A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics David, Cristina C. Working Paper MWSS Privatization: Implications on the Price of Water, the Poor and the Environment PIDS Discussion Paper Series, No. 2000-14 Provided in Cooperation with: Philippine Institute for Development Studies (PIDS), Philippines Suggested Citation: David, Cristina C. (2000) : MWSS Privatization: Implications on the Price of Water, the Poor and the Environment, PIDS Discussion Paper Series, No. 2000-14, Philippine Institute for Development Studies (PIDS), Makati City This Version is available at: http://hdl.handle.net/10419/127720 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. 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David DISCUSSION PAPER SERIES NO. 2000-14 The PIDS Discussion Paper Series constitutes studies that are preliminary and subject to further revisions. They are be- ing circulated in a limited number of cop- ies only for purposes of soliciting com- ments and suggestions for further refine- ments. The studies under the Series are unedited and unreviewed. The views and opinions expressed are those of the author(s) and do not neces- sarily reflect those of the Institute. Not for quotation without permission from the author(s) and the Institute. April 2000 For comments, suggestions or further inquiries please contact: The Research Information Staff, Philippine Institute for Development Studies 3rd Floor, NEDA sa Makati Building, 106 Amorsolo Street, Legaspi Village, Makati City, Philippines Tel Nos: 8924059 and 8935705; Fax No: 8939589; E-mail: [email protected] Or visit our website at http://www.pids.gov.ph MWSS Privatization: Implications on the Price of Water, the Poor, and the Environment Cristina C. David A B S T R A C T Although MWSS has the responsibility for providing urban water and sewerage services in Metro Manila, actual service coverage has been low particularly for sewerage and quality of service has been poor despite subsidies from the national government. This paper examines the impact of the recent MWSS privatization on the coverage and quality of water and sanitation services and ultimately on the groundwater levels, water pollution, human health, and welfare of the poor. Analysis of the performance targets and other provisions of the MWSS concession agreement together with revised projections of water demand indicates that a significant share of water supply will have to be met through groundwater pumping by individual households, commercial, and industrial establishments and by private water markets. Moreover, the exception of a significant number of households who already have tap water from own sources, private water markets, as well as industrial and commercial establishments from the performance targets on sewerage coverage suggests that water pollution may not be adequately addressed. This study foresees that without some adjustments in the concession agreement with the private water concessionaires and acceleration of water supply expansion projects, specifically the Laiban Dam project, the water shortage problem will persist and the poor will continue to pay much higher price for water as they are rationed out of the low-priced MWSS water. The progressive water price structure itself for MWSS water also ends up having regressive effects as the poorer households have to rely on shared water connection or public faucets and thereby pay higher water prices. MWSS Privatization: Implications on The Price of Water, the Poor, and the Environment* Cristina C. David** In 1997, Metro Manila Water and Sewerage System (MWSS), the government corporation responsible for the water supply and sewerage disposal in the greater Metro Manila area, was successfully privatized. The policy decision for privatization was motivated by MWSS’s failure under public management to provide adequate water supply and sewerage services to the largest urban center in the Philippines and the desire to end government subsidies to its operations. Inefficiencies in the MWSS operations have been widely documented (Binnie Thames Water/TGGI Engineers 1996). It is also commonly believed that these inefficiencies would be extremely difficult to correct under the same institutional framework and political realities. However, the public good nature of water, economies of scale and externalities in its production, distribution, and consumption, and its basic need character mean that private sector management of urban water resources cannot be expected to achieve economic efficiency, social equity, and environmental sustainability without appropriate contractual arrangements, strong economic and environmental regulations, and other government interventions. Such concerns are all the more critical with regards to MWSS because of the government’s weak capacity to enforce environmental regulations in the face of severe water pollution problems and rapid groundwater depletion within the service area, the bureaucratic constraints encountered in developing a strong * Paper presented at the Workshop on Private Sector Participation in Water Supply and Sanitation: Realising Social and Environmental Objectives, London, November 26-27, 1998. ** Research Fellow, Philippine Institute for Development Studies, Makati City. The author acknowledges the financial support of DANIDA through the International Institute of Environment and Development. She also acknowledges the excellent research assistance of Debbie Gundaya. economic regulatory office, and the large number of urban poor often bypassed in the allocation of water and sewerage services. The post-privatization period of just over a year is too short for evaluating the full impact of privatization. However, changes in water tariffs and operational costs, analysis of the provisions of the concession agreement, and review of the underlying assumptions related to water demand, supply, and other factors enable us to derive some preliminary assessments and explore its potential impact on efficiency, welfare of the poor, and environmental objectives. Moreover, potential problems that may be encountered in fulfilling the service obligations and realizing societal objectives of the MWSS privatization are important to identify at an early stage. The first section of this paper presents an overview of the institutional and physical characteristics of the urban water and sewerage services in the MWSS service area. In the second section, the nature of private sector participation, contractual and institutional arrangements, and the bidding process are described. The third section examines the general issues and concerns arising from the concession agreement that may significantly affect privatization’s impact not only on efficiency, but also on the welfare of the poor and on environmental objectives as analyzed in the subsequent two sections. The last section concludes with some policy implications related to overall water resource management, and specifically to the operations of the various components under the present privatized institutional structure of the MWSS. Characteristics of the Water Sector Institutional Structure The Philippine Water Code (PD 1067) approved in 1976 is considered to be an adequate overall legal framework for the efficient, equitable, and sustainable management of the country’s water resources (World Bank 1993). But the regulatory and institutional frameworks governing the water sector are generally believed to be weak and fragmented. The National Water 2 Resources Board (NWRB) which has overall responsibility for water resource management, i.e., the control, supervision, and regulation of the utilization, exploitation, development, and protection of the water resources, does not have sufficient authority nor financial resources to effectively perform these functions. Provision of water-related services and many regulatory functions are carried out by other government agencies. Outside the MWSS service area, provision of piped water connection for other urban areas is undertaken mostly by water districts which are provided credit subsidies by the Local Water Utilities Administration (LWUA). Local government units (LGUs) also manage a few water utilities. And since the 1991 passage of the Local Government Code (RA 7160), the responsibility for funding the construction of shallow wells