Water privatization in Metro Manila

The tariffs proved to be too low to finance the investments needed to improve performance, especially after the East Asian financial crisis and the devaluation of the Philippine Peso.

Maynilad expanded access, but unable to reduce water losses it stopped paying concession fees to the government and went bankrupt in 2003.

Manila Water struggled initially, but increased its contractual rate of return by arbitration in 1998, improved performance, and in 2003 the International Finance Corporation (IFC) provided a loan and took an equity stake in the company, followed by an initial public offering (IPO) of shares on the Manila stock exchange in 2004 and local currency bond sales in 2008.

[11] Except in times of extended drought, Angat Dam supplies 4.1 million cubic meters per day of water for Metro Manila.

the Metropolitan Waterworks and Sewerage System (MWSS) provided water for on average 16 hours every day to two thirds of Metro Manila.

Based on this perceived success, Ramos asked his Secretary of Public Works and Transport Gregorio Vigilar to apply the same approach to resolve the water problems of Manila.

[13]: 12–15 In 1995, the "Water Crisis Act" was passed, providing the legal framework for a public-private partnership, which was to take the form of concession contracts.

While some office members expected to actively monitor and control the private companies, its first chief, Rex Tantiongco, insisted that it was part of the utility, to implement decisions agreed to between the MWSS Board of Trustees and the concessionaires.

The Filipino government expected efficiency gains to be so great, that water tariffs would go down, based on the 1993 experience of the Buenos Aires concession, despite the need to finance huge investments and to service legacy debt.

[13]: 95–98, 133 The concessions were awarded to the following joint venture, taking effect in August 1997 : The financing relied extensively on the anticipated cash flow and debt with a low share of equity.

Since the service area was split in two and the foreign partners would shoulder much of the equity, local firms became very interested to participate when they were told of this arrangement: "Can you imagine having a significant share in a company that provided water to Metro Manila for only USD 10 million?

The Benpres Group, the Filipino partner of Maynilad, was in a desperate financial situation when it entered the contract, providing little cushion for the first difficult years when much more equity was needed than anticipated.

According to a study by the British NGO, WaterAid, both companies "appeared to have made particularly low bids, on poor foundations, with the assumption they would change the terms of the contract once it was won."

Maynilad thus invested in expanding access in the Western zone, but due to its business model and the heavy load of inherited foreign-currency debt it soon ran into financial difficulties.

As early as 1998 Manila Water requested an increase of the 5.2 percent rate of return it had included in its own bid to calculate its tariff.

The concession contract foresaw an adjustment of the water tariff every five years to take into account changes in the weighted cost of capital and in investment requirements.

[18] A critical study of the two concessions concluded in 2002 that they both were a "failure" and a "corporate muddle, whereby the supposed benefits of private sector participation disappear, and government and public administrators are seemingly unable to prevent it.

The government did not call on Maynilad's performance bond, but rather took on three new foreign currency loans with a total value of US$431 million to finance the MWSS debt service.

The government agreed to convert a small part of the unpaid concession fees, US$22.67 million, into an 84 percent equity share of Maynilad.

[31] Manila Water improved its performance and increasingly gained the trust of investors and in 2003 the International Finance Corporation (IFC) provided a loan and took an equity stake in the company.

[35] In December 2008 the Supreme Court of the Philippines ordered a number of government agencies, including MWSS and by extension the two concessionaires, to clean up Manila Bay.

The Court called the bay "a dirty and slowly dying expanse mainly because of the abject official indifference of people and institutions".

However, the regulator MWSS blocked this part of the tariff increase and brought the issue to the Supreme Court of the Philippines for a final decision.

[44] As of 2012, Manila Water operates 36 mostly small wastewater treatment plants with a total capacity of 0.135 million cubic meters per day.

According to Manila Water, sludge from the plants is brought to a composting site in Central Luzon from where it is applied on land in a lahar-laden area in Tarlac province.

In a second step, all remaining employees were actually terminated and received severance pay, only to be rehired for a probation period by the private companies.

Manila Water also modernized management practices focused on their employees, which made it the first Filipino company to win the 2011 Asian Human Capital award.

[33] Many poor in Manila do not have access to piped water supply because the land where they live is occupied illegally and the private utilities are thus not allowed to connect them to the network.

[52][53] Maynilad built the piped network only to supply points at the entry of narrow alleys, from where residents distributed it among themselves with rubber hoses.

[22] Maynilad pursued an approach to connect poor communities that included laying pipes in slums, which made it difficult to control theft.