loans have also been decreasing since 2006. The grant element is the reduction enjoyed by the borrower when debt service payments expressed at their present values discounted at 10% are less than the face value of the loan and grant. Per the ODA Act, each ODA loan must have a grant element of at least 25%. MDFO is the main conduit of grant funds awarded to a specific tier of LGUs. In line with the LGU Financing Framework developed by the DOF, MDFO focuses its assistance on the less creditworthy LGUs and projects with developmental objectives. NGAs like the Department of the Interior and Local Government (DILG) can also channel grant funds to LGUs by implementing foreign-assisted projects for them. LWUA Lending Facility LWUA has the mandate to provide funding for water and sanitation projects, but to date has only funded water supply projects. However, agency officials have expressed interest in playing a key role in encouraging water districts to develop septage management and sewerage programs and in providing financing for them. LWUA is able to lend approximately $6 million to water districts for water and sanitation projects.

20 PFI loans will be amortized over 15-20 years to match the maturity of the DBP loan. At the 10th year, the PFI has the option of extending the tenor or terminating the loan, in which case it will get a balloon payment for the outstanding balance. The source of the balloon payment will be the stand-by credit line.


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9.4 Local Government-National Government Cost Sharing

The current DOF LGU credit policy framework states that the higher-income and more creditworthy LGUs can avail of private commercial financing; the middle layer of LGUs can go to government banks that use both ODA and bank funds; while the lowest layer LGUs can be served by MDFO using ODA funds for loans and grants and technical assistance (Figure 15). Particularly, under the brown environment sector, DOF gives grants to all levels of LGUs except for first up to fourth class cities (Table 7).

The Solid Waste Management Commission (SWMC) has designed a new cost-sharing approach that is compatible with the needs of LGUs. The new approach recognizes that the first to fourth class cities are the ones that need facilities more because of the large volume of waste generated in these areas and therefore, need more financial support from the government.

In 2009, the NEDA Board spurred investments in solid waste management facilities and projects by giving grants to all levels of city LGUs, including first to fourth class cities. DOF Order no. 40-09 issued on December 3, 2009 allowed national government to share the cost of constructing solid waste management facilities of up to a maximum of 40% with first and second class cities and 25% with third and fourth class cities (Table 8). A new cost sharing scheme, patterned after the solid waste management scheme, is being proposed for sewerage projects (see below).

Figure 15. LGU Credit Financing Policy

Table 7. NG-LG Cost Sharing for Brown Environment

Municipalities and Provinces (in %) Cities (in %) LGU Income Class LGU Share

(Loan/Equity) National

Government LGU Share National

Government 1st and 2nd 60/20 20 100 0 3rd and 4th 45/15 40 100 0 5th and 6th 40/10 50 80 20

Private Sources of Credit (Bonds, BOT)

GFIs/BOT MDFO Credit +TA

MDFO/other Grants + TA

Non-credit worthy LGUs

Marginally creditworthy LGUs

Creditworthy LGUs but unable to tap market

Fully creditworthy LGUs

Financially Strongest 1st Class

Financially Weakest

6th Class LGU Income Class


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Table 8. NG-LG Cost Sharing for Solid Waste Management Projects

Municipalities and Provinces (in %) Cities (in %)* LGU Income Class LGU Share


Government LGU Share


Government 1st and 2nd 60/20 20 60 40 3rd and 4th 45/15 40 75 25 5th and 6th 40/10 50 80 20

*excluding Metro Manila LGUs 9.4.1 LGU Expenditures for Sanitation The 2007 BLGF aggregate Statement of Income and Expenditures (SIE) publication reports that the total IRA of all LGUs reached P148 billion with P42 billion generated each by provinces and cities, while municipalities received a total of P63 billion. The average IRA growth rate is computed to be 6.67% annually so that from the 2007 IRA, it is projected that IRA will reach P51.2 billion and P76.8 billion for cities and municipalities, respectively. Total expenditures of all LGUs in 2007 reached P206 billion but no significant amount went to sanitation. The largest expenditure went to operationalization of all the local offices (41%); economic services was the second largest, accounting for 15% of total expenses. The same report states that Health, Nutrition and Population Control covers sector expenditures for health programs including medical, dental and health services; planning and administration of nutrition programs; population and family planning programs; and administration of these programs while the Housing and Community Development sector covers expenditures for the provision of housing and sanitary services, promotion of community development, slum clearance, zoning and control of population. A more detailed allocation of expenditures is shown in Figure 16 demonstrating that sanitation, being integrated in the housing sector, is regarded as a low priority area.


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Figure 16. 2007 LGU Distribution of Expenditures

Given the above data, estimated maximum expenditures for housing and community development (including sanitation) in 2010 by cities and municipalities is P3.8 billion, representing an average of 3% of their total IRA (Table 9). Table 9. Estimated 2010 Expenditures for Housing and Sanitation (amounts in billion pesos)

Municipalities Cities HUCs

Total

Estimated 2010 IRA 83. 30.0 14.0

127.0 Maximum estimated yearly expenditure for housing and community development from IRA* 2.5 0..9 0.4

3.8 *amount historically spent on housing and community development, representing 3% of IRA 9.4.2 Investment Demand Projections for Sanitation The target is for all 17 HUCs outside of Metro Manila to develop sewerage projects for 50% of their total urban population while all the other cities and municipalities will implement septage management programs over the next 10 years. The significant amount needed for sewerage projects will necessarily oblige the HUCs to phase project implementation. The first phase will serve half of the 50% of the urban population (25% of total urban population) while the second phase will serve the remaining 25%. Investment requirements are estimated at P12.4 billion for septage management programs and P13.9 billion for sewerage projects or a total of P26.3 billion (Table 10). With the total investments, approximately 46.8 million people will benefit from the investments and 324 million kilograms of BOD will be diverted from the environment.


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Table 10. Projected Capital Investment Requirement SMP Sewerage Total Urban population to be served (in million) 43.6 3.2 46.8 CAPEX requirement to achieve the NSSMP targets (in billion pesos) 12.4 13.9 26.3

BOD diverted from environment (million kilogram) 260 64 324

Program efficiency (% of Total BOD generated) 24% 80% 9.4.3 Funding Gap for Sewerage Projects It has been established that septage projects can be fully recovered through user fees and that LGUs can avail of the different financing options detailed in Section 9.3. For sewerage projects however, implementing a tariff that is sufficient for the sustainable operations and maintenance of the facilities has been proven to be unaffordable. Moreover, given the magnitude of sewerage infrastructure costs, financing these projects from LGU resources alone will result in considerable disadvantage to the other sectors. The amount historically spent by LGUs on housing and community development, representing 3% of IRA, evidently has been spent more on housing initiatives and less on sanitation. Clearly, even if 3% of IRA is utilized solely for sewerage, it will not be sufficient to service debts needed for the construction of the facility (Table 11). Relying on user fees to complement IRA allocation has likewise been calculated to be unaffordable. Table 11. Estimated Annual Funding Gap for Sewerage Projects (in billion pesos) Amount

CAPEX requirement to achieve the NSSMP targets 13.9

Assumed yearly amortization if CAPEX requirement is borrowed * 1.72

Maximum estimated yearly allocation for housing and community development from IRA* * 0.4

Estimated Annual Funding Gap (1.32) *Term of 15 years @ 9% interest per annum **Amount historically spent on housing and community development, representing 3% of IRA

9.4.4 Proposed NG-LG Cost Sharing Policy If the national government desires to more effectively address environmental problems that actually impact not just on the concerned LGU but also on other neighboring areas, it must consider cost sharing with LGUs for sewerage projects. More specifically, the NSSMP adopts the current NG-LG cost sharing formula being implemented for solid waste management projects which allows first and second class cities to get financing support from the national government up to a maximum of 40% of project costs (Figure 17 and Table 12)


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Proposed Cost sharing Scheme for Sewerage Projects

LGU30%

WD30%

National Government

40%

LGU WD National Government

Figure 17. Proposed Cost Sharing for Sewerage Projects

Table 12. NG-LG Cost Sharing for Sewerage Projects

Cities (in %)* LGU Income Class LGU Share

(Loan/Equity) National Government

1st and 2nd 60 40 3rd and 4th 75 25 5th and 6th 80 20

*excluding Metro Manila LGUs In addition to the NG-LG formula, there is a need to establish certain minimum standards that will be carried out by the proponents such as charging of user fees to cover operations and maintenance of the facility at a minimum. Further, the administrative and operational efficiency of the LGU must be strengthened so it can assume responsibility for project implementation. Finally, the cost-sharing intervention should be time bounded. The above criteria are included in the Project Prioritization Toolkit, an excel file included on the CD. It is a suggested mechanism for DPWH to use to prioritize projects for funding. A more detailed project ranking and evaluation process will be contained in the NSSMP Operations Manual, which will be prepared prior to NSSMP implementation. Of the total infrastructure costs of P26.3 billion to meet the NSSMP targets, the national government’s cost share is estimated to total P5.6 billion for sewerage projects. This amount may change during implementation due to inflation and other factors.


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9.4.5 Economic Justification of NG-LG Cost-Sharing Policy A comparison of costs that will be incurred and benefits that will accrue to society as a result of a policy can justify the national cost share being proposed. Capital and Operating Costs Capital cost for the first phase of the NSSMP sewerage projects is estimated at P7 billion while operating costs will average P696 million annually over the next fifteen years. These costs, all at 2010 prices, will then have to be compared against any benefits associated with the operations of the facilities. Avoided Health Costs Discharging polluted effluent into the environment has harmful effects on people; about 55 people die each day due to poor sanitation in the Philippines. Sanitation facilities and programs are expected to reduce harmful discharges, with a consequent reduction in public health expenditures. As mentioned in the beginning of this report, a 2008 study estimated the economic costs of poor sanitation at P78 billion per year. Such savings are therefore attributable to policies that promote sanitation services. Improved health conditions are expected to arise with the project. To a certain extent, savings on medical expenses and avoided lost opportunities due to incidence of water-borne diseases are the results of improved health condition. The reduction on cost of time due to reduction in illness is based on the number of days an economically-active individual is rendered inactive due to ailments and valued based on the individual’s foregone earnings. Savings on medical expenses are based on the avoided cost of medical treatment for each period of illness. A 2004 survey21 estimates (using the Value of Statistical Life Approach) that the willingness to pay by an individual to reduce risk of death from water-related illnesses is PhP300,000 per 1,000 population (Php300 per person) or about Php402 per at 2010 prices. Avoided Environmental Costs Use of sanitation facilities will mean fewer expenditures to restore or maintain the environment. Assuming that the “environmental charge” is a reasonable estimate of the increase in customer satisfaction resulting from improved sanitation, it is being used as the practical value for the environmental benefit of the project22. In this report the calculated environmental tariff of P9 per cubic meter, representing 50% of the P18.01 average water tariff among big WDs23, is applied.

21 Under the Feasibility Study of the Manila Third Sewerage Project. 22 The same assumption was used in the Manila Third Sewerage Project study. 23 WSP August 2009 Report


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Net Benefits Table 12 shows the economic internal rate of return (EIRR) and the net present value (NPV) of all costs incurred and benefits that will accrue to the HUCs in the next fifteen years due to the development of Phase 1 of the sewerage projects. A project is considered economically viable if its NPV is greater than zero. This also denotes that the project’s EIRR is greater than the social discount rate of 15% (NEDA prescribed rate). In performing the calculations, the study assumed that there is no opportunity cost for the unemployed, thus benefits accrue only from the economically-active population. Further, only 20% of the total health benefits have been assumed to be attributable to the project since it is recognized that other factors (i.e., good hygiene, solid waste management) may contribute to improved health. The indicators prove that the country stands to realize significant benefits if it decides to aggressively encourage the development of sanitation projects. If one considers the other intangible benefits like increased land values and increased tourism receipts, the NSSMP can be considered even more economically desirable. Further, net benefits will definitely increase substantially with a much wider adoption of sanitation services nationwide (Table 13). Table 93. Economic Indicators (EIRR, NPV) NPV @ 15% social discount rate Php791.10 EIRR 19%Assumptions: Health benefits (data for NCR) Morbidity rate (per 100,000, 2007) 785.60 Ave. daily wage rate (in pesos, 2010) 425.00 No. of days of illness 5 Ave. medical expense (in pesos, 2009) 1,743.00

Percentage of economic active population (2007) 61.70% Willingness to pay to reduce risk of death (in pesos, 2010) 402.00

Environmental benefits Environmental charge (ave. pesos/HH/month) 273.20 Social Discount Rate 15%

10 Project Implementation Risks Overall the project implementation risks are high. The implementation risks that have been identified are presented below:

Failure of the national government to effectively roll out the NSSMP through promotions and training. A preliminary budget of $260,000 was estimated in a concept note submitted to DPWH by the AECOM team. This risk is determined to be moderate. It is likely that eventually project roll out funds will be provided but also likely that this will be delayed or be inadequate, which will delay the overall implementation of the project;


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Inadequate national and local funds to develop sewerage and septage management projects. This risk is determined to be moderate to high. The NSSMP will require investments of P14 billion over 10 years to meet the targets;

Weak political will to develop projects. This risk is determined to be moderate. To be

effective, leaders at the national, provincial and local government levels will need to support implementation of the NSSMP. This is unlikely to happen initially, which will increase the chance of delay. Past experience shows that there is little political will for sanitation projects based on the experience of the solid waste initiatives. While some national agencies will promote the program, it is unlikely that strong support from the highest levels of government will be realized for the first few years of the project; and

Weak enforcement of existing laws and regulations. History shows that national agencies

such as DENR and DOH are slow to enforce the laws within their jurisdiction. An effective NSSMP requires a robust enforcement program, and this is unlikely at least in the near future.

Failure of government to allocate land and rights of way for infrastructure projects. This

is a major constraint for developing solid waste management facilities, in addition to problems of social acceptability; and

Difficulty in timing the three components for successful project interventions

(infrastructure, promotions, supporting environment). If infrastructure is built before the other two components are in place, sustained and effective operation and payment of user fees is unlikely.


Annex 74

Annex: Computation of Estimates and Targets A. Estimates used in the Intervention and Investment Framework 1. Septage

Capital costs for septage collection and treatment systems were based on data from the USAID Philippine Water Revolving Fund Support Program (PWRF) Metro Cebu Septage Management Project Feasibility Study Report published in January 2009, and the Dumaguete Septage Management program. Additional data from the Manila Water Company (MWC) South Septage Treatment Plant and the Maynilad Water Dagat-dagatan septage facilities was also used. PWRF data is believed to be the most accurate study of septic tank prevalence and septage collection and treatment costs in the Philippines and was relied upon extensively for this report. From the Metro Cebu Study Population of Coverage Area: 1,800,000 people Cost of Septage Treatment Facility: P280,000,000 Cost of Trucks: P55,000,000 Notes/Assumptions

1. Population of coverage area includes some highly urbanized areas as well as rural areas in Metro Cebu;

2. The percentage of households with septic tanks in Metro Cebu is similar to the percentages in other urbanized areas of the Philippines;

3. The percentage of desludgable septic tanks in Metro Cebu is similar to the percentages in other urbanized areas of the Philippines;

4. The percentage of septic tanks that will be desludged in a given LGU is based on the percentage in the Metro Cebu study.

5. PWRF calculations include assumptions for population growth, which were used to develop these targets.

6. There is an economy of scale in wastewater and septage treatment: generally the cost per cubic meter for treatment goes down with higher volumes. However, this is often balanced out because larger systems generally require more expensive, energy-intensive technologies that smaller systems usually don’t need. This, plus the large variation in the population size of LGUs, and differences in site conditions makes it difficult to apply a national average to a specific LGU or project. Therefore, while costs are provided, they are only estimates of average costs. Actual costs may be much higher or lower depending on the actual site conditions and other factors. LGUs are cautioned that the only way to determine actual costs is to do a feasibility study. It is also useful to perform a cost-benefit analysis comparing several technologies.

The following calculations illustrate how the indicative costs for septage projects were derived for the Intervention and Investment Framework for septage projects:

Calculation 1: CAPEX Calculation 2: OPEX - Treatment (annual operations of treatment equipment) Calculation 3: OPEX – Collection (annual operations of collection equipment)


Annex 75

Calculation 1. Cost of treatment and trucking investment per capita (number of people in coverage area) As referenced above, there is an economy of scale with septage programs where the larger facilities generally cost less per unit volume of septage treated than smaller systems. For larger systems, the PWRF and Metro Manila systems provide good cost estimates. The Dumaguete example is indicative for medium sized systems. The costs vs. population for septage programs are expressed on a cost curve, which is provided at the end of this section. The median data points that are used for developing the cost cure are:

P186 per capita for larger systems; P200 per capita for medium sized systems; and P250 per capita for smaller systems.

For example, for larger systems, the costs are derived as follows: (P280,000,000 treatment plant expense + P55,000,000 trucks) ÷ 1,800,000 people = P186.125 per person in the coverage area Apply this ratio to other large LGUs to estimate the cost of the required investment for septage treatment and trucking. Example: Indicative LGU A: population in coverage area: 800,000 Investment in treatment and trucks estimation: 800,000 people x P186.125 per person = P148,900,000 The septage toolkit, found on the compendium CD automatically calculates the median cost factor based on the population. Septage Cost Curve Refer to the chart below for the cost curve for sewerage projects. The data presented is extrapolated and based on limited data points, but may be useful for understanding trends.


Annex 76

Septage

100

150

200

250

300

350

0 200,000 400,000 600,000 800,000 1,000,000 1,200,000

People In Coverage Area

Pes

os P

er P

erso

n

Median

High

Low

The cost information represents the capital expenditures for septage collection (trucks) and treatment systems. The data is presented as cost in pesos per person in the coverage area. It does not include costs for land, or special site development costs, such as improving ingress and egress to accommodate septage trucks. The high and low values should be viewed as a 75% confidence level, meaning 75% of septage projects would fall somewhere within this range. Higher costs might be realized for projects where the land available for septage treatment is very limited, that might require highly mechanized technologies, or if bedrock or groundwater is present, which could complicate construction. Lower costs might be realized where land for septage treatment is large and available, which would allow technologies using less mechanization. There are also certain innovative technologies that might result in lower costs. Notice that the low end of the cost curve drops off significantly for smaller projects. This reflects the additional opportunities for smaller project to take advantage of low cost technologies such as lime stabilization and wetlands treatment, to name a few. Smaller projects may also realize cost savings by purchasing surplus or used trucks. Calculation 2. An estimate of the annual operating expenses was provided in the Investment and Interventions Framework for indicative projects. To estimate the cost of operating the treatment system, the septage tool24 was used to determine the cost of operations for the Metro Cebu example including the loan principal and interest. For the Framework, assumptions of 80% loanable amount at 11% annual interest for a 5 year term were used. From this calculation, a

24 The tools can be found in the NSSMP Guide to Local Implementers.


Annex 77

percentage of the total capital cost of the treatment system is obtained for annual operations. For the purpose of the Framework, the average value of 21.4% of the total CAPEX (treatment plus trucks) is used for calculating the annual treatment plant operating expenses. It was then applied to the other indicative LGUs. For example, LGU A has a CAPEX of 148,000,000. Multiply this by 0.214 and the annual estimated treatment facility operating cost per year is P31,900,000 Calculation 3. A similar ratio was prepared for the annual collection costs (trucking expenses). The septage toolkit was used to obtain a value of 10.7% of the CAPEX as an average annual collection cost. Therefore, for LGU A, P148,900,000 x 0.107 = P15,900,000 average annual collection expenses. 2. Sewerage

As with septage, it is difficult to apply an average cost based on a national average to a specific sewerage project. The cost of sewerage components such as pipelines and treatment equipment depends upon many factors including site conditions, capacity of local implementers, electrical power reliability, ingress and egress to the site, among other factors. A large indicative sewerage project in Metro Manila and a MWC CAPEX metric (below) were utilized for determining cost estimates based on population.

Source: Manila Water Company, Inc. A median range for developing sewerage collection and treatment systems of between P4,094 to P6,000 per capita for CAPEX is provided as follows:

Capex Metric

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

1 2 3 4 5 6 7 8 9 10 11 12 13

Capacity (cum/day)

Cost (Php) per cum

Master plan

Package systems

Combined sewer‐drainage

Other sources

10 100 200 300 500 1,000 2,000 3,000 5,000 10,000 20,000 30,000 50,000


Annex 78

Sewerage systems for large flows serving more than 200,000 people: P4,100/capita; Sewerage systems for moderate flows serving between 100,000 and 200,000 people:

P5,050/capita; and Sewerage systems for smaller systems with fewer than 100,000 people: P6,000/capita

This is based in part on the Marikina City sewerage projects of MWC, which will serve 635,000 people at a cost of P2.6 billion. This computes to P4,094 per person. The Marikina example is indicative of larger sewerage projects. For smaller projects, the MWC cost curve indicates smaller systems have a higher per person cost. For the purposes of the NSSMP, a median cost of P6,000 per person is used for smaller sewerage systems serving under 100,000 people. For operating expenses (OPEX) an estimate of 10% per year for operating expenses for the wastewater treatment component and 7.5% per year for the operating expenses for the sewer lines was used as a rough estimate based on OPEX cost data from MWC. MWC cautions that actual prices for operations may be somewhat higher in the provinces or outside of the largest metropolitan areas. NOTE: There may be some opportunities for cost savings using an innovative sewerage method known as condominial sewerage. In this scheme, the homeowners install shared sewer branches, which they own and maintain, while the city installs the larger pipes in the streets and the sewage treatment plant. A recent pilot project was installed in Brazil with encouraging results. For this project of 160,000 people, the average per capita cost is the equivalent of P3,400. As there are currently no similar projects in the Philippines, this data point is not being used for indicative costs for the purposes of the NSSMP. Sewerage Cost Curve Refer to the chart below for the cost curve on sewerage projects. The data present is extrapolated and based on limited data points, but may be useful for understanding trends.

Sewerage

0

2000

4000

6000

8000

10000

0 50000 100000 150000 200000 250000 300000

People

Pes

os

Median

High

Low


Annex 79

For the data presented, sewerage projects include the cost of the sewer pipelines, lift stations and interceptors required for sewer collection, as well as the wastewater treatment works. The data does not differentiate between types of sewer systems (combined or sanitary) or the type of wastewater treatment technology, nor does it consider the cost of land, rights of way or providing access. The high and low values should be viewed as a 75% confidence level, meaning 75% of sewerage projects would fall somewhere within this range. Higher costs might be realized for projects where the land available for sewerage is very limited, uneven topography, or bedrock or groundwater is present, which could complicate construction. Lower costs might be realized where land for sewerage works is large and available, which would allow technologies using less mechanization. Additional savings may be realized where slopes are gentle and even, which would minimize the cost of installing pump stations. There are also certain innovative technologies that might result in lower costs. Read the graph by finding the number of people that will benefit from the proposed sewerage project along the bottom axis. Then find the range of costs in terms of pesos per person within the sewerage coverage area. For example, a sewerage project that serves 100,000 people, the cost per person would likely (75% confidence level) be P3,900 and P6,750 . Example: HUC A This is an interceptor sewerage project using activated sludge for 200,000 people. As this is a larger system, the CAPEX is estimated at P4,100/capita, x 200,000 people = P820 million. Operation of the wastewater facility is estimated at 10% of the CAPEX per year or P82 million.

Operation of the piped sewerage collection system is estimated at 7.5% of the CAPEX per year or P61.5 million. Again it should be noted that is an estimate of average costs. Actual costs may vary greatly from this amount.


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B. Estimates Used for the Targets 1. Septage Management and Sewerage Projects by 2020

Please see the National Projections file on the CD for more details on how the septage figures were calculated.


Annex 81

2. Pollution Targets Both septage management and sewerage programs will divert pollution (measured in kg of biochemical oxygen demand or BOD) from the environment by treating and disposing of it in an environmentally-sound manner. Septage Treatment Currently, much of the septage that is desludged from septic tanks is not properly treated prior to disposal. The following are estimates of the percentage of homes that have septic tanks per division (from the PWRF Metro Cebu study, and USAID-supported surveys in Zamboanga and Dumaguete Cities). Division 1: 70% Division 2: 60% Division 3: 50% Division 4: 40% Division 5: 40% Recent household surveys in Zamboanga and Dumaguete Cities provide interesting results related to desludging practices of residential septic tank owners. In Zamboanga City, 54% of respondents say they have never desludged their septic tank, while 50% in Dumaguete make the same claim. Of those that have desludged, 41% in Zamboanga and 40% in Dumaguete claim to have desludged in the last two years. These strong correlations from two different surveys conducted by separate investigators provide a strong indication that on average, 20% of the homes with septic tanks are desludging every two years or 10% per year. It is further assumed that this septage has an average BOD of 4,700 mg/l (MWSS mean value, which is 14.1 kg/three cubic meter tank), and that 95% of this flow is discharged to the environment without treatment.

Please see the National Projections file on the CD for the computations of the BOD values for septage management. Sewerage Sewerage systems directly reduce the impact of sewage on surface waters by capturing the waste and treating it prior to discharge. A per capita figure of 0.2 pounds of BOD generated per day is assumed for combined sewer systems. This is based on a figure of 0.15 pounds per person listed in the “Handbook of Mechanical Engineering”25 plus 0.05 pounds for commercial and industrial sources. It is further assumed that 80% of the BOD from the collected sewage is removed through the treatment process. The calculation therefore is made as follows: Number of people served by the sewer system x 0.2 lbs of BOD/person/day ÷ 2.2 pounds per kg x 365 days. Therefore, 3,235,221 people x 0.2 lbs BOD/day/2.2 pounds per kg x 365 X 80% = 85,880,412 kg of BOD per year is diverted from the environment.

25 Hicks, Tyler Gregory, P.E. 2006. Handbook of Mechanical Engineering. McGraw Hill Handbooks.


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Conclusion While sewerage costs are much higher on a per capita basis, the true value is apparent when comparing the efficiency of BOD removal, which is 80% for sewerage and 24% for septage management programs. (Please see the National Projections file on the CD for details on how the efficiency rate was calculated for septage management.)

national sewerage and septage management · pdf file... 27 ... source of lgu regular income by...

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