Action 3.1 Increase public funding for scholarships and student loan schemes

20. 
    Despite its long history, public scholarship programs have remained limited in scope. The virtual absence of student loan programs is also lamentable. Expanding the coverage of the scholarship program and configuring a student loan program should be a priority. The merits of student loan schemes have been well documented. They include having students bear a higher portion of the costs of higher education (thereby contributing to cost recovery), promoting greater inclusion of low-income youth, allowing greater financial independence from parents, and being more cost effective than keeping low tuition fees for all or simply awarding grants and scholarships. Ideally, the student assistance programs should be portable so that students could use them for attendance in public and private institutions. (Box 2 summarizes the experiences in Colombia and Mexico with student loan schemes).
    

21. 
    More resources need to be allocated in the budgets of HEIs to raise the proportion of faculty members with master’s degrees. HEIs could be given more incentives to improve faculty qualifications, such as increased possibility of national government funding, and, HEIs themselves could institute pay structures that reward post-graduate qualifications.
    

22. 
    The Philippines should consider expanding the current 10-year basic education system to the more internationally-accepted 12-year system, as Mongolia has recently done. International evidence has shown that better prepared students perform significantly better at the tertiary level. More analysis and preparation is however needed before fully implementing this.
    

23. 
    A review of the curriculum and pedagogy needs to focus beyond strengthening traditional academic subjects, to the strengthening of generic life skills, including creativity and innovation skills, critical thinking and real-world problem-solving skills, ICT skills/literacy, communication and collaboration skills, ethical and socially responsible attitudes, and using new student centered, activity-based and competency-oriented teaching methods supported by newly-developed textbooks and materials.
    

24. 
    The governing boards and the technical panels are the current main venues where private sector inputs in higher education are being utilized. These mechanisms should be strengthened. Fostering stronger university-industry linkages can further be achieved by institutionalizing and accrediting On-the-Job Trainings (OJTs). OJTs, practica, or internships vary in quality and participation. CHED could work with national accreditation agencies to develop minimum standards for OJT experiences and foster better linkages with the nation’s industry. Lessons from these experiences could feed back into creating more relevant curricula, possibly putting more emphasis on work-related generic skills, such as decision-making/entrepreneurial skills and creative thinking. Such linkages could also be fostered by including industry feedback into curriculum design, promoting the use of university labs by industry, promoting joint R&D projects, and licensing of university-held patents. Such measures would help improve the relevance and quality of the system and may also have long-term benefits for the national innovation capacity of the country.
    

25. 
    System and institutional level research centering on quality and relevance should be encouraged. This could include the use of graduate tracer studies. A thorough set of tracer studies to follow graduates to learn lessons about the relevance of their education are needed. Such studies could interview both graduates and employers on a regular basis, ascertain what are the most desirable skills for particular industries, as well as the fields of education that are in decreased demand, identify where HEIs can benefit from this information and incorporate this information in upgrading their curricula.
    

The Presidential Task Force for Education (2008). “Main Education Highway: Towards a Knowledge-based Economy”.

UNESCO Institute of Statistics (2009). “Global Education Digest 2009: Comparing Education Statistics Across the World”.

Orbeta, A. (2008). “Background Paper on Higher Education in the Philippines”, October.

World Bank (2009). “Philippines Skills Report: Trends in Skills Demand, Gaps and Supply in the Philippines”, July.

World Bank (1998). “Higher Education in the Philippines: Philippines Education for the 21^st Century: the 1998 Philippines Education Sector Study”. Technical Background Paper No. 3.

Tan, E. (2010). “The State of the Philippines National Innovation System”.

Note prepared by:

Xiaoyan Liang and Lynnette Perez (EASHE)

1. 
   The Philippines remains on track to meet the Millennium Development Goals (MDG) for access to improved water sources (94 percent in 2015) and to improved sanitation (79 percent) in 2015.¹⁶ Access to improved water sources rose from 84 percent in 1990 to 91 percent in 2008. Such access in urban areas continued high at 93 percent and rose in rural areas from 76 percent in 1990 to 87 percent in 2008. The portion with piped water on the premises doubled from 24 percent in 1990 to 48 percent in 2008. Access to improved sanitation rose from 58 percent in 1990 to 76 percent in 2008. Access to improved sanitation services in urban areas rose from 70 percent in 1990 to 80 percent in 2008 and in rural areas from 46 percent in 1990 to 69 percent in 2008.
   

2. 
   Nonetheless, progress towards the MDGs is being eroded with respect to the quality of water service and the treatment of human waste. Many cooperatives and water associations operating outside Metro Manila operate only two to four hours daily and often at low pressure. In contrast, many local entrepreneurs buy bulk water from the Manila concessionaires and sell water to underserved housing subdivisions or provide water to unserved depressed communities. Where water quality is poor, the impact on health is significant and waterborne diseases remain among the top ten causes of morbidity and mortality outside of Metro Manila (the water in Metro Manila is served by the two concessionaires that are regulated by MWSS). The poor are affected the most because they lack the means to buy safe alternative service.
   

3. 
   Fewer than 5 percent of households with septic tanks have proper on-site treatment and disposal. Demand for municipal sanitation services is low. Insufficient regulation of the collection and proper disposal of wastewater, and enforcement of construction standards on septic tanks, as well as insufficient capacity of wastewater and septage treatment have contributed to severe pollution of waterways and major water bodies, prompting the Supreme Court to issue a decision in 2008 requiring the related agencies to clean up the Manila Bay. The lack of proper sanitation has a significant impact on health, the environment and incomes. A recent study estimates the economic losses from inadequate sanitation in the Philippines to be close to P80 billion (US$1.75 billion) per year, equivalent to about 1.25 percent of GDP. Yet the country is devoting only about P1.5 billion per year to improve sanitation standards, an underinvestment with serious consequences. The country misses out on high-value tourism because of the environmental damage, and the surface water and groundwater resources deteriorate when untreated sewage is disposed indiscriminately. Solid waste collection is ineffective, and large quantities of solid waste block drainage canals, exacerbating public health problems.
   

4. 
   Fragmented institutions hamper implementation of policies. There are 30 institutions involved in the sector at the national level, plus an interagency Oversight Committee on Water Reforms, chaired by the Department of Finance. However, the Committee has operated without a clear timeframe for completing the implementation of the agreed reforms of the sector. Thus, coordination among the various national government agencies involved in the sector remains weak with unclear accountability.
   

5. 
   Numerous small providers have neither economies of scale, nor the necessary autonomy from political interference to be efficient providers. Various local providers coexist, but operate under different regulatory and financing regimes, thus blurring accountability of individual providers for expanding both water supply and sanitation services. The vast majority of local government sponsored water associations and water districts operate at the barangay level (the lowest administrative level in the Philippines).¹⁷ As a result, coordination and cooperation among barangay water suppliers to develop bulk sources have often been difficult.
   

6. 
   The institution for channeling the bulk of public investments is financially weak and cannot support the necessary investments. The Local Water Utilities Administration (LWUA), which lends to water districts, has long been in financial difficulty and unable to raise counterpart financing to mobilize loans. Water districts also have been unable to generate operational surpluses to co-finance loans and pay for debt service. Thus the investments in the non-Metro Manila area have been low and LGU spending has been about P400 million a year, most of which to pay for recurrent expenditures. In contrast, within Metro Manila, the two concessionaires have been able to raise financing for investments that better serve the population. Private investments accounted for about 50 percent of total sector investments over the period 1999-2003 but are predominantly in Metro Manila. Manila’s share of total sector investments is expected to increase further with the extension of the contracts of the two concessionaires (MWSI and Manila Water Company Inc. - MWCI, east zone concessionaire) for an additional 15 years until 2037.
   

7. 
   The generally low level of cost recovery from tariffs undermines the development of the entire sector. For the majority of service providers, tariffs fail to recover recurrent costs. Maintenance suffers disproportionately, and the result is a vicious cycle with rapidly deteriorating assets that need to be prematurely rehabilitated or replaced, preempting the accumulation of reserves to fund new capital investments.
   

8. 
   Household affordability concerns are the common political excuse for not raising water tariffs to recover costs but the effect on service quality is dire. The poverty impact is regressive and there is not adequate evidence that suggests that water utility tariffs pose an affordability problem to large parts of the population in the Philippines. When tariffs fail to cover operations and maintenance costs, let alone investment costs, wealthy households receive larger subsidies than poor households because their per capita consumption is much higher than that of poor households. The impact is particularly detrimental for sanitation because so little is invested and the large external benefits from sanitation are lost.
   

9. 
   The National Water Regulatory Board (NWRB) is constrained from effectively performing its regulatory functions. NWRB has the legal mandate over all water service providers (except for Metro Manila which is governed by the Concession Agreements), but the lack of resources and skills has limited its ability to regulate the sector effectively. It is currently receiving significant technical assistance to strengthen its capacity. Recent sector reforms include the pending creation of a performance benchmarking system for all water providers. Different agencies continue to maintain their respective monitoring and evaluation systems without a common agreed framework. The capacity of the MWSS-Regulatory Office for Metro-Manila also needs to be strengthened, especially since the two concessionaires will be investing heavily due to the sanitation needs.
   

10. 
    The regulatory structure does not create an incentive for the water service provider to operate efficiently. It is rare to find viable operators among the approximately 5,000 providers in the country. Most depend on subsidies and the operators do not have the incentives to run operations in a financially sustainable manner and be demand responsive. Given their small size, these utilities are unable to retain skilled staff and absorb the technical assistance. Water utilities under direct Local Government Unit (LGU) management are generally poorly operated because of the lack of technical, financial, and management capabilities, and the non-existent autonomy with regard to management decisions. Water districts tend to perform better than LGU-managed systems, having more competent management and higher cost recovery levels. Most water districts are not creditworthy because they are not able to generate sufficient surplus for investments.
    

11. 
    While operating water services along commercial lines is official government policy, it is rarely practiced. The legal standing of water districts as commercial entities is unclear, and LGUs typically retain significant political influence in the corporate governance of water districts through the appointment of the water district supervisory board.
    

12. 
    Policy reform must address the three issues shown below in Table 1. The reforms aim to increase coverage of water and wastewater services; improve quality of services; and promote environmental and financial sustainability in the delivery of services.
    

13. 
    The government needs to pursue legislative action to consolidate the responsibilities of the sectoral agencies. This would include reform of LWUA to address new challenges and strengthening of NWRB which would include having adequate capacity to mediate in inter-LGU conflicts on trans-boundary issues on the allocation of water resources in developing water supply systems including bulk supply. This will help in promoting the merger of water utilities into economically viable operations.
    

14. 
    There is a need to strengthen incentives for mergers of various public service providers to address fragmentation and attain scale economies and financial viability, and to plan and develop water supply and sanitation systems covering multiple municipalities. The most effective incentive for mergers would be to create financially strong utilities with positive cash flows. Such utilities could only come about through a determined push to demand rising levels of cost recovery through higher tariffs and effective commercialization programs that would concentrate on metering all consumption and then bill and collect on the basis of metered consumption. Higher level LGUs need to facilitate regionalized solutions to water supply and sanitation problems and provide strong incentives to achieve buy-in from lower-level LGUs.
    

15. 
    The present subsidies in the sector are not clear and do not show the full cost of water, and the true cost of service. As a result, the supply of service is subsidized and the underpriced water and sanitation services subsidize those that are connected and consume the most water, i.e., the wealthier households. The present subsidies are regressive and should be replaced by targeted subsidies that are allocated on the basis of household income. The most effective mechanism for targeting subsidies would be based on metered consumption where only those households consuming below the life-line level and meeting an income-based test would be eligible to receive subsidies. The targeting mechanism developed by the Department of Social Welfare and Development in the context of the Pantawid Pamilyang Pilipino Program (a program of conditional cash transfers) could be an appropriate mechanism on which to base targeted subsidies.
    

16. 
    MWSS, LWUA, LGUs and water districts need to promote the effective implementation of tariffs for water supply services at levels adequate to pay for recurrent costs and fund new capital investments for expansion of services and development of water supply sources. At present, water tariffs in Metro Manila do not include an extraction charge for drawing raw water. Unless corrected, new investments to develop new water sources will suffer when demand for water is expected to rise due to the growth of the city. Water districts and local governments often leave tariffs below cost recovery levels for political reasons. Tariffs must be set on the basis of objective criteria of cost recovery and be supported by effective commercialization systems that identify all users, meter their consumption, bill accordingly and collect effectively, using sanctions for those who fail to pay. For example, many community-driven water supply systems still charge flat rates of P10 to P30 per month.