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Efficiency
Improvement Program Lending Facility (EIP) |
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Project
background |
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LWUA
has recently developed a new lending product with the support
of the United States Agency for International Development
(USAID) through its Environmental Cooperation - Asia (ECO-Asia)
regional program. Dubbed as the Efficiency Improvement Program
(EIP) Loan, this lending scheme is specifically designed
to support LWUA's new mandate under EO 279.
One
of the key issues facing both LWUA and local utilities has
been the inadequate supply and accessibility of funding.
With limited funding available to LWUA, and the need to
safeguard its own financial position by limiting its lending
to viable water districts (WDs), access to funding by smaller
less creditworthy utilities had been limited. This limited
supply and skewed allocation of funding had been a critical
factor in constraining development of the sector, particularly
in the lower income areas of the country outside the major
urban centers.
To
address the need to significantly improve funding within
the sector, the GOP enacted Executive Order No. 279 (EO
279) in February 2004 which provides for a comprehensive
reform of sector financing policies. EO 279 was aimed at
increasing the overall supply of financing into the sector
by bringing the government financing institutions (GFIs)
and private financing institutions (PFIs) into the more
creditworthy segment of the market. LWUA could then focus
its lending operations amongst the less creditworthy water
utilities.
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The
refocusing of LWUA's lending to the less creditworthy WDs
required changes to its existing loan products and the establishment
of new products. LWUA's existing lending products were targeted
primarily at funding larger scale capital investment programs,
which were inappropriate for many of the less creditworthy
WDs and could expose LWUA to significant credit risk. |
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The
EIP Approach |
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The
Efficiency Improvement Program (EIP) approach is focused
on achieving high impacts and quick returns with small investments
and carefully targeted technical assistance. Consistent
with the objective of achieving quick returns with small
investments, processing times will be kept to the absolute
minimum possible.
The
EIP approach is specifically aimed at meeting the needs
of the less creditworthy water districts while at the same
time maintaining LWUA's exposure to these water districts
at prudent levels. To achieve these aims, the EIP approach
is to lower the risks inherent in the less creditworthy
water districts. The approach is innovative because it uses
methods and ratios that help determine the type of interventions
necessary to address the specific inefficiencies in each
water district. It also includes a detailed list of EIP
interventions that a water district can implement over a
programmed timeframe. The EIPs are designed to achieve high
impact results with targeted lending and focused technical
assistance.
The
EIP lending product and policies explicitly integrate the
borrowers' and LWUA's preferences for price and features.
The product introduces the concept of risk rating and level
of impact as a basis for selecting one project over another.
It provides an incentive to the water districts to continuously
improve their performance because no additional large borrowings
from the other LWUA lending windows may be undertaken until
performance ratings are improved to specified levels.
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Key
Features of EIP Loan Facility |
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The
EIP model has been developed on the basis of the need to be
able to treat each WD individually. While all WDs have common
sets of inefficiencies, their relative impacts will differ
between the WDs. As a result, the best approaches for addressing
these inefficiencies need to be tailored to the specific needs
and characteristics of each WD. To cover the range of possible
efficiency improvement interventions, three main EIP program
areas have been identified; NRW reduction, revenue enhancement,
and cost reduction. While solutions to the inefficiencies
have been grouped by these three program areas, it is recognized
that many WDs will require interrelated projects that span
more than one of these program areas.
A
summary of the main features of the proposed EIP lending
facility is presented below:
|
Feature
|
Description
|
Clientele
(Based on current LWUA Classification Rating) |
- Pre-Creditworthy
WDs
- Semi-Creditworthy
WDs
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| Eligible
Programs & Projects |
- Non-Revenue
Water Reduction Program
- Revenue
Enhancement Program
- Cost
Reduction Program
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| Loan
Amounts (Aggregate Total of Projects) |
- Non-Revenue
Water Reduction Program: up to P20 million
- Other
Eligible Programs: up to P10 million
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| Cost
Sharing |
- Loan:
up to 90%
- Water
District Equity: at least 10% (may include in-kind
contributions, such as preparation of a feasibility
study by the water district, land cost, equipment,
etc.)
|
| Interest
Rates and Other Fees |
- Cost
base plus spread
- Spread
of at least 2%, but below commercial rates
- Interest
will not be capitalized
- Penalty
fee of 0.5% per annum will be applied on any undisbursed
balance based on the approved loan disbursement
schedule
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| Loan
Tenor |
-
Final maturity of five years for loans up to P10
million and up to 10 years for loans of more than
P10 million after the last loan drawdown, or the
average useful life of the asset financed under
the EIP, whichever is shorter.
|
| Selection
Criteria |
- Impact
on WD
- Urgency
of need
- Financial
viability
- Social
acceptance
- Autonomy
of WD
- WD
historical performance
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| Loan
Processing Period |
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Eligible
Programs and Projects |
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Non-Revenue
Water Reduction Program
The program aims to assist the water districts in reducing
their technical and commercial losses of water, which are
key contributing factors to the financial weaknesses of the
water districts. The program will also build the capacities
of the water districts in monitoring and accounting for real
and apparent water losses. The program promotes good metering
practices, leak detection and control, detection and regularization
of illegal connections, accuracy in meter reading, and best
practices in the installation and rehabilitation of the supply
networks. This program may support setting up district metering
zones (DMZs), setting up leak detection and control systems,
rehabilitation of pipes and pipe fittings, awareness campaigns
on illegal connections, and training of meter readers and
monitoring of readings.
Revenue Enhancement Program
The program will assist the water districts in increasing
their service connections through affordable connection fees,
appropriate tariff structures and levels, and reliable customer
service. It also seeks to improve collection performance through
more effective billing, payment and enforcement systems, image
building and good marketing strategies. Activities like the
establishment of a computerized billing, accounting and payment
system, connection fee installment schemes, and development
and implementation of marketing strategies, may be undertaken
under the Revenue Enhancement Program.
Cost Reduction Program
This program intends to implement projects and activities
aimed at achieving reductions in the operating cost structures
of the water districts. For most of the water districts, personnel
and electricity are the largest operating expense components.
The most significant opportunity for cost reduction is likely
in the consumption of electricity for pumping. This program
will support activities to improve the energy efficiency of
pumps and motors by conducting energy audits and proper production
and demand matching of pumps.
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Interest
Rate Offering on Water District Reserve Deposits
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Type
of Deposit
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Period
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Amount
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Interest
Rate
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Features
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| DEMAND |
No
holding period |
P500,000
up to P1 M |
1.50% |
- Computation
of interest depends on Average Daily Balance (ADB)
- Minimum
Balance = P500,000
|
TIME
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1 YEAR |
P500,000
up to P5 M
>P5 M up to P10 M
> P10 M up to P30 M
> P30 M up to P50 M
Over P50 M
|
6.00%
6.25%
6.50%
6.75%
7.00% |
- Minimum
investment of P500,000
- Minimum
holding period of 1 year;
if less than 1 year, deposit will earn
0.25% less/quarter
- Pretermination
penalty - if less than
50% of the term, deposit will earn
only 25% of the specified rate; if
after the first half, deposit will earn
only 50% of the specified rate
|
| TERM |
2
YEARS |
P500,000
up to P5 M
>P5 M up to P10 M
> P10 M up to P30 M
> P30 M up to P50 M
Over P50 M
|
7.00%
7.25%
7.50%
7.75%
8.00% |
- Minimum
investment of P500,000
- Minimum
holding period of 2 years;
if less than 2 years, deposit will earn
0.25% less/quarter
- Pretermination
penalty - if less than
50% of the term, deposit will earn
only 25% of the specified rate; if
after the first half, deposit will earnonly 50%
of the specified rate
|
SPECIAL
|
3 YEARS
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P500,000 up to P5 M
>P5 M up to P10 M
> P10 M up to P30 M
> P30 M up to P50 M
Over P50 M
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7.50%
7.75%
8.00%
8.25%
8.50% |
-
Minimum investment of P500,000
- Minimum
holding period of 3 years;
if less than 3 years, deposit will earn
0.25% less/quarter
- Pretermination
penalty - if less than
50% of the term, deposit will earn
only 25% of the specified rate; if
after the first half, deposit will earnonly 50%
of the specified rate
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Note:
All interest rates are subject to change depending upon
the prevailing market conditions |
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Please
contact the following for more information:
- Reserve
Fund Deposits
Ms. Eleanora R. de Jesus, Manager, Treasury
Department
(632) 929-8362
E-mail: erdjesus@lwua.gov.ph
- EIP
Lending Facility:
Mr. Mario I. Quitoriano, Manager, Loans & Water
Rates Evaluation Visayas/Mindanao
(632) 920-1229
E-mail: miquitoriano@lwua.gov.ph
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