Pre-Conference for Private Water Operations-Managed Water Systems
Welcome Remarks by
Rudolf Fauendorfer
Senior Urban Development Specialist, Southeast Asia Department
Asian Development Bank
At the Improving Water Service Performance:
Philippine Consultations on Strengthening Regulation
3 July 2008
Manila, Philippines
I. Introduction
Ladies and gentlemen, distinguished guests—
Good morning. Welcome to ADB Headquarters. Many of you flew in from across the country, and we thank you for your time and effort to be here.
I would like to thank today’s organizers, the National Water Resource Board supported by Water and Sanitation Program, USAID, IFC and Streams of Knowledge. This week’s series of workshops will be providing important inputs for a big conference in August on improving the performance of water service providers in the Philippines.
II. Filling the Service Gap
After participating in discussions with local government on Tuesday and with water districts yesterday, I think it is rather appropriate that we end our discussions this week with you. You fill in the gap where other service providers fall short on their mandate. Water districts typically cover only 40% of their franchise area, and municipalities do not cover much more. Further to filling the service gap, you tend to fill it on the basis of sound business principles that ensure your users efficiency, and that they will get what they pay for.
III. Risky Business
What is working against you, though, is an insecure investment environment. Or to put it more plainly, the threat of political interference or potential capture of your systems should you become too successful.
Too often, a small scale private water supplier ends up being the victim of its own success. The typical story goes something like this. One day, a neighborhood association secures a waiver from the appropriate authority to provide water services where there was none but should be. The cooperative begins delivering water, and collecting revenues. Then the cooperative starts delivering cleaner water, more hours of the day, with increased pressure—and, as the principles of supply and demand go, they start collecting more revenues. Then one day, upon hearing of the neighborhood association’s success, the authority that granted the association the waiver decides it wants the waiver back, along with all the assets the association has invested in. The association is effectively out of business, and soon enough, the neighborhood is without water again. Word spread, and when it comes time for other neighborhood associations to secure their waiver from the same authority, they do so but invest less on hardware and water quality and charge a little more for the supply in order to recover their costs quicker to prevent the same thing from happening to them.
As you well know, the system has a built-in disincentive for small scale water providers like yourself: Why invest more than what you may be able to recover? We recognize that your investment levels remain lower than what they could be for water quality or more durable and sustainable infrastructure, such as that which would better interface with existing infrastructure outside your area. In the end, everyone is shorted. Large numbers of the public aren’t able to access the services they need, investors aren’t able to invest optimum amounts, and the authorities with the original mandate maintain the status quo. Water goes undelivered.
IV. Fixing the Flaws
Obviously, the current arrangement for service delivery is flawed, and needs revised to focus on number of connections and quality of service, rather than mere square kilometers per franchise.
We believe that economic regulation, based on performance targets and standards, for all water service providers is an effective reform measure. And you stand to benefit from improving the current institutional and policy arrangements. Those who deliver deserve the security of their investments as well as tariff levels that reward their progress and support their plans for further progress.
The Supreme Court in the Philippines has taken one step in your direction. Recently, it ruled out exclusivity of franchise. Currently, many communities have been held captive by providers who fail to provide water supply services to them and at the same time refuse waivers to other providers willing and interested in filling in the gap. As a matter for regulation, service providers may no longer be guaranteed exclusive rights in areas where they fail to provide services. We are not saying that this ruling gives anyone permission to put up a water system anywhere. We still have to consider existing institutional arrangements.
We believe strengthening the economic regulatory framework will provide further support to your claims to safely invest in and provide reliable, affordable, sustainable water services to your customer base.
V. Conclusion
Just as you have something to lose in today’s regulatory environment, you have something to be gained in tomorrow’s. The recommendations that we will be consolidating from this week’s discussions, for the national government’s review, should reflect measures that strengthen your role in expanding coverage and improving service quality.
Thank you, and I look forward to today’s discussions.
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