Suprising Progress in Teeming Manila

Imagine buying only enough water for one day and paying three to six times the price for something of questionable quality. This was a reality just a few years ago for poor residents of metro Manila, the capital of the Philippines with a population of 13 million. But for many in the city's eastern region that has changed, thanks to a creative enterprise between the Ayala family company and the government's water agency.

For 37-year-old Aida Estacio, the enterprise has made life easier and cheaper. She was paying $15 (600 pesos) a month for water from a well and making daily, one-mile trips on foot to bring back her water in a pushcart. Now she pays $5 (200 pesos) a month. "I can take a bath anytime I want. Wash clothes anytime I want," she says. "Now I have more time for other things like taking care of the kids [four children] and cooking."

The story begins in 1997 when Manila's water system, then run by the state-owned Metropolitan Waterworks and Sewerage System (MWSS), was in a virtual state of collapse and turned to the private sector for relief. Almost two-thirds of the water, 63 percent, was being lost due to theft or leakage thanks to a decaying pipe and meter system. In addition, only one-fourth of the households had 24-hour service.

Manila Water Company, led by the Ayala business group, one of the Philippines' oldest and wealthiest business families, took over the water concession for the eastern metropolitan area, home to an estimated 5 million people.

Manila Water has now cut the rate of lost or "non-revenue" water to 25 percent, and 98 percent of households now have 24-hour service. The company was able to run a profitable business by cutting the losses, and people were willing to pay for clean, continuous, and affordable water that they did not have before. This was not an easy task. Replacing a decaying system was a massive undertaking. Since 1997, Manila Water has laid more than 1,800 miles of pipe and invested $650 million, according to Jeric Sevilla, the company's corporate communications manager. "Initially we started point repair and rehabilitation," he explains. "But over time we found out that you need to replace the entire system."

Perhaps the biggest challenge was incorporating poor people into a system in which they paid for regular piped-in water service. Many of the poor, at the time, were getting water from a variety of sources including wells, common faucets available to a community, vendors using trucks and carts, or theft from existing lines. Manila Water introduced a program called "Water For The Poor." Company representatives talked to residents, local government officials, and politicians about the benefits of a regular connection. They also laid out the company's plan for the works and costs needed to establish such service.

For example, in the poor Taguig section of metro Manila water costs have been cut dramatically. In the days of the government utility, many residents filled containers from a communal tap that served 100 households. It cost about $12.50 (500 pesos) for 2,640 gallons, the average minimum monthly consumption per family (of four or five).

Now that amount costs $2.20 (88 pesos) and is piped to individual homes. But average monthly consumption has risen to 4,000 to 5,300 gallons, which costs an estimated $3.52 (141 pesos) to $4.90 (196 pesos). Charges rise along with volume, and when people get a regular connection they use more water. An average monthly income in Taguig is about $175 (7,000 pesos). So water takes about 2 percent to 3 percent of income. In areas not served by a utility, that cost climbs to 5 percent, according to a 2006 Asian Development Bank survey.

For the poorest of its customers, life is a hand-to-mouth existence, so Manila Water had to relax its requirements and payment terms. During the days of the government-run utility, residents had to give proof that they owned the land they lived on in order to get a connection. The company dropped this requirement because many of the poor live in informal settlements, or squatter communities, and do not have such documentation.

Sevilla estimates that 30 percent to 40 percent of metro Manila's population is from the low-income bracket, including at least 10 percent who are squatters. "These are the people who suffer the most in terms of no access to water before privatization," Sevilla argues. "So that was a main concern for us."

Many of Manila Water's customers are not able to immediately pay the $187 (7,500 pesos) initial charge for being connected to the main water system. So the company offered staggered payments from six months to a year, or even two years, as part of the regular monthly bill. Another way of easing the financial burden on the poor is livelihood projects. Manila Water gave $1,250 (50,000 pesos) loans to local cooperatives to make items used in construction, like signs for construction sites and corrugated metal barriers to wall off work sites.

This commercial and social success has made Manila Water the darling of the World Bank's International Finance Corporation (IFC). "The people appreciate the fact that they have a 24-hour water supply which is right around their door. They don't have to line up. They don't have to buy it more expensively," says the IFC's Jasper Virola. "They were able to make these communities cooperate with them, and it gave them the social license basically to operate."

Despite this apparent win-win situation, Manila Water does have a severe critic, the Freedom From Debt Coalition. Its vice president, Lidy Nacpil, acknowledges that the company is bringing water to the poor at a cost much cheaper than the old system involving truck deliveries or wells. However, she says Manila Water is making too much money, showing a 40 percent return rather than the 12 percent return typical for Philippine utilities. "[Water] should not be an industry where profit-making would be an objective," Nacpil argues. "It should be an industry where primarily the intention should be to ensure the delivery of affordable water for all. And while we need to recover the cost, we don't see why the government cannot subsidize access of the poor." However, while Manila Water is performing the function of a utility, legally it is a contractor working for the government utility MWSS, according to Randy Sakai, a financial official of the MWSS regulatory office. As such, it is allowed market-driven rates to recover "expenditures prudently and efficiently incurred" needed to meet service demands.

Lots of work lies ahead, and large investments will be necessary. The company ideally would like to achieve only single-digit water-loss levels like those in far wealthier Singapore or Japan. But getting below Manila's current 25 percent loss rate is physically difficult and expensive. An even bigger challenge is what Sevilla calls the "sad state" of wastewater provision in the metropolitan area. When the company took over in 1997, only 3 percent to 5 percent of the eastern region had sewer coverage, with most people using septic tanks and a small percentage discharging untreated waste. Now, the company says it has achieved 10 percent sewer coverage and wants to raise that to 30 percent by 2010.

What happened to western Manila, with an estimated 8 million people? That concession was taken by a company called Maynilad run by the Lopez Group of the Philippines and Suez of France. After years of heavy losses Maynilad filed for bankruptcy in 2004. Heavy debt and the Asian Financial crisis devastated the project, according to the IFC's Virola.

The western concession inherited nine times the debt of the eastern, when it was taken over in 1997 by Maynilad, Virola says. That was to offset other advantages because the western region was 1.5 times as big as the eastern, making it a more lucrative concession. Customers were also more densely located so less pipe was needed to service larger numbers of people.

When the Asian financial crisis hit, the peso crashed, ultimately losing about half its value against the dollar and devastating the peso income received by Maynilad. This crippled the company's ability to operate, improve, and expand service. In 2007, the western concession was formally taken over by a new private group, the DMCI-Metro Pacific Consortium, which is starting to employ water programs for the poor.

The future, meanwhile, is looking up for Manila Water. The company says it has prequalified to bid for a water project in India's West Bengal state, and it also has active bids for a nonrevenue water-reduction project in Vietnam and one for wastewater in Hong Kong.