Water Privatization Fails in Philippines

Residents of a Laguna municipality are forced to pay for unsafe drinking water

By Arnold Padilla
IBON Features
March 12, 2003

While Metro Manila residents are burdened with unabated increases in water charges since the Metropolitan Waterworks and Sewage System (MWSS) was privatized in 1997, the people of Magdalena, Laguna, face not only onerous water tariffs. Worse, the water that the municipal government forces them to pay for is unfit for human consumption.

Magdalena is one of the municipalities that availed of a World Bank loan under the Local Government Unit Urban Water Supply and Sanitation Project (LUWSSP). It is located in the western part of the province of Laguna and is approximately 105 kilometers away from Metro Manila and six kilometers from Sta. Cruz, the provincial capital.

Old Water Supply

Magdalena used to source its water requirements from the nearby municipality of Liliw. On July 27, 1953, the municipal governments of Liliw and Magdalena forged an agreement allowing the residents of Magdalena to use water from the Sungi Spring in Barangay Oples in Liliw. The said contract was supposed to end in 2003 (or after 50 years) but can be renewed upon agreement.

Other barangays not serviced by the Sungi Spring such as Cigaras, Saladsad, Maravilla, and Buenavista have their own water supply system with deep well as their source. Others obtain water from rivers, streams, and irrigation canals for domestic and laundry purposes.

According to the feasibility study prepared by the Engineering and Development Corporation of the Philippines (EDCOP) for the Magdalena water system project, the old water supply system (supplied by Sungi Spring) in Magdalena was unsatisfactory due to the deterioration of the water supply facilities constructed in 1926.

It also cited inadequate water supply and very low water pressure. The municipal government used to ration water to supply a large portion of the service area (as of 1997, total service connections of the old water system was pegged at 1,097).

The said feasibility study projected Magdalena's population to grow to 26,447 by 2010, or a 66% increase from its actual level (15,927) in 1995. Consequently, total water consumption was expected to grow from 778 cubic meters per day in 1998 to 1,546 in 2010.

Apparently, the old water system could no longer meet the increasing demand for water of the growing municipal population. Thus, the need to establish a new water system that was supposedly more efficient.

The World Bank's Role

In 1998, the municipal government of Magdalena, through Mayor Pablo Agapay and Municipal Treasurer Antonio Cabantog applied for a World Bank loan under the LUWSSP to finance the water system project. The Development Bank of the Philippines (DBP) Board in March 1999 approved the loan application worth P24.22 million.

The LUWSSP, funded by the so-called adaptable program loans (APL) of the World Bank, is a 12-year (1998-2010), $283-million water privatization program that intends to attract private capital in around 1,000 LGUs that manage water systems outside Metro Manila. The project is divided into four phases.

In November 1998, APL 1 (worth $23 million) was released. Originally, APL 1 envisioned completing operations in 35 towns, where bidding was completed for the engagement of 23 private operators under lease and design-build-lease contracts. But water services were extended to only nine municipalities at an investment cost of $28 million.

Aside from Magdalena, some of the areas covered by the first phase of the LUWSSP are Aurora, Cabatuan, Luna, Maliig, Quezon, and San Mateo in Aurora; Ta-buk in Kalinga Apayao; Batarasa, Magsaysay, and Cuyo in Palawan; and Padre Burgos and Buenavista in Quezon. In Mindanao, the covered areas include Cabanglasan, Lantapan, Kalilangan, and Manolo Fortich in Bukidnon; Talisayan and Initao in Misamis Oriental; and Iligan City in Lanao del Norte.

APL 2 (worth $30 million) was scheduled to be released in September 2001 to scale up the project to an additional 40 cities and municipalities. Some of the areas covered by phase 2 are Bayombong, Solano, Sta. Fe, and Villaverde in Nueva Vizcaya; Bansud and San Teodoro in Mindoro; Alicia in Bohol; Calduba, Lopez Jaena, Orquieta City, Panaon, and Sinacaban in Misamis Occidental.

APL 3 (worth $133 million, with the World Bank accounting for $100 million and other sources, $33.00 million), meanwhile, is scheduled for 2004. It is intended to change the role of government finance institutions and the Land Bank of the Philippines (LBP) from retailers to wholesalers of loans, including private sector banks to invest in LGU-based water supply and sewerage systems.

Finally, APL 4 (worth $230 million, with the World Bank accounting for $130 million and other sources, $100 million) is programmed for 2006. The last tranche is meant to finance water supply and sanitation services in about 130 water utilities nationwide, with World Bank financing used by the DBP and the LBP to influence private sector financing in the water sector.

The Magdalena Water Project

After bidding the project, Mayor Agapay entered into a contract with RODMAN Construction and Development Corporation, which offered the lowest bid at P18.92 million, in August 1999. Construction started in September of the same year.

The project includes digging three deep wells and the construction of pumping stations (the Pronove Pumping Station, the Agapay Pumping Stations, and the Booster Pump Station). It also involves the construction of an elevated reservoir (an elevated water storage tank built inside the Poblacion children's mini-park), the rehabilitation of existing pipeline and reservoir (the Cistem Tank in Burlongan), the construction of 15.62 kilometers of distribution pipelines, and the provision of disinfection facilities for wells.

The new waterworks system is expected to achieve 24-hour a day availability of water supply; the installation of 1,950 service connections by the civil works contractor, with service to 1,712 consumers. Furthermore, the system is also expected to achieve non-revenue water of 20%; employee per connection ratio of 1:130; collection efficiency of 97%; and 100% service coverage by 2004.

While the ownership of the system will belong to the Municipal Government of Magdalena, Bayan Water Services Inc., a joint venture between Benpres Holdings and the Montgomery-Watson New Zealand Ltd., will handle its operation and maintenance. Such operation and maintenance, as agreed upon by Bayan Water and the municipal government of Magdalena in a 15-year, P70-million Lease Agreement signed on August 4, 1999.

Unfit for Drinking

Under the contract with RODMAN, the new water system was agreed to be operational by September 2000. However, it was only on June 18, 2001 that a Certificate of Project Completion (CPC )was issued by the municipal government of Magdalena in favor of RODMAN. The said certificate was issued without the knowledge of the municipal council.

Even prior to issuance of the CPC, municipal council members have been questioning Mayor Agapay over the issue of potability of the water coming from the project's wells. In a number of tests conducted by the Department of Science and Technology (DOST) and the Department of Health (DOH) Regional Office in Southern Tagalog, the water in Magdalena has consistently failed to pass the quality standards for potability.

In a special session of the municipal council on October 16, 2001, Ms. Elenita P. Bagsit, a chemist and DOST representative argued that the water coming from the new water system exceeds the maximum permissible limit allowed by the Philippine National Standards for Drinking Water (PNSDW). The said chemist maintained that because of the water's high level of total dissolved solid, total hardness, and turbidity, she would not recommend it for drinking.

Furthermore, the local Center for Health Development (CHD) of the DOH found, in a separate test in December 2001, that the water coming from the Magdalena water system was "not fit for drinking." It recommended that "drinking of water is prohibited unless it passes the criteria on standard parameters set by the PNSDW and after issuance of the certificate of potability." The said office reiterated such position in June 2002.

But as early as March 4, 2002, Mayor Agapay declared that the water coming from the Magdalena water system was already "100% potable." The announcement was made even without a certificate of potability of the new water system that should have been issued by the Rural Health Unit of the municipal government in Magdalena. To date, Magdalena residents refuse to use the water from new water system for drinking and even cooking purposes because of the dangers it poses.

Interestingly, even the World Bank is trumpeting the supposed "success" of the Magdalena water project. In an article published in September 2002 in its newsletter In Touch, the WB claimed that "clean, safe water" is now available 24 hours a day for Magdalena folks.

According to some residents, many people in their community have already experienced illnesses due to the poor quality of water coming from the new system. Even the daughter of the vice-mayor of Magdalena was reportedly hospitalized for drinking the contaminated water. Children are more vulnerable to the dangers that such water poses on the health of Magdalena people because they are not particular or careful with where they get the water they drink.

Onerous Rates

Worse, Magdalena residents are forced to pay for the water coming from the new system even if it is unfit for drinking. In July 2001, the municipal government ordered the residents to pay P20.54 per cubic meter of the water consumed from the new system to cover for the costs of electricity used by the water pumps.

The order was only effective for two weeks (July 16-30) since the objective was just to recover electricity costs and many residents were still using the water coming from the old system. In fact, as early as July 2001, the residents have already made a request that the old system be maintained until such time that the water coming from the new system has met the necessary quality requirements.

But on September 10, 2001, the municipal government again issued an order requiring the people to pay for the water consumed coming from the new system until the facilities are turned over to Bayan Water Services Inc. On September 17, Magdalena residents staged a protest rally in front of the municipal hall demanding that the tariffs be lowered and the old water system be maintained. The response of Mayor Agapay was to cut-off the water supply coming from Liliw, as requested by Bayan Water.

The people of Magdalena are now paying 156% more for water services in their community. Before, under the old water system, the residents were only charged P8 per cubic meter of water consumed. And because the water is unfit for drinking, residents are also forced to spend extra money for drinking (bottled or distilled) water. In some cases, residents also buy water for cooking and cleaning purposes from vendors.

A case in point is the situation of Mr. Nestor Sy and his family. Sy, who has two sons, is the secretary of the Magdalena municipal council. In January 2003, his household consumed 15 cubic meters of water from the new system and was billed P308.10. Under the old system, he should have been charged P120 only for the same amount of water consumed.

But his water expenses do not end there. His family also buys distilled water and spends P48 per gallon, which only lasts for two days. They also buy water from vendors, which they use for cleaning and cooking. Such water costs P6.00 per gallon and Nestor's family consume four gallons per day. Overall, they spent around P1,748.10 for water consumption in January.

Legal Actions

These issues prompted two members of the municipal council, Mr. Maximo Sotomayor and Mr. Arnel Sune, to file a complaint against Mayor Agapay before the Office of the Ombudsman. The councilors argue that Mayor Agapay entered into an agreement that is disadvantageous to the people of Magdalena. They also question the failure of the water project to provide clean and safe drinking water as well as the onerous rates charged to consumers.

Aggravating the problems of the municipal government is Bayan Water's decision to back out of the project. In February 2002, the said water company resolved to terminate their lease agreement with Magdalena because of the local government's failure to complete the construction of the facilities and turn them over to Bayan Water before the System Start-Up Date (not later than August 4, 2001).

Bayan Water Services Inc. also cited the decision of Magdalena's vice-mayor to reopen the old water system in October 2001, which was contrary to the lease agreement. The decision of the vice-mayor came amid intense pressure from the people of Magdalena and some local officials due to the unacceptable condition of the new water system. But in February 2002, the old system was permanently cut-off except in three barangays.

On April 24, 2002, Mayor Agapay and representatives from the World Bank, DBP, and DILG agreed to dissolve the contract with Bayan Water Services Inc. They also permitted the Municipal Government of Magdalena to rebid the project as soon as possible. As of this writing, no private firm has taken over the operation of the Magdalena water system. Meanwhile, the people continue to shoulder the burden of repaying World Bank loan.

The legal issues confronting Mayor Agapay continued to pile up. On June 17, 2002, RODMAN Construction, the private contractor, filed before the Construction Industry Arbitration Commission of the Department of Trade and Industry (DTI) a complaint claiming that the municipal government of Magdalena still owes the construction company some P3.69 million, which the said LGU refuses to pay.

Amid all this, the people of Magdalena continue to shoulder the burden of repaying a loan that did not benefit them at all.

For more information, visit http://www.ibon.org

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