Mark A Dumol , former chief of staff, Department of Public Works and Highways of Philippines, who played a key role in the privatisation of the Manila Water Supply and Sewerage Board, talks to J im Downing and Binayak Das about how the world's largest urban water supply board was successfully privatised
To what do you attribute the smooth transition of the Manila Water Supply and Sewerage Board (MWSSB) into a private company?
The key to the success of this much-needed project was that it addressed all the stakeholders involved -- the public, employees and the bidders. In retrospect, what made the process work was a combination of transparency, competition, consensus building, labour cooperation and keeping the transaction from getting bogged down by opposition. That meant anticipating complaints and addressing them beforehand.
How did you achieve this?
We realised that the public won't support us if the water tariff goes up as a result of privatisation. So we implemented some increases in tariff, which had been overdue for several years, months before the bidding for privatisation started. We also asked all the bidders to quote below the existing tariffs so that the prices come down after the board is privatised. So while the steep hike in tariff (about 38 per cent) kept private companies happy, customers were left feeling satisfied with the post-disinvestment reduction in prices. The tariff reduction after privatisation was more than 50 per cent. This made the whole project politically viable.
Secondly, the Philippines has a strong labour movement that could have shut the deal down. We knew that disinvestment would lead to downsizing. So we negotiated a deal with the utility workers' union before starting the privatisation process. A generous voluntary retirement package saw about 30 per cent of the staff opting for it. The private operator hired the rest. After six months, the company decided on the number of employees. Those who lost their jobs were given an even more generous severance package. Thus the labour force had been substantially reduced by the end of the privatisation process.
Thirdly, there was a lot of nervousness about the wholesale divestiture of assets going the uk way. So we only transferred the responsibility for operating the utility to the private company. The actual infrastructure is still in the hands of mwssb.
How did the privatisation process start?
We made the pre-bidding selection process very tough and only four of the world's most qualified water companies actually submitted bids.
We used the Paris model of privatisation, where the city's water utility was split into two and two private firms are involved in the operations. Like Paris, a river splits Manila. It also set up a type of quasi-competition in the city. And if one of the companies goes bankrupt, the other would be able to take over operations.
Each company submitted a bid for the two halves of the city, and we picked the two lowest bids. One company got one half of the city, the other the second half. The bids were very competitive. The lowest bidder was about half the level of the second lowest, where both were well below the existing tariff rate.
How did the people benefit from the privatisation?
There has been an increase of 50,000 connections to poor neighbourhoods since mwssb was privatised. As the population in slums is quite dense, it was relatively cheap to add new connections. There was no need for several pipes between connections and usually two families are served per connection. And the per-connection consumption in poor neighbourhoods is much lower than that of rich areas.
What is the impact of privatisation on larger water issues like the development of new supply sources?
The entry of the private sector has meant that water supply development has also become finance rather than engineering-driven. So, instead of building a dam for the sake of building a dam, a company may well look at its efficiency in improving the water supply. During the drought in the Philippines of the last couple years, the private companies had to come up with some emergency supply measures. They were able to act quickly and creatively, and ended up sinking some temporary tubewells next to some existing lakes. They also built a 60-kilometre pipeline to a reservoir using new rubber pipe technology.
The first report on the project -- by the two companies -- will come out by the end of 2002. It will be very interesting to see what they have to say -- both about supply development and profits in the long run.
Can such a privatisation model be adopted in India?
The Indian situation is not that different from what we faced in the Philippines a few years ago. Politics is a barrier in India. There is a lack of resources in municipal corporations. Infrastructure is poor, and there is enormous leakage of water. I think privatisation can happen in India when there is a commitment from all levels. But it can't just be one chief minister or one municipal leader -- you need supporters at the state, city and local levels, all working together. That's the toughest part. It's almost like you have to wait until the planets are all aligned just right.
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