Manila Water Companys Water For Poor Communities Programme Construction Essay

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Water is a human right. It is not only essential for health but also for livelihoods. Lack of access to water directly influences the people's ability to participate fully in economic activity. Most of the urban poor in Asia do not have access to piped water. Considerable amount of time is spent in collecting water from public taps, or sometimes people end up buying water from private vendors at a price much higher than what the public utilities charge their connected customers. Lack of access to safe water places slum dwellers at risk to waterborne diseases, such as diarrhea in addition to its impact on nutrition and food security. Most children die each year from lack of access to safe water and sanitation than from almost any other cause.

The following facts on poverty and water related issues highlight the problem:

About 1.1 billion people in developing countries do not have access to water and 2.6billion people lack basic sanitation

Two in three people who lack access to clean water survive with less than $2 per day

More than 660 million people who do not have proper sanitation live with less than $2 per day

Access to piped water into the households is 85% for the wealthiest 20% of population compared to 25% for the poorest 20%

1.8million child deaths are reported each year as a result of diarrhea

Loss of 443 million school days each year from water related illness

12% of the world's population uses 85% of water and this 12% does not live in the third world countries

There also exists an inequality in the consumption between the worlds richest and the poor population, Exhibit 1 and Exhibit 2. There has been reduction in world poverty levels over the last two decades but majority of the reduction can be accounted to China. A comparison world's poverty level excluding China indicates that the poverty has not reduced but remained at the same levels over the past two decades, Exhibit 3.

Provision of safe and affordable water to the rapidly expanding urban population in the developing countries is essential to promote decent living conditions, improved health conditions and economic outcomes. But connecting urban poor is a difficult challenge for water service providers in Asia. There exists a weak institution, poor governance system and financial support, due to which most water service providers lack the ability to connect the urban poor. Most of them opine that urban poor are not willing and will not be able to pay for piped water. Given the challenges involved in the implementation of a system, a successful provision to cater to the water needs of people requires a new and innovative model.

The following paper on The Manila Water Company's "Water for Poor Communities (TPSB) Programme" demonstrates that private firms can generate successful models by considering the dynamism of both the private sector and low-income urban communities. The model has an element of innovation: a multi-sector approach to expand and provide service, including partnerships with local authorities, strong community involvement in option selection, design and operation, flexibility in the type of service provided. Replication of such models is possible but its success will depend on strong regulatory frameworks, a cooperative government, and target populations that have sufficient income for business initiatives to be commercially viable.

Present Situation

The world's urban population is expected to increase to 6.4billion by 2050 with much of the growth taking place in informal settlements. The hindrances for the provision of water services in poor and informal settlements can be attributed to the following factors

Cost of network provision and service expansion

Lack of formal land tenure

Lack of space and access for placing infrastructure

Existence of no other player which implies that the market does not have potential

The potential business opportunities of meeting the needs of the lower segment consumers should be recognized. Estimations portray that the size of markets for water and sanitation services for the poor is about $20billion. The urban poor often pay more for water, than the nearby wealthy consumers who have access to municipal supply of water, as they are forced to buy water from the local vendors present out there. For example, the poor in Dharavi slums pay 600 to 1000% interest for the credit they have taken from the local moneylenders. A bank with access to this market can be better off by offering a credit at 25%. Although from a third person's view 25% interest is too high, from the point of view of Dharavi's residents, there is a drastic fall of interest rate from 1000% to 25%.

Private sector involvement in water has proved to be controversial but it is already a reality in the developing world. Public Private Partnerships now represent more than 40% of the developing country's market. The main challenge, therefore, is to reconsider the existing business models and identify means to cater to the bottom of the pyramid consumers. The strength of these approaches is that they tend to create opportunities for the poor by offering them choices and encouraging self-esteem.

Many cases can be found of large companies and multinational corporations that have undermined the efforts of the poor to build their livelihoods. The greatest harm done by them to the poor is by ignoring them altogether. It is for sure that the poor cannot participate in the benefits of globalization without an active engagement and without access to products and services that represent global standards. Free and transparent private-sector competition can transform the poor into consumers. So it is up to the large firms to approach this market with BOP consumers' interests in mind which leads to significant growth and profits for the company too.

Second, the BOP market provides a new growth opportunity for the private sector for innovations. A solution implemented elsewhere cannot create markets at the BOP.

Finally, the BOP markets should become an integral of the private sector's work giving focus equivalent as that of other core business operations. It should not be considered as a Corporate Social Responsible initiative.

Finally, before entering into further analysis, the following points have to be kept in mind. The characteristics of BOP markets are completely different to that of traditional customers. These characteristics should be considered when approaching any BOP market.

There is money at the BOP market i.e. poor have the purchasing power

Access to BOP markets is not difficult

The BOP consumers are extremely value conscious by necessity

The Case of Philippines

In the mid 1990's the population in urban areas of Philippines grew by about 1.5 to 2million annually. Around 70% of urban households had access to potable water in most large urban areas but water services were available only for few hours a day. Added to that, in many cities, contaminated water enters into the piped water system during fluctuations in pressure, making the water hazardous and unsafe for consumption.

The water supply was inadequate with the volumes supplied by Metropolitan Waterworks and Sewerage System (MWSS) not keeping in pace with the increasing population. The water service coverage was reaching less than two-thirds of Metro Manila's population and only 8% of the population had access to sewerage services. Water quality between 1994 and 1996 was far below the national standards. For many years, there has been no investment for network improvement, development for new sources which resulted in increasing operational inefficiencies.

Another important factor which added to the alleviation of the problem is poverty. Urban poor residents, more formally known as slum dwellers, majority of them settle in public and private lands illegally. Often they are excluded from the provision of basic services. Since the majority of these households do not have formal water connection to MWSS services, they resort to fetching water from public reservoirs located far from their houses or buy water from vendors sourced locally or sometimes even from private wells at a price several times expensive than piped water service. In some instances, people even resorted to water-stealing by illegally tapping into the public service's mainlines. Due to these poor and unsafe connections, it is clear that they are vulnerable to many water borne diseases. Secondly, these illegal connections also resulted in no revenue generation. These illegal tapping resulted in non-revenue water levels of 60% against the industry standard of 30%. Substantial revenue was lost by MWSS as a consequence of high non-billed volume of water. It resulted in a cyclical effect. No revenue recognition resulted in financial difficulty for MWSS to expand its operations further.

Privatization

To address the problem of water service, the government resort to privatization of MWSS. Thus Manila Water Company Inc. (MWCI) took over the east zone operations of MWSS in 1997. The privatization was aimed to transfer the financial burden of providing water to Metro Manila to the private sector. It also improves the service standards while rehabilitating and expanding the system, increase operating efficiency as well as minimize the impact of tariff on the consumers. A year later, the Tubig Para Sa Barangay (TPSB) programme was launched to address the above stated issues and problems. The chief aim of the programme was to provide low-income communities with properly-connected water services at affordable rates. MWCI felt that the following issues will be addressed

Water theft and illegal water selling

Increase the company's billed volume

Minimization of lost revenues by reduction in non-revenue water

Elimination of water contamination due to poorly connected or illegal lines

Implementation

The TPSB's programme implementation started as a part of strategy of MWCI to fulfill its service obligations under the 25-year concession agreement with MWSS. The TPSB was targeted to supply water to the lower segment, depressed urban poor and settlers where the normal individual household connections were not present and not feasible. Under the present environment in the Philippines water sector, MWSS is not subject to any type of economic and performance regulation. It is the National Water Resources Board (NWRB) which regulates the water quantity and is responsible for granting rights and permits. A MWSS Regulatory Office (MWSS-RO) was created to monitor the contractual and service obligations in addition to implementation of a system that protects consumer's interests and needs.

The Roadmap

Sustaining the concessions over a long period meant that the provision of water supply to urban poor communities will be much more feasible. Providing water connections at an affordable rate was the key to its successful implementation.

MWCI realized that the major portion of its market is urban poor residents who are ready to buy water from informal vendors at a price more than ten times the cost of piped water. Even from an economic point of view, tapping into markets which have high willingness-to-pay and providing water services at a more reasonable cost seemed feasible to MWCI. It believed in the philosophy of "Water is not a privilege, but a right of everyone" which led to its expansion of services to the poor communities that were previously not connected to the distribution system. The decision to pursue implementation of TPSB programme enhanced the company's CSR goal of improving the lives of urban poor people.

Partnerships

A private company like MWCI can work much more efficiently if it took the help and assistance of Local Government Units (LGU), Community Based Organizations (CBO), and Non-Government Organizations (NGO) which ensures the active involvement and participation of key-stakeholders in the design of water supply programme right from its inception. The advantages of including all stake-holders for provision of water services are

Make the service more efficient and responsive

Increase the community's sense of ownership

Increase the willingness to pay

Encourages the residents to monitor and prevent stealing of water

Improve efficiency of revenue collection

Increase transparency

Partnering with LGUs and CBOs also brought the problems of financial instability and difficulties, faced by the people, into the picture. LGUs, in one way or another, provided subsidies and other financial support to TPSB projects that have reduced the installation costs resulting in more affordable connection charges to the poor.

Territory Management

To fulfill its service obligations, MWCI started a massive pipe replacement and network improvement programme. The company followed a decentralized policy called the "Territory Management" approach to identify efficient and area-specific solutions. The managers of Area and Territory business visited the communities to study and analyze the supply conditions in these areas.

Initially, MWSS's plans were implemented by MWCI to serve the urban poor. Later on, the company decided to change the focus of these plans to provide individual or community level water service to as many poor people as possible. MWCI consulted with the stakeholders to find out specific issues involved in the implementation and worked towards addressing them.

Roles and Responsibilities

Firstly, MWCI identifies the areas where TPSB can be successfully implemented. The company assesses the areas based on the following parameters:

Number of low-income families

Rate of illegal connections

Water quality in the area

Presence of a community organization

If a community is not yet organized, MWCI assists and facilitates in mobilization of community and organizing it. The pipelines, waterline extensions and meters are installed once the documentation, a formality, is done.

LGUs, CBOs, NGOs and community representatives assume the responsibility of coordinating with MWCI in the installation and implementation of the plans. Sometimes financial support is also provided by the community organizations. For the community-managed water systems, the representatives are responsible for operations of TPSB facility including the repair and maintenance. They are also responsible for monthly billing and collection of payments from residents and paying the same to MWCI.

Financial Analysis

Before the implementation of a TPSB project in any area, MWCI prepares a Business Case. The proposed project cost outlay including cost of materials, fees, deposits, total project costs etc are all indicated in the Business Case.

Consider the following example. The TPSB project located at Barangay Quirino 2-C in Quezon City has a total project cost of $25,000. The city, barangay and MWCI share the cost of project as follows:

Partner

Percentage Share of Cost

MWCI

47%

Quezon City Government

38%

Barangay

15%

The share of the other party (LGU or CBO) is usually remitted after to MWCI only after project completion. All connection/metering charges are borne by the community residents. It should be noted here that all the financial arrangements/structures within the community are to be decided and approved by all households before implementation.

Operational Problems

Since majority of the TPSB projects are targeted at low-income groups, the limited financial stability of the poor households poses a problem for the implementation of the programme. To address such arising concerns, MWCI offered installment schemes and sometimes spreading the connection fees over three to six months. In few cases, the community organization offers to pay the household's connection charges in advance. They collect the amount paid from these families at a later stage at low interest rates spread over a longer period. In rare cases, the city or municipality pays for the connection and installation, and the residents are expected to pay only the monthly consumption charges.

There are instances when MWCI faced problems for collecting payments during the operational phase. Some poor residents could not pay their water bill within the specified period. For few households it took two months or more to remit the payments. These instances create problems for the collection agents as they are expected to remit the payments to MWCI on a monthly basis. To address such situations, community leaders impose strict rules and regulations, and sometimes disconnect the service to those who cannot pay on time or levy a penalty. There were also complaints regarding overcharging of water services by the group officials or representatives. MWCI is still exploring alternate ways to regulate and monitor pricing to prevent manipulation of prices charged to the poor.

The Result

TPSB programme has benefitted the households in terms of

Access to safe and quality water

Reduced cost of water

Increased per capita consumption for households

TPSB programme has brought successfully a potable water supply to more than 7,00,000 people living in the lower strata of the East Zone. Unlike earlier situation, water supply is now available 20-24hrs a day. Many leaks have been repaired, illegal connections diminished and there is also an improvement in the quality of water. The implementation of TPSB programme significantly helped in reduction of diarrhea cases in Metro Manila. This shows that this implementation did play a key role in providing access to proper sanitation and hygiene.

Added to that, there is a tremendous reduction in non-billed water and an increase in the collection efficiency. This shows that the project is financially viable for private companies too. TPSB programme was instrumental in achieving the following tangible outcomes:

Non-revenue water level decreased from 63% to 47%

24-hour water service in the east zone increased from 27% to 84%

2,15,000 new household connections were installed, more than half of which are accounted to TPSB

100% compliance with quality standards of water

Increase in billed volume to 83%

Leaks in 3,320 main pipelines and 2,02,979 leaks in service pipelines were fixed

Thanks to TPSB due to which urban poor residents of east zone of Metro Manila are now enjoying clean and safe water at a cost which is 93% less than that charged by water vendors.

Opportunities

TPSB implementation paved way for new opportunities to the local population. The job and livelihood opportunities for the community provided by the collection of bills and other contracts provides these communities with additional sources of funds which can be diverted and used for future projects. Due to the implementation of TPSB programme, residents' valuable time is saved. They no longer need to travel long distances or wait in long queues for water. Added to that, since people no longer buy from vendors, it resulted in reduced costs for procuring water and thus more available income to the households. It also gave the residents, by saving time, to engage in other activities which improve their livelihoods. MWCI also set up a micro-finance facility to help the poor families referred to as "Kabuhayan Para Sa Barangay" (Livelihood for the Barangay) in selected TPSB areas.

Finally, as the TPSB implementation was a huge success, MWCI is now considering the option and possibility of setting up a low-cost sewerage and sanitation programme.

Sustainability Issue

Development policies in addition to poverty reduction strategies were incorporated in the planning and implementation phases, right from the inception. Since these issues are long-term in nature, TPSB can be safely assumed to be sustainable. Since water is a basic need for well being, the programme is especially attractive and attentive to the needs of urban poor. Apart from the tangible benefits, TPSB added many intangible benefits due to which suitable measures will definitely be taken by different stakeholders to keep the practice ongoing.

Engineers Against Poverty- a UK based NGO working in engineering and international development has identified key characteristics of sustainable pro-poor infrastructure which:

Provides access to affordable services for the poor that meet their basic needs

Supports substantial freedom for individuals by allowing them to participate in decision making

Boosts the creation of employment

Economically and Operationally sustainable in the long run

Designed and operated by considering social, economic and environmental costs and benefits

Though a theoretical framework is not necessary for substantiating the argument on sustainability of TPSB, the presence of above factors indicates a successful sustainability in the long run. Interestingly, all the above factors are well present in the present business model implemented by MWCI.

The following table shows the various areas addressed by MWCI while implementing its business model:

Business model components

MWCI's actions to address the issue

Target Customers

Primary focus on un-served poor as customers.

Value proposition

High quality water service

Innovative steps taken

Appropriate service levels to reduce costs

Community involvement in design and operation

Multi-sector partnership

Focus on operational sustainability

Commercial Driver

Meeting contractual service obligations

Decrease in non-revenue water

Reduced cost of installation

Community meters

Finance

Capital support provided by local government

Recommendations

TPSB programme is no doubt a good business model catering to the needs of thousands of poor families who do not have access to safe water. But if the following issues are taken care of, then the model's efficiency will further be enhanced.

Measures to limit or eliminate over pricing by community groups

Manila water views TPSB programme to be a CSR initiative (From company's website). If it is considered as another core business, further new innovations can be incorporated

Up-scaling of projects, which results in employment generation in a region can be considered

Conclusion

Business models require strong commercial drivers to be effective and for smooth functioning. The TPSB programme of MWCI has strong commercial benefits, both in terms of increased revenues and also improved operational efficiencies. The proven success of the programme in commercial terms provides a strong platform for MWCI to invest in such practices in future. By carefully addressing the needs of poor consumers, MWCI reduced the risk of public opposition to their functioning of operations. Potential risks should never be undermined as public opposition can lead to cancellation of such contracts on the whole. When appropriate regulatory frameworks are in place, when the governments are supportive, and when the customers are able to pay for the product/service, programmes such as TPSB will be implemented and sustainable. By adopting a multi-sector approach that combines the capabilities of private sector and also involves the local communities, projects implemented using these models definitely make a significant contribution to achieve the Millennium Development Goals.

Exhibits

Exhibit 1: Rich vs. Poor consumption ratio

Exhibit 2: Inequality of consumption

Exhibit 3: Poverty Levels over time

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