The importance of consultative tariff-setting

I was in the Philippines last week, and was invited to attend the 4th National Conference of Small Scale Water Service Providers, held amongst the aquariums of Manila Ocean Park. At a session on customer service codes for small operators, a representative from a provincial water cooperative stood up and related a story about a man who had joined their cooperative and been connected to a new water distribution system, but had persistently failed to pay anything for it.

Eventually, a plumber was sent to the man’s house to disconnect him, and was faced with a death threat – the outraged householder fired a bullet past the plumber’s ear to scare him away. Having subsequently voted unanimously along with the board of directors to expel the man from the cooperative, the representative wanted to know: Had they done the right thing? A short debate followed. “But doesn’t cutting him off violate his human rights?”, ventured one delegate.

In debates about how to extend water services to the poor and/or unconnected, “willingness to pay” is often brought up as an issue, and more often than not refers to an unwillingness to pay what the water actually costs to treat and deliver. It is this kind of incident that highlights just how entrenched that unwillingness can be.

In many districts in the Philippines, less than 40% of the population is connected to the network, with the most common reason given by local operators being that many parts of their service area are too far from the source to make pumping the water cost-effective, or that some of the houses are built on hills, making it too expensive to pump water vertically. The issue again is cost recovery. If the same water tariff is charged across an area, then it should either be high enough to support everyone, or the people who live in a house with a view must be prepared to pay more for it.

The Philippines have come a long way in the last ten years in terms of the way water and wastewater provision are regarded. The privatisations of Manila’s east and west zones have shown how consultative tariff-setting, associated with strong regulation, can encourage investment for the benefit of all. In the east zone, Manila Water is a celebrated success, bringing 24-hour water supply to all parts of its concession and lowering non-revenue water from 63% to 11%, lower than many cities in developed countries. Maynilad in the west zone is catching up rapidly, and is set to receive further funding in the form of a $275 million World Bank loan that will be divided between the two concessionaires and earmarked to solve the city’s still overwhelming wastewater issues.

As the capital region benefits, the focus is shifting to the provinces, where small-scale water provision could provide commercial opportunities for companies with the imagination to tackle the problem in innovative ways, and the energy to navigate the bureaucracy of local governments. The demand from communities is huge, although until the mindset changes, attitudes towards giving water its proper value are a shot across the bows of potential investors.

This week’s columnist is Rhys Owen, GWI's deputy editor. Christopher Gasson is away.