Water Services for the Poor

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 OM cost a
  small margin.
• Media and political mileage

7
Private sector resourcefulness

• Concessionaires worked with NGOs 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 US4 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.