Water privatization in the Philippines

Water privatization in Metro Manila began when the then President of the Philippines, Fidel Ramos, instructed the government in 1994 to solve what he called the water crisis in Manila by engaging with the private sector. In 1997 two concession contracts for the Eastern and Western halves of Metro Manila were awarded after an open competition. The concessions represent the largest population served by private operators in the developing world. Both winning companies, Maynilad Water Services in West Manila and especially Manila Water in East Manila, submitted bids with extremely low water tariffs. 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 Filipino Peso.

Maynilad expanded access, but unable to reduce water losses it stopped paying concession fees to the government and went bankrupt in 2003. It was temporarily taken over by the government, sold to new investors in 2007 and performance has improved since. 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.

Neither company achieved its contractual targets of increased access. Improvements in access and service quality were slow during the first years, especially in West Manila. Progress in water sanitation has been far below the contractual targets of access to sewerage from less than 10 percent to 66 percent in West Manila and 55 percent in East Manila until 2021.

Tariffs in both halves of the metropolitan area were first reduced, but then increased substantially. After adjustment for inflation, in 2008 average tariffs in West Manila were 89 percent higher than the pre-privatization tariff of 1997, and 59 percent higher in East Manila.

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