Water Services for the Poor – the Manila experience

1. Water Services for the Poor – the Manila experience Global Forum on Sustainable Development Paris, France December 18, 2003

2. Manila experience • 2 concessions granted to the private sector for water utility in 1997 • After 6 years, more than a million poor people have received direct connections. • Poor received numerous benefits: • Financial savings • Health improvement • Time • Space

3. The need for institutional reform • After more than a century and in spite of massive donor assistance, Manila water services remained poor. • The basic problem: The water utility (MWSS) was policy maker, regulator and implementor. It had little accountability to its customers. • PSP transferred implementation to the private sector and created a regulatory office while MWSS remained as policy maker. • Two concessions were established to increase accountability through benchmarking.

4. Protection for the Poor in the Concession Agreements • Aggressive service targets for water coverage • Connection fees covered only marginal cost of connection and poor were allowed to pay connection fees over 2 years. • Commercial tariffs cross-subsidized residential tariffs. • Essentially a “Rate of Return” regulation – the concessionaire is guaranteed to make money as long as he is reasonably efficient.

5. The Poor Rejected “Free Water” • The Concession Agreement gave an option to provide free water from standpipes for poor. • The poor rejected this option and requested direct connections. • Their reasons: • “Free water” is not really free • Health hazards • Time • Convenience

6. Private sector incentives for providing water to poor • Substantial amounts of non-revenue water were suspected to come from poor areas. • Lower marginal capital cost to provide water to poor due to high population density. • Greater number of people per household meant more consumers per connection. • “Rate of Return” regulation meant that the investments would be profitable. • The residential tariffs covered O&M cost + a small margin. • Media and political mileage

7. Private sector resourcefulness • Concessionaires worked with NGO’s and local governments. • Connections were made for poor who lived in public lands where no relocation was planned for three (3) years. • Part of labor force hired from poor area itself • Meters installed in visible areas and distribution pipes laid above ground • One mother meter shared per 5 households to reduce connection fee

8. Results • More than a million poor people have direct connections after five (5) years. • In 2003 alone, around 300,000 poor people received direct connections. • Average monthly consumption per household is around 27 cubic meters, equal to system-wide residential average. • Average cost to poor is US$4 per month, less than 3% of their income.

9. Lessons: The Poor are Willing to Pay • In one district in Sri Lanka, a few thousand families were provided free water through standpipes. When asked, all of them agreed to have direct connections and pay the regular tariff. • Surveys in India reveal that the poor are willing to pay for a good water service. • The Manila experience is not uncommon. The poor are willing to pay for a good water service.

10. Lessons: The private sector can be motivated to service the poor • The design of the Manila concession provided the private sector an incentive to serve the poor. • Faced with these incentives, the concessionaires voluntarily strove to improve services for the poor. • The result was a win-win situation wherein all parties benefited – the poor, the concessionaires and the government.

11. Lessons: Institutional reform is basic and essential • PSP brought about the institutional reform that resulted in improved services for the poor. • Accountability was established by separating the roles of policy maker, regulator and implementor, as well as by creating two concession zones.