News and Events

Improving Water Service Performance:
Philippine Consultations on Strengthening Regulation

The Philippines’ Water Supply and Sanitation Roadmap, completed in early 2008, identified “regulation” as an area that needs to be strengthened to facilitate the expansion of water supply service coverage. Arrangements with existing water supply services providers—water districts, water utilities run by local government units (LGUs), and small-scale water providers—currently do not lend themselves to service area expansion.

LGU-managed water systems, for instance, though mandated to provide service to as many people, are constrained by the lack of funding. Often, the financing problems are caused by heavily subsidized, unsustainable tariffs and the lack of political will to increase them. LGU-run utilities do not realize that failure to recover operations and maintenance costs and capital investment will eventually lead to poor service.

Water districts, meanwhile, provide service to an average coverage of only 40% of their total service areas. Their franchise often does not stipulate performance targets. Neither does it allow Mayors and other local leaders to directly manage them. Even national regulatory agencies have little regulatory power over these water districts, often limited to tariff setting to make sure that they can repay their loans. Add to this the required public hearing and approval by Mayors of any proposed tariff increase, which presents more opportunity for local politics to come into play.

Small-scale water providers (SSWPs), rural water supply associations (RWSAs), and water cooperatives, on the other hand, are already being subjected to light-handed regulation by the National Water Resources Board (NWRB). However, these providers still need strengthening particularly in addressing potential conflict between them and the formal utilities.

This series of consultations, supported by ADB, aimed to facilitate a process of consensus building among each of these 3 groups of major water services providers. The consensus focused on actions to improve service performance through strengthening regulation in the water sector. The consultations will culminate into a national conference to agree on short- and long-term actions.

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The consultation with LGU-managed systems aimed to

• surface issues that hinder good performance of LGU-managed water systems
• identify appropriate approaches, incentives, and instruments that will support performance improvement
• share best practices and lessons learned, and assess potential for adoption/replication

The consultation with water districts aimed to

• review initiatives on regulatory reform in the water sector
• discuss the advantages of regulating water service provision
• gather comments on existing and proposed regulatory measures
• formulate recommendations to pursue enhanced governance of water districts to achieve water service standards and targets

The consultation with SSWPs, RWSAs, and water cooperatives aimed to

• present and build consensus on a NWRB-proposed Customers Service Code
• define the minimum requirements for light handed regulations of WSP operations and implementation strategy, based on the agreed Customers Service Code

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DAY 1: Consultation with LGUs

• LGUs currently operating their own water systems are supportive of the idea of having a national independent regulator similar to the Philippines’ Energy Regulatory Commission. However, the creation of such a commission is a long-term action that requires the passage of law.
• LGUs are amenable to undertaking incremental steps to improving their performance, such as agreeing on a set of Key Performance Indicators (KPI) against which to gauge their performance, supported by standards and guidelines from the NWRB.
• Because LGUs have the regulatory powers mandated by the Local Government Code, they have the option to self-regulate using the agreed KPIs and guided by the standards to be developed by NWRB.
• Self-regulation is, however, not ideal, and LGUs agree with this. The other option is for them to enter into consensual agreement with NWRB for the latter to regulate them. There are now 5 LGUs which have entered into such agreement with NWRB.

• Water districts are not opposed to a national body in charge of regulation, but they also believe that LWUA’s regulation of their tariff is sufficient. However, there was also consensus that such tariff regulation is limited to ensuring that water districts repay their loans to LWUA.
• Water districts found it difficult to understand the concept of using regulation as a mechanism to facilitate improved performance and expand coverage beyond the current average coverage of 40%.
• The recent Supreme Court decision which ruled that there is no exclusivity of franchise was also emphasized as this presents an opportunity for other service providers like SSWP to respond to unmet demands.
• One clear message that was conveyed to water districts was that LWUA is a specialized lending institution for water that cannot exercise regulatory function over water districts. An independent regulatory body is therefore necessary.
• In the meantime, both LWUA and NWRB will coordinate and harmonize their methodologies in light of Executive Order 123 delegating the mandate to regulate water districts tariffs to the NWRB.

• Since SSWPs, cooperatives and other private providers are already being subjected to light-handed regulation, there was not much issue about an independent regulator being put in place in the future. They are at a more advance stage with respect to being subjected to certain performance targets.
• Currently under pilot testing is the concept of “customer service code” which is seen as an effective tool to increase their customer responsiveness.

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The consultations were organized by ADB, GTZ, JBIC, USAID, World Bank, and WSP, in collaboration with Philippines’ Department of Finance, Department of Interior and Local Government, National Economic and Development Authority, Local Water Utilities Association, National Water Resources Board, League of Cities, League of Provinces, and League of Municipalities.

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Representatives from LGU-managed water utilities, water districts, and SSWPs, RWSAs, and water cooperatives, along with representatives from government agencies and civil society organizations will participated in the event. Representatives from donor agencies also attended.

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The consultations were held at Auditorium A and B, ADB Headquarters, Manila, Philippines.