Showing posts with label Manila Water. Show all posts
Showing posts with label Manila Water. Show all posts
Sunday, June 29, 2014
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.
Sunday, June 30, 2013
Water now and for tomorrow
Introspective, Business World
Posted on June 30, 2013 08:21:53 PM
THERE HAVE recently been emotional calls in media and in the streets for reduction in water tariffs, much somewhat disconnected from considerations of quality of service and investments needed to maintain standards. I feel it useful to revisit a column I wrote in Jan. 2011, "A PPP Success Story," that goes back to why PPP was adopted to solve what was rightfully called a "water crisis" (http://romeobernardo.blogspot.com/2011/01/a-ppp-success-story-business-world.html).
Let me start with some disclosures. I had sat on the MWSS Board back in the 1990s as Finance undersecretary when work on its privatization started. I have keenly kept tabs of developments in the "largest water privatization in the world" since then and became very familiar with the regulatory regime as an advisor of one of the concessionaires, Manila Water. I am also a consumer, sharing a desire to pay the least for the best.
Readers of my past column know that I am greatly impressed by how water services have improved tremendously since my days in the government. Manila Water’s early achievements in slashing non-revenue water, raising water deliveries by over 2.5x, doubling the number of customers and at a 24-hour water availability service level are, most importantly, meeting health standards which I understand is being replicated in the west zone since the entry of Metro Pacific in late 2006.
In a span of six years to 2012, Maynilad has also reclaimed 600 mld of water by reducing non-revenue water from 66% to 43%, raising volume of water deliveries from 629 to 1,200 mld, and serving eight million customers (from six million) with 24/7 water availability, including some 1.7 million in poor communities.
The improvements in service delivery came after the two concessionaires poured in a combined ₱105 billion in investments (₱60 billion for Manila Water from 1997 to 2012 and ₱45 billion for Maynilad under MPIC) to expand and upgrade the water and sewerage network. Judging from the state of the country’s other infrastructure, including water facilities in other major cities in the country, government would never have had the resources to make similar investments, on the aggregate equivalent to 1% of last year’s GDP, for water distribution.
Unfortunately, this important detail is often lost in the emotionally charged debate on water tariffs, with some sectors even considering the mere fact that tariffs have been rising since 1997 the singular proof of the failure of privatization. Granted that the annual growth rate in water tariffs post privatization may seem high, the evolution of water rates needs to be assessed not only against the above investments to expand and upgrade the system but also their historical and forward-planning contexts.
Two historical facts stand out. A well-known "twin" event is the almost immediate shock to debt servicing cost of the two concessionaires due to the Asian financial crisis in 1997 followed the next year by a shock to revenues due to a severe El Niño drought. Both were extraordinary events that could not have been anticipated in the concessionaire bids and thus, led to unexpected, extraordinary adjustments in water tariffs.
The second, less well-understood historical fact is the design of the privatization contest where the winning bidders were chosen based on lowest submitted tariff. Understandably, the objective at the time of the reformers was to secure broad-based buy-in for water privatization by asking consumers to pay less. Some would say that the resulting bids, at deep discounts to then existing rates, planted the seeds of "high" water tariffs today. Had the contest been designed based on highest concession fee, similar to what was done for the NAIA Expressway, the initial tariff rate would likely have stayed at ₱8.78/m3 (not ₱2.32/m3 for the east zone and ₱4.97/m3 for the west) and government would have received a windfall from the winning bidders.
But perhaps the key inputs to understanding the more recent evolution of water tariffs are the size, timing and nature of investments needed to meet service targets that can keep customers satisfied. Contrasting utility services (water, electricity, telephone) during typhoon Milenyo, UP professor and Inquirer columnist Randy David, a Manila Water customer, explained the uninterrupted water service as likely arising from a service culture that is based on "anticipation of possible disruptions, adequate preparation for emergencies, regular maintenance of the delivery system, a continuity team that is activated in times of disaster, and provision of substitute services during prolonged interruptions of regular service ("Public Lives: Decency and public utility firms," PDI, Oct. 15, 2006)".
The mandate to cover the entire concession area requires the concessionaires not only to provide the above service quality to existing customers but to undertake expansion plans (a) with future population growth in mind and (b) involving more difficult terrains in less populated areas, as well as (c) invest in less tangible and thus, less appreciated sanitation and sewerage services that have health and environmental benefits beyond the confines of the concession area. By the nature of a network service, all this would have to be borne by existing customers even if they do not directly benefit from expansion of piped water services to hilly Antipolo.
At the end of day, the water bill of Metro Manila residents, amounting to an average 3% of household income, remains within international standards of affordability, i.e., 5% of income. One also cannot ignore statistics showing that despite the massive capital infusion and superior operational metrics (24-hour water availability, low NRW, etc.), the two concessionaire’s water charges are also among the lowest in major cities in the country. For example, a 30-m3 consumer in the east zone is billed ₱458 for his water consumption compared with same volume water bills in Metro Cebu (₱463), Iloilo (₱509) or Baguio (₱1,137). The differences are even starker for those consuming up to 10 m3 even while the service quality in these areas are more like those of pre- privatization MWSS.
Note too that Manila Water rates compare well also versus other Asian cities. Based on a 15-m3 consumption, Manila Water dollar rate (0.26/m3) falls in the middle of Jakarta (0.59), Beijing (0.47) Bangkok (0.27), New Delhi (0.19), Hanoi (0.19), Kuala Lumpur (0.18) and Phnom Penh (0.16). Few of these have achieved close to the performance standards of Manila Water -- the reason the company has received mandates to run and introduce the same kind of improvements in three of these countries in collaboration with local partners. MWC has received prestigious international awards for providing for the urban poor, environmental sustainability and for operating efficiency from The World Economic Forum, INSEAD, IFC/World Bank, and the International Water Association. It has also been written up as a case study of a successful reform undertaking by the Harvard Business School, the International Finance Corporation, the World Bank Growth Commission and others.
One particularly noteworthy work was penned in 2011 by former UP School of Economics Dean Raul Fabella, also our only living National Scientist in Economics with whom I am honored to share this "Introspective" column space as a fellow Trustee of IDEA. His Chapter 4, "The Privatization of the Metropolitan Waterworks and Sewerage System: How and Why It Was Won," in the book "Built on Dream, Grounded on Reality"(http://asiafoundation.org/publications/pdf/996) had this to say: "The privatization of MWSS was clearly a triumph of the
principle of comparative competence -- the private sector proved more competent
at the delivery of water and sewerage services than the state. It is now
considered a singularly successful structural reform in the annals of
Philippine political economy."
I have heard Sec. Purisima refer to this privatization in a public forum as a most successful PPP, which bears emulation. The administration of President Aquino has pinned its hopes on PPP to deliver needed infrastructure to address woeful backlog, raise the productivity and performance of the economy, and improve the quality of life of our people, while keeping to its fiscal program.
Amidst calls for short-sighted tariff reductions, I truly hope that Philippine authorities will take the long view that seriously considers the quality water service requirements of present and future water consumers and safeguards the environment. And faithfully implement the MWSS Concession Agreement with continuity, consistency and fairness. Future private investments throughout the country in water and in other needed infrastructure critically hinge on it.
Romeo Bernardo was Finance undersecretary during the Aquino 1 and Ramos administrations, and board director of Institute of Development and Econometric Analysis, Inc.
Posted on June 30, 2013 08:21:53 PM
THERE HAVE recently been emotional calls in media and in the streets for reduction in water tariffs, much somewhat disconnected from considerations of quality of service and investments needed to maintain standards. I feel it useful to revisit a column I wrote in Jan. 2011, "A PPP Success Story," that goes back to why PPP was adopted to solve what was rightfully called a "water crisis" (http://romeobernardo.blogspot.com/2011/01/a-ppp-success-story-business-world.html).
Let me start with some disclosures. I had sat on the MWSS Board back in the 1990s as Finance undersecretary when work on its privatization started. I have keenly kept tabs of developments in the "largest water privatization in the world" since then and became very familiar with the regulatory regime as an advisor of one of the concessionaires, Manila Water. I am also a consumer, sharing a desire to pay the least for the best.
Readers of my past column know that I am greatly impressed by how water services have improved tremendously since my days in the government. Manila Water’s early achievements in slashing non-revenue water, raising water deliveries by over 2.5x, doubling the number of customers and at a 24-hour water availability service level are, most importantly, meeting health standards which I understand is being replicated in the west zone since the entry of Metro Pacific in late 2006.
In a span of six years to 2012, Maynilad has also reclaimed 600 mld of water by reducing non-revenue water from 66% to 43%, raising volume of water deliveries from 629 to 1,200 mld, and serving eight million customers (from six million) with 24/7 water availability, including some 1.7 million in poor communities.
The improvements in service delivery came after the two concessionaires poured in a combined ₱105 billion in investments (₱60 billion for Manila Water from 1997 to 2012 and ₱45 billion for Maynilad under MPIC) to expand and upgrade the water and sewerage network. Judging from the state of the country’s other infrastructure, including water facilities in other major cities in the country, government would never have had the resources to make similar investments, on the aggregate equivalent to 1% of last year’s GDP, for water distribution.
Unfortunately, this important detail is often lost in the emotionally charged debate on water tariffs, with some sectors even considering the mere fact that tariffs have been rising since 1997 the singular proof of the failure of privatization. Granted that the annual growth rate in water tariffs post privatization may seem high, the evolution of water rates needs to be assessed not only against the above investments to expand and upgrade the system but also their historical and forward-planning contexts.
Two historical facts stand out. A well-known "twin" event is the almost immediate shock to debt servicing cost of the two concessionaires due to the Asian financial crisis in 1997 followed the next year by a shock to revenues due to a severe El Niño drought. Both were extraordinary events that could not have been anticipated in the concessionaire bids and thus, led to unexpected, extraordinary adjustments in water tariffs.
The second, less well-understood historical fact is the design of the privatization contest where the winning bidders were chosen based on lowest submitted tariff. Understandably, the objective at the time of the reformers was to secure broad-based buy-in for water privatization by asking consumers to pay less. Some would say that the resulting bids, at deep discounts to then existing rates, planted the seeds of "high" water tariffs today. Had the contest been designed based on highest concession fee, similar to what was done for the NAIA Expressway, the initial tariff rate would likely have stayed at ₱8.78/m3 (not ₱2.32/m3 for the east zone and ₱4.97/m3 for the west) and government would have received a windfall from the winning bidders.
But perhaps the key inputs to understanding the more recent evolution of water tariffs are the size, timing and nature of investments needed to meet service targets that can keep customers satisfied. Contrasting utility services (water, electricity, telephone) during typhoon Milenyo, UP professor and Inquirer columnist Randy David, a Manila Water customer, explained the uninterrupted water service as likely arising from a service culture that is based on "anticipation of possible disruptions, adequate preparation for emergencies, regular maintenance of the delivery system, a continuity team that is activated in times of disaster, and provision of substitute services during prolonged interruptions of regular service ("Public Lives: Decency and public utility firms," PDI, Oct. 15, 2006)".
The mandate to cover the entire concession area requires the concessionaires not only to provide the above service quality to existing customers but to undertake expansion plans (a) with future population growth in mind and (b) involving more difficult terrains in less populated areas, as well as (c) invest in less tangible and thus, less appreciated sanitation and sewerage services that have health and environmental benefits beyond the confines of the concession area. By the nature of a network service, all this would have to be borne by existing customers even if they do not directly benefit from expansion of piped water services to hilly Antipolo.
At the end of day, the water bill of Metro Manila residents, amounting to an average 3% of household income, remains within international standards of affordability, i.e., 5% of income. One also cannot ignore statistics showing that despite the massive capital infusion and superior operational metrics (24-hour water availability, low NRW, etc.), the two concessionaire’s water charges are also among the lowest in major cities in the country. For example, a 30-m3 consumer in the east zone is billed ₱458 for his water consumption compared with same volume water bills in Metro Cebu (₱463), Iloilo (₱509) or Baguio (₱1,137). The differences are even starker for those consuming up to 10 m3 even while the service quality in these areas are more like those of pre- privatization MWSS.
Note too that Manila Water rates compare well also versus other Asian cities. Based on a 15-m3 consumption, Manila Water dollar rate (0.26/m3) falls in the middle of Jakarta (0.59), Beijing (0.47) Bangkok (0.27), New Delhi (0.19), Hanoi (0.19), Kuala Lumpur (0.18) and Phnom Penh (0.16). Few of these have achieved close to the performance standards of Manila Water -- the reason the company has received mandates to run and introduce the same kind of improvements in three of these countries in collaboration with local partners. MWC has received prestigious international awards for providing for the urban poor, environmental sustainability and for operating efficiency from The World Economic Forum, INSEAD, IFC/World Bank, and the International Water Association. It has also been written up as a case study of a successful reform undertaking by the Harvard Business School, the International Finance Corporation, the World Bank Growth Commission and others.
One particularly noteworthy work was penned in 2011 by former UP School of Economics Dean Raul Fabella, also our only living National Scientist in Economics with whom I am honored to share this "Introspective" column space as a fellow Trustee of IDEA. His Chapter 4, "The Privatization of the Metropolitan Waterworks and Sewerage System: How and Why It Was Won," in the book "Built on Dream, Grounded on Reality"(http://asiafoundation.org/publications/pdf/996) had this to say:
I have heard Sec. Purisima refer to this privatization in a public forum as a most successful PPP, which bears emulation. The administration of President Aquino has pinned its hopes on PPP to deliver needed infrastructure to address woeful backlog, raise the productivity and performance of the economy, and improve the quality of life of our people, while keeping to its fiscal program.
Amidst calls for short-sighted tariff reductions, I truly hope that Philippine authorities will take the long view that seriously considers the quality water service requirements of present and future water consumers and safeguards the environment. And faithfully implement the MWSS Concession Agreement with continuity, consistency and fairness. Future private investments throughout the country in water and in other needed infrastructure critically hinge on it.
Romeo Bernardo was Finance undersecretary during the Aquino 1 and Ramos administrations, and board director of Institute of Development and Econometric Analysis, Inc.
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