Water and sanitation in Metro Manila, in the Philippines, is making the news in the country again. Kathy Eales heard from Patrick Ty, the Chief Regulator there, about regulatory progress incentivising sanitation improvements by utilities.
Metro Manila privatised its water and sewerage system in 1997, awarding 25-year contracts to two concessionaires – Maynilad Water Services in the West Zone and Manila Water Company in the East Zone. They became responsible for delivering water supply, sewerage and desludging services. Meanwhile, the former utility, the Metropolitan Waterworks and Sewerage System (MWSS), changed role to that of concession manager, and a Regulatory Office (MWSS RO) was set up as an adjunct to it.
The first priority was to fix the water supply. “The water supply pre-privatisation water really poor,” says Patrick Ty, Chief Regulator with MWSS RO.
At the start of the concession, just 7% of the population of Metro Manila was connected to a sewer line, and there was only one small treatment works. To this day, the vast majority of residents still rely on septic tanks, which discharge directly to surface drainage systems and, eventually, into the receiving waters. This results in severe public health problems – especially when heavy rains cause flooding of residential areas – and severe pollution of Manila’s river systems and Manila Bay.
In response to severe water pollution, the 2004 Philippines Clean Water Act aimed to protect the country’s water resources, setting a 2009 deadline for full sewerage coverage. But this deadline did not take into account the impact rapid extension of the sewerage system would have had on service tariffs, as the costs are borne solely by the customers. Instead, the MWSS extended the Concession Agreements by 15 years, to 2037, to ensure the affordability of wastewater services through a longer pay-back period. A Supreme Court decision in 2011 required the concessionaires to fast-track the rollout of sewerage and wastewater treatment, but progress remained slow.
Unexpectedly, in August 2019, the Supreme Court ruled in favour of imposing massive penalties on the two concessionaires and MWSS for non-compliance with the 2004 Act, with fines accumulating daily since 2009. The decision has been appealed on various grounds – including the likely impact on user tariffs if sewerage is fast-tracked – but the state of sanitation and sewerage in Manila has become a hot topic in the media, with growing awareness of the need to give sanitation higher priority.
Tariff adjustments are the regulator’s major instrument for incentivising performance. The primary task of the Regulatory Office is to determine a reasonable tariff, and to monitor the compliance of the concessionaires with the Concession Agreements. The tariff rate is rebased every five years, with performance targets agreed as part of the negotiations around this.
“We track the number of new sewer connections and septic tanks desludged, compliance with wastewater treatment requirements, capital expenditure, and a range of business efficiency measures,” says Ty.
“To ensure accurate reporting, concessionaires’ reports are verified and validated regularly using systematic procedures established by the regulator.
“In 2017, when we gave them the tariff adjustment, we asked for their commitment to fast-track capex [capital expenditure], and to encourage desludging, because that’s very important to us,” he continues. “I told them that, when I do the next rebasing in 2022, I will consider their performance. So, I think they’re doing their jobs much better now.
“It’s only now that they are starting to increase the sewer coverage,” he adds. “We’re at about 25% coverage now, and we aim to double that by 2022.”
To further encourage infrastructure investments, the regulator also offered a financial incentive through an annual tariff adjustment for the next five years if they met their capex commitments. If they prove unable to roll out their capex agreements as agreed in the Tariff Schedule, they do not get their tariff adjustments until they comply. “In 2019 they got their tariff adjustments,” says Ty. “But, in 2020, I recommended to disallow their tariff adjustments until they’re able to comply with their capex commitments. So that was how we incentivised their performance.
“Of course, we check their books carefully, and we monitor their financials,” says Ty. “We have to make sure that they are viable, especially that they are able to pay their operating expenses. If you try to throttle them too much, if they will not be able to pay their opex, that’s going to create huge problems, and that could affect service. But they are still able to declare dividends to their stockholders this year.”
“One of the biggest problems we faced was that people were not willing to pay to connect to a sewer line,” says Ty. “Probably around 1% of people were willing to connect. So now our approach is to focus mainly on developing combined sewer systems that intercept wastewater discharged to surface drainage systems, and treat it to an acceptable standard before it reaches the receiving waters.
“The infrastructure is more cost-effective and technically feasible, and it allows for faster pollution reduction than a separate sewer system would, because it treats wastewater from the city’s drainage system. It also removes that additional cost to the consumer, because the overflow from the septic tanks is caught in the drainage system, so consumers don’t need to connect anymore to a particular line. They don’t have to do anything beyond connecting their overflow to the drainage system, and most have done that already.”
This basically means that three actions have been taken. “We have scrapped the sewer connection charges for residential users, because they are not necessary with combined sewers, which intercept the drainage system,” says Ty. The second action was to have a combined tariff for water and sanitation for residential consumers. “It would be problematic for us to encourage people to connect if it will mean an additional fee for them,” he says. “Now there is no more need for that, and a single tariff covers all water and sanitation services, regardless of whether residents are connected to the sewer or not, because everyone produces wastewater.”
The third was that the combined water and sanitation tariff includes the cost of desludging each septic tank once every five years. “Users pay nothing further when they have their septic tanks desludged according to schedule,” Ty adds.
Regular desludging is essential to ensure each septic tank functions properly, regardless of whether the outflow is collected by the sewer system or not. “Before, the two concessionaires were not publicising their desludging services, because, of course, there’s a cost to it. There was not really an incentive for them to do it properly. So that’s why we had to monitor it closely and check what percentage of the customers were availing themselves of the service,” says Ty. “We had to pressure Manila Water and Maynilad to do those projects.”
The cost of scheduled desludging on a five-year emptying cycle is built into the overall service tariff, and the regulator works closely with the concessionaires and local authorities to raise awareness among residents about why they should make use of the service for which they have already paid.
“We told them to first roll out information campaigns, and we started monitoring – how many customers avail of the service and how many do not, and why,” he continues. “We normally check the why, especially because, a lot of the time, the customers don’t know that it’s already part of their bill and they don’t need to make any additional payment.”
A further action has been to increase awareness campaigns by coordinating with the local government. Last year, in particular, there was a move to clean up Manila Bay, so there were a lot of information campaigns and a lot of ads, pushing for desludging and increasing sewerage coverage. “That dramatically increased the acceptance rate of desludging services in both concession areas. That’s one of the things we are proud of,” adds Ty.
Ty sees a number of opportunities for greater progress. “We need to regulate septic tanks better,” he notes, adding: “More broadly, the Philippines needs a consolidated approach to regulation, as currently there are too many overlapping oversight agencies.”
There is also a Water Regulatory Commission Bill in Congress currently. “Once it comes into law, we can then regulate the two concessionaires properly, because, right now, our regulatory powers are limited by the Concession Agreements,” says Ty.
He concludes: “There is no magic bullet for achieving citywide inclusive sanitation. There has to be cooperation among all stakeholders – local government, national government, the private sector, and so on – and everyone should understand each other’s limitations. It is a challenge for everyone, but we should be able to achieve it by working together.” l
Patrick Ty is part of a task force of regulators shaping the IWA’s new Regulating for Citywide Inclusive Sanitation initiative.
Through this initiative, and in collaboration with its partners – namely representatives from regulators and organisations across the globe – IWA aims to identify the needs, opportunities and tools for action to support and inspire regulators in their contribution to achieving citywide inclusive sanitation in the context of the Sustainable Development Goals.
For more information, see: https://iwa-network.org/projects/regulating-for-citywide-inclusive-sanitation/