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ADB Assistance to Water Supply Services in Metro Manila
This report presents the findings, lessons, and recommendations of an independent assessment of more than three decades of partnership experience between ADB and the development of water supply services in Metropolitan Manila. The evaluation1 found that the value addition of ADB assistance to Manila water services was largely limited to augmenting raw water supply to the Metropolitan Waterworks and Sewerage System water treatment and supply system. Background Metro Manilaʹs water supply is entirely dependent upon a single source of raw water, the Angat Reservoir, located about 30 kilometers northeast of Manila. It provides about 98% of the metropolisʹ water supply or 4 million cubic meters per day. Following the Water Crisis Act of 1995, the process to allow for private sector participation culminated on 1 August 1997 when the operational and investment functions of Metropolitan Waterworks and Sewerage System (MWSS) in water and sewerage were trans‐ ferred to Manila Water Company and Maynilad Water Services, Inc. under two separate concession agree‐ ments. The concession agreements transfer the tenancy and operational fixed assets and exclusive rights to produce and treat raw water; transport, distribute, and market potable water; and collect, transport, treat, dispose, and eventually reutilize wastewater, including industrial effluent discharged into the sewerage system, to the concessionaires. The underlying objective of ADB assistance to the water services sector in Metro Manila has been expand‐ ing the water and sewerage systems and increasing the availability of water by providing new infrastructure and rehabilitating outdated unnecessary infrastructure. Nine loans, including one technical assistance loan, have been approved since 1974. The loans were all executed and implemented by the MWSS and guaran‐ teed by the Government of the Philippines. The evaluation study assesses the performance of ADB assistance to the Government for improving water supply services in Metro Manila and to draw lessons for future partnership operations. Three projects were
Independent Evaluation Department Asian Development Bank
case studies for this evaluation report: the Angat Water Supply Optimization Project, the Manila South Water Distribution Project, and the Umiray–Angat Transbasin Project. Summary of Findings Overall, ADBʹs assistance to improving water supply services in Metro Manila is assessed as ʺpartly successful.ʺ ADB‐financed projects for Manilaʹs water supply have successfully contributed to the construction of major infrastructure components of the water conveyance system from the Angat Reservoir, which are crucial for securing water supply for the Metro Manila area. However, Metro Manila is still dependent on a single source of raw water. The ADB–MWSS partnership has limited success in developing alternative sources of raw water, although support from ADB and other development partners have offered to develop new water sources. The partnership in the past also did not include the sanitation subsector. Although sewerage in Metro Manila had always been financed primarily by the World Bank, ADB financed a small project for water sewerage ($42.8 million). ADB’s role in assisting MWSS in the design and implementation of water concessions (also called privatization) was limited. However, ADB assistance to MWSS for regulatory capacity building was deemed useful. ADB‐financed project components aimed at reducing nonrevenue water (NRW), which became the responsibility of the concessionaires after private sector participation, were generally successful with Manila Water Company in the East Zone and unsuccessful with Maynilad Water Services in the West Zone.
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MWSS chronically suffered from two operational problems: high levels of NRW and accounts receivables. Despite this institutional weakness, ADB‐funded projects carried extremely optimistic assumptions, contributing to the poor performance of the Manila South Project. Although ADB did not play a major role in the strategy development allowing private sector participation, the projects included in this evaluation study also benefited the private concessionaires through the provision of infrastructure supporting the growth of their businesses and achievement of the performance targets set out in the concession agreements. Lessons Some lessons that were identified include: Project designs need to consider both supply and demand issues and the role of small‐scale water suppliers/vendors. High willingness‐to‐pay indicates that there are alternative ways of meeting demand. These alternative services should be considered in feasibility assessments. Project designs need to consider NRW lessons from previous projects. Project economic and financial analyses need to be based on realistic assumptions, especially concerning tariffs, NRW, operation and maintenance expenditures, and supply. Long‐term sustainability of water supply services depends, to a large extent, on the success of an appropriate tariff policy and tariff revenue collection to cover operation and maintenance costs, debt service, and new developments to meet rising demand. Foreign exchange risks need to be factored into the financial analysis and management of water companies, particularly those having foreign debt‐ service obligations. The regulatory arrangements and the concession contracts in Metro Manila needed a better design and more realistic assumptions. The expected regulatory response and management contribution of foreign partners need to be clear at the outset. Private sector participation in MWSS operations has brought benefits where connections were put in place and water supplied, but several areas for improvement remain.
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This special evaluation study recommends the following in future operations: Given the long partnership with MWSS and the rising demand and widening demand‐supply gap for water in Metro Manila, ADB should provide further lending assistance to improve Metro Manilaʹs raw water supply by drawing from known but untapped sources and surveying other possible sources. Additional raw water on a large scale to meet the pressures of the growing metropolis will require significant investment to develop a significant alternative to the Angat Reservoir. There is continued potential for an ADB role in developing water distribution services in Metro Manila, particularly in the West Zone. However, given the possibility of alternative, sometimes lower‐cost bilateral and multilateral financing sources, ADB will need to package and deliver its assistance more efficiently than before. Assist in developing new mechanisms for addressing NRW reduction issues. To address the NRW issue, project design should take into account both demand‐ and supply‐related factors that contribute to NRW. Consider providing lending assistance for groundwater‐related environmental protection and wastewater management. The sector continues to be faced with problems of indiscriminate extraction of groundwater, and pollution from municipal and industrial wastewater. Further support for these areas should be assessed.
Feedback ADB Management’s response and the Chairʹs Summary of the Development Effectiveness Committee Discussions were not required for this special evaluation study because it served as an input to the Country Assistance Program Evaluation for the Philippines. The study was completed in September 2008.
ADB. 2008. ADB Assistance to Water Supply Services in Metro Manila. Special Evaluation Study. Manila. Available: http://www.adb.org/Documents/SES/PHI/SST‐PHI‐2008‐ 31/SST‐PHI‐2008‐31.pdf
Team Leader: Barbara Palacios, Tel +63 2 632 4114, firstname.lastname@example.org
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