For the past thirty or so years, LWUA has played a significant role in the water supply development of the country. As the only institution with the sole responsibility of financing for the development of water utilities in the country's provincial urban areas, it has performed the immense task of developing self-reliant water districts serving communities.

As of December 2003, a total of 588 water districts has been formed nationwide - 326 water districts or 55% in Luzon, 134 water districts or 23% in Visayas, and 128 water districts or 22% in Mindanao. Total coverage area consisted of 707 cities and municipalities nationwide. Of the total formed water districts, 444 are operational serving a total of 12 million people, representing an estimated 63% of urban population in operational water district areas. This was made possible through the provision of water supply development loans which reached P13 billion in December 2003.

2004 First Semester Accomplishment

For 2004, LWUA is focused on completing a total of 86 water supply projects consisting of 19 big projects funded by JBIC 19th Yen Package, JBIC 20TH yen Package, JBIC 21st Yen Package, JICA, and AUSAID and 67 small projects mostly funded by the ADB Small Towns Program. Notwithstanding the non-release of local counterpart funds (2000-2002) from the national government amounting to P587 million, LWUA committed itself towards the completion of majority of these projects since four of the seven ongoing foreign-funded program packages will terminate at the close of the year.

Also a top priority of LWUA this year is geared towards the improvement of its financial operations. LWUA expects to generate P1.4 billion gross revenues and to collect a total of P1.2 billion from water district loans. In addition, it must seek out alternative sources of funds to support the local fund requirements of its ongoing foreign-assisted projects which will expire in 2004-2005.

Highlights of LWUA's performance for the first six months:

Physical Performance

1. Project implementation is behind schedule but is expected to catch up since four of the foreign-assisted projects will terminate by yearend. Only 29 projects or 65% of the 45 projects expected to be completed during the first half was achieved. On the other hand, preparation of programs of work (POWs), mostly KFWs, is being fast-tracked by LWUA as construction will commence early next year in order to beat the terminal date of the project in 2005. From January to June 2004, 59 POWs or 86% of the 69 POWs targeted to be completed during the period was attained.

2. Project disbursement posted P1.4 billion in just six months which is almost LWUA's level of disbursement in 2003, i.e. P1.6 billion. This was achieved despite the inability of the national government to release LWUA's 2000-2002 local counterpart funds. Of the total local fund requirements for the year amounting to P1.4 billion, LWUA was able to provide P456 million from January to June 2004, sourced through the following: (a) P25 million subsidy; (b) P30 million Land Bank loan 1st tranche; (c) P 389 million land Bank loan 2nd tranche; (d) P9 million CIP-ICG projects; and (e) P2.5 million WD equity.

Financial Performance

1. New loans granted reached P304 million while loan availments improved to a remarkable P 1.4 billion from January to June 2004.

2. LWUA collection registered P590 million which is 80% of what we expect to collect during the first six months; collection ratio is 69% as of June 2004 lower compared to last year's 73% for the same period but is expected to improve towards the end of the year.

3. Gross revenues reached P904 million which is 63% or more than half of LWUA's expected P1.432 billion gross revenues for the year.

4. Land Bank 2nd tranche loan amounting to P500 million was released beginning March 2004.

Issues and Prospects For 2005

The year ahead is expected to be a difficult but a challenging one for LWUA considering the five major issues it is confronted with:

• lack of funds for projects;
• implementation of EO 279 and its Implementing Rules and Regulations (IRR);
• organizational structure of LWUA;
• inclusion of water in the President's 10-Point Agenda; and
• close monitoring of 14 government-owned and controlled corporations (GOCCs) of which LWUA is a part.

Lack of project funds. By next year, all ongoing foreign-funded program packages will terminate. This means that there are still foreign funds until next year but no new foreign funds are coming in. Further, there is little prospect for traditional sources of funds from the national government and Congressional initiatives to be channeled to LWUA for next year and thereafter. In addition, LWUA's authority to borrow foreign and local sources of funds is almost exhausted, which can be resolved only through a congressional amendment of our charter.

EO 279 and its IRR. EO 279 was signed last February 2, 2004 and its IRR last July 16, 2004. The major objective of this promulgation is to redefine the allocation of limited financing resources in the development of water supply sector, that is, LWUA to less creditworthy water districts (semi-creditworthy, pre-creditworthy and non-creditworthy), while government financing institutions (GFIs) to creditworthy ones. Given the situation where LWUA's cost of capital is getting more expensive, providing concessional financing to less creditworthy water service providers (WSPs) may be a difficult proposition.

Organizational structure of LWUA. To date, the finalization of the proposed organizational structure of LWUA to conform to the reforms set forth in EO 279 and its IRR is still pending with the Oversight Committee chaired by the Department of Finance. A new Executive Order will be issued to effect the change. Also at the backdrop is the intent of the national government to streamline the bureaucracy to cut costs.

Water in the President's 10-Point Agenda. The priority of water among the President's agenda for the next six years augurs well with the water supply sector, particularly the waterless water districts. But how LWUA will play its role in harnessing this opportunity is a function of creativity, timing and political will. It will also need the active partnership of the water districts and the openness and support of the LGUs.

Close Monitoring of 14 GOCCs including LWUA. The huge deficit of the National Government, is partly being blamed on the GOCCs' debt. In view of this, the oversight finance agencies are now closely monitoring the financial performance of 14 GOCCs, and may have to recommend the closing down/merging of those which are not performing well. While only 7 GOCCs are now the focus of their evaluation due to their comparatively large debt, still LWUA is part of the 14. It is imperative that LWUA acts fast to stem any negative trends in its operations.

LWUA's Medium-term Project Investment Plan, 2005-2010

Recently this September, the EXECOM together with the Management Services Office, initially laid out LWUA's Medium Term Project Investment Plan (2005-2010), which will average about 300-400 million pesos annually after 2005, which is our commitment to the national government and on which we will be assessed by the same in the next 6 years. Guided by the issues above, the EXECOM has also enumerated LWUA's major cost-cutting and fund-generating measures for the same period as follows:

• Tap internal cash generation and local borrowings to fund the committed P 3,064 million project investment for 2005-2010;
• Streamline operating expenses by offering an Early Retirement Incentive Package;
  
• Prioritize project areas for development taking into considerations the reforms set forth in EO 279;
  
• Coordinate with DILG,PAGCOR, Congress and other sources of concessionary project funds particularly for waterless water districts;
  
• Strive to increase project investment beyond the committed P 3,064 million, by working on innovative financial sources such as securitization, GFI direct loans to WDs with LWUA as guarantor, advance payments of WDs, deposits of water districts; and
  
• Work for the amendment of PD 198 seeking to increase LWUA's capitalization, and borrowing limit.

LWUA Corporate Performance in 2003

2003 marked a very important milestone in the history of potable water supply development in the country as LWUA celebrated on September 18 its 30th anniversary. Three decades of dedicated and painstaking effort in pursuit of its goal of providing sufficient potable water to as many Filipinos as possible living in the countryside, has brought to fruition the Agency's toils for Juan dela Cruz and his family.

With 700,000 more people served during the year in review, the current population served now stands at some 12 million people. This represents an estimated 63% coverage of urban population with direct access to potable water through the 444 operational water districts out of the 588 water districts formed thus far in 707 provincial urban areas nationwide.
As a major provider of water infrastructure, LWUA's program covered during the period sixteen new cities and towns even as it focused on three main objectives to further spread the benefits of efficient water systems: increased service coverage; increased efficiency and effectiveness in LWUA operations; and, increased WD efficiency.

Increased efficiency and effectiveness in the agency's operations was done through the following strategies: (a) accelerated project disbursement, (b) increased gross revenues through the provision of more loans to water districts and improved loan collection, and (c) tapping of alternative sources of funds.

For 2003, a significant 273% increase from the previous year in project loan approval was noted from P606 million to almost P 2,260 million benefit from a total of 82 WDs nationwide. Likewise, loan availments posted an increase of 31 % or P376 million from P1,228 million in 2002 to P1,604 million in 2003.

Project disbursement was further enhanced, reaching P1.6 billion as compared to last year's P1.2 billion. This paved the way for the implementation of a total of 120 construction water supply projects, despite the non-release by the national government of previous years' appropriations for capital projects amounting to P587 million. For 2003, LWUA was able to utilize a total of P447 million local project funds coming from: P403 M Land Bank loan; P8.6 M WD equity; and P35M LWUA-ICG.

LWUA loan collection ratio level was maintained at 84% from that of last year. There was however a notable increase in cash collection from P933 million in 2002, to P1,096 million in 2003 or an increase of P163 million.
Increased efficiency in WD operations through continued provision of technical assistance in the form of training assistance, water rate review, installation of commercial practices systems, and non-revenue water monitoring was likewise strengthened in 2003.

Generally speaking, LWUA's performance in 2003 is satisfactory notwithstanding the critical issues which confronted the agency. These are: (a) the issuance of EO 279 entitled" Instituting Reforms in the Financing Policies for the Water Supply Sewerage Sector and Water Service Providers and Providing for the Rationalization of LWUA's Organization Structure In Support Thereof'; (b) the lack of local counterpart funds; (c) the non-release by the national government of previous years appropriations for capital projects amounting to P587 million; and (d) the forex fluctuations.