Water

Water Champion: Rogelio L. Singson
Maynilad’s New Lease on Life
May 2008

By Ma. Christina Dueñas
Water Knowledge and Communications Coordinator, ADB

On 1 July 2007, Mr. Rogelio L. Singson assumed office as the 5th President of the Maynilad Water Services, Inc. (MWSI) and the first under the company’s new management. Six months earlier, new owners took over the reins of Manila’s beleaguered concessionaire, replacing the decade-long partnership of previous shareholders Benpres Holdings Corporation, Suez Environment, Lyonnaise Asia Water Pte Ltd, and Metrobank. When the all-Filipino partnership of DM Consunji Holdings Incorporated and Metro Pacific Investments Corporation took over, Maynilad had about $240 million foreign debts and a staggering 70% nonrevenue water (NRW). Capital investments have also ceased. A year later and six months since Mr. Singson assumed office, the new Maynilad has paid off its debts, mainstreamed new strategies to reduce NRW, and embarked on a P33 billion capital expenditure program for 2007-2015. For Mr. Singson, bringing the ailing company back on its feet is a challenge for which his previous professional experiences have prepared him well. He has extensive involvement in various privatization projects of the Philippine Government. This includes his stint as President and Chairman of the Bases Conversion Development Authority, where he saw to the overall implementation of projects converting former military base lands for private use. He was also involved in the development of the Subic-Clark-Tarlac Expressway project, and the land use planning, construction, and formulation of privatization programs for the Fort Bonifacio and Villamor Airbase development, Subic Bay Metropolitan Authority, Clark Special Economic Zone, Camp John Hay in Baguio City, and Poro Point in La Union. Prior to these, Mr. Singson served in the Government in various capacities— from Executive Director for the Coordinating Council of the Philippine Assistance Program to Assistant Cabinet Secretary at the Office of the President.

What is Maynilad’s overall strategy in the coming years

We have 5 strategic goals that will guide our projects for the next 5 years— improve network and operational efficiency; improve organizational efficiency and right size the organization; create shareholder value; focus on customer care; and improve corporate image.

What is your greatest challenge in turning Maynilad’s operations around?

Three big challenges come to mind. First would be changing the mindset and culture of the organization from a “public utility” into a “consumer marketing organization.” When our employees worked with the government—the Metropolitan Waterworks and Sewerage System (MWSS) —and the previous owners, they were oriented more toward the task and less toward the customers. Now, we want them to focus on responding to the needs of individual customers.

Next would be executing our P33 billion capital expenditure program in an efficient and cost effective way, resulting in significantly reduced nonrevenue water (NRW) and a modern network.

Finally, there is the challenge of changing the attitude of our customers regarding the value of potable water. Our customers need to appreciate their access to potable water and show it by paying water bills on time, reporting illegal connections leaks, and protecting water meters from illegal tampering.

How much is Maynilad investing to achieve its targets and how does it compare to the investments of the other concessionaire, Manila Water Company, Inc. (MWCI)?

In 2007, we had a capital expenditure (capex) budget of P5 billion. This year, we will invest another P8 billion even if our tariff adjustment will only take effect, if at all, in January 2009. I’d say our investment program for the first 5 years of the new Maynilad will be higher than the budget of MWCI in its first 10 years.

What is your projected return on investment over the next 15 years?

Being a regulated entity covered by a Concession Agreement, we are allowed a return on our investments and expenditures equivalent to an Appropriate Discount Rate (ADR). In the current rebased period, we had a 10.4% ADR. We are looking at an ADR of 9.3% for the period 2009–2012.

How does Maynilad intend to recover its investments?

Among others, we intend to reduce water losses through dedicated NRW management and improve organizational efficiency through a reduction in our workforce We’re also undergoing a rate rebasing and tariff adjustment process, for which we already submitted to the MWSS Regulatory Office our 2008-2012 Business Plan specifying capex investments to improve service levels. Since our proposed tariff adjustment is less than half of what was granted to MWCI, we’re hoping we won’t have problems on this score.

What tariff level is ideal for Maynilad to recover its costs?

Given the way the privatization was structured—with us shouldering 90% of MWSS loans through concession fees and MWCI shouldering the rest—customers of Metro Manila’s East zone (MWCI) and West zone (Maynilad) pay significantly different tariffs. We hope to narrow down that differential by improving our efficiency and reducing NRW. Also, with the more tempered tariff adjustment we’re working to secure, we hope that 2012 will see almost similar tariffs in the 2 zones. In the latest rebasing, MWCI was given about 70% tariff increase staggered in the next five years. In Maynilad’s case, we’re proposing about half of that due to improved efficiency and reduction in NRW over the next 5 years.

You mentioned Maynilad’s renewed focus on NRW. What strategies have you adopted to reduce the almost 70% NRW?

We’re currently focusing our resources to reduce Maynilad’s NRW from the current 66% to 40% or lower in 5 years. Every 1% NRW reduction translates to an additional revenue of about P20 million.

Right now, we’re losing about 1,500 million liters per day (mld) of potable water. Assuming that we can halve the NRW, we’ll have about 750 mld of potable water available for our customers. This also eliminates the need to invest in new water sources in the next 3-5 years, except for strategic reasons.

We brought in NRW experts who advised us on hydraulic area isolation, district metering, and meter management. The previous owners did not use hydraulic area isolation and district metering as means of NRW reduction so we’re just starting to create district meter areas (DMA) across the network. We estimate that it will take us 3–4 years to fully commission about 1,365 necessary DMAs. To get there, we organized—a first for Maynilad—a fully dedicated NRW team using foreign experts and the latest technology on leak detection and NRW management. We’re also preparing to outsource some of the DMA work to service providers on a performance based contract.

What other initiatives do you have to improve operational efficiency?

As part of our efforts to right-size the organization, we started outsourcing some of our non-core functions, including meter reading. This has resulted to a 33% reduction in workforce.

What key insights should a utility consider to recover its investments and operate at optimal level?

First, comprehensive NRW management should be the highest priority. This includes organizing full time NRW staff, detecting and repairing leaks, measuring and monitoring the NRW daily, and maintaining the NRW at low levels.

Second, customer care & services should also be a concern for all employees, from top to bottom. Employees need to understand the needs and wants of the customers, attend to their complaints, and seek their support in reporting leaks and illegal connections.

Finally, operators must recognize that poor and disadvantaged communities must also have access to potable water. The irony is that these poor households pay much more for their water than the regular customers who have direct piped service connections. With creativity and innovation, we can devise ways to provide piped connections to the poor different from our normal approaches to regular residential customers. We can start by being creative in billing and collection, pipe construction, tariff structure, and organizing them into small water service networks.