In February 1997 the Government of the Philippines awarded a contract to the Manila Water Company (MWC), a consortium lead by Ayala Corporation (Philippines) to operate and expand the water supply and waste water system of Manila's East zone, comprising a total population of 4.5 million and about 70% of the total city coverage.
Under the 25-year contract, MWC was responsible for the provision of water and sewerage and to expand services to additional households according to specific and pre-agreed set of annual targets defined by zone; MWC also assumed a large portion of the debt burden of the public utility (MWSS) and offered large rebates on the existing tariffs.
Despite high investment costs, MWC was able to make a remarkable turnaround in service access and reliability, water loss reductions and overall operational efficiency; MWC also achieved financial turnaround with increasing profitability from 2001 onwards leading to a successful IPO, and subsequent competition for PPP contracts in the region.
The East Manila Water concession has often been hailed as the largest water concession in the world and it is an example of a successful public-private partnership despite its high investment costs. The transaction has been recognized for its transparent bidding procedure, a best practice example for its robust and transparent regulation, its ability to survive the 1997 Asian Financial Crisis and most of all, for achieving a remarkable turnaround in service access and reliability, water loss reductions and overall operational efficiency in Manila.
BUSINESS | CONSTRUCTION OBLIGATIONS | PRIVATE FUNDING | SERVICE DELIVERY | SOURCE OF REVENUE |
BUSINESS - Existing: The project involves taking over management of Manila's existing utility, the Metropolitan Water and Sewerage Services (MWSS) by Manila Water Company Inc (MWC). Under the contract MWC was responsible for responsible for the provision of water and sewerage services to existing customers for the city's East Zone; MWC also agreed to expand service to additional households according to specific and pre-agreed set of annual targets defined by zone. When MWC took over operations in 1997 it faced major coverage and quality problems inherited, including MWSS's precarious financial situation.
CONSTRUCTION OBLIGATIONS - Refurbish: The project company assumes refurbishment and expansion of existing assets owned by MWSS and the risks related to their current condition.
PRIVATE FUNDING - Finance: The project required very large commitments from MWC which included $ 2.72 billion in investments and $ 222 million in concession fees. Along with the contract, was MWC's responsibility of assuming a portion of the utility's outstanding liabilities in the form of equity and diverse sources of financing including commercial banks. The transaction is therefore categorized as "Finance."
SERVICE DELIVERY - User: MWC deliver services directly to consumers and is responsible for collection and billing obligations as well as customer service.
SOURCE OF REVENUE - Tariffs: Revenue stream originates from consumers; the project company assumes collection and billing obligations as well as customer service.