Many people might think that Maynilad’s financial difficulties is a sign that
privatization of water distribution in the Philippines is failing. They are wrong.
The price of piped water in Metro Manila today is among the cheapest
in the country and even in Asia. Using the East Zone price as reference, one can say a
Metro Manila resident with a US$1000 per capita income is paying for cheaper water
(equivalent to 0.6 to 2 percent of monthly income) than the average Phnom Penh resident (4
percent) with a US$300 per capita income.
Before privatization, about 7 million had piped water; now almost 10
million have. Almost 130,000 poor households now have piped water. Before these people
were at the mercy of vendors who charge 20 times higher. There are still many problems but
experts say the situation could have become worse under continued MWSS monopoly.
The West Zone/Maynilad Water concession provides valuable lessons.
Without good initial information, competent regulators, and an innovative risk management
strategy on the part of private operators, all sorts of discrete problems—foreign
exchange fluctuations as well as contractual, regulatory and political risks—could
magnify to cripple the privatization initiative.
It’s good that the government had split the MWSS concession. The
East Zone/Manila Water has shown that privatization could work given management creativity
and entrepreneurial doggedness. If the current arbitration efforts between the MWSS
regulatory office and Maynilad would not yield good results, the government may now have
adequate information for whatever options it might take, e.g., a takeover by the other
concessionaire or rebidding.
Privatization or public-private partnership should need to work in the
Philippines because of two major reasons.
One, it has proven to be among the best ways to meet the growing water
demand. For half a century, it was thought that providing water was a responsibility of
the government through water districts and local government units. Financial institutions
and donor agencies reinforced with grants and loans. The result was the mushrooming of
utilities that were poorly managed, badly supervised, and inefficient. Most of these local
utilities are confined in the central areas of cities and urban centers to the detriment
of the suburbs and rural areas. Many of them are probably overpriced.
Two, public-private partnership in water production and delivery has
started to emerge as a viable option for growing towns and cities in the Philippines. In
the same year that urban water distribution in Metro Manila was turned over to private
concessionaires, Subic Water emerged from a joint venture between Subic Bay Metropolitan
Authority and private firms to serve the needs of half a million population. In 2000 and
2002, residents of Magdalena in Laguna and two small towns in Bukidnon have started to
enjoy piped water through a “design-build-lease” arrangement with the private
sector.
This is good because in the last several years, financial experts have
noticed that international aid for water and sanitation has been declining. Owing to
perceived high risks in the water business, private infrastructure investments have
largely been flowing toward energy, transport, and communications. Due to populist pricing
policies, most local water utilities do not have money to finance expansion from their own
cash flows. Failure to solve the Maynilad problem, therefore, could nip the private sector’s
budding interest in the water sector.
Water is both a resource to be managed and conserved as well as a
service to be provided. Public-private partnership could only be sustainable if
accompanied by a reform in the way the country’s water resources are managed and
developed.
Outside Metro Manila, water districts under the Local Water Utilities
Administration provide drinking water to towns and cities. Bound by political boundaries,
their operations are confined to small geographical areas, forcing most to rely on
groundwater mining, resulting in high prices and environmentally destructive consequences.
Also, water-related institutions are fragmented and weak, many of them pursuing
conflicting objectives.
It is better to adopt an integrated water resources management
strategy where the water supply system is organized along a source or a “river basin.”
This way, stakeholders—private firms, government agencies, and local communities—could
coherently work together on various components of the system from watershed management,
infrastructure support, production, distribution, and other related activities. The sooner
the government can do this, the better. |