About the cover: Nearly 60 per cent of Filipinos now live in urban areas, mostly in small towns with less than 100,000 people. A number of Philippine small towns have access to piped water supply services, either connected to household taps or via a series of public standpipes. Management Models for Small Towns Water Supply Lessons learned from case studies in the Philippines World Bank Water and Sanitation Program East Asia and the Pacific in partnership with The Government of the Philippines and The Government of Australia Published June 2003 World Bank Water and Sanitation Program ­ East Asia and the Pacific. This document is written by Andy Robinson based on his report, prepared with the Test Consultants, Inc., Management Models for Small Towns Water Supply: Lessons Learned from Case Studies in the Philippines, released in February 2003, http://www.wpep.org Cover photo credits: Radoslaw Janicki; Andrew Whillas The World Bank does not guarantee the accuracy of the data and images included in this publication. The views expressed herein are not necessarily those of the World Bank, AusAID or the Australian Government or the Government of the Philippines. The findings, interpretations and conclusions are the result of research supported by these organizations. They do not accept responsibility for the views expressed herein, which are those of the authors and should not be attributed to the World Bank, its affiliated organizations, to AusAID, the GOA or the GOP. Management Models for Small Towns Water Supply Lessons learned from case studies in the Philippines Contents Summary.......................................................................................... 1 Background .................................................................................... 4 Case Studies of Small Towns Water Supply......................................... 7 Management Model Performance...................................................... 10 Factors of Success............................................................................. 18 When is a small town too big for community based management?...... 20 Conclusions..................................................................................... 21 Recommendations............................................................................ 23 Summary Small towns water supply is a neglected populations between 5,000 and 50,000 `market' globally, and the Philippines is no inhabitants, but can be larger or smaller" exception. The key issue is that water supply systems in small towns are typically too complex In the Philippines today, nearly 60% of the to be well managed by community groups, but population live in urban areas, up from 40% too small to be financially viable for professional only twenty years ago. Manila is a huge city, water utilities. Furthermore, most water supply even in global terms, but much of this high and funding and assistance goes to definitively rural rising urban population is now found in smaller or urban cases, leaving small towns dependent towns. According to the 2000 Census, there are on meager local government budgets. 1,600 cities and towns in the Philippines1, and 95% of these have populations below 100,000. There is some debate over what defines a `small' town, as there are marked differences These figures illustrate the growing in the pattern of urban development from significance of the small towns sub-sector in the country to country, and region to region. In Philippines. When considered in tandem with March 2000, a global e-conference on small the management challenges associated with towns water supply agreed upon the following small towns water supply, it becomes apparent definition: that this is an area of some importance to the water supply and sanitation sector. Yet, little is "Small towns are settlements that are known about the performance or relative sufficiently large and dense to benefit from advantages of the diverse models that are the economies of scale offered by piped water currently being used to manage small town supply systems, but too small and dispersed water supply systems. to be efficiently managed by a conventional urban water utility. They require formal This field note presents the findings from a management arrangements, a legal basis for recent study by the Water Supply and Sanitation ownership and management, and the ability Performance Enhancement Project (see Box), to expand services to meet the growing which used case studies of fourteen small town demand for water. Small towns usually have water supply systems in the Philippines to 1 Excluding the National Capital Region (Manila and the contiguous cities and towns around it) MANAGEMENT MODELS FOR SMALL TOWNS WATER SUPPLY 1 examine `factors of success' for different management models. The key lesson from the case studies was that water supply systems using community-based management models (e.g. Water Cooperatives and RWSAs1) are the most consistently successful2 in small towns. Water Cooperatives and RWSAs are locally- embedded institutions that prosper in the highly politicized small towns of the Philippines, while strong community involvement preserves their autonomy (political and financial) and ensures transparency and accountability. The successful community-based management bodies are more sophisticated than typical community management models. A key factor is the professional support they receive, which allows them to provide cost- efficient and well-planned services, while retaining their local advantages and demand- responsiveness. Nearby Water Districts3, which manage their own large urban water supply systems, provide a ready source of technical assistance, and have enabled community-based management bodies to introduce commercial accounting systems, domestic water meters, and well-organized billing and collection systems. As small towns grow and their water supply systems become more complex, professional water utility management skills become more important. For this reason, it has been argued that community-based management models are not suitable for small towns water supply. However, the lessons learned from this study suggest that professional support helps community-based management bodies to evolve with their systems, and allows an incremental transition from community-based to commercial water supply management. Encouragement and assistance in contracting out commercially viable functions (e.g. operation and maintenance, billing and collection, and financial audits) would assist 1 Rural Water Supply Associations (RWSAs) community-based management bodies to 2"Successful performance" is defined as water supply further improve performance whilst retaining the services that are sustainable (technically, socially, financially, institutionally, & environmentally) and are advantages of user ownership and control. effectively used by the community 3Water Districts are semi-autonomous water utilities set up by local government (legally defined as government owned and controlled corporations) 2 MANAGEMENT MODELS FOR SMALL TOWNS WATER SUPPLY The Water Supply and Sanitation Performance Enhancement Project (WPEP) WPEP is an action research project in the Philippines, which is jointly funded by AusAID (the Australian Government's aid program), the Water and Sanitation Program of the World Bank and the Government of the Philippines (GOP). The executing agency for the GOP is the Water Supply and Sanitation Program Management Office of the Department of Interior and Local Government (WSSPMO-DILG), with support from the Water and Sanitation Program ­ East Asia & Pacific (WSP-EAP). The goal of the project is "to enhance the access of the under-served rural and urban poor to adequate water and sanitation services on a sustainable basis." The WPEP action research agenda is demand driven through consultation with a broad range of water supply and sanitation sector practitioners in the Philippines. At the outset, WPEP funded six background studies, which provided the basis for the learning agenda. Following consultation on these studies, WPEP commissioned local consultants to undertake four field-based studies on the following topics: · Small Towns Water and Supply Management Models (STWSMM); · Urban Sewerage and Sanitation: What has worked and what has not (USS); · Small Scale Independent Providers (SSIP); · Rural Water: Models for Sustainable Development and Sector Financing (RWSFin) This field note is one of a series of field notes summarizing the results of this research program. The Philippine small towns are unusually dynamic in nature ­ population grows rapidly and economic activities are ever increasing. Water supply systems in small towns need to be able to cope with this changing environment. MANAGEMENT MODELS FOR SMALL TOWNS WATER SUPPLY 3 Background The Philippines consists of a chain of over The Asian financial crisis, triggered in mid- 7,000 islands, dominated by the large 1997, has further hindered the Philippine island of Luzon in the north, and by economy, leading to a loss of foreign exchange Mindanao in the south. The islands are reserves, a higher debt burden and falling share surprisingly densely populated, with the prices. There have been signs of recovery, with majority of the 76 million inhabitants now GDP growth increasing from 0.1% in 1998 to living in urban areas. However, economic 3.0% in 2000, but the Philippine Peso continues development has not kept pace with the to lose value1, and both oil prices and interest rising urbanization, and per capita incomes rates have risen sharply. These economic lag behind those of its neighbors (see challenges have been heightened by serious comparative data in table). Development political and security problems. Charges of potential in the Philippines rests largely on corruption and inefficiency have affected many the abundant natural resources and well- agencies, delaying project implementation and educated workforce, with major economic discouraging investment. However, a new challenges coming from rapid population administration took office in January 2001, and growth, high levels of poverty and it has initiated a gradual economic recovery, inequality, low productivity and intensified leading to improved stability and confidence2. global competition. Comparative regional data Country Population Urban Pop. density GNP per Female Access to (millions) population (per sq.km) capita (US$) literacy1 WS2 The Philippines 76 59% 253 $ 1,040 95% 91% Thailand 61 22% 119 $ 2,000 93% 94% Malaysia 23 57% 71 $ 3,380 82% 100% East Asia & Pacific1,855 35% 116 $ 1,060 78% 89% Source: World Development Report 2001/02 1 Percent of women aged 15 and above 2 Percent of urban population with access to improved water sources (1996) 1The official exchange rate has fallen from P40 = US$1 in early 2000, to P53 = US$1 in early 2003 2ADB, 2001 4 MANAGEMENT MODELS FOR SMALL TOWNS WATER SUPPLY In the 70s MWSS become responsible for Metro Manila and contiguous areas, whilst all other systems were handed over to local governments that rarely had adequate capacity and funds to manage them. Urban water supply in the Philippines Recognition of the seriousness of these problems led to the 1973 Provincial Water After independence was won from the Utilities Act, which introduced a new United States in 1946, most provincial and management model for urban water supply: municipal water supply systems in the the Water District. Under the new act, LGUs Philippines were government-owned, and had the option to form `Water Districts' to run were operated by local authorities with their urban water supply and sewerage systems. technical assistance from the Bureau of Public Water Districts were to be `quasi-public Works (BPW). Control of urban water supply corporations2' that operate independently of the reverted to the central government between LGU, with promotion, support and financing 1955 - 71, under the auspices of the National from the specially created Local Water Utilities Waterworks and Sewerage Authority Administration (LWUA). (NAWASA), but this centralized system favored Metro Manila and was not responsive to the In 1980, the urban water supply sector was needs of more distant municipalities. further sub-divided by the creation of the Rural Consequently, the provision of urban water Waterworks Development Corporation supply services was divided in the early 1970s. (RWDC). Larger towns (populations greater The newly-created Metropolitan Waterworks than 20,000) were to be served by Water and Sewerage System (MWSS) was given Districts, assisted by LWUA. The RWDC was to responsibility for the services in Metro Manila cater for water supply in rural centers and small and its contiguous urban areas, whilst towns (populations less than 20,000), and was management of all other provincial and authorized to form Rural Waterworks municipal water supply systems was passed Associations (later renamed Rural Water Supply back to local government. Most of these water Associations) to manage these water supply supply systems were in poor condition, and systems. However, this arrangement was short- Local Government Units1 (LGUs) rarely had the lived. The RWDC was abolished in 1987, and capacity, experience or funds needed to all its functions and responsibilities have since manage or improve the systems. been transferred to LWUA. 1 The term Local Government Unit refers to any level of local government, from Provincial Government down to Barangay 2 Amended to `government-owned & controlled corporations ' by a 1992 Supreme Court decision MANAGEMENT MODELS FOR SMALL TOWNS WATER SUPPLY 5 Decentralization followed. The implementation Today, Water District and LGU- of the 1991 Local Government Code (LGC) managed systems provide piped water triggered a process of political and administrative supply services to about 60% of the towns devolution that brought major changes to the in the Philippines, including many of the governance structure of the Philippines. The larger towns. Most of the remaining small LGC transferred powers and responsibilities towns, and the urban areas excluded from Water District or LGU systems, are either from the central government to Local supplied by small community-based Government Units (LGUs), including primary organizations, such as Rural Water Supply responsibility for the development of urban Associations (RWSAs) and Water water supply and sanitation services. This Cooperatives, or rely on isolated water process was accompanied by large increases points (e.g. wells and handpumps). in LGU incomes, but there has been little impact on the water sector to date. In summary, there are five main management models for small towns water The government has also been promoting supply in the Philippines: private sector participation in the water sector, = Local Government Unit (500 in order to provide additional finance and to · LGU urban systems) enhance service delivery. Metro Manila · WD = Water District (430 urban undertook a high profile privatization of its systems) water supply in 1997, and there are four other · RWSA = Rural Water Supply examples of privately managed urban water Associations (500 systems) supply systems in the Philippines1. However, · COOP = Water Cooperative (200+ these examples are all in major cities and urban systems) towns. Recent projects encouraging private · PS = Private Sector (4 urban sector participation, such as the World Bank- systems) funded LGU-UWSP2, have struggled to attract There is also a hybrid management model: private service providers to small towns water the `cluster model', which refers to an LGU or supply, and have found it difficult to persuade Water District that provides water supply services LGUs to relinquish control of their water to groups, or clusters, of small towns (through services. one or more water supply systems). 1 Three fully private systems (General Trias, Balibago and Calapan) and one joint venture system (Subic Water & Sewerage Company - a joint venture between the Subic Bay Metropolitan Authority, Olongapo Water District, and a private company) 2 Local Government Unit ­ Urban Water Supply & Sanitation Project (LGU-UWSP) aims to promote demand-responsive approaches to the provision of urban water supply and sanitation services and to cost recovery, and utility operation following commercial principles. 6 MANAGEMENT MODELS FOR SMALL TOWNS WATER SUPPLY Case Studies of Small Towns Water Supply In 2003, Phase II of the Water Supply & Sanitation Performance Enhancement Project (WPEP) completed a study of management models for small towns water supply in the Philippines1. This study combined participatory community assessments (made using the MPA2) with specialist assessments (technical, institutional, environmental, financial and social) to create case studies of water supply systems in fourteen small towns. The main objectives of the WPEP study were to: · assess the performance of the different The Methodology of Participatory Assessment management models takes into account the views of women and men · analyze the parameters that underlie about the sustainability and use of water services in their communities. successful or unsuccessful performance, and · provide recommendations regarding the continued use of the management models in the provision of sustainable water supply services in the Philippines. 1 Robinson et al (2003) `Management Models for SmallTowns Water Supply: Lessons Learned from Case Studies in the Philippines ', Manila: WPEP Final Report 2 The Methodology for Participatory Assessments (MPA) provides indicators and tools that allow the assessors (including the community themselves) to measure the sustainability and use ofcommunity water services, and the process whereby they were established 12 Case study details Name Mgmt. Urban Population Staff/ Min. Profit model population served conn tariff/mo. margin P/m3 (2001) Systems in towns with population < 50,000 Aglipay LGU 21,800 250 (1%) 40 1.5 -194% Hagonoy WD 43,900 910 (2%) 21 11.4 -2% Numancia CLUS-WD 59,800* 13,500 (22%) 12 18.0 -10% Barcelona COOP 19,000 6,800 (36%) 8 3.0 -1% Guimbal RWSA 27,700 4,300 (16%) 10 6.0 +13% Systems in towns with population 50,000 ­ 100,000 Barili LGU 57,700 3,200 (6%) 27 3.5 -16% Nueva Vizcaya CLUS-LGU 100,600* 10,300 (10%) 10 2.3 -38% Manolo Fortich LGU 74,300 24,400 (33%) 8 6.5 +18% Ubay COOP 59,800 6,800 (11%) 14 5.0 +6% Subic WD 63,000 29,400 (47%) 6 8.6 +18% Systems in towns with population > 100,000 Darasa (Tanauan City) RWSA 117,500 7,030 (6%) 7 8.2 -3% Balibago (Angeles City) PS 264,000 48,600 (18%) 8 13.8 -4% M Kidapawan CLUS-WD 263,300* 60,600 (23%) 7 15.7 +18% General Trias PS 107,700 51,000 (47%) 3 10.0 +25% Key: * = combined population of more than one town Staff/conn = average number of staff per 1,000 house connections House connections = total number of house water connections supplied by system Min. tariff = minimum tariff (Pesos per month) 8 MANAGEMENT MODELS FOR SMALL TOWNS WATER SUPPLY The case studies were carefully selected to competing against other water supply systems. ensure that well-established examples of the six For instance, both the Darasa and the Balibago different management models were included. systems supply relatively small sections of Given the relatively small sample size, the study sizeable cities, whose main service providers are focused on overtly successful or unsuccessful large Water Districts. cases, in order to search out and highlight factors of success or key constraints. This low coverage greatly limits the potential for economies of scale, particularly within small The coverage provided by the case study systems. Despite involving four different water supply systems is generally low, with most management models, each of the five case study of them providing services in only certain parts systems that serves more than 20,000 people of their host town. In the towns with smaller utilizes less than ten staff/1,000 connections. In populations, the presence of low-cost alternate water supplies (e.g. shallow wells and contrast, only two of the nine smaller systems handpumps) appears to have lowered demand are as efficient. This illustrates the difficulties for house connections and prevented expansion, inherent in managing small town water supply whereas the systems in larger towns are often systems, whatever the management model. MANAGEMENT MODELS FOR SMALL TOWNS WATER SUPPLY 9 Management Model Performance The following sections outline the key shown in the table below) is not representative features of the six management models for of typical management model performance. small towns water supply, and summarize the Therefore, the management model performance assessments resulting from the assessments focus primarily on features that case studies. However, as the case studies are common, or replicable, or capable of include both successful and unsuccessful cases, reform, and attempt to identify where unusual average management model performance (as conditions may have influenced performance. Case studies by management model Management Average nr. Average Minimum Average Average model connection nr. staff per tariff salary profit served 1,000 conn. (P/m3) (P/mth) margin Private sector (2) 9,270 5.5 8.2­10.0 15,180 +10% Cluster WD (2) 6,900 9.5 15.7­18.0 9,940 + 4% Water District (2) 3,360 13.5 8.6­11.4 8,180 + 8% Cooperative (2) 1,290 10.5 3.0­5.0 6,730 + 3% RWSA (2) 950 7.9 6.0­8.2 9,130 + 5% LGU + Cluster LGU (4) 1,720 21.3 1.5­6.5 5,880 - 57% Key: staff per 1,000 conn.= average number of staff per 1,000 house connections 1. Local Government Unit The 1991 Local Government Code The LGU model defined in the WPEP study transferred financial resources, responsibilities, involves direct management of an urban water personnel and assets from the national supply system by any level of local government. government to local governments. This led to a Therefore, this model covers a wide range of significant increase in LGU incomes, with the institutional arrangements, from management Internal Revenue Allotment (IRA) provided by of a complex multi-town system by the Provincial Government, to small simple systems run by 1 Barangay is the smallest administrative unit in the Philippines (the smallest case study town, population the Barangay Council1. 19,000, comprised 25 barangays) 10 MANAGEMENT MODELS FOR SMALL TOWNS WATER SUPPLY Typical LGU Management The towns of Surigao del Norte Province (Mindanao) are typical of the LGU management model: the Municipal Planning and Development Coordinator (MPDC) handles operations; the Municipal Engineer's Office (MEO) manage construction & repairs; and the Municipal Treasurer's Office assists with billing & collection. Some towns hire meter readers, plumbers and laborers on a regular basis, while other towns hire personnel only when needed, or when they have funds. Hinigaran Water System (Negros Occidental, Visayas) is owned and managed by the municipality, but was formerly a Water District. The water system was returned to the LGU because the system was not successful (its water source was too distant). The LGU has since programmed P3.5 million (US$ 70,000) for expansion and rehabilitation of the system, and the Provincial Government is assisting with development by paying for new distribution pipes. The barangay is assisting by providing labor. The system is operated by the Mayor through a City Public Utility Officer, assisted by 12 staff and an Internal Auditor. Adapted from Lazaro, 2000 central government rising from P10 billion so have little impact on the operation and in 1991 to more than P90 billion (US$ 2.25 maintenance of the water supply. Furthermore, billion) in 1999. LGUs were also granted most LGU leaders are elected officials (e.g. increased powers to raise local revenues from Mayors) and prefer to subsidize the operation property and business taxes. of the water supply system rather than lose votes by raising water tariffs. As a result, LGU water Most LGUs (both provincial and municipal) systems tend to have very low tariffs, and are have been slow to adjust to this new order. A constantly short of funds. few progressive LGUs are beginning to plan and implement their own development Within the LGUs, salaries are low and most programs, enabling them to attract funds from personnel have duties in addition to their water both private investors and external funding supply roles, hence there is little incentive or agencies, but decentralization remains capacity for efficient performance. LGUs also constrained by inadequate local funding lack technical expertise. Private contractors need capacity, by shortages of technical and to be employed for all but the simplest operation managerial expertise, and by the highly and maintenance (O&M) tasks, and LGUs can politicized environment at the local level. rarely afford to maintain, rehabilitate or expand their water supply systems. Consequently, Direct management of small town water systems deteriorate quickly, reliability is low, and supply systems by LGUs does not appear to users are reluctant to pay for their water services. work well. The central problem is that the budget of an LGU-managed water supply In small towns, LGUs are often both the system bears no relation to its water revenues. `water supply provider of last resort' and the LGUs are provided with central funding through local regulator. There is a strong case for their internal revenue allocation (IRA), but the strengthening the water supply capacity of LGU has little control over the size of its annual LGUs, but the findings of the WPEP study budget, and has to allocate the funds between indicate that there are few benefits to direct the competing needs and priorities of the LGU management, and suggest instead that locality. In theory, the funds spent on providing the LGU role should be confined to creating water supply services should be recouped from an enabling environment for other service the water tariffs, but these revenues disappear providers to operate within. into the central accounts of the LGU treasurer, MANAGEMENT MODELS FOR SMALL TOWNS WATER SUPPLY 11 Water districts secure capital financing from LWUA, but these loans are expensive and conditions to pass all costs onto users have driven up water tariffs. Here, residents are having a swim at the water district reservoir ­ perhaps one of the few free `benefits' for users? 2. Water District Government control and regulation has reduced autonomy (political and financial), The Water District model was designed to and has limited the scope for innovation, but operate on commercial lines, with many of the Water Districts still perform well in the areas same powers, rights and privileges given to where the LGU model is weak. Most Water private corporations. This changed in 1992, Districts have strong financial management, when the Supreme Court ruled that Water and significant technical capacity. However, Districts were Government Owned and tariffs are generally high, and water services Controlled Corporations (GOCCs) and, to the poor are restricted by rules on therefore, subject to government regulations on `financial viability'. employment, budget, management and audits. Typical Water District Management The General Manager of a Water District is appointed by the Board, and is given full control of operations, including the authority to appoint all Water District personnel. The General Manager of Subic Water District (Zambales Province, Luzon) has been in position for its entire 22-year life, as has one of the female directors. Water District Boards comprise five directors, who serve six- year terms with staggered starts. This ensures the capability to implement long-range policies, and prevents the LGU leader (usually a Mayor or Governor) from appointing more than 2- 3 directors during their three-year term. Water Districts have common procedures and commercial systems for billing & collection of tariffs, accounts, budgeting, preparation of financial statement, tariff setting, and all house connections have water meters. Water District tariffs must cover O&M costs, debt servicing requirements, and an additional allowance for capital expenditures and reserves. Tariffs are set following public hearings, approval by the Board, and LWUA review and confirmation. Adapted from TEST, 2002 12 MANAGEMENT MODELS FOR SMALL TOWNS WATER SUPPLY LWUA Loans to Water Districts The Local Water Utilities Administration (LWUA) provides loans to Water Districts for `financially viable' projects. LWUA is able to secure loans at concessionary rates (3-4%), which it then offers to Water Districts at higher interest rates (8-12.5%). In addition, LWUA charges 9% of the gross loan amount for carrying out feasibility and detailed design studies, plus another 4% for construction supervision. LWUA also passes on any currency adjustments due to fluctuation of the dollar-peso rate. LWUA used to be allowed to extend assistance to Water Districts that were not commercially viable by supplying 50% of the funds required as a grant. However, this practice was stopped in 1998, when the National Economic & Development Authority (NEDA) ordered that LWUA support only projects deemed financially viable (i.e. able to recover all costs and pay back their loans). Adapted from Lazaro, 2000 LWUA was the main source of capital for LWUA's `financial viability' requirement Water Districts (see Box on LWUA loans), but its was meant to improve cost recovery. In funding has dried up and it is being reformed. practice, this approach has made it hard for LWUA loans have proved expensive, and the Water Districts to provide services to the condition that all financing costs are passed on poor. Water Districts, especially those with to water users appears to have reduced substantial debt and already high tariffs, incentives for efficient design or for cost-effective tend to confine their service coverage to the implementation. When loans are badly spent, wealthier `urban barangays'1. More Water Districts are still forced to raise their tariffs, borrowing would be needed to fund leading to a vicious circle: inadequate services expansion beyond this service area, and and high tariffs result in lower consumption, Water Districts fear that low-income which reduces revenues, making cost recovery difficult and, in many cases, requiring further households will not be able to afford (or be tariff increases (see Box on high tariffs). willing to pay) their high tariffs. High Tariffs in Water Districts In 1987, Numancia Water District (Visayas) received approval for a LWUA loan to improve services. The water users were highly supportive of the project, and agreed to an initial tariff of P3.5/m3, rising to P5/m3 following project completion in 1993. Debt repayments required further tariff increases, and by 1997 the tariff had nearly doubled to P9/m3. Unfortunately, Numancia Water District was unable to service its debt repayments, and in 1998 LWUA took over management of the water supply. Another public hearing was held to discuss further tariff hikes to raise funds for the payment of arrears and to enable the development of additional water sources. An immediate 36% tariff increase was approved, as were later increases of 20% in 2000 and 12% in early 2002. The tariff stood at P18/m3 by the end of 2001, but the management decided to defer the planned Jan 2002 increase (to P20/m3 = US$ 0.40/ m3) because this was likely to lead to more disconnections, thus further diminishing their revenue and cash flow1. Adapted from TEST, 2002 1 The basic water tariff in the fourteen case studies averages P8.1/m3 1 The barangays making up small towns in the Philippines are classified as either `urban ' or `rural' MANAGEMENT MODELS FOR SMALL TOWNS WATER SUPPLY 13 The difficulties in expanding services into equity. The board of directors is elected by the low-income urban areas has led some Water general assembly (comprising all of the Districts to relinquish their exclusive right to association's members), and no elected provide water supply services in their franchise government official (with the exception of area1. In several of the case studies, the Water Barangay officials) can be a director. District has retained control of its existing service area while encouraging another service RWSAs were originally set up, supported and provider (RWSA, Water Cooperative or Private financed by a government body, the Rural Sector) to develop separate water supply Waterworks Development Corporation (RWDC). systems in the low-income areas. However, In 1987, the RWDC was dissolved and its some Water Districts are strongly opposed to functions and responsibilities were transferred having other service providers within their to LWUA. Despite having inherited loan domain, thus further restricting options for repayments from more than 450 RWSAs, the provision of services to the poor. sums involved were small, and LWUA has shown little interest in either RWSA performance, or in 3. Rural Water Supply Association the collection of its debts. (RWSA) RWSAs retain many of their original Despite the title, RWSAs manage water government-established features and supply systems in both rural and urban contexts. regulations, but are no longer monitored, and Outside the rural areas, RWSA systems are have few channels through which to obtain generally found in small towns, or serving well- finance. Today, some 50% of the RWSAs defined areas within larger towns (e.g. those not registered with LWUA are no longer operational. served by Water Districts or LGUs). However, The reasons for this high failure rate are not even large RWSAs provide water services to a known, but probably relate to the government's maximum of about 2,500 households. supply-driven approach in establishing RWSAs, and the current lack of financial or institutional RWSAs are non-profit water user support. associations, in which the members hold no 1 Water Districts usually have a Certificate of Public Convenience (or Certificate of Conformance) which grants them exclusive right of water service to a town (or cluster of towns) The high involvement of community members is a positive influence on the performance of rural water associations and water cooperatives. Here, users are assessing the technical adequacy of their system. Typical RWSA Management Mabuhay Water Supply Association (MWSA) manages the water supply system of Barangay Mabuhay within the town of Sison (Pangasinan Province, Luzon). Five staff operate and maintain the system, and the MWSA treasurer collects the water charges (P10 per month for house connections and P5 per month for users of public standposts). Water is currently rationed, but the association is trying to raise funds to construct a reservoir that will increase supply. The members of Darasa RWSA in Tanauan City (Batangas Province, Luzon) have a strong sense of ownership: · one (non-official) member records the time in and out of the RWSA employees · neighbors report cases of illegal connections · General Assembly voted against handing over management to Tanauan Water District · members have donated assets (wells and storage tanks) worth P3 million (US$ 60,000) Adapted from Lazaro, 2000 and TEST, 2002 The two RWSA case studies perform well, relationship with local Water Districts. This makes showing political and financial autonomy, as RWSAs less cost-efficient, but has not diminished well as good relations with local government. user satisfaction. High levels of community involvement promote transparency and accountability. 4. Water Cooperative Technical and financial performances are generally good, assisted by professional Water Cooperatives are community-based support from local Water Districts. This associations, governed by a board of directors combination of local knowledge and external elected by the general assembly. However, they support (from LGUs and Water Districts) make differ from RWSAs in that members contribute RWSAs effective in small towns. equity and thus have a financial stake in the success of the Cooperative. Like RWSAs, Water Both salaries and tariffs are higher than in Cooperatives tend to manage small, relatively the Water Cooperative case studies, perhaps simple water systems - the largest known as a legacy of their government influenced example serves 2,500 households1. Support and rules and regulations, and the close oversight are provided by the Cooperative 1Argao Cooperative, Visayas MANAGEMENT MODELS FOR SMALL TOWNS WATER SUPPLY 15 Typical Water Cooperative Management The San Pedro Multi-Purpose Cooperative in Santo Tomas (Batangas Province, Luzon) has six staff, headed by a woman. The Cooperative supplies water to 450 households, and holds regular meetings in which women actively participate. The basic tariff is P6/m3 (US$0.12/m3) and collection efficiency is 70-80%. The water users know each other and feel a sense of ownership for the system, which helps get bills paid and makes disconnections rare. External financing is needed for major works as 88% of the revenue is spent on routine operation and maintenance. Private contractors are hired when repairs are needed, and spare parts and equipment are readily available. Adapted from Lazaro, 2000 Development Authority (CDA), but it has no independent providers selling water to local technical or financing capacity, so limits itself households, but there are very few cases of to more administrative roles (registration, private sector management of the primary water training, monitoring and mediation). supply system in a small town. Water Cooperatives are the most demand- Small towns tend to have low population responsive of the management models, in densities and high per capita investment that they are difficult to form if the prospective costs, and the high risks and low profits members are not convinced that the water associated with these systems appear to have supply system will meet their needs. Water discouraged most private service providers1. Cooperatives are autonomous, but often have The few private companies providing urban good relations with LGUs and Water Districts, water supply in the Philippines are found in thereby improving their access to funding and towns with populations above 100,000, and to technical support. Enthusiastic community their service coverage centers on affluent, involvement, genuine interest in financial highly urban areas. Under these conditions, performance, and Water District assistance the private water companies perform well, in financial management combine to help using a professional management style to successful Water Cooperatives to keep costs capture economies of scale and make down and tariffs low, making services more significant gains in operational efficiency. equitable (better provision of water supply to the poor) and resulting in high user Unfortunately, the private sector model satisfaction ratings. currently lacks accountability or transparency. Private water companies have to submit their 5. Private Sector financial records to the Securities and Exchange Commission (SEC), and water tariff increases In the private sector model, the small town have to be approved by the NWRB, but they water supply system is run as a business, with are otherwise unregulated. Little information profit as the primary consideration. In the about the private water companies is in the Philippines, there are numerous examples of public domain, and the WPEP study found that small enterprises providing water supply they were often reluctant to reveal their financial services to residents of private housing results, or to discuss tariff increases with their developments, and of small-scale customers. 1 This is supported by the recent difficulties that LGU-UWSP has experienced in contracting private operators to manage small town water supply systems (as yet none of the nine pilot towns are under private management) 16 MANAGEMENT MODELS FOR SMALL TOWNS WATER SUPPLY Cost-efficient Management by Guimbal RWSA Cost-efficient Management by Guimbal RWSA Guimbal is a small town in Iloilo Province with a population of 27,700. Guimbal RWSA has been operating for 15 years and now supplies water to one third of the urban barangays. It has a very progressive LGU, which assisted the RWSA in attracting professional support from a local Water District, and in sourcing grant funding for construction of its water supply facilities. The water supply system has only average operational efficiency (7 staff for 714 house connections), but is well managed and the RWSA makes a reasonable profit (15% profit margin in 2000). In 2001, the RWSA took the unusual step of reducing the minimum tariff from P70 to P60 (for 10m3). Interestingly, this 17% tariff reduction led to a 50% increase in annual water consumption, creating higher overall revenues and enabling the RWSA to maintain a profit margin of 12%. Guimbal RWSA is fortunate to have a water supply system capable of meeting this increased demand, but it is making the most of its assets, and the water users are clearly benefiting from the RWSA's cost-efficient management. There is little doubt that involving the private This model is of particular interest because it sector in urban water supply management will has the potential to capture economies of scale, allow efficiency gains. However, the problems and thus to make the provision of small towns associated with making small towns water water supply services more attractive to the supply attractive to private water providers, private sector. and in holding these private providers accountable, suggest that their initial In practice, there is little evidence of any involvement should be limited to specific advantage in the management of clusters of functions in which private provision has a small town water supply systems in the comparative advantage (e.g. O&M, billing Philippines. The three case studies of cluster and collection, financial audits). systems did not perform well, with the few positive findings being related to attributes of 6. Cluster the particular management body (LGU or Water District) rather than to cluster effects. This The cluster model refers to the case where suggests that, in practice, the diseconomies of the management body (typically an LGU or dispersion and complexity associated with Water District) provides water supply services to clusters of small town water supply systems more than one town. outweigh any theoretical economies of scale. MANAGEMENT MODELS FOR SMALL TOWNS WATER SUPPLY 17 Factors of Success Despite the performance assessments being Small towns are unusually dynamic in based on only two or three case studies of each nature. Their populations tend to grow rapidly, management model, some common factors of and their economic basis and development success emerged from the analysis. The priorities can change as the towns expand. In successful management models for small towns the Philippines, efforts to maximize the benefits water supply exhibited all, or most, of the of water supply investments are leading to shorter following: design lives and more incremental development · cost-efficient management (low costs, of systems. As a result, strategic planning and low tariffs and minimal profit) expansion are critical elements of the successful · active planning and expansion management of small town water supply systems. (significant expenditure on repairs and rehabilitation) Strategic planning and expansion involve: · good relations with local government setting tariffs that cover the costs of repairs and (ability to attract funding and technical rehabilitation; extending the distribution system support) into new areas; expanding the revenue base by · professional support (assistance with encouraging new connections; chasing funds for technical and financial management) new facilities; and, overseeing the design and · community involvement (creating implementation of these projects. In small towns, transparency and accountability) these activities often require both good relations with local government and professional support Small towns water supply systems are rarely from external agencies. large enough to capture economies of scale, and instead rely on the effective use of local The highly politicized environment and the resources to minimize their costs (e.g. by paying limited funding opportunities found in most small lower salaries than those found in large towns). towns in the Philippines mean that LGUs remain The introduction of increasingly professional central to the success of local water supply services. accounting and financial management practices has assisted successful managers to monitor Direct LGU water supply management has their expenditures, and to recover these costs proven ineffective, due to the constraints whilst keeping tariffs low (see Box on Guimbal imposed by government financial and RWSA). 18 MANAGEMENT MODELS FOR SMALL TOWNS WATER SUPPLY Continuing access to professional support is key to the success of community-managed water supply as small towns grow and more complex systems evolve. management systems. However, water to organize operation and maintenance supply providers that maintain good relations teams, to supply themselves with spare with local government improve their access to parts and consumables, or to keep accurate finance and to external support. In large towns, and up-to-date accounts. Inadequate the substantial revenue from water supply technical capacity often results in poor services increases the risk of political capture planning, design and construction of the and rent-seeking by local elites, but in small water supply facilities, thus reducing the towns, strong community involvement can sustainability of even well-managed assist the water supply management to secure systems. Advice and assistance in these political support whilst retaining their areas help small management bodies to transparency and accountability. deliver more reliable services, to set cost- reflective tariffs, to introduce efficient billing The importance of professional support is and collection systems and, ultimately, to seen throughout the small towns water supply ensure that water users are willing to pay sub-sector. Inexperienced and under-staffed for the services. small town water supply providers struggle MANAGEMENT MODELS FOR SMALL TOWNS WATER SUPPLY 19 When is a small town too big for community-based management ? manage water supply systems in towns with less than 20,000 inhabitants. What happens when these small towns grow, and associations become too large to be easily managed? Both RWSAs and 2003. Water Cooperatives are accountable to their Janicki, R. members through a general assembly, but this process is likely to become cumbersome and One of the key messages of this fieldnote is ineffective when too many people are involved. The that management of a water supply system in normal solution to this scale problem is to introduce a small town is very different to that in a larger a new management model when the system urban center. In a small town, pipe networks becomes too large (e.g. by contracting a private serve fewer people and use simpler water company to take over the management) but components, but are often more spread out there are several other options to consider. because of lower population densities. The Community-based management models can be context is also different, with lower local incomes decentralized by encouraging new associations to and skill levels. Under these conditions, the case formasthepopulationgrows.Eachnewassociation studies suggest that community-based covers a neighborhood, and reports to a more management models are surprisingly effective professional `apex organization' that manages the in providing sustainable water services. water supply system. In Bulacan Province (Luzon), However, this neglects the fact that community- afederationofRWSAshasalreadyformed­itmeets based management models are rarely found once a month to share information and discuss in larger water supply systems. Both RWSAs and problems, and enables member RWSAs to make Water Cooperatives were originally intended to major repairs and procurements at lower costs. 20 MANAGEMENT MODELS FOR SMALL TOWNS WATER SUPPLY Conclusions Case studies of fourteen small town The professional support received by water supply systems in the Philippines these community-based management suggest that water supply systems using models is a key factor in their success. As community-based management models small towns grow and their water supply (e.g. Water Cooperatives and RWSAs) are systems become more complex, professional the most consistently successful in small water utility management skills become towns. However, a wider perspective reveals more important. The lessons learned from that some 50% of RWSAs registered with this study suggest that professional support LWUA are no longer operational, and that helps water supply management bodies to most community-based management evolve with their systems, and allows an models report difficulties in obtaining incremental transition from community- finance for service improvements or system based to commercial water supply expansion. Clearly, these successes are management. Professional support allows unusual in several respects. them to provide cost-efficient and well- planned services, while retaining their local The key difference is that the successful advantages and demand-responsiveness. community-based management bodies are far Nearby Water Districts, which often manage more sophisticated than typical community their own large urban water supply systems, management models. Whilst they began as provide a ready source of technical simple water user associations, they now assistance, and have enabled community- operate like small businesses. Water supplies based management bodies to introduce are metered; billing and collection systems are management systems more typically found well-organized; commercial accounting in large urban utilities. techniques are prevalent; and, political support is carefully cultivated. Management has been Water Districts offer an alternative professionalized through gradual training and management model with strong financial improvement, but local personnel are still and institutional performance, as well as employed, and the community remains well good technical capacity. In small towns, informed and involved in proceedings. This however, Water District services are rarely combination of local knowledge and demand-responsive, and the constraints of professional approaches is essential to government control often result in high successful small towns water supply. tariffs, high debts and limited services for the MANAGEMENT MODELS FOR SMALL TOWNS WATER SUPPLY 21 Small towns do not interest private water companies because of the low population densities and presence of generally low-income level of consumers in these areas. Community-managed systems often employ a breakeven strategy, but when run professionally, they can be very effective in supplying small towns. poor. Water Districts appear more successful from all but the most prosperous and in larger towns where they can utilize their welcoming of locations. professional skills to capture economies of scale. In general, the successful examples of small To date, the provision of small towns water towns water supply management are those that supply in the Philippines has not attracted much have taken advantage of their position astride interest from the private sector. Small towns the rural-urban divide. Local knowledge and combine low population densities with low- community involvement reduce costs and improve transparency, while the availability of income consumers, thus require a relatively skilled staff and external support allow more high per capita investment for little return. advanced technical and financial management. There is little scope for efficiency gains, and The community-based management models local politicians often have an undue influence examined may not make much profit, but when on the performance of the water services. run professionally, they offer low tariffs, effective Unsurprisingly, this blend of high risk and low operation and maintenance, and good cost yield has discouraged private service providers recovery. 22 MANAGEMENT MODELS FOR SMALL TOWNS WATER SUPPLY Recommendations The lessons learned from the case studies An approach that has proved successful in West suggest the following recommendations for the Africa is the creation of Water Management Units sustainable provision of small town water supply (WMU), which provide financial, management, services in the Philippines: training and performance benchmarking services to groups of small towns (or federations of RWSAs A Greater involvement of LGUs and Water Cooperatives). These support services are funded through production charges paid by There is a strong case for improving the the water supply provider (a nominal payment per support provided by LGUs to water supply unit of water produced), thus encouraging the managers. This will require a strengthening WMU (or Water District) to assist the water supply of the water supply and sanitation capacity providers to expand their services and increase within LGUs, in line with the ongoing water production. decentralization process, as well as the introduction of new forms of local regulation C Contract out commercially viable and contract management. Water supply units functions within LGUs should promote commercial practices, provide political support for There are about 500 community-managed transparency in transactions, offer grants for water supply systems operating in small towns capital works, and carry out performance in the Philippines, and several hundred others audits with citizens' participation. that have failed. There are also some 500 LGU- managed systems. The WPEP study suggests that an incremental transition to commercial B Incentives to provide professional management is vital for the sustainability of small support town water supply systems under community- based or local government management, The successful case studies were often particularly in those towns where population is dependent on professional support from a growing rapidly. This transition will allow the Water District. This support cannot be advantages of locally embedded management guaranteed. Suitable Water Districts are not to be gradually enhanced by the introduction of available in all areas, and some may not wish more efficient operational, financial and to offer their services. Therefore, it is decision-making processes. Professional support will be important, but these management bodies recommended that institutions capable of should also look to contract out commercially providing professional support (be they Water viable functions (e.g. O&M, billing and Districts, or other independent providers) should collection, auditing) to local enterprises, thus be offered incentives to assist managers of small improving efficiency while retaining overall towns water supply systems. ownership and control of their systems. MANAGEMENT MODELS FOR SMALL TOWNS WATER SUPPLY 23 References ADB (2001) `Water supply & sanitation sector profile: Philippines', Manila: Asian Development Bank Angel Lazaro & Associates (2000) `Small Towns Water Supply Management Models - Final Report', Manila: WPEP website http://www.wpep.org/ Robinson, A and TEST Consultants Inc. (2003) `Management models for small towns water supply: lessons learned from case studies in the Philippines', Manila: WPEP Final Report http://www.wpep.org/ World Bank (2001) `World Development Report 2000/01: Attacking poverty', Washington DC: The World Bank Acknowledgements The inputs of Philippine and international peer reviewers, members of WPEP Project Steering Committee and Technical Working Group and World Bank staff have been helpful in ensuring the quality of this document.