Transcript Document
Mainstreaming Public-Private Partnerships
PPP’s: Theory & Practice
SANPSHOTS: Manila Water Company, Inc. (MWC)
Anouj Mehta, Senior Infrastructure Finance Specialist (PPPs), Asian Development Bank
Bhopal, 26 th February 2009
Backdrop: Manila
Metro Manila: Capital of the Philippines and made up of 17 municipalities Population of over 14 million Intensely congested in parts – second most populous in S.E. Asia
Backdrop: Water Operations Prior to 1997, responsibility for water and sewrage services rested with: Metropolitan Water and Sewerage Services (MWSS), a Government Corporation Poor service performance parameters: Years of under-investment by MWSS MWSS was hugely indebted Grossly inefficient services Huge Non-Revenue Water as % of production Severe problem of illegal connections Low water pressure • Coverage: Only 58% population • 63% Non Revenue Water • 24*7 Water Coverage: 26% only • Poor Heavily Affected: poor piped coverage
Paying upto 13% of incomes, some Rs 1000 per mth
Government Response to Water Crisis :
Set out clear objectives: Improvement in quality and efficiency of service.
Expansion of service.
Reduction in water tariff.
End expensive government subsidies.
Promulgation of “National Water Crisis Act” 1995
National Water Crisis Act (1995)
Granting of authority to the President to privatise water utilities, including MWSS CRUCIAL: Expression of political will and commitment Create public awareness about benefits of “privatization” (reduction in water tariff!).
Criminalization of water theft.
Re-organisation of MWSS Split Manila service area into two zones (East and West zones) Introduction of PSP and competition and Takeover policy between zones Performance Benchmarking encouraged
Not “Privatisation” But PPP Approach
It was not privatisation The government retained ownership of the assets of the MWSS, but followed a “lease” model to the private companies to improve and operate assets for a fixed period, and then to be returned to government Bid process Aimed to bid out off the rights to operate and expand the water and sewage network system, With a set of performance targets to achieve, And with the preferred bidder being the one offering the lowest price of water, for the set performance targets.
Private companies responsibilities were Raising finance, debt servicing, improving the network and tariff billing and collection
Re-organisation MWSS
Zone West
(60% population)
Maynilad Water Services Inc (MWSI) Zone East
(40% population)
Manila Water Company Inc (MWCI)
The East Zone Concession Framework
To rehabilitate, expand, & operate the east zone of Metro Manila’s water utility for 25 years, Targets increase coverage of water and sanitation services for 5 million people, Improve continuous water availability, Meet quality standards and service quality, Reduce NRW User tariff set by competitive bidding - the lowest price of water Manila Water offered to charge just over one quarter (26.39%) of the existing rates Tariff adjustments provisions.
Regulation by contract (no legislative regulation) Subject to demand risks
Some Striking Features
Staggered works: Major capital expenditures commenced after 5 years; Initial focus on softer and cheaper measures to improve services such as replacement of meters and reducing water theft.
Increase in existing water tariff (August 1996) by 38%.
Reportedly; Overdue Would have privatization been implemented regardless of Establishment of a Regulatory Office to Monitor and enforce concessions Implement rate adjustments Deal with customer complaints
The East Zone Concession Framework: Won By Manila Water Company
Ayala Group (33.5%) United (11.7%) Utilities Mitsubishi Corporation (7.8%) IFC (7.3%) Employees (2.7%) Public (37%) Embarked on heavy Capex Program
Manila Water Company: Then (1997) & Now (2007)…
Reduction in Non-Revenue Water (NRW)
70 65 60 63 55.2
55 50 45 53 51 52 54 50.7
43.4
40 35.5
35 30 30 25.2
25 20 1997 1998 1999 2000 2001 2002
Year
2003 2004 2005 Source: Building Viable Water Utilities: The Manila Water Experience Virgilio C. Rivera, Jr., Group Director, Regulation and Corporate Development Manila Water Company, Inc.
2006 Sep-07
Manila Water Company: Then (1997) & Now (2007)…
Water Coverage
1997 3.1 million (58% of population) Customer Base 5.6 million (99% of population) 2007 16
Availability of Water
Hours per Day 24
Manila Water Company: Then (1997) & Now (2007)…
Providing 24 by 7 Water Supply Doubled billed water from 440 MLD to 1000 MLD
Manila Water Company: Then (1997) & Now (2007)…
Manila Water Tariff Rates
25 20 15 10 5 4.02
4.37
4.55
4.77
9.37
13.88
14.02
18.55
19.72
20.48
0 1998 1999 2000 2001 2002 2003
Year
2004 2005 2006 2007 Source: Building Viable Water Utilities: The Manila Water Experience Virgilio C. Rivera, Jr., Group Director, Regulation and Corporate Development Manila Water Company, Inc.
MWC: Affordable?
Costs of production might initially increase - modernisation and upgradation, risk capital with initial turn around phase; generally later should drop with productivity enhancements etc
Tariff Comparison - Manila Water MWSS Projected Rate Manila Water Rate 20
Tariffs reflective of costs will likely increase for a period Sustained tariff levels Pricing can incorporate affordable levels for consumers (5% income)
Can incorporate poor focused schemes to allow affordability 15 10 5 0
Coverage of service, quality and sustained accessibility will benefit over time
19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05
Less pressure on government budgets freeing up space for other programmes Monthly water bill much less than 5% income of a low income household (IFC) – affordable (1% of low income household’s income and 1.4% of middle income houshold incomes)
MWC: Helping The Poor?
Real cost of water under the pre PPP scenario - poor mostly using private low quality trucked water supplies Average Household in East Zone: Private Vended Water Was getting about 6 cu. m per month from trucks Price 1000 pesos per month MWC Piped Water Now getting around 30 cu. M per month from pipes Price 300 Pesos per month Specific Program for the Poor: WATER FOR THE POOR Programme: •Supplying 1.5 m legal connections to slums and cluster areas •Using the community including one metre for a cluster and sub meters which are Monitored by the community and bills collected by the community also and then Given to MWC •Prior to TPSB, poor were paying P1000 per cu.m. – almost 11-13% of incomes •Post TPSB, around P10 per cu.m.; less than 5% of the monthly incomes
Tariff Adjustment Provisions
Inflation. The regulator allowed for increases according to annual rates of inflation.
Unforeseen events. Companies could change prices once a year due to drastic or other unpredictable events, such as the rapid devaluation of the peso.
Rate re-basing. At the start of each five year period, a review of tariffs could be made so they can be adjusted to reflect “fair returns” for the company agreed in the contract. (cost recovery based tariff)