Action 2.2 Institute tariffs for sanitation services

17. 
    National policies must be in place that will promote the importance of sanitation. There are two programs in place: the Department of Public Works and Highway’s sewerage and septage management program; and the Department of Health’s sustainable sanitation program. These two programs should create incentives for LGUs to develop the sanitation sector. Further, ways to support investments and charge consumers for sanitation services should be considered in detail. At present, water districts and LGUs do not collect sanitation fees. Sanitation tariffs should be charged on the basis of the household water consumption and be applied to all households.
    

18. 
    Private sector participation is possible only for those public utilities that have implemented sound policies and for greenfield projects. For the majority of public utilities, corporatization, amalgamation, and the establishment of adequate tariffs need to be implemented before they can attract any private investment or borrow funds from commercial lenders. Involving the private sector can help improve service expansion and efficiency by selected water districts and LGU-run systems that have in place sound financial fundamentals. Lessons learned from the MWSS privatization and other private sector participation models at the local level should be carefully incorporated into the design and execution of future involvement of the private sector.
    

19. 
    In order to provide greater access of the poor to quality services, government oversight agencies (NEDA, DOF) and sector agencies (NWRB, LWUA, MWSS, DILG) need to establish a mechanism to implement output-based aid approaches as an incentive for operators to expand connections to low income households. Output based aid approaches involve compensating water service providers for connecting pre-identified poor households subject to an independent audit on the delivery of agreed outputs or services. This will address the barrier posed by high connection costs to low income households to connect to formal water and sanitation services. Such a pilot scale project is working well under Manila Water.
    

20. 
    The formal corporatization and registration with the Securities and Exchange Commission (SEC) of public utilities could improve governance. As a first step, the water supply systems directly managed by LGUs could be corporatized and registered with SEC, together with the adoption of appropriate accounting standards. Their governance structure would require competent board structures and sufficient accountability and autonomy for management. This could generate immediate benefits in the form of better, more efficient management and services, and also pave the way for the utility to enter into various forms of partnership with the private sector. The possibility of applying the successful Spanish model of “empresa mixta”, a form of corporatized water utilities with joint ownership of the local governments and private specialized service providers, may also be considered.
    

21. 
    Benchmarking public utilities, including submission of audited financial data and establishing performance targets, could also improve governance in the sector since it is a prerequisite for comparing the performance of different service providers and since accountability and sanctions are difficult without performance standards. NWRB needs to undertake this task as a priority, in collaboration with LWUA and DILG. Beyond benchmarking, performance targets for each utility need to be set and monitored. Such targets should include a limited set of indicators (e.g., service coverage, operational efficiency, financial viability) for which the utilities can be held accountable.
    

22. 
    As mentioned above, the capacity of NWRB needs to be enhanced so that it can function as an effective regulator for the water service providers outside Metro Manila. The benchmarking program is a start and through this exercise it would have better information on the service providers so that they can be better regulated from an economic perspective and also for the quality of service. The Manila water concessionaires have significantly expanded their services since 1997, and are due to undertake major investments in sanitation in the short to medium term. Thus, there is a need for the government to strengthen its regulatory capacity to deal with the concessionaires to ensure that regular monitoring of performance and the rate-rebasing negotiations every five years can proceed smoothly
    

World Bank (2003) “Philippine Environment Monitor,” www.worldbank.org.ph/pem

”http://siteresources.worldbank.org/EXTTRANSPORT/Resources/337115-1214499672078/5154009-1215830515903/5205342-1215832668382/infra-chall-philippines.pdf

The World Bank

1. 
   The Philippines Today: Progress and Challenges
   

xxiv.The Philippines is among the fastest urbanizing countries in East Asia. It crossed the 50 percent urban population threshold around the same time that the world made this transition. By the mid 1990s, the service sector accounted for the majority of new jobs created and, despite the economic slowdown caused by the global financial crisis in 2009, it remains the fastest growing segment of the economy (sub-sectors such as business process outsourcing have continued to achieve double digit growth). As a result, by 2009, the contribution of cities is estimated to be 75 percent of GDP (with 50 percent of GDP being generated by the Metro Manila area alone).¹⁸

xxv.A focus on urban development is not an option but a necessity given the opportunities that the economies of agglomeration¹⁹ offer in terms of better incomes and improved access to services. Global experience confirms that efforts to stop or reverse urbanization have met with limited, if any, success. Experience also shows that delayed implementation of strategic investments in urban infrastructure and services is not only more costly but more complex to undertake – the cost of relocating informal settlements from vital transport routes is typically more than twice the original cost of providing housing and services.

xxvi.Although urbanization is leading the economic transformation in the Philippines, decentralized and highly politicized decision making at the Local Government Unit (LGU) level has often resulted in inadequate planning and under-investment in key infrastructure. Urban infrastructure including urban transport and traffic management, water supply and sanitation, and housing have not been able to keep pace with the growth in demand. These trends have worsened over the past 15 years, but can be remedied in part by systematic urban planning and a clear focus on accountable performance by service providers. Getting ahead of the curve in cities that are fast growing requires significant investments that can often only be mobilized by national governments in close partnership with the private sector and civic organizations. These must be guided by strategic urban plans that lay out a vision for decentralized service provision consistent with the public interest.

1. 
   The fundamental question for the Philippines is not if, but how the process of urbanization can be managed so that it leads to inclusive growth. While there have been efforts to outline a framework for urban development, the Philippines has yet to articulate a clear policy that dedicates financial and human resources to support Mayors and Sangunnian Bayans in planning and implementing sustainable programs for urban development. Raising the profile of urbanization on the national agenda is not just an executive decision. Mobilizing support from the legislature and, more importantly, from civil society, is key as well in order to support long term urban development plans. A focus on urban development is not at odds with the national government’s emphasis on regional development, nor does it imply neglecting the rural hinterland. Experience shows that well managed urban development also promotes regional economic integration because of a better alignment of development priorities and capital investments within the urban space and its regional hinterland. Improving connectivity between cities or towns and their hinterlands can improve the efficiency of both rural and urban economies. Strategic investments in cities contribute to rural incomes once supply chains are established to meet the production and consumption needs of urban centers. In preparing a national urban development policy, the specific economic geography of various regions should be taken into account²¹. As the Philippines is an archipelago nation, other measures are also required to overcome the geographic distances that isolate populations in remote or lagging regions through alignment of macroeconomic and intergovernmental fiscal policy.
   

xxviii.Metro Manila and other large urban clusters require planning instruments with which to connect or consolidate fragmented administrative systems in a contiguous area in order to improve efficiency and competitiveness. Metro Manila, with an estimated 13 million people, is often cited as the 11^th largest city in the world; however, it comprises 17 distinct local governments, each managed independently, the largest of which has 2.5 million people. The Metro Manila Development Authority (MMDA), a national agency created to support the development of the metropolis, has had limited effectiveness as it has limited authority to implement the Metro-wide plans it prepares. As decisions made by individual LGUs are based on local considerations, mechanisms are required for facilitating metropolitan/inter-local cooperation in planning and implementation of metropolitan infrastructure.

xxix.A larger role for the national government in setting urban policy needs to reinforce and strengthen decentralization. In the Philippines, cities are expected to take the lead in shaping their development strategies. Many have prepared City Development Strategies (CDS) under a program managed by the League of Cities²². However, cities recognize that the success of their efforts depends on policies and programs which only the national government can create. Many of the binding constraints to effective urban development can only be removed by national governments (e.g., severe institutional fragmentation among local governments and limited access to financing for transformational infrastructure). Prepared in isolation of sound national policy, local development strategies end up serving narrow local interests at the expense of broader regional or national objectives. To be effective, cities need clear policy direction and, more fundamentally, the tools with which to manage increasingly complex and dynamic urban systems. These include: enabling legislation and regulations; modern and competitive institutions; innovative financing mechanisms; effective public private partnerships; and professionalized and effective urban planning/management and governance systems.

xxx.About 2.5 million impoverished people live in slums scattered throughout Metro Manila; many more live in precarious conditions in other urban areas. The settlement pattern of the Metro Manila urban poor is generally dispersed, located wherever there is space and opportunity. Thus slums develop on vacant private or public lands, often along rivers, near garbage dumps, along railroad tracks, under bridges, and beside industrial establishments. The lack of road access within and through slums is a key impediment to improving the quality of life of the poor. The unregulated land use and informal “housing” market is often under the control of syndicates. A very high proportion of households residing in slums pay high rent for rooms or small dwellings relative to the cost of affordable shelter solutions. Conditions in such informal settlements are generally insalubrious and they are often not covered by water, electrical, and sanitation services (or when provided, this is through illegal connections). The combination of crowding and haphazard construction makes the slums dangerous firetraps. On the positive side, slum communities in Metro Manila are usually organized into people’s organizations, which can be tapped to work with communities to improve living conditions. In addition, the willingness to pay for housing – manifested in the payment of rental charges can serve as an entry point contributing towards viable long term financing programs.

xxxiv.One option that has been extensively discussed is the creation of a single Government Agency to champion and spearhead national urban development. This proposal is outlined in the 2004-2010 MTPDP; however, so far, it has not received adequate attention or support. Without significant support from the various sector agencies, there is a risk that a weak and ineffective urban development agency will be established. An alternative would be to restructure the Housing and Urban Development Coordinating Council (HUDCC), which has historically been oriented towards housing, to focus its efforts on urban development and provide it the muscle to effectively carry out this role. For example, its current membership, which is largely comprised of housing agencies – would need to be expanded to include the Department of the Interior and Local Government (DILG) and the League of Cities and to allow for more effective representation from local governments and civil society. Its secretariat would also need to be expanded to provide it with sufficient clout to guide the Council and mobilize support from the expanded set of members.