Document ofThe World Bank

Report No: ICR 80689 - PH

IMPLEMENTATION COMPLETION AND RESULTS REPORT(TF-91023)

ON A

GRANT

IN THE AMOUNT OF US$2.85 MILLION

TO THE

MANILA WATER COMPANY, INC.

OF THE REPUBLIC OF THE PHILIPPINES

FOR THE

IMPROVED ACCESS TO WATER SERVICES

IN THE EAST ZONE OF METRO MANILA PROJECT

November 22, 2013

Philippines Sustainable Development UnitSustainable Development DepartmentEast Asia and Pacific Region

CURRENCY EQUIVALENTS

(Exchange Rate Effective June 2013)Currency Unit = PesoPHP 1 = US$ 0.0228

US$ 1.00 = PHP 43.76

FISCAL YEARJanuary 1 – December 31

ABBREVIATIONS AND ACRONYMS

BACAScu.m.

Beneficiary AssessmentCountry Assistance StrategyCubic meters

DOF Department of FinanceDOH Department of HealthGOP Government of the Republic of the PhilippinesGPOBA Global Partnership for Output Based AidIFC International Finance CorporationIVA Independent Verification AgentLGU Local Government Unit (municipal or city government)MMDA Metro Manila Development AuthorityMDGs Millennium Development Goal(s)MWCI Manila Water Company Inc. (East concession area)MWMP Metro Manila Wastewater Management Project (World Bank)MWSI Maynilad Water Services Inc. (West concession area)MWSS Metropolitan Waterworks and Sewerage SystemMTPDP Medium Term Philippine Development PlanMTSP Manila Third Sewerage ProjectMSSP Manila Second Sewerage ProjectMWSS-RO Metropolitan Waterworks and Sewerage System – Regulatory OfficeNEDA National Economic Development AuthorityNHA National Housing AuthorityOBA Output-Based AidPHP Philippine PesoRA Republic Act (a national law)TPSB Tubig Para sa Barangay Program Water for the CommunityUP-ERDF University of the Philippines – Engineering Research and Development

Foundation Inc.USD United States Dollar

Vice President: Axel van TrotsenburgCountry Director: Motoo KonishiSector Manager: Ousmane Dione

Project Team Leader: Christopher C. AnchetaICR Primary Author: Maureen P. Blassou

PHILIPPINES

Improved Access to water services in Metro Manila

CONTENTS

Data Sheet

A. Basic Information........................................................................................................iB. Key Dates.....................................................................................................................iC. Ratings Summary.........................................................................................................iD. Sector and Theme Codes............................................................................................iiE. Bank Staff...................................................................................................................iiF. Results Framework Analysis.......................................................................................iiG. Ratings of Project Performance in ISRs....................................................................ivH. Restructuring (if any).................................................................................................iv1. Project Context, Development Objectives and Design................................................12. Key Factors Affecting Implementation and Outcomes...............................................43. Assessment of Outcomes.............................................................................................83.2 Achievement of Project Development Objectives.....................................................84. Assessment of Risk to Development Outcome.........................................................125. Assessment of Bank and Borrower Performance......................................................136. Lessons Learned........................................................................................................147. Comments on Issues Raised by Borrower/Implementing Agencies/Partners...........16Annex 1. Project Costs and Financing...........................................................................18Annex 2. Outputs by Component..................................................................................19Annex 3. Economic and Financial Analysis..................................................................21Annex 4. Bank Lending and Implementation Support/Supervision Processes.............32Annex 5. Beneficiary Survey Results............................................................................33Annex 6. Stakeholder Workshop Report and Results...................................................36Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR......................37Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders........................39Annex 9. List of Supporting Documents.......................................................................40

MAP

A. Basic Information

Country: Philippines Project Name:Improved access to water services in Metro Manila

Project ID: P106775 L/C/TF Number(s): TF-91023ICR Date: MM/DD/2013 ICR Type: Core ICRLending Instrument: SIL/IPF Grantee: MWCIOriginal Total Commitment:

USD 1.00M Disbursed Amount: USD 2.06M

Revised Amount: USD 2.85MEnvironmental Category: BImplementing Agencies: Manila Water Company Inc.Cofinanciers and Other External Partners:

B. Key Dates

Process Date Process Original Date Revised / Actual Date(s)

Concept Review: 11/20/2006 Effectiveness: 01/11/2008 Appraisal: 08/08/2007 Restructuring(s): 06/29/2011 Approval: 10/19/2007 Closing: 06/30/2011 05/31/2013

C. Ratings SummaryC.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Low Bank Performance: Satisfactory Borrower Performance: Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR)Bank Ratings Borrower Ratings

Quality at Entry: Satisfactory Government: Satisfactory

Quality of Supervision: Satisfactory Implementing Agency/Agencies: Satisfactory

Overall Bank Performance: Satisfactory Overall Borrower

Performance: Satisfactory

C.3 Quality at Entry and Implementation Performance Indicators*Implementation Performance Indicators QAG Assessments (if any) Rating

Potential Problem Project at any N/A Quality at Entry (QEA): N/A

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time (Yes/No): Problem Project at any time (Yes/No):

N/AQuality of Supervision (QSA):

N/A

DO rating before Closing/Inactive status:

N/A

*Small Recipient-executed activity not subject to ISR requirement or portfolio monitoring indicators

D. Sector and Theme CodesOriginal Actual

Sector Code (as % of total Bank financing) Water Supply 60 100 Sewerage 40

Theme Code (as % of total Bank financing) Urban services and housing for the poor 100 100

E. Bank StaffPositions At ICR At Approval

Vice President: Axel van Trotsenburg James W. Adams Country Director: Motoo Konishi Bert Hofman Sector Manager: Ousmane Dione Mark Woodward Project Team Leader: Christopher Casuga Ancheta Iain Menzies ICR Team Leader: Christopher Casuga Ancheta ICR Primary Author: Maureen P. Blassou

F. Results Framework Analysis

Project Development Objectives (from Project Appraisal Document)The development objective of the Improved access to water services in Metro Manila project is to increase access to piped water supply services for poor households in Manila, thereby enhancing the welfare of these households.

Revised Project Development Objectives (as approved by original approving authority)The PDOs were not revised.

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(a) PDO Indicator(s)

Indicator Baseline ValueOriginal Target Values

(from approval documents)

Actual Value Achieved at Completion or Target

Years

Indicator 1:Number of new connections made in low income, indigent communities, at service quality levels as specified by the MWSS-RO

Value (quantitative orQualitative) 4,000 20,000 28,562

Date achieved Q1 2008 Q2 2012 Q1 2013Comments(incl. %achievement)

Overachievement. 143% achievement of targeted number of connections.

Indicator 2: Number of people benefitting from connections

Valuequantitative orQualitative)

20,000 100,000 142,810

Date achieved Q1 2008 2012 2013

Comments(incl. %achievement)

Overachievement. Number of beneficiaries is a function of the number of connections, resulting in the same proportion for exceeding original target (143%). To compute for the number of beneficiaries, five persons per household was used.

(b) Intermediate Outcome Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised

Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 :Improved hygiene and reduced incidence of water borne diseases resulting from increased consumption levels by beneficiary households

(No. diarrhea cases in Metro Manila)Value(quantitativeor Qualitative)

27,372 n/a 23,443

Date achieved 2008 2011Comments(incl. %achievement)

2011 Department of Health latest data was provided by MWCI.

Indicator 2 :Reduction in household expenditure on water by target households, which would provide a proxy indicator for increased household welfare.(Monthly expenditure on water)

Value(quantitative

PhP1100 (USD 24)(HH income PhP8,404)

No more than 5% income of hh

PhP 110-196(HH income PhP

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or Qualitative) 13 percent of income10,032)1-2 percent of income

Date achieved 2008 2012-2013

Comments(incl. %achievement)

Overachievement. From a high of USD24 or 13% of monthly income, household expenditure on water dropped to PhP113 or 1% of monthly income. (Note PhP/$ for 2008 is PhP45/$ and for 2013 PhP43/$.)Data Source: Beneficiary Assessment

Indicator 3 : User assessment of project/serviceValue(quantitativeor Qualitative)

No/Poor/Fair/Good/Very Good N/A Very Good

Date achieved 2010Comments(incl. %achievement)

Data provided by MWCI (customer survey results) from latest available Public Assessment of Water Service (PAWS).

Indicator 4 : Service Availability. 24 hr. supply of with water pressure of at least 5 psiValue(quantitativeor Qualitative)

N/A 95% 100%

Date achieved 2009 2013Comments(incl. %achievement)

Overachievement. On the average, the current water pressure is 16 psi.Data provided by MWCI.

Indicator 5 : Time savings for women per HH (hours/day)Value(quantitativeor Qualitative)

N/A Ave 2 hrs./day time saved

Date achieved 2013Comments(incl. %achievement)

Data provided by MWCI (customer survey results)

G. Ratings of Project Performance in ISRs

No. Date ISRArchived DO IP

Actual Disbursements(USD millions)

N/A

H. Restructuring (if any)

Restructuring Date(s) Amount Disbursed at Restructuring

in USD 000

Reason for Restructuring & Key Changes Made

06/29/2011 756.153 Extension of closing date from June 30, 2011 to May 31, 2013 to complete project activities

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and re-allocation of proceeds

1. Project Context, Development Objectives and Design

1.1 Context at Appraisal

1. Country Context. Over the past decade, the Philippines national development agenda and the supporting World Bank Group country strategies have aimed to address the challenges of improving both economic performance and social welfare in the context of working toward reaching the Millennium Development Goals (MDGs). The Improved Access to Water Services in Metro Manila project was prepared under the 2006-2008 Country Assistance Strategy (CAS) (Report No. 32141-PH) which supported the 2004-2010 Medium-Term Philippines Development Plan’s (MTPDP). The MTPDP’s overarching goal of reducing poverty was supported by a 10-point plan organized around the focal areas of livelihood, education, fiscal strength, decentralized development and national harmony. Programs to address insufficient infrastructure and inefficient delivery of basic services, including water and sanitation, were included under the decentralized development focal area.

2. Macro Context. After 20 years of stagnation, the Philippine economy grew during the 2000s, with mid-2000s averaging over 6% even while pursuing fiscal adjustment. The improving economy, unfortunately, did not result in poverty reduction; the population living below the national poverty line grew from 30 to nearly 33 percent from 2003 to 2006. Despite the GDP growth from 2004-06, both public and private investment levels declined and benefit to employment were not experienced. The poor and vulnerable populations remained at risk and the need to focus attention on having greater impact on the poor was recognized as a challenge.

3. Sector Context. The Government of the Republic of the Philippines (GOP) has long faced challenges in water resource management, including in the areas of water supply, sewerage and sanitation, and flood control. Management of the sector was also characterized by fragmentation, with multiple agencies and institutions responsible for various and sometimes overlapping aspects. During the 2000s, the Government worked to improve strategic focus and a number of policy and regulatory actions were taken to improve the quality of water resources, including the Philippine Clean Water Act of 2004 (RA No. 9275) which provided an integrated approach to abating and controlling water pollution.

4. Water supply and sewerage services in the Metro Manila region are the responsibility of the government-owned Metropolitan Waterworks and Sewerage System (MWSS). In 1997, MWSS awarded two 25-year concessions based on a geographic

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division. The east zone was contracted to the Manila Water Company (MWCI), and the west zone was contracted to the Maynilad Water Services (MWSI). The concessionaires are required to meet service performance standards in several areas including access and reliability of services. The MWSS Regulatory Office (MWSS-RO) is responsible for monitoring and adjusting water billing rates, monitoring and regulating service operations and infrastructure, and handling customer complaints.

5. The Philippines Midterm Progress Report on the MDGs (2007) noted both the progress and the challenges related to achieving the 2015 target of halving the proportion of households with no access to safe drinking water and basic sanitation or those who cannot afford it. Access had increased from the baseline of around 74 percent to 80 percent with a high probability rating of reaching the 2015 goal of 86.8 percent. However, the cost of potable water for households that purchased drinking water from vendors, the sufficiency and quality of groundwater sources as well as the time spent collecting water were all cited as challenges to reaching the target.

6. Rationale for Bank Involvement. The World Bank Group has been a valued partner in water supply and sanitation activities in the Philippines in general and in Metro Manila in particular since the late 1970s, providing investment financing and advice through successive loans, investments and technical assistance.

7. MWCI had a number of programs to provide water and wastewater services to support sustainable communities, including water and sanitation for hospitals, prisons and schools, and community water projects. The MWCI flagship program was the Tubig Para sa Barangay Program (TPSB or "Water for the Community") that had supplied safe and affordable drinking water to over one million urban poor since its launch in 1998. There was a strong rationale for building on the success of TPSB through a grant from the Global Partnership for Output-Based Aid (GPOBA).

8. The TPSB program was seeking to accelerate poor household water connections by leveraging the community culture in the Philippines and by working through local community leaders. The project met GPOBA criteria and the output-based aide (OBA) principals including explicit use of targeted subsidies; payment on output delivered and verified; increasing accountability of service providers; providing incentives for innovation and efficiency; enhancing sustainability through appropriate design and tariffs; monitoring of results; and encouraging public-private partnership.

1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved)

9. The original project development objective and key indicators were are follows:

PDO IndicatorsTo increase access to piped water supply services for poor households in Manila, thereby enhancing the

Number of new connections made in low income, indigent communities, at service quality levels as specified

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welfare of these households by the MWSS RO Improved hygiene and reduced incidence of water

borne diseases resulting from increased consumption levels by beneficiary households

Reduction in household expenditure on water by target households, which would provide a proxy indicator for increased household welfare

1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification

10. There was no revision to PDO or indicators.

1.4 Main Beneficiaries

11. The intended beneficiaries were households in targeted low-income communities served by MWCI. At the time of preparation, GPOBA funding of USD 2.8 million was requested to subsidize over 21,000 households (over 105,000 persons based on as assumption of 4.7 per household). Initial grant funds of $1,050,000 were approved with the intention of providing the remaining funds through a grant amendment following a replenishment of the IFC funding source. At that time, MWCI estimated low-income households in their concession territory to be close to 50,000. Household water connections would provide several benefits. In addition to clean water for drinking and household use, beneficiaries would spend less time fetching water, have fewer water related illness and costs, resulting in increased productivity.

1.5 Original Components (as approved)

12. The project had two components:

Household Connections (US$ 1 million at approval) for the provision of a standard metered water connection meeting the service quality standards specified by the MWWS-RO.

Project Management, Monitoring and Evaluation, and Output Audit and Verification (US$ 0.50 million at approval) for monitoring and evaluation of Project implementation and output audits and connection verifications.

1.6 Revised Components

13. No revisions were made to the project objectives or components. However, two amendments were made to the grant. In April 2010, the grant amount was increased from US$1,050,000 to US$2,850,000, the totality of which was added to Component (1) Household connections (from US$1,000,000 to US$2,800,000). In March 2011, the grantee requested extension of the original closing date of the grant agreement (June 30, 2011) following the issuance of revised tariffs which lowered the connection fee. The

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decreased per unit cost would allow more households to benefit, including in areas where MWCI had water supply expansion plans. In addition, the MWCI requested re-allocation of proceeds to cover increased consultant services for audit and verification resulting from expanded scope and length of the project. A restructuring project paper was prepared and approved in June 2011 to process the grantee’s request. No changes were made to PDO or indicators. The revised closing date was May 31, 2013.

1.7 Other significant changes

14. There were no other significant changes to the project.

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry

15. At the time the Improved Access to Water Services in Metro Manila project was prepared, the Manila Third Sewerage Project (MTSP) was under implementation. The project preparation benefited from sector analysis and dialogue gained from supporting the GOP and MWCI in water supply activities through MTSP and its predecessor projects1. It supported the expansion plans of MWCI as set out in its five year plan while not substituting for MWCI investment obligations under the concession agreement. Project preparation from concept note (November 2006) to approval (October 2007) took eleven months. It was declared effective in January 2008.

16. The project design was simple and reflected the lessons learned from earlier community water projects and advice from a panel of experts. For example, individual household connections were proposed based on the lesson learned that shared connections resulted in difficulties to ensure payments were made equitably by all users of the shared resources and had resulted in some cases of service interruptions due to lack of timely payments. The design targeted communities within MWCI service area or planned service areas.

17. The poverty targeting was based on both national data sources and surveys of most basic needs recognized as the most robust approach available at the local government level. Stakeholder participation was high with the role of local governments (barangay) in the authentication process.

18. No critical risks were identified in the project preparation; consequently, no risk mitigation measures were developed. Given past experiences with project implementation delays in the water sector in Metro Manila caused by issues ranging from right of way issues, government processing of project modifications, and impacts of natural disasters, identification of some risks however low and associated mitigation measures, may have

1 Water Supply and Sanitation Project, Ln 3242-PH (1990), Manila Second Sewerage Project, Ln 4019-PH (1996)

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been warranted. The restructuring project paper identified the risk of delay in turnover of resettlement sites with a mitigation measure to coordinate closely with NHA and identify back up beneficiary communities which was done to the extent possible.

19. No quality at entry review was undertaken for the project. This ICR review concludes that Quality at Entry was Satisfactory.

2.2 Implementation

20. MWCI had extensive experience implementing donor-supported operations with demonstrated capacity to implement projects. A manual of operations was prepared, detailing procedures for the OBA scheme, including fiduciary and safeguards, reporting and monitoring and evaluation. MWCI would implement the project through its business managers in the targeted territories which would contribute to the desired leveraging of community culture as MWCI had invested in community relations since its concession began in 1997.

21. There was no midterm review. As a small recipient-executed activity, successful implementation was achieved with regular supervision and implementation support at least twice per year. GPOBA semi-annual reporting summarized implementation status, issues, challenges and risks and actions to address them.

22. In June 2011, Level-two project restructuring was approved to extend the closing date, increase the grant amount and reallocate proceeds. These changes were made at the request of MWCI and to respond to implementation experience. The restructuring responded to changes during implementation and contributed to achievement of the PDO.

23. The key issues affecting project implementation were:

MWSS-RO tariff rebasing - In September 2008, the regulator reduced the connection fee from PhP 7,532 (USD 167 equivalent) to PhP 2,625 (USD 58 equivalent). The rebasing would allow for more households to benefit from a subsidized connection although there was a limit to the capacity of the initial project design and scope to be scaled to fully use the funds based on the lower tariff rates, i.e. the 65% decrease in connection fees could not be translated into expansion of scope to the same extent. Consequently, the project had an undisbursed balance even after an over-achievement of connections by more than 40%.

Community and beneficiary selection - MWCI faced challenges in selecting communities for the project. Although there are many low-income communities in the MWCI service areas, land-related issues, including right of way and informal settlement situations affected ability to legitimately quality for service connections. In addition, within a given community, MWCI could be servicing households meeting the subsidy criteria as well as households not meeting the criteria which had to the potential to create tensions in the communities.

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Institutional Procedures – Minor delays were caused by MWCI staff changes, including at the level of president, and related processes such as withdrawal applications processing due to changes in authorized signatories.

Natural disaster - In communities affected by Typhoon Ondoy, verification was delayed because destroyed documentation had to be reproduced before verification could be completed.

24. No quality of supervision review was undertaken for the project. This ICR review concludes that Quality at Entry was Satisfactory.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization

25. The Monitoring and Evaluation (M&E) design was satisfactory. The indicators selected were good measures of progress toward the PDO of increasing access to piped water. MWCI was assigned responsibility for data collection and reporting and had capacity to undertake it. The agreed data collection methods and sources were recognized as reliable and effective.

26. The M&E implementation was satisfactory. Data was collected regularly throughout the project and reported in a timely fashion. MWCI contracted University of the Philippines – Engineering Research and Development Foundation Inc. (UP-ERDF) as the Independent Verification Agent (IVA) in accordance with World Bank procurement guidelines. UP-ERDF had experience in surveying local communities and had developed a rapport with the beneficiaries that facilitated cooperation with verification process. There was collaboration between the MWCI main office, MWCI territory business managers, local government and the relevant national authorities, i.e. National Housing Authority (NHA) and in the sharing of information for determining beneficiary eligibility.

27. Data was used to manage the project and achieve PDO. When MWSS-RO issued the rebasing of connection fees, although the indicators were not changed, the targets were increased to reflect expanded impact while complying with the selection criteria agreed in the project preparation phase.

2.4 Safeguard and Fiduciary Compliance

Fiduciary Safeguards ComplianceOverall rating on fiduciary safeguards compliance: Satisfactory

28. Fiduciary (Financial Management and Procurement) policies and procedures were defined in the Operational Manual and followed during the life of the project. Financial management requirements, including submission of interim financial reports and annual audited financial statements were complied with consistently. Sycip Gorres Velayo & Co, the auditor of MWCI was acceptable to the Bank, with the agreement that MWCI would

13

ensure inclusion of the GPOBA project transactions in the auditor’s terms of reference. Procurement was done in accordance with World Bank Guidelines through MWCI’s Supply Chain Management Procurement System (SCMPS) without prior review as agreed during project preparation. FM and Procurement ratings were satisfactory throughout the project.

Environmental and Social Safeguards Compliance during Project ImplementationOverall rating on environmental and social compliance: Satisfactory.

29. The project was subject to the environmental and social safeguards clearance under IFC’s Performance Standards procedures. IFC, as financier of the GPOBA grant as well as earlier investments in MWCI, had conducted environmental and social due diligence and periodic supervision of MWCI’s water and sanitation activities since 2002, including their programs for low income neighborhoods. IFC found that MWCI environmental and social performance was in accordance with Philippine laws and regulations and international standards, including those of the IFC. The project was assessed as a Category B project as it has limited environmental and social impact which could be mitigated. During the project, no social or environmental policy was triggered.

30. The project exerted due diligence in screening the sub-projects to ensure that the potential environmental impacts were addressed in the project design. The environmental impacts encountered by the project were manageable, site-specific and temporary. The impacts were limited to the curbside debris which resulted from the roadside diggings due to pipe-laying and the temporary re-routing of vehicle and foot traffic due to the road blocks to separate the ongoing construction work from the usual traffic flow. The impacts were easily mitigated as MWCI was experienced in making sure that their projects do not pose any adverse impacts to the environment. MWCI planned for the restoration of the diggings, disposal of the remaining debris and traffic re-direction as needed.

2.5 Post-completion Operation/Next Phase

31. Upon project completion, MWCI will continue operation and management of its program to expand water and sanitation services to low-income communities as a commitment to improving the welfare of the populations it serves. MWCI has the needed technical, financial, commercial and institutional capacity to ensure viability after the GPOBA intervention. MWCI has made a long-term commitment to water and sanitation service provision for poor and vulnerable communities as part of their social responsibility. The company is financially viable and well-managed.

32. MWCI partnership with the World Bank Group will continue through the on-going Metro Manila Wastewater Management Project (MWMP) (Ln 81620) approved in May 2012. Discussion of the post-completion options for World Bank Group support was integral to project supervision of both the GPOBA project and the MWMP. The GOP is interested in a national OBA facility to demonstrate how the OBA approach is applicable

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on a larger scale and/or at the sub-national level as a way of managing government resources and ensuring quality service delivery. The GOP and the Bank have had an on-going dialogue on planning to mainstream a National Output Based Aid Program. Proposals under consideration include GPOBA to support the establishment of a Water and Sanitation Facility within the Department of Public Works and Highways and consideration of a Program-For-Results operation to support the national OBA activity.

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation

33. The project’s objectives, design and implementation are rated significant. They were relevant to the Philippines and Metro Manila development priorities at the time of preparation and remain so today. The Philippine Development Plan 2011-2016 considers efficient water resource management fundamental to sustainable economic growth and achievement of MDGs. The GOP aims to improve strategic focus in the sector to address the recognized fragmentation of policy and regulation which has negatively impacted investment financing. The GOP approach of making the fullest use of public, concessional and private investment financing in the water sector would be well-supported by additional subsidized OBA activities which MWCI now has experience implementing. For communities already benefitting from a water connection, follow-on support for including sanitation and flood management, disaster risk management, and slum upgrading would contribute to the broader Metro Manila urban renewal program.

34. The development priorities of the 2010-2012 CAS (Report No. 47916-PH) aim to address the continuing high rates of poverty and inequality in the Philippines, including inequality in access to basic infrastructure and social services by region and income group. Under the current CAS strategic objective of better public service delivery, an outcome is included to increase household access to water and sanitation services through support for regulatory reforms in the water supply and sanitation sector, investments in Metro Manila’s water supply and sanitation systems and in secondary cities; and in community-level infrastructure through various community-driven development initiatives. These commitments all speak to the continued relevance of the GPOBA project.

3.2 Achievement of Project Development Objectives35. The overall achievement of the Project Development Objectives is rated

Satisfactory.

36. The achievement of the PDO and main indicators is discussed in the following paragraphs. Annex 2 provides additional detail.

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PDO – To increase access to piped water supply for poor households in Manila, thereby enhancing the welfare of these households. This PDO was surpassed. The original goal was to connect 20,000 households; over 28,500 households benefitted from household connection at the subsidized rate.

Indicator – Number of new connections made in low income, indigent communities at service quality levels as specified by the MWSS-RO. Connections grew each year during the project. Independent verification of service quality levels was performed against the MWSS-RO service standards. The agreed quality indicators for IVA sampling were uninterrupted water supply and adequate water pressure. Water consumption was confirmed by the IVA by water bill delivery (confirmed by beneficiary and MWCI billing records).

Indicator – Improved hygiene and reduced incidence of water borne diseases resulting from increased consumption levels by beneficiary households. As the number of households with access to piped water increased, the incidence of diarrhea decreased in Metro Manila over the life to the project, albeit unevenly. Beneficiary households surveyed reported improved health following connections. In reviewing early experience with household water connections, it was learned that water usage patterns did not change with water connection alone. MWCI responded by offering households option of plumbing connection to kitchen sink and toilet in addition to water spigot. Chart 1 shows the decline in diarrhea cases over time as the household connections were added. In addition to the correlated data, households surveyed experienced improved health in family members after obtaining access to clean water.

Chart 1. Diarrhea Incidence and Household Connections by year (000)

2007 2008 2009 2010 2011 2012 20130.0

5.0

10.0

15.0

20.0

25.0

30.0

Source: MWCI. Data on diarrhea incidence covers Metro Manila. Connections are in project areas.

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Indicator - Reduction in household expenditure on water by target households, which would provide a proxy indicator for increased household welfare. Surveys of households and site visits found that households that purchased water from vendors spent less on water after being connected than before for all households purchasing water. The cost of water for communities with a community water source such as a hand pump or well increased with an individual connection, but households surveyed reported that the quality of the water, and the time saved more than compensated for the monthly usage bills. In addition, the majority of households purchased bottled water for drinking prior to having household connections (see Table 1).

Table 1. Household Water Expenditures and Consumption

Before Connection After Connection

Unit Cost PhP 40 (USD0.91) PhP 8 (USD 0.18)

Proportion of Monthly Expenditures PhP1100 (USD 24)

(income PhP 8,404) 13 % of income

PhP 110-196(USD2.50-4.46)(income PhP 10,032) 1-2% of income

3.3 Efficiency

37. The quantitative and qualitative impact on beneficiary households of having a piped water supply was assessed for this report. Economic and financial analysis was also undertaken. All analysis indicates positive impacts and high rates of economic and financial returns. The project’s efficiency is rated significant.

38. The connection subsidy reduced cost to the household from 38-60 percent of average monthly expenditure to less than 10 percent, greatly increasing their ability and incentive to connect. The recurrent costs for water expenditures dramatically declined for connected households, from 13 percent of monthly spending to as low as 1 percent for modest consumption. Eliminating the time lost fetching water improved the quality of life for all beneficiaries, particularly women. The benefits to health, while not significant, were measurable.

39. The economic returns for investing in a household connection was 365% with the GPOBA subsidy and 126% without the subsidy, indicating that water connections have tremendous returns and the subsidy only accelerates them. There are also high returns following connections from the reduced expenditure on water. The financial return to households was found to be 134% with the subsidy and 56% without it. Clearly, this is a worthwhile household investment. While households could potentially get water

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connections without the subsidy, it would generally take longer (e.g. the 36-month staggered payments) or require borrowing from informal lenders, an option not open to all poor households due to credit risk factors.

3.4 Justification of Overall Outcome Rating

Rating: Satisfactory

40. The overall outcome rating is Satisfactory considering the high relevance, the over-achievement of PDOs, and project efficiency. It is also based on beneficiary recognition of the economic, financial and social impacts.

3.5 Overarching Themes, Other Outcomes and Impacts

(a) Poverty Impacts, Gender Aspects, and Social Development

41. Poverty Impact. The project was entirely directed at the poor and consequently had direct poverty impact by providing access to clean water and sanitation to over 28,000 households unable to access connections at market rates. Average expenditure for household, as well as time spent obtaining it decreased while quality of household water increased for poor who had previously bought water, or fetched water from other sources. Bottled water was often reported to be purchased before the project due to concern about the health risks of drinking water from sources before MWCI connections were installed.

42. Gender Aspects. The GPOBA project benefits all members of the beneficiary households but women in particular. Women were predominantly tasked with fetching water before the project. The household responsibilities of food preparation, child care and most household tasks requiring use of water are performed by women who had to take precautions to ration water and ensure its cleanliness when obtained from other sources. Water-related health issues from frequency of bathing to illnesses including diarrhea, skin diseases and other water-borne diseases are caused by unclean water sources are household problems that are taken care of by women. The reduction in such issues from improved sanitation increases time for income-generating activities and/or for doing other household chores.

43. Social Development. The project made several important contributions to social development beginning with the good cooperation and close interaction of MWCI territory managers, local barangay authorities (LGUs) and beneficiaries to implement the project, employment opportunities for residents created by the water network expansion as well as income generating opportunities following water connection such as ice sales, flavored ice and laundry services, and reduction in spending for health services and disease control, freeing funds for other meaningful development projects. Easy access to affordable clean water allowed beneficiaries to maintain cleaner homes and more hygienic appearance, increasing well-being and reducing stress in families.

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(b) Institutional Change/Strengthening

44. The GPOBA project has positive impacts on MWCI’s institutional capacity. The required independent verification process contributed to good governance and accountability. During the implementation, MWCI hosted numerous high level visits, including World Bank Group Vice-Presidents, GOP officials and other visitors interested in learning from the MWCI experience. MWCI received a number of international awards for the innovative program and its positive impact on low-income communities, including recognition at the 2013 ASEAN Corporate Sustainability Summit.

(c) Other Unintended Outcomes and Impacts (positive or negative)

45. Providing households with subsidized connections had several unintended outcomes and impacts which the communities are managing well. First, the project exceeded its target of connecting more than 20,000 poor households to a piped water supply system. Second, the OBA approach was successful and recognized, thus leading to plans for scaling up. Third, households that were not connected through GPOBA are now willing to be connected. Fourth, water vendors whose services were no longer needed following the project implementation had to find alternate income generating activities. On a positive note, water availability in the communities increased awareness of needed infrastructure such as fire hydrants which communities requested to increase the safety of their property. Community feedback on issues ranging from the need for more fire hydrants to suggested improvements in billing and marketing were well-received by MWCI.

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops

46. Beneficiary feedback was overwhelmingly positive throughout the life of the project in all communities under the GPOBA project. During the implementation period, sites were visited for feedback regularly. The relationship between the beneficiaries and the IVA was collaborative.

47. As an input to the ICR, a beneficiary survey was undertaken. A random sample of households with a GPOBA-financed connection, a non-GPOBA-finance connection, and not connected was surveyed. The majority of respondents (41%) found the connection cost to be reasonable, and less than two percent felt it was unaffordable. Beneficiaries expressed satisfaction with the cost of piped water, and the positive impact on family life, including more time for family, better hygiene, and better health. Beneficiaries did express dissatisfaction with the cost of water reconnection. Among the negative responses related to the cost of reconnection fees for non-payment cases which respondents found to be excessive. See Annex 5 for further detail.

4. Assessment of Risk to Development Outcome Rating: Low

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48. This ICR rates risks to the sustainability of the development outcomes as low. MWCI has demonstrated both the commitment and the capacity to expand access to water to low-income households in its service area. MWCI has regularly adjusted to external factors affecting the program including tariff revisions, and inflation and exchange rate impacts to its operation. MWCI is a well-managed, technically competent and financially stable institution that has demonstrated risk management capability and received international recognition for excellence including the 2013 International Water Association Project Innovation Award (IWA-PIA). The risks to sustainability that MWCI needs to manage include impacts of relocation of residents from areas that are not suitable for habitation, and impacts of natural disasters including typhoons and floods.

5. Assessment of Bank and Borrower Performance

5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry

Rating: Satisfactory

49. Bank performance during the preparation is rated Satisfactory. The project preparation was led by a knowledgeable OBA expert. It drew from the Bank’s experience in the sector as well as its positive relationship with MWCI. A panel of experts reviewed the project design and made recommendations that were taken into account in the finalization of the commitment paper. There was adequate due diligence in the proposed implementation arrangements, including preparation of an Operational Manual.

(b) Quality of Supervision (including of fiduciary and safeguards policies)Rating: Satisfactory

50. Bank performance during implementation is rated Satisfactory. The project benefitted from regular supervision missions twice a year. Fiduciary and safeguards reviews were performed and feedback was promptly provided to MWCI. The project restructuring addressed changes to the project circumstances. The M&E framework was appropriate for the intended objective and reporting from MWCI was received throughout the project. Project staff changes on both the grantee and the Bank teams were well-managed and did not negatively impact the project.

(c) Justification of Rating for Overall Bank PerformanceRating: Satisfactory

51. Throughout the project, the task team proactively managed the project status and responded to issues. It maintained a close working relationship with MWCI. The technical, fiduciary, environment and social safeguards, and M&E aspects were all monitored and complied with. Needed restructuring and amendments to the project were made in a timely manner and had desired impact of exceeding project objectives.

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5.2 Borrower Performance(a) Government PerformanceRating: Satisfactory

52. The performance of Government, including MWSS and MWSS-RO, as well as local government and the National Housing Authority (NHA) is considered Satisfactory. Government provided a supportive enabling environment for the project to succeed, including tariff rebasing and confirmation of eligible beneficiary households.

(b) Implementing Agency or Agencies PerformanceRating: Highly Satisfactory

53. MWCI performance is rated Highly Satisfactory. MWCI demonstrated commitment to achieving PDO as they had a long-standing program the Tubig Para sa Barangay Program (TBSP) to expand access to water to low-income populations. The implementation arrangements, from beneficiary identification to independent verification, were well-managed with needed flexibility in response to changing conditions such as tariff rebasing. MWCI business zone managers were well-received and well-respected by the beneficiary communities and showed concern for meeting its needs. (See Annex on the TBSP.)

(c) Justification of Rating for Overall Borrower PerformanceRating: Satisfactory

54. The grantee institutions and agencies involved in the GPOBA project were committed and capable. MWCI has project management capacity and familiarity with Bank policies and procedures. Implementation changes resulting from changes such as the tariff rebasing were undertaken without major disruption to the project. Overall, the performance of the borrower and implementing agencies is rated Satisfactory.

6. Lessons Learned

Several lessons were learned in the course of the project. At the project level, lessons included:

Flexibility in beneficiary community selection is required. Although MWCI estimated the number of low income households in their service area at 50,000 in hundreds of communities across dozens of barangays and municipalities, selection for implementation was affected by several factors external to MWCI. These factors ranged from cadaster-related questions to civil works such as road projects that had to be completed before MWCI expansion. In addition, local politics, including local election activities, had the potential to delay or politicize community activities including the project. Another external factor affecting community selection was natural disasters, particularly during typhoon season.

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Beneficiaries identify and recommend improvements and related services. Once the communities have water connections, they are valuable sources of feedback on improving and expanding service. Some of the issues communities reported to MWCI as customers were need for more community fire hydrants and need for improved billing, including consideration of paperless billing (e.g. text to mobile).

Low income communities have multiple competing development needs and priorities and would benefit from relevant referrals. Working at the household level in the target communities builds relationships of trust with the beneficiaries. As a consequence, beneficiaries avail of the opportunity and the relationship of trust to express additional community needs once the critical need of water supply has been met. There is potential for greater development impact if MWCI could work with partner agencies to address some of the remaining community issues including employment promotion and public transport.

Strengthened partnerships between MWCI and communities/LGUs. Coordination with barangay and community leaders plays an important role in facilitating project implementation. As a result of this partnership, customers embraced their responsibilities.

GPOBA funds for connection subsidy were pivotal in giving poor households access to household water. Although MWCI’s TPSB program offers poor households a reduced water connection cost (PhP 3,000 compared to its regular water connection program which is PhP 8,000), it is beyond the means of the poorest. The GPOBA scheme provided an option for these households without a 36 month payment obligation.

Households connected to a piped-water supply system validate that safe and accessible piped-water supply reduces household spending on water. Both beneficiary feedback and billing information indicate that beneficiaries paid more for water before they had a connection.

Lessons for general consideration, particularly in light of the proposed national OBA scale up, include the following:

An improved beneficiary targeting mechanism is needed for national scale up. MWCI used the best available sources to identify target households, which was based on Most Basic Needs (MBN) surveys, with local government (barangay) issued indigence certification, and data on social housing from the housing authorities. The overall result was robust but at the same time, cumbersome. Scaling to the national level will require review of other options based on available data sources, including the National Statistics Office.

Role of LGUs in national scale up should be reviewed. The adoption of the Local Government Code which triggered decentralization of public services in the Philippines has now benefitted from two decades of experience. The increased participation of local actors in the prioritization of water and sanitation

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investments has many benefits. There is at the same time, a cost in terms of time and management effort which need to be assessed against the national scale up objectives and timetable.

Pricing can be a lifeline for poor households. MWCI’s policy of a lowered unit pricing for a minimal consumption amount (10 cubic meters) encouraged households to meet their consumption needs without fear of unaffordable monthly water consumption. This pricing scheme has potential for consideration under the proposed national OBA scaling-up particularly outside of Metro Manila for use with electricity pricing.

Subsidized connections increases demand. The project led households who decided not to be connected to the piped-water supply system because of fear that they may not be able to pay the monthly water bill to regret the decision. Many poor households realized that connected households are paying less, and decided to seek option to get connected.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies

55. MWCI provided a report and comments on this ICR. The noteworthy accomplishments from the grantee/implementing agency perspective were provision of potable, affordable water to poor households while meeting regulated service quality standards, improvement to the household sanitation conditions with reduction in water-related diseases; and financial assistance of the subsidy, thereby enhancing the welfare of these households. The three benefits MWCI noted were the significant financial savings on water expenditures for connected households, the improved hygiene and health of household members, and the positive community developments that resulted from the project, including roads and alleys and street lights.

56. MWCI also reported on the challenges faced and shared recommendations based on lessons learned. The tariff rebasing, while allowing for achievement of the targeted connections, resulted in a partial cancellation of the grant which could not be utilized. Another challenge was identifying beneficiary households, particularly in communities where households meeting the subsidy criteria lived together with households which did not and the potential for tensions to be created existed. Project management by MWCI was a challenge given their existing workload. MWCI recommended a dedicated project staff for the successful implementation of a scaled-up project. See Annex 7 for further detail.

(b) Cofinanciers.

Not applicable

(c) Other partners and stakeholders

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Annex 1. Project Costs and Financing

(a) Project Cost by ComponentExpenditure Categories

Appraisal Estimate (US$)

Actual Latest Estimate (US$) % of Appraisal

Project Subsidy Expenditure 2,850,000 1,185,683

41.6

GPOBA / Bank Supervision 120,000 199,500

166.3

Independent Verification Agent 50,000 75,000

150.0

Total 3,020,000 1,460,183 48.4

(b) Financing

Source of Funds

Type of Co-financing

Appraisal Estimate (US$)

Actual / Latest Estimate (US$)

% of Appraisal

GPOBA 2,850,000 1,260,683 44

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Annex 2. Outputs by Component

The Project was comprised of two components which were reflected in Schedules 1 and 2 of the legal agreements for project description and execution arrangements. Both components were monitored during project implementation support missions and included in semi-annual reporting. The components and the main achievements under the project were:

Component 1: Household Connections. Under this component, approximately 20,000 Beneficiary Households in low income communities would be provided with a standard metered water connection meeting the service quality standards specified by the MWWS-RO.

The sole output for the project is sustainable household piped water, defined as three months of service meeting established quality criteria as verified by an independent party, an Independent Verification Agent (IVA). Table 1 below summarizes the four indicators verified over the life to the project.

Table 1. Household ConnectionIndicators (unit)

Baseline

2008 2009 2011 2013

Water Connection with three months of service (no.)

0 4,028 10,642 12,197 28,562

Service Availability (24 hours/day) – Unscheduled water supply failure lasting more than 30 mins (no.)

n/a None None None

Water Pressure meeting regulatory requirements (psi) (%)

n/aApprox. 95% 99% 99%

Water bill delivered evidencing consumption/service delivery (%) n/a 100% 100% 100% 100%

The benefits resulting from access to water supply agreed for monitoring and assessed during and after the project were focused on household health and welfare. These indicators were monitored using available quantitative and qualitative data. The improved hygiene and reduced disease incidence was reported by the vast majority of beneficiaries surveyed who had previously rationed household water including showering of household members and children. Data on cases of diarrhea were also gathered over time by MWCI and shared with the project time in the context of project reporting.

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Impact of water connection on household economic welfare was monitored as the percentage of household income spent on water. While household expenditure on water by target households varied significantly among community and income levels, overall, households spent a smaller proportion of their income on water after the project than they did before. In addition, they no longer needed to get water from different sources for different uses, such as purchasing bottled water for drinking and fetching well water or buying water from vendors for household use. Indicative spending as a proportion of income in target households in summarized in Table 2.

Table 2. Household Expenditure on water before and after connectionParameter Before Connection After Connection

Amt. Cost Amt CostAve monthly income (PhP) 8400 n/a 8,444 n/aAve monthly water expenditure 4-8 cu. m 1100-

16006-12 cu.m. 100-200

% water expenditure/mo. 13-19% 1-2%Source: MWCI survey data

This component was over-achieved. It is assessed as satisfactory.

Component 2: Project Management, Monitoring and Evaluation, Output Audit and Verification. This component financed independent verification of household connections. MWCI contracted the University of the Philippines – Engineering Research and Development Foundation Inc. (UP-ERDF) as IVA for the project. The IVA was contracted to audit a representative sample of beneficiary households with a confidence level of no less than 95% and a margin of error not greater than 5%.

This component is assessed as satisfactory.

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Annex 3. Economic and Financial Analysis

1. The analysis was undertaken at ex-post2 specifically from the perspective of the household as the GPOBA subsidy was aimed at easing household connection cost and not meant to provide an incentive to the private sector to provide water services to these households, i.e. the private sector would have connected these households as they are considered an additional source of revenues. The analysis will determine whether the subsidy is justified in terms of:

i. It has effectively improved the welfare of poor households as it facilitated the access of these households to a more reliable, safer and cheaper alternative source of water.3

ii. It offers an efficient solution to the “last mile” paradox (i.e. the poor can afford the recurrent expenses for the service but they remain unconnected due to the high initial connection fee) vis-à-vis other programs currently being undertaken such as providing flexible financing options to pay for the connection fee.

2. The analysis was undertaken using data from the Beneficiary Assessment (BA) Survey undertaken between October 7-22, 2013; spot field interviews during the BA Survey from October 16-17, 2013; and reports and publications by MWCI and the World Bank.

I. Profile of Beneficiaries and Initial Outcomes

3. The project targeted poor communities, specifically households living in socialized housing, resettlement areas and informal settlers in blighted areas. Of these community categories, most of the households are in blighted areas within Metro Manila (Marikina, Quezon City, Pasig and Taguig) and in resettlement areas in the municipality of Rodriguez and Antipolo in the neighboring province of Rizal (see Table 1).

Table 1. Beneficiary Households by Community Type

No. of Communities

%No. of Connections %

Socialized Housing 25 33 4,607 16%Blighted 45 59 12,617 44%Resettlement 6 8 11,338 40%Total 76 100% 28,562  100%

4. Beneficiaries. MWCI installed 28,865 connections by the end of the GPOBA grant, exceeding the target of 20,000 connections. This was made possible in part by the decrease in the subsidy amounts as the connection fee was revised downward in 2007/8 during the rate-rebasing exercise with the MWSS-Regulatory Office.

2 Given the limited financial and economic analyses were done at the appraisal stage of the activity, this post-implementation analysis is not meant to be an audit (i.e. the activity's outcome is re-estimated based on actual investment and maintenance costs incurred and net economic welfare).3 This should translate into to a net improvement of the welfare of the beneficiaries (e.g. reduction in household expenditure on water, better productivity due to improved health outcomes and less time spent on fetch water) and also in the community as a whole (e.g. cleaner surroundings, etc.).

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5. Based on MWCI reports, the typical beneficiary household has an average monthly income ranging between PhP 6,000 to 10,000 (USD137-228 equivalent). A typical household could possibly have a family member (household head) earning minimum wage (workers in factories or businesses in Metro Manila) supplemented by entrepreneurial activities of other members.4 This income profile, however, may not be typically considered as indigent using the reference of the lowest 30 percent income for the National Capital Region (NCR) which stands at roughly PhP2,750/month in 2009 based on the National Statistics Office Family Income and Expenditure Survey (FIES). Nevertheless, spot field interviews conducted in one socialized housing site indicate that there are beneficiaries whose income profile can truly be considered indigent.

6. Connection subsidy. GPOBA financing provided a subsidy covering about 80 percent of the connection fee that households would be required to pay MWCI for a piped-water connection. Without the subsidy, 30-50 percent of disposable household income would be required for the connection fee. This is a sizeable portion of the household budget for poor households as, based on the latest available FIES (2009), poor households spend 97 percent of their income and allocate the majority of the expenditure to food (around 50%). Under the subsidy arrangement, the beneficiary is responsible for the guarantee deposit, and expenditure goes down to 4-10 percent of disposable income. For a one-time expense, this could be considered affordable for households with the income profile described in Table 2, especially if these households have access to financing, albeit through informal lenders. The BA Survey revealed that 63 percent of the 409 respondents consider the connection fee as either affordable or not expensive.

Table 2. Total Upfront Payment for Connection as Percent of Household Disposable IncomeMWCI REPORTS BA SURVEY

Household Income and Expenditures 2010 2011 2012 Average/a

Average Household Income 6,000 9,300 10,032 15,228Estimated Household Disposable Income (Expenditure) /b 5,820 9,021 9,731 14,771Without Subsidy Connection Fee 2,885 2,972 3,076 2,476/c

Guarantee Deposit 600 600 600 600/d

Total Upfront payment without Subsidy 3,485 3,572 3,676 3,076Total Upfront payment as a % of Expenditure 60% 40% 38% 20%With SubsidyTotal Upfront payment with Subsidy /d 600 600 600 600Total Upfront payment as a % of Expenditure 10% 7% 6% 4%Source of basic data: MWCI and MWCI GPOBA Semi-Annual Report, BA Survey/a The average income has a large standard deviation from the mean (PhP11,190)/b Assumed 97% of Household income based on the 2009 FIES/c Average – mode/d Guarantee deposit to MWCI

7. Water Consumption and Household Expenditure. A 2009 report on a beneficiary community indicated that households used to buy their water from vendors at a cost of

4 A minimum wage earner in NCR has a wage rate of PhP 456 (USD10) per day or roughly 10,032 (USD228) a month.

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roughly PhP40/ cu.m., with a family spending around PhP 900-1,500 (USD21-34) per month5. For a household with an income of about PhP6,000 (USD137), this is about 15-25% of income; higher than the 5% international benchmark for recurrent household spending for water6. Recent spot interviews in a beneficiary community found a similar expenditure range before access to a piped-water network. To illustrate, a family of six bought 1-2 drums of water at a cost of PhP 30-35 per drum for an approximate monthly expenditure ranging from PhP 900-2,100 (USD21-48). Based on an estimated 10 drums equivalent to 1 cu.m. (based on a 100 liter drum), the unit cost can be as high as PhP 300-350 per cu.m. MWCI uses an estimated 5 drums per cu.m. which pegs the cost at PhP 150-175 per cu.m.

8. In terms of consumption, MWCI cited a 30 cu.m. monthly consumption baseline for beneficiary households which was based on a 5 cu.m. per capita requirement for a household of 6 people. This is likely to be overestimated as households who would buy 1-2 drums a day (1 drum is equivalent to 100 liters) will likely consume an equivalent of only 3-6 cu.m/month before they were connected. Using MWCI’s five drums to a cu.m. estimate, the monthly consumption will still be lower at 6-12 cu.m. After being connected, MWCI reported that the average beneficiary household consumes around 10-20 cu.m. from 2010 to 2012 – higher than the average range of 3-12 cu.m. consumption by beneficiaries estimated in the spot interviews. The project’s operational manual considers the increase in levels of consumption by beneficiary households as a proxy indication of improved hygiene and reduced incidence of water borne diseases.

9. MWCI piped water tariffs are considerably lower than water sold by vendors, i.e. PhP 7.76 per cu.m. in 2009 compared to a conservative estimate of PhP 40 per cu.m. from a water vendor. Households could easily save around PhP32 per cu.m. or about PhP 322.4 savings a month for a 10 cu.m. minimum threshold of basic consumption. The decrease in the unit cost of water encourages households to consume higher volumes of water. In certain areas such as in one of the socialized housing projects, recent interviews of beneficiaries indicate that they pay the minimum 10 cu.m. even if their actual cu.m. consumption is lower. This acts as an incentive to consume more - at least up to 10 cu.m. since they’ll be paying for the minimum amount anyway. As mentioned earlier, the increase use of water is considered as a proxy indicator for positive health impacts.

10. For the results of the BA Survey, based on a sample of 409 households, households save about PhP246 per month after connecting to a piped-water system. The range of expenditure before the connection however is quite dispersed (standard deviation of PhP 496), with some households spending as much as PhP4,500 a month and some getting water for free from community deep wells or privately-owned wells. The difference in level of consumption is difficult to gauge given a variety of water containers that households use to fetch water (e.g. drums come in different sizes). See Table 3 for further information.

Table 3. Water Expenditure Before and After Connection (PhP)

5 See article on one beneficiary community: http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:22638061~pagePK:34370~piPK:34424~theSitePK:4607,00.html

6 Benchmark for affordability (percent of total household income/expenditure). See http://www.ebrd.com/downloads/research/economics/workingpapers/wp0092.pdf

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Before Connection After Connection Difference Average Water Expenditure 486.01 240.08 245.93 Standard Deviation 495.98 208.13 287.85 Maximum 4,500.00 406.67 4,093.33 Minimum - 181.51 (181.51)Source: Beneficiary Assessment Survey

11. Aside from lower household spending and increased consumption, other welfare-improving outcomes or initial impacts reported by MWCI include:

(i) Decrease in incidence of water-borne diseases in beneficiary communities from 3-5 incidences per month to none. The extent of the health impact is contentious however. The BA Survey reveals only a small number of beneficiaries have had water-borne diseases (107 incidences of diarrhea out of 2,064).7 When asked about their situation before the connection, the majority of the beneficiaries responded that the inconvenience in terms of fetching water (59%) and the high cost of water (21%) are the key issues they face in not being connected. The inconvenience of not having continuous supply of water garnered 17% of the total responses while the lack of clean water was mentioned twice. The results for those not connected to piped-water likewise revealed minimal incidence of diarrhea (10 incidences out of 242). Out of the 10 incidences, 6 of these were perceived by those affected to be caused by unclean water used in the house.8

(ii) Beneficiary households were also able to save an average of two hours (consistent with the initial results of the BA Survey) a day for time spent on hauling or fetching water (mostly from community pumps and water trucks), which impacts mostly women.9

II. Economic and Financial Analysis Results

12. Despite the potential savings that a piped-water connection can offer to households, the cost of connecting can be a significant hurdle especially to those who depend on a meager income. The following are the results of the analysis to determine whether the subsidy, which enabled beneficiary households to connect to the water network, resulted in economic and financial welfare improvements.

13. The analysis entails determining the incremental costs and benefits with the project and without it. The “with project” scenario is the defined as the households being

7 This may illustrate that health benefits do not materialize based on the availability of clean water per se as other factors such as the proper use of water (hygiene practices) and the household’s understanding of the relationship between water and health come into play. As indicated earlier in the text, the project’s operational manual uses increased levels of consumption as a proxy for positive health impacts.

8 The BA results indicate that while it is a challenge directly correlating illness to the use of unsafe water, a relation between the avoidance of diseases resulting from intake of unclean water could be generated. The extent and size of the impact however should be viewed in light of the respondents’ previous sources of drinking water, most of which were from refilling stations, truck deliveries and neighbors connected to the Manila Water.

9 The BAS indicated that 34% of the households reported that women members were the ones who fetch water; fathers and other relatives comprise 31% while children were 29%; the rest are either relatives or paid workers.

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able to connect to piped water due to the GPOBA subsidies. The premise for this is that without the subsidy, the household will not be able to afford to connect to a piped water network. As for the “without project” scenario, the households cannot afford to connect to the water network and thus continue to source water from other sources (e.g. water vendors, water trucks, community pumps, etc.).

14. The piped water connection is assumed to provide better services (in terms of quantity and quality of water plus convenience) and is a potential substitute for water from all other sources. For simplicity, it is assumed that for GPOBA beneficiary households, all non-piped water use will be replaced by piped-water.

15. Benefits. The benefits for this analysis are focused on the direct benefits such as (i) net savings in water expenditure and (ii) time savings from hauling or fetching water. 10 A conservative estimate of PhP 40 per cu.m. tariff for vended water was assumed and tariffs (both MWCI and vendors) are assumed to escalate 3% per year.11 Time saving from hauling or fetching water is assumed at two hours a day for beneficiaries and accrues more (70% of the time savings) to adults (specifically women) than children. A minimum 10 cu.m. per month consumption has been assumed for each household.

16. Costs. In addition to their share of the connection fee, households also spend on pipes and fixtures that would bring water inside their homes. The general observation coming out from field visits shows that most of households have a pipe installed from the meter to the faucet in their houses. The major cost driver is distance of the meter from the house (in some cases, meters are grouped together and located near entrance of community i.e. not in front of house). Some households commented in field visits that they ended up paying more for the pipe to their house than what they spent for the connection fee. The cost can vary from as low as PhP50 to PhP 10,000, as revealed in the BA Survey. The value of PhP 1,500 cost per household for pipe laying has been assumed12 to determine a relatively moderate range of estimates of the overall net benefit of the project.

17. Cost-Benefit Analysis. The incremental costs and benefits13 of the project were estimated up to 2035 (end of the concession contract of MWCI), or about 28 years from 2007. A comparison of the internal rate of returns for the project with the subsidy (i.e. households pay only a fraction of the connection fee) and without the subsidy (i.e. households pay the full amount of the connection fee) is also presented to provide a

10 The value of time due to economic welfare losses (now saved due to the piped-water) are valued at less than the financial losses and thus for adults 30% of the average income or wage rate is applied, reflecting a conservative estimate of the value of time lost. For children aged 5-14 years, lost time at school has an opportunity cost, valued at 15% of the average income or wage rate. For children under five, the time of the child caregiver is applied at 15% of the average income. These assumptions are based on the Water and Sanitation Program Study on the Economic Impacts of Sanitation in the Philippines, February 2008.

11 Based on past escalation trend for MWCI’s tariffs. 12 Rounded-off average cost based on non-zero or non-‘no answer/do not know’ responses to the

survey.13 Externalities such as the economic cost of the use of surface water and the benefits accruing to the

community brought by the availability of water will be difficult to value but are recognized as impacting the costs and benefits.

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picture of the impact of the subsidy on the financial and economic feasibility of connecting to a piped-water network.

18. From the household financial perspective, the reduced costs on water from a piped-water connection yield huge net positive savings with a 134% internal rate of return on the investments they spent to connect (connection fee and pipes after the meter). Even without a connection subsidy, their investment will still give them a positive return with an IRR of around 56% (see Table 4).

Table 4. Impact of Reduced Water Cost due to Piped Water Connection, 2007-2037

ItemNet Present Value in PhP

With Subsidy Without SubsidyExpenditure on Water Connection (2007-2037) 148,017,171.72 222,892,846.58Net Savings on Consumption Expenditure 1,880,080,474.55 1,805,204,799.69Average Net Savings per Household 65,824.54 63,203.02Financial IRR 134% 56%NPV computed based on a 6% market discount rate as no debt has been assumed (i.e. WACC = i)

19. Piped water connection yields huge benefits to the households and society as a whole at an EIRR at 365% (see Table 5). Even if only the time savings were accounted as benefit, the economic returns of piped water connection remains positive at 169% (with subsidy) and 76% (without subsidy) – still surpassing the 15% return benchmark for development projects. Time savings alone can translate to PhP 21,000-23,000 worth of additional benefits per household – accruing specifically to women - over the 28-year period.

Table 5. Economic Returns on Piped Water Connection, 2007-2037Net Present Value in PhP

With Subsidy Without SubsidyExpenditure on Water Connection (2007-2037) 96,303,828.11 153,081,864.37Net Savings Consumption Expenditure and Time Savings 1,137,247,698.36 952,624,449.75Average Net Savings per HH 39,816.81 33,352.86

EIRR - All Savings 365% 126%Net Time Savings 577,915,233.01 521,137,196.75Average Net Savings per HH - Time 20,233.71 18,245.82

EIRR - Time Savings 169% 67%NPV computed at 15% Economic Cost of Capital; costs and benefits expressed in 2012 prices

20. These net benefits and high returns demonstrate that the welfare of beneficiary households – as evidenced on the expenditures on water and productivity through time savings – improved with the piped-water network connection and the subsidy has made these possible. The subsidy also further enhanced the net internal rate of return of the household’s expenditure or investments on the water connection both from the financial and from the economic perspective.

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21. The benefits and returns to the household investments on the water connection will likely be higher when health-related benefits14 and the benefits that spill-over to the community are factored in. Piped water connection also benefit households that are not connected as it has been shown in the BA Survey that some of these households now get their water from their neighbors who were already connected. This results in positive benefits through decreased time spent on fetching water (although not as substantial as when a household is connected), increased consumption (a factor of convenience and decreased cost of water; neighbors either split the bill or sometimes do not charge at all if the total consumption billed do not exceed the 10 cu.m. minimum) and improved quality of water specifically for those who used to get water from deep wells.

III. Staggered payment for the connection vis-à-vis a Connection Subsidy.

22. As the results of the above analysis indicate, even without a subsidy it would still be highly profitable or beneficial for households to connect to a piped-water system. Could the GPOBA household beneficiaries have been individually connected without the subsidy?

23. MWCI has been implementing the Tubig Para sa Barangay Program (TPSB) for low-income households since 1998 as part of its corporate social responsibility initiatives. The program introduced flexible financing options through staggered connection fees up to 36 months and cost-sharing among residents. Since the GPOBA subsidy was coursed through the MWCI’s TPSB, the profile of the beneficiaries and the level of service for both programs are assumed to be the same. The quality of service and the accompanying benefits to the households can also be treated as identical. The difference then can be attributed to the subsidy to the connection fees.

24. Targeting and Affordability. MWCI’s continued roll-out of TPSB for poor communities indicates poor households are aware of the inherent benefits of connecting to a piped-water system. By offering flexible payment terms up to 36 months, households under the TPSB will effectively be paying PhP 85.45 each month for the connection fee of PhP 3,155.40 in 2012. The monthly payment terms is affordable and would be attractive enough for poor households to reach a decision to connect compared to a scenario where the household will continue to buy vended water (see Table 6). Even with the monthly connection payment included, the expenditure on water continues to be only a very small fraction (2%) of household disposable income. It can be concluded that the staggered payment scheme could just as likely to encourage poor households with a similar income profile of the average GPOBA beneficiaries to connect to a piped-water network.

Table 6. Recurrent Water Expenditure as % of Disposable Income – Vendor vs. Connection through TPSB with 36 months payments, 2012

14 The avoided lost time for productive or leisure activities due to sickness and the accompanying cost of treatment is left out in the numerical benefit-cost analysis given earlier discussion on its less substantial impact. The rationale for this is consistent with the general findings a review of the economic appraisal of World Bank water projects. Due to substantial health-related externalities, it was recommended that analysts concentrate on the assessment of other economic benefits especially on time savings (See Lovei, L. “An Approach to the Economic Analysis of Water Supply Projects,” WB Working Paper 1002, October 1992).

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VendorPiped Water (TPSB scheme)

Average household income 10,032.00 10,032.00Estimated Household Expenditures 9,731.04 9,731.04 Of which Water Expenditure – Total* 400.00 195.08 10 cu.m. (assumed at PhP40 per cu.m.) 400.00 109.63 Monthly payment for connection 85.45Water Expenditure as % of Household Expenditures 4.1% 2.0%* Inclusive of Value-Added Tax (VAT)

25. The GPOBA subsidy could have greater impact if it was better targeted to reach the poorest of the poor, i.e. those that cannot afford to even pay the monthly terms under MWCI’s TPSP, e.g. households in the Bottom 30% of income decile with estimated monthly earnings of about PhP 3,181.30 in 2012.15 This household is unlikely to afford a one-time payment of the connection fee since it is almost equal to its monthly income (the total connection fee in 2012 is PhP 3,076.20). If the household is connected under the TPSB, the recurrent water expenditure (assumed that the household spends the minimum 10 cu.m.) for 36-months will be 6% of their disposable income, slightly higher than the 5% benchmark for affordability. This typical household profile would be less likely to connect vis-à-vis a typical TPSB household/GPOBA beneficiary. A subsidy on the upfront connection fee could make a more significant impact on this particular household profile as it could effect a change in a household’s decision at the margin.

Table 7. Hypothetical Recurrent Expenditure on Water – Household in Bottom 30% of the Income Decile vs. Typical TPSB Household under the 36-month payment option

Bottom 30%Average TPSB Beneficiary/a

Average monthly income 3,181.30 /b 10,032.00Estimated Expenditure /c 3,085.86 9,731.04Water Expenditure – Total/d 195.08 195.08 10 cu.m. 109.63 109.63 Monthly payment for connection 85.45 85.45Recurrent Water Expenditure as % of disposable income 6.3% 2.0%/a Assumed to have a similar income profile of the average GPOBA beneficiaries cited by MWCI; 2012 data/b Adjusted based on FIES 2009 Bottom 30% average annual income: PhP 2,758.25/c Estimated at 97% of Total Income based on results of FIES 2009/d Inclusive of VAT

26. However, the upfront one-time guarantee deposit of PhP 600 that still needs to be paid will still constitute about 19% of the Bottom 30% household expenditure, a sizeable portion of the household’s budget. This would be unaffordable when compared to the average GPOBA beneficiary profile with an income of PhP 10,032/month (see Table 8).

15 Adjusted; computation based on Average Annual Income of PhP 33,099 for Bottom 30% cited in the Special Release of the 2009 FIES of the National Statistics Office.

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Borrowing from informal lenders for the one-time payment can still be an option but with a much lower monthly income, the capacity to pay would be more constrained16.

Table 8. Upfront Payment with Subsidy as % of disposable income of Bottom 30% and Average GPOBA Beneficiary

Bottom 30% with GPOBA Subsidy

Average GPOBA Beneficiary (2012)

Average income 3,181.30/a 10,032.00Estimated Expenditure 3,085.86 9,731.04Total Upfront Payment with Subsidy /b 600 600Total Upfront Payment with Subsidy as % of Expenditure 19% 6%a/ Adjusted based on 2009 FIES Bottom 30% average annual income: PhP 2,758.25b/ Guarantee deposit

27. A reduced guarantee of PhP 200 is currently being discussed by the MWSS-RO and MWCI. This could effectively lower the proportion of the upfront payment to 6.5% of the disposable income; comparable to the average GPOBA beneficiary expenditure proportion. A full subsidy would even be more beneficial as it was shown that even the fixed guarantee deposit is unaffordable for the poorest of the poor. In fact, the full subsidy was applied in one GPOBA community (socialized housing site) in Rodriguez, Rizal where the National Housing Authority shouldered the beneficiaries’ guarantee deposit.

28. In sum, the subsidy has a more significant or value-adding effect when carefully targeted to the poorest of the poor (such as the bottom 30% of the income decile) who may not even afford to pay the monthly or staggered payments under MWCI’s TPSB. When applied to households with this income profile, the subsidy is efficiently used as it will further reach consumers would not have been able to connect under MWCI’s current corporate social responsibility initiatives. This in turn will further hasten the attainment of Manila Water’s connection targets under its concession contract with MWSS. The one-time payment of a guarantee deposit needs to be made affordable for lower income groups. A full-subsidy on the guarantee deposit can be explored to make the connection cost affordable for the poorest of the poor.

29. Cost of Administration and Sustainability. At this point, it would useful to discuss program sustainability in terms of the difference in the cost of administration between the OBA subsidy vis-à-vis the staggered payment program. This is especially important given a potential scale-up of the OBA scheme is being discussed within the government.

30. The OBA scheme would require the use of an independent verification agent or an output auditor that would certify the attainment of the outputs before the service provider is reimbursed for the subsidy on the household connection fees. The use of an output auditor adds to the total cost of administering the program and is included as one of the costs pre-funded by the service provider (Table 9). The validation exercise cost about PhP 4 million or 5% of the total costs which MWCI pre-funded under the project. These costs (subsidy and output auditor) when added translates to an additional expense 16 This is evident at least in one spot interview done in a blighted area where one household chose not to

connect at the time of the GPOBA project was being implemented, as the household could not pay the PhP 600 and could not avail of a loan from an informal lender as the head of the family at that time was not employed at that time.

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of around PhP 3,360 per connection on top of the capital costs spent to connect the beneficiary communities. A total of PhP 15,868 per connection (capital cost plus pre-funded expenditures) was spent by MWCI under the project (see Table 10).

Table 9. GPOBA Subsidy plus Costs of the Verification Process ( PhP)Year No. of HHs Total Subsidy Output Auditor Total

2007 4,516 26,697,372.68 - 26,697,372.682008 5,385 19,045,905.87 - 19,045,905.872009 1,725 3,819,408.75 1,077,261.36 4,896,670.112010 749 1,711,465.00 1,016,593.60 2,728,058.602011 1,926 4,568,163.84 529,946.08 5,098,109.922012 11,404 28,238,584.80 - 28,238,584.802013 2,857 7,300,892.08 1,945,299.96 9,246,192.04

Total 28,562 91,381,793.02 4,569,101.00 95,950,894.02Source of basic data: MWCI unaudited reports

31. Unless service providers have sufficient access to financing like MWCI, the additional costs of PhP 3,360 per connection can be a substantial amount. For the OBA scheme to be properly implemented, the service provider should have the capacity to undertake the needed capital investments plus pre-fund connection subsidies (including audit costs) that address demand-side constraints of poor communities. For smaller service providers – such as Local Government Units and Water Districts – access to financing (due to their lack of creditworthiness stemming from the lack of incentives to perform and other institutional factors) to undertake capital investments to expand water services is already a concern. The added costs of administering an OBA scheme would increase the financing gap - at least for the short-term. Reforms to improve supply-side constraints, specifically on the creditworthiness of service providers, will be important factor in expanding services, especially if the intention is to connect poor communities that live farther from main distribution lines. A performance-based funding mechanism or grant for capital investments could be looked-into to address supply-side incentives to improve and expand services to reach the poor.

Table 10. MWCI Associated Capital Expenditures, 2007-2013, in PhPYear Civil Works Goods Total2007* 18,905,170.21 5,794,515.18 24,699,685.392008 24,284,178.04 8,691,772.76 32,975,950.802009 33,685,394.36 25,219,162.42 58,904,556.782010 1,786,644.53 1,696,294.07 3,482,938.602011 16,026,893.51 6,348,485.81 22,375,379.32

2012 132,386,544.84 76,693,731.00 209,080,275.8

42013 1,372,153.00 4,384,025.00 5,756,178.00

Total 228,446,978.49 128,827,986.24 357,274,964.7

3Capex per connection 12,508.75Capex per connection including subsidy and output verification 15,868Source of basic data: MWCI unaudited reports, various years*Adjustments made to account for goods returned by MWCI contractors

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Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members

Names Title Unit Responsibility/Specialty

LendingIain Menzies Sr. Infrastructure Specialist GPOBA Task LeaderPreselyn Abella Financial Management Specialist EAPFM FMCecilia Vales Lead Procurement Specialist EAPPR ProcurementMara Warwick Sr. Urban Environment Specialist EASUR TechnicalMukami Kariuki Program Coordinator EASURMaya Gabriela Villaluz Operations Officer EASREStephen Bailey Principal Environmental Specialist IFC Env and SafeguardsDirk Sommer Program Coordinator IFCPatricia Veevers-Carter Program Manager GPOBA AdvisoryIrving Kucynski Panel of Experts GPOBA AdvisoryAlejandro Jadresic Panel of Experts GPOBA AdvisoryBill Kingdom Lead Water & Sanitation Specialist EASUR Advisory

Supervision/ICRChristopher Ancheta Sr. Sanitary Engineer EASPS Task LeaderMario A. Suardi Sr. Infrastructure Specialist GPOBA Task LeaderTomas A. Sta Maria Financial Management Specialist EAPFM FMAisha De Guzman Financial Management Specialist EAPFM FMVictoria Lazaro Operations Officer EASPS Social SafeguardsRene Manuel Sr. Procurement Specialist EASR1 ProcurementMaya Villaluz Sr. Operations Officer EASPS Env and SafeguardsRosanna Martin Consultant EASPS

Ana Silvia Aguilera Infrastructure Specialist GPBOA Transaction Advisor

Maureen Blassou ICR Consultant

(b) Staff Time and Cost

Stage of Project CycleStaff Time and Cost (Bank Budget Only)

No. of staff weeks USD Thousands (including travel and consultant costs)

LendingTotal:

Supervision/ICRTotal:

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Annex 5. Beneficiary Survey Results

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1. A Beneficiaries Assessment (BA) Survey was conducted from August to October 2013 with the help of the Diliman Integrative Technical Consultancy, Inc. (DITCI) to assess if the GPOBA approach to providing piped-water supply to poor and low income households and communities has significant impacts and sustainable outcomes that will help the National Government in setting-up a similar program that will benefit poor and low income households on a national scale. The specific objectives of the BA survey were:

to determine the benefits of providing subsidized piped-water supply connections to poor and low-income households;

to determine outcomes and initial impacts of providing subsidized piped-water supply connections to poor and low-income households specifically to women and children;

to determine if the provision of subsidies for piped-water connections to poor and low income households is sustainable; and

To identify factors contributing to or influencing the sustainability of subsidized piped-water provision to poor households.

2. Sampling and Methodology. To determine the project impact for each type of community, each type was treated as a distinct sampling frame and separate sample sizes were obtained for each type using the formula of the World Bank. Stratified sampling was used to determine the proportion of the sample to be gathered from the communities under each type. Random sampling was used to identify specific beneficiaries/households to be interviewed. The sample was comprised of 80 percent households with a GPOBA-financed connection, 10 percent households with a non-GPOBA-financed connection, and 10 percent unconnected households (See Table 1).

Table 1. Number of Samples per Type of Community and Type of Connections

Type of Piped-Water ConnectionBlighted Communities

Resettlement Communities

Socialized Housing

GPOBA Connected 137 137 135Non-GPOBA Connected 17 17 17Not connected 17 17 17Total 171 171 169

3. Results and Analysis of GPOBA Beneficiaries Survey. The average monthly household income of households who benefitted from the GPOBA ranges from PhP 7,327 to PhP 8,593. These households, although poor, still meet the required Total Basic Expenditures for food and non-food requirements of a household compared to households belonging to the poverty line of an annual income of Php16,841 or a monthly income of PhP 1,403.42 (NSCB 2012).

1.

4. Monthly average household expenditures for water before GPOBA ranged from PhP 336.21 to PhP 549.27, accounting for around 6.4% of the household monthly income. After the GPOBA piped-water connection, monthly average expenditures for

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piped-water ranged from PhP 204.66 to PhP 278.34 which around 3.24% of the household monthly income, indicating a 50% reduction of expenditures for water.

5. Before GPOBA, the amount spent for water did not include the cost of labor and time in fetching, queuing for 1-2 hours of children and women’s time during the day and women’s or men’s time from midnight to early morning including the loss of sleeping time.

6. As explained in the Economic and Financial Analysis (Annex 3), the value provided for time and labor spent for fetching water, if considered as an expenditure, is far higher than the cash value paid for buying water. Providing piped-water connections to households, especially poor households, definitely help save precious financial, labor and time resources of the family.

7. When surveyed on the issue of the connection fee, 41% of surveyed households responded that the connection fee is affordable; 21.3% of surveyed households responded that the connection fee is alright since it is not expensive; 26.9% of surveyed households did not give any comment perhaps because they did not pay the connection guarantee of PhP 600 since the National Housing Authority made arrangements with Manila Water on the payment of the connection guarantee; 7% of surveyed households answered the fee is ok because they need water; and 1.7% of surveyed households said that the fee is still heavy.

8. Before 2008, the connection guarantee that the households had to pay upfront was PhP 1,620 but after 2008, because of water rate rebasing, the connection guarantee was lowered to PhP 600 which became more affordable for poor and low-income households to pay upfront.

9. When surveyed on disconnections, a total of 373 households (91.2%) experienced disconnection for the reason that they did not have enough money on the due date to pay their water bill. After payment of their water bills, the households were reconnected to the piped-water supply system again. Some of the disconnected households were saying that the reconnection fee of PhP 500 was twice higher than their monthly water bill.

10. On water-related diseases, around 30 persons, mostly children (19) were sick with diarrhea; 1 with dysentery; and 1 skin disease before the households were connected to the piped-water supply system. After the households were connected, no cases of diarrhea were reported. Colds and flu were the most reported sicknesses.

11. Overall Assessment. Providing piped-water supply to poor and income households changes their quality of life for the better as evidenced in the results stated above:

Spending less cash for a greater volume of clean and safe drinking water supply available in the household.

Spending less time and labor. More time for playing and studying for children; more time for domestic chores and other activities for mother and more time for sleeping and resting for all members of the family.

Decrease in incidence of water-related diseases

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Healthier and happier households and communities because cleaning, bathing, washing are easy tasks to do because of having their own taps/faucets in their houses. Children can wash their hands more often after playing, before eating and after using the toilet.

12. During the conduct of the household survey, it was observed that households willingly agreed to be interviewed about their experience with the GPOBA water supply grant. Those who were not connected because of the limitations of the grant expressed that they too want to be connected if still possible. The project generated awareness, appreciation and high demand for more household piped-water supply connections. In the end, the poor and low income households who were connected expressed thankfulness and satisfaction of this service which was extended to them.

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Annex 6. Stakeholder Workshop Report and Results(if any)

Not applicable

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Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR

The project objective of increasing access to piped water supply services to poor households in the east zone of Metro Manila thereby enhancing the welfare of those households was achieved. The project was able to connect 28,562 water services in 76 communities, over-achieving the original target of 20,000 water service connections.

The project was able to accomplish the following: (1) provide access to potable and affordable water to poor households, at service quality levels as specified by the MWSS Regulatory Office (including 24-hr continuity of supply, at minimum pressure of 5 psi); (2) to help improve the sanitation condition of the same households and reduce incidence of water borne diseases; and (3) to extend financing assistance to the households through subsidy, thereby enhancing the welfare of these households.

There were many benefits of the project that were observed. First observed was financial savings for beneficiaries. Households connected from

2007 to August 2008 saved as much as PhP 5,912 (U$133) in the payment of their connection fees and those connected from September 2008 onwards, they saved PhP 2,025 (U$46) and more17. Aside from the connection fee, they also saved on the money spent for their monthly water consumption. Before they were connected to Manila Water, they spent PhP 25 to PhP 30 per drum on vended water or equivalent to PhP 125 (U$2.85) per cubic meter. Today, they only pay more than PhP 8 (U$0.18) per cubic meter for those consuming 10 cubic meters or less.

The second benefit is on health. With the piped water in each household, hygiene was improved and incidence of water borne diseases was reduced. This is based on data provided by Department of Health (DOH).

Third is the development of the community. It was noticed that after the provision of water in the community, other development followed like construction of roads/alleys, installation of street lights, construction of basketball courts, etc.

Several challenges were encountered in the implementation of the project. These include the following:

(1) The implementation of IRR 2008-06 (Implementing Rules and Regulations for Additional Meter and Clustered Connection Charges for Open/Depressed Communities) issued by MWSS-RO in September 2008 wherein one-third of the prevailing connection fee will be shouldered by the customer and two-thirds will be shouldered by the concessionaire subject to annual increase based on CPI was a big challenge for Manila Water in the implementation of this project. We were able to meet the key performance indicator of 20,000 water service connections and even exceeded it but still we were not able to utilize all the funds due to the decrease in connection fee;

17 The decrease in connection fee is due to the implementation of IRR 2008-06 (Implementing Rules and Regulations for Additional Meter and Clustered Connection Charges for Open/Depressed Communities) issued by MWSS-RO in September 2008 wherein 1/3 of the prevailing connection fee will be shouldered by the customer and 2/3 will be shouldered by the concessionaire subject to annual increase based on CPI.

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(2) Manila Water also faced challenges in the identification of beneficiaries. Some areas initially identified have land ownership or right of way problems. Some identified communities also are a mixture of low to middle income households and this would create tension in the community if the grant will not be applied to the whole community;

(3) Implementation of this project was a big challenge to MWCI Territory Managers and other staff assigned to handle and monitor this project because of the paper work, requirements needed and reports, considering the fact that they are not working full time for this project but on top of their regular functions. There is no designated team working full time for the project. Assigned Territory Managers and other staff assigned for this project also changes from time to time; and

(4) In some of the Business Areas affected by Ondoy, verification was delayed because the documents were destroyed and had to be reproduced.

Among the lessons learned from the project, the following are key: (1) For the implementing agency, there should be a designated team assigned

to work full time for the project and support from top management is greatly needed; (2) There should be flexibility in the identification of beneficiary community.

Once a community is identified as qualified, all the households across the community should all be beneficiaries of the project. This is to avoid tension in the community and;

(3) The implementing agency should have a good relationship with the community and LGU for the smooth implementation of the project. It should also have constant communication with the administrator of the grant (World Bank in this case) for the proper compliance of the procedures (Operational Manual).

On the ICR prepared by the Bank, the draft was discussed with Manila Water and some comments were provided on the key performance indicators. Both parties came to an agreement on the interpretation and recording of the KPIs and this was reflected in the final report.

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Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders

Not applicable

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Annex 9. List of Supporting Documents

1. Project Appraisal Commitment Document (PACD) Report No. 49301 – June 14, 2007

2. Grant Agreement TF091023 – October 19, 20073. Grant Amendment TF091023 – April 30, 20104. Supervision Mission Back to Office Reports and Aide-Memoires on

file5. Restructuring Project Paper – June 20116. GPOBA - Improved Access to Water Services East Zone of Metro

Manila Operational Manual, issued Nov 2007, revised July 20097. Philippines Midterm Report on the Millennium Development

Goals8. Medium-Term Philippine Development Plan 2004-20109. Philippine Development Plan 2011-201610. Philippines Country Assistance Strategy 2006-2008 (Report

No. 32141-PH)11. Philippines Country Assistance Strategy 2010-2012 (Report

No. 47916-PH)12. Evaluation of the Costs and Benefits of Water and

Sanitation Improvements at the Global Level, G.Hutton, L. Haller, 2004

13. Fankhouser, S. and Tepic, S. 2005. “Can poor consumers pay for energy and water? An affordability analysis for transition countries” London: EBRD

14. Lovei, L. An Approach to the Economic Analysis of Water Supply Projects, WB Working Paper 1002, 1992

15. Economic Impacts of Sanitation in the Philippines, Water and Sanitation Program Study, 2008

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MAP

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