Plumbing the Manila Water story for corporate lessons

BUSINESS WORLD
Introspective


I was recently asked to say a few words at the launch of an Asian Development Bank (ADB) book by Perry Rivera, Tap Secrets, The Manila Water Story. I hope that readers would find the excerpt of what I said below interesting enough to access the free downloadable version in the ADB website, where it will be posted soon. (In the meantime, you can access it from my Dropbox: https://www.dropbox.com/s/z466q9aj17x80jd/0407_TAP%20Secrets_web-version-2.pdf) It is an amazing story of a most successful public private partnership project:

MY ASSOCIATION with the Metropolitan Waterworks and Sewerage System (MWSS) Public-Private Partnership (PPP) goes back to when PPP was still called “privatization,” now a bad word in certain left-leaning circles. It has been 19 years ago almost to the day when, as a finance undersecretary, I was appointed to the Board of Trustees of MWSS. My assignment was to help make the PPP happen to cope with a “water crisis” in the metropolis. The water crisis arose from a vicious cycle of large systems losses, inability to raise rates because of poor service quality, a nonexistent waste water management, and the low productivity of a grossly overstaffed government agency.

Despite hiccups along the way -- labor unrest, a couple of temporary restraining orders filed by vested business interests, and assorted hurdles -- it was done in record of time of less than two years. This was thanks to the clarity of vision and political will of President Fidel V. Ramos, the thoughtful and dogged execution by a dream team -- then Public Works Secretary Gregorio Vigilar, former MWSS administrator Lito Lazaro, and then Chief of Staff Mark Dumol, now an executive in the San Miguel group.

The accomplishment looked big then, but what we in government started was actually just the beginning. The real achievement was done over 17 years -- and counting -- of dedicated work by the men and women of Manila Water under the Ayala banner, surpassing by far any scenario I could have imagined.

As ADB Vice-President Bindu Lohani’s foreword summarized, “with a $1 billion investment, Manila Water replaced kilometers of pipes, expanded service connections, increased service availability, and reduced non-revenue water from 63% in 1997 to 11% in 2012. The company now serves more than six million happy customers enjoying 24/7 water supply... In this book, Manila Water reveals its most classified corporate secrets, which finally sheds light on the company’s successes in instituting water sector reforms.”

To underscore, 17 years ago, 63% of every liter of water was lost, mostly due to leaking pipes (some to theft). I recall that number vividly because bringing it down to a more sustainable level was always part of the condition of every ADB loan that I had to negotiate as finance undersecretary together with then MWSS Chief Finance Officer Loida Dinio. And year in and year out, we failed to meet this condition.

Certainly, I never imagined that Manila Water could ever reach the current non-revenue water of 11%. This number meets the highest global standards. More importantly, it obviated the need to build a major water source dam and protected the public from another water crisis.

This book is about how these and other milestones were achieved. For instance, there is the multi-awarded Tubig para sa Barangay that connected poor communities at affordable rates. The book delivers on its clever title. It releases a stream of knowledge to any student of management -- public, corporate, civil society -- as well as to anyone or any institution, here in the Philippines or elsewhere, striving to make a difference in the world.

This book is inspirational prose and user’s manual rolled into one. The words flow freely, seemingly effortlessly. For example, take the memorable three EEEs (enable, empower, excel) or the beautiful imagery of the five marbles. And just like the Manila Water story, behind the excellent product is a lot of hard, thoughtful, dedicated plumbing.

In one sense, Perry’s book is not just the tap secrets of Manila Water. It is also about the secret of how the Ayala group as a whole and over the years has succeeded where others failed. In a sense there is really no secret. The factors of success are well known, though not easy to follow: leadership, a culture of excellence, integrity, teamwork, customer orientation, and a long-term commitment that goes beyond the bottom line.

Seventeen years ago, the Ayala group took a huge leap, taking risks in something that was untried here in the Philippines. This leap of faith was propelled by their 160 years of business experience (which date back to the first Manila rail system called Tranvia).

The Ayala Group did this too in telecommunications. Until Globe and around 10 others (whose names few will remember) came along during the de-monopolization in the Ramos years, we were described by Singapore’s Lee Kuan Yew as a nation where “98% of the people are waiting for a phone, and 2% are waiting for a dial tone.”

This would be seen as a biased review if I did not find a single shortcoming in the book. So here it is. The final chapter is devoted to “emerging challenges and issues.” The regulatory regime section is one that business, governments, multilateral institutions, academe, and civil society would have found of particular interest. However, it is only three paragraphs long.

When chided on it, Perry replied that as is done by all authors of best sellers: he is saving that for Volume Two.

Romeo Bernardo was finance undersecretary during the Cory Aquino and Ramos administrations, and board director of Institute of Development and Econometric Analysis Inc.

http://www.bworldonline.com/content.php?section=Opinion&title=Plumbing-the-Manila-Water-story-for-corporate-lessons&id=90000

Business World
Posted on June 01, 2014 09:26:19 PM

V, J, or L?

Introspective
Romeo L. Bernardo

WAS I surprised that first-quarter GDP growth was “only” 5.7%? No. We in Global Source have maintained a below-consensus full-year forecast of 6.1% since early this year, expecting the first two quarters to be on the weaker side given the boost from election spending last year. Despite successive growth upgrades by other analysts, we continued to maintain our forecast in our latest outlook report released early this month.

But in contrast to equity market players who sold on the news causing a 111-point (1.6%) drop in the main stock index, I think the 5.7% growth figure not bad at all. As the Planning Secretary said in his statement, the Philippines is still the third fastest growing economy in the region (even with the lingering destructive effects of last year’s natural disasters). The slower growth, in my view, also helps in injecting a dose of realism into overly bullish growth expectations that many fear will lead to asset bubbles and cloud prospects for sustained expansion over a longer horizon.

First quarter 2014 performance owed mainly to a robust 5.8% growth in household spending. After four quarters of high double-digit growth, investment growth slid to 7.7% in Q1 as private construction declined 6% even as public construction grew 22% on a reported mix of infrastructure projects. Overall investment growth is traced mainly to durable equipment, which grew by 21.6%, reflecting high growth in “air transport equipment” (related to domestic airlines’ refleeting program) and “other general industrial machinery.” Export recovery generated a small trade-in-goods surplus that was offset by the deficit in services trade. From the production side, all service sectors grew steadily, industry and manufacturing growth slowed down, while agriculture managed less than 1% growth.

Is the Q1 economic performance just a blip or will growth henceforth be more “normal”? Visually, should we expect GDP growth to be V-, J- or L-shaped?

Government, which is keeping its 6.5-7.5% full-year target, is surely hoping for a V, or at least a short-hooked J. This seems possible considering extraordinary factors dampening Q1 growth that included not only base effects but also disaster-related losses in (a.) agricultural crops that also dented food manufactures, and (b.) tourism and insurance receipts. On its own, government also has the wherewithal to quickly push up growth by speeding up delayed rehabilitation and reconstruction work in disaster-affected areas.

On the other hand, an L is also possible depending on the severity of some of the newer developments we noted in our last report (including the Manila City truck ban, El Niño, other infrastructure constraints especially power). Plus, the revived pork barrel scandal may again have a negative impact on public spending, especially after the budget secretary, who has been the one spearheading reforms to increase the transparency of budget processes and quicken disbursements, was included among the hundreds of former and present lawmakers implicated by the alleged mastermind of the scam. The latter tagged him as being the real mastermind who mentored her. While we find this simply bizarre, even by Philippine political tragicomedy standards, there is still the risk that a major misstep in handling the scandal will cost the administration invaluable political capital necessary to keeping business confidence up in the short-term (and even beyond 2016).

Barring another political crisis, we are keeping our 6.1% annual forecast at this time, with the quarterly growth along a curve that gently slopes up. I do not expect growth to return to the 7% level mainly because of infrastructure constraints that, notwithstanding much publicized expressions of interest, will continue to deter actual private investments. However, I am becoming more confident that government will be able to meet expenditure targets, especially with increasing media attention on the slow pace of reconstruction work, and thus, expect GDP growth to improve in the second half of the year.

(This column was culled from a recent GlobalSource report written by Christine Tang and the columnist. The author is Philippine GlobalSource advisor and is a board director of IDEA.)