Civil Engineering November 2022 | Vol 30 No 10

Le t ter from the ed i tor I recently attended the WISA 2022 Biennial Conference where Virgilio (Perry) Rivera, former COO of the Manila Water Company, delivered a plenary address on how the city of Metro Manila in the Philippines completely turned around its water service delivery by successfully implementing a public-private partnership (PPP). Metro Manila, the capital of the Philippines, is home to ap- proximately 18 million people. The Metropolitan Waterworks and Sewerage System (MWSS) is the state-owned enterprise in charge of delivering water and sewage services to the city. During the 1990s the Philippines faced three crises: a power supply crisis that resulted in power outages of up to 10 hours a day, a telecommunications crisis resulting from only 1 million landlines for a population of 62 million, and a water crisis in which water service coverage sat at just 60% and system loss reached a staggering 65%. This confluence of infrastructure crises, together with political leadership and an enabling legal framework led to the privatisation of water services in Metro Manila. PRE-PRIVATISATION Prior to privatisation, Metro Manila was plagued by illegal connec- tions, low pressure to no water in some areas, massive leaks, and poor customer service. The National Water Crisis Act of 1995 led to the reorganisation of MWSS. The Act criminalised water theft and granted authority to the president to privatise water utilities and negotiate build- operate-transfer contracts. The aim of privatisation was four-fold: 1. Improve procurement efficiency and transparency 2. Increase labour productivity and operating efficiency 3. Mobilise private finance 4. Improving overall management of water services. Government still wanted to retain ownership of its water assets, and therefore decided to adopt a concession framework. Metro Manila was divided into two zones (east and west) and, through competitive bidding, the Manila Water Company was established as the concessionaire to MWSS to deliver water and wastewater services in the east zone concession. CONCESSION FRAMEWORK Rivera stressed that a very clear concession framework was vital for successful privatisation. Salient features of the concession included full cost recovery, per- formance-based assessment, and dispute resolution via arbitration. All of the service obligations were set in the concession agreement, and a regulatory office was set up to implement and enforce these. Other features included debt servicing of existing MWSS loans, absorption of MWSS employees (public employees were incentiv- ised to become private employees), obligation/incentive to invest, and a government letter of undertaking. The concession agreement stipulated that MWSS and the concessionaire must agree on a set of service obligations that are reset every five years. The onus is on the concessionaire to develop an expenditure plan to meet the service obligations. The model takes into account previous net investments and trans- lates this into an opening cash position, and then looks at the next 25 years and translates that into future net expenditure, and determines a tariff that equalises both cash flows. This tariff review is undertaken every five years. Between reviews allowance is made for extraordinary price adjustments for material force majeure and annual CPI. POST-PRIVATISATION Following privatisation, the total number of people serviced in Metro Manila’s east zone increased from 3.1 million in 1997 to 7.5 million currently. One of the key factors in achieving this was reducing system losses. More than 70% of non-revenue water (NRW) was the result of physical leaks, and this compelled the Manila Water Company to replace nearly 95% of the pipeline network. “It was only when we were able to establish a critical mass of district metering areas in the middle of the concession period that there was a drastic reduc- tion in NRW,” said Rivera. A strategic response was also implemented to address water supply for the urban poor. Communal metered water points were installed outside of homes to ensure that communities policed themselves to reduce wastage. In the 25-year period from 1997 to 2022, water service con- nections increased from 310 000 to 1.1 million, 24-hour water availability increased from 26% to 99.8%, and sewer coverage increased from 3% to 33.5%. NRW decreased from 63% to 13%. Notably, cumulative private capital investment in 2022 amounted to P111 billion (±R34.58 billion). MWSS estimates that 754 Mℓ/day have been saved between 1997 and 2021. The Philippines government now embraces PPPs as a key pillar of its economic strategy and there are many available PPP legal frameworks that can be implemented. Over the last 10 years more than 100 water PPPs have been implemented in the country. Manila Water Company was named the 2022 Water Company of the year at the Global Water Awards. LOCAL APPLICATION The serious drought situation in Nelson Mandela Bay, recent flow restrictions imposed by Rand Water, and the country’s generally high NRW are examples of the pressures facing South Africa’s struggling water infrastructure. While PPPs and private funding have been discussed at length as solutions to many of South Africa’s infrastructure challenges, little has been achieved in this regard. Rivera stressed that political will and leadership are vital to in- troducing change in any water sector, and that enabling frameworks increase private sector participation. In Metro Manila the results of these speak for themselves, and South Africa should consider the many lessons that could be learnt from its success. Danielle Petterson Editor Civil Engineering danielle@saice.org.za Manila’s privatisation success story Civil Engineering November 2022 7