THIS PAPER WAS PUBLISHED IN EARLY 2004. POSTED FOR REFERENCE.
delivered at the 2004 LWUA-Water District Forum
Reexamination of the LWUA-Water District Concept
By Carlos C. Leaño Jr.
Carlos C. Leaño, Jr. (Ret.) is regarded as the father of
water districts in the Philippines for his pioneering efforts at
establishing and institutionalizing the water district concept.
His stint as general manager of the Local Water Utilities Administration,
from its inception in 1973 until his departure in 1986, has left
a lasting legacy to his peers and colleagues in the water supply
Leaño, a civil engineer by academic pursuit has undergone
numerous postgraduate courses in engineering and in other fields
both here and abroad. His long and colorful service in government
included his terms as Chief Operations Officer and Executive Director
of the Infrastructure Operation Center and Coordinating Officer
for Program Evaluation in the Office of the President, and Director
of Infrastructure Program Office of the Presidential Economic Staff.
friends, good afternoon.
It is my pleasure, privilege and honor to be with you today - my
old friends as well as new ones. You can be certain that I cherish
your friendship despite the long years of our separation since I
left LWUA many, many years ago.
I am asked to speak on a subject very close to our hearts.... the
LWUA-WD concept. In effect, I am asked to reexamine that concept.
To state it in another way, the question that I must answer, as
I perceive it, is
"Is the LWUA-WD concept still valid
But first, let us define what the LWUA-WD concept is and how it
Thirty years ago, most of the municipal water supply systems all
over the country were under the control of and were being operated,
maintained and administered by local government units (LGUs). At
that time, water supply systems were deteriorating faster than they
could be replaced, while the ever growing population and industry
needs were imposing additional demands on these existing facilities.
The major problems then in the water supply sector were shortages
in water supply, inadequate funding for facilities improvement and
expansion, inadequate skills in developing and maintaining water
resources, inadequate physical infrastructure, institutional weaknesses
as well as managerial and human resource inadequacies.
Due to the failure of these existing water utilities to meet the
needs of the communities they were serving, the LWUA-WD concept
was conceived and operationalized in 1973 with the enactment of
Presidential Decree (PD) #198. The concept is a partnership arrangement
- a partnership between LWUA as the government resource provider
and the water districts (WDs) as the local water service providers.
The establishment of LWUA and the development of WDs provided a
mechanism primarily for funding and managing the expansion and delivery
of water supply services in the countryside.
as a specialized lending institution, is to be the principal source
of funding and will also provide technical and training assistance
to the WDs. On the other hand, the WDs, operating as quasi-public,
locally-controlled and locally-managed entities are expected to
become self-sufficient, to develop the necessary expertise and to
be capable of maintaining financial viability.
In 1993, 20 years after the inception of the concept, the World
Bank water supply sector reform study was conducted. The study highlighted
the fact that the water supply sector continues to suffer scarcities
in three areas: first, in the area of water supply or how to provide
quality water to all users; second, the area of maintaining environmental
quality or how to prevent destruction of our surface and ground
water resources; finally, the area of capital sourcing or how to
find the huge investments required for the continuing development
of the water supply sector. So, it seems that while a significant
breakthrough has been made towards the alleviation of our water
supply problem in the urban countryside, considering that some 600
WDs have already been formed and organized to date, the same problems
still persist in the poorer urban and rural areas in the countryside.
as long as these problems continue to adversely affect us, we need
to Implement proven measures - such as the LWUA-WD concept - in
order to keep pace with the ever increasing demands of our people
for potable water. Of course, we should constantly be aware of the
need and be on the lookout for better and more effective measures
of expanding our means and capabilities to improve the situation.
the current situation and information from past experiences and
records, I now ask the question: Is the LWUA-WD concept still valid
help us answer this basic question, it may be pertinent and relevant
to ask ourselves certain questions that bear on the structural and
organizational issues as basis for assessing the situations - then
and now. Actually I have four questions.
Has the situation - the findings of the USAID Water Supply Sector
Study of 1971-73 - for which PD 198 was enacted to correct, been
substantially eased up? In other words, has the serious water shortage
problem then obtaining in the urban and rural countryside, been
improved significantly as regards to structural and institutional
capabilities? Or simply stated, are there more people outside of
Metro Manila now benefiting from improved water supplies?
Are the LGUs, which have opted to form WDs benefiting from such
devolution and are now able to adequately and better provide for
the other basic governmental services, like community health, public
order and safety, and public administration? In other words, has
relief from the task of providing water supply service to their
communities, which they used to do before, been a blessing to them
in terms of more money to spend on the other basic community services
for which they are responsible?
Are the WDs slowly but surely attaining the objectives of self-reliance,
self-governance and financial viability and are delivering acceptable
water service to their areas of responsibility?
Has the LWUA been able to provide the needed financial and technical
assistance to WDs at the level that would promote their capability
for self-reliance and self-governance and for sustaining financial
viability? In other words, has the LWUA been able to develop adequate
infrastructure and institutional and managerial skills required
of WDs in delivering adequate, economic, acceptable levels of service
within the water users' ability to pay - and thus promote financial
The answers to these four sets of questions will tell us whether
the LWUA-WD concept has been a success and if still valid today
or not. My own answer to the basic question is yes, the LWUA-WD
concept is still relevant. Undoubtedly, we must have learned some
fruitful lessons over the past years. For though how good a system
is, there is always room for improvement. We simply cannot remain
complacent, we cannot stagnate, rather we need to grow and must
grow. And that is what the business of water service is all about
growth - we need to keep pace with the growing and continuing
demand for this very basic service and we need to keep on improving
our delivery methods and systems and make them cost-effective. This
means continuous reexamination of our means and systems that should
possibly result in adjustments or shifts in priorities and direction.
This means changing for the better.
this point, let us take note of some of the current issues that
have cropped up in response to this call for continuing improvement.
First, the issues relating to the Local Water Utilities Administration
Commercialization. The World Bank water supply sector reform study
of 1993 and the USAID water supply sector privatization study of
1996 both recommended the reorientation of LWUA to its original
corporate mission as a "specialized lending institution",
financing only viable water supply projects with tariff levels formulated
towards full cost recovery. This, in effect, will commercialize
LWUA. LWUA, under its enabling
legislation, always had the authority to raise funds from private
sector and must now exercise this power with greater urgency in
order to generate more funds for relending to WDs - now possibly
to other water service providers (WSPs) - for water supply and sewerage
development. The current program of LWUA to increase its capitalization
and improve its relending capacity are moves in the right direction.
Very recently, Presidential Executive Order No. 279 was signed on
Feb. 2, 2004, instituting reforms in the financing policies for
the water supply sector. This, in effect, would now actualize LWUA's
commercialization. Under this Executive Order, LWUA, presently attached
to the DPWH, will now be attached temporarily to the Office of the
President during the transition phase of its reorganization, finally
transferring to the DOF - that is, move from the infrastructure
sector to the financial sector. This reorientation of LWUA's operations
towards development banking principles implies the need to change
its organizational culture to allow it to perform its reconstituted
role with greater banking expertise. Noteworthy is the fact that
the Executive Order prescribes an organizational structure that
closely follows LWUA's current principal functions, to wit: institutional
development services to be assumed by the Water Development Group,
relending services by the Water Development Financier, and technical
assistance services by the Technical Assistance Group. Also noteworthy
is the fact that LWUA's service coverage will no longer be limited
to organized WDs but would also include other water service providers
(WSPs) in accordance with their creditworthiness classification
Subsidies. NEDA Board Resolution No.4 of 1994 provides that LWUA
support only financially viable projects; therefore, it cannot now
subsidize water supply development. Where government grant funds
are made available, they should be used, at best, for project feasibility
and scoping studies or provided as direct subsidies to small nonviable
Regulatory Functions. LWUA should continue exercising regulatory
functions relating to the formation of WDs to ensure that such WDs
are properly established and operated and that operating and quality
standards are met. However, it has been noted that since LWUA would
now be exercising its development banking role to a more expansive
extent, its regulatory control over tariffs or water rate setting
by borrower-utilities could present a conflict of interest. It is
suggested that such regulatory function for WSPs not included in
LWUA's current loan portfolio which covers only the loans granted
prior to its reorganization under EO #279, be vested in the NWRB.
In short, the regulation of water pricing by new borrowers should
no longer devolve on LWUA but be taken over by the NWRB.
Engineering Functions. Historically, LWUA has been involved in engineering
and construction primarily to ensure that the WDs are provided the
right and appropriate water supply facilities that would be responsive
to the demands and capacity to pay of recipient communities. At
the initial stages of LWUA's operation and WD development, it was
deemed necessary and justified to develop and provide this expertise
since at that time the private sector could not adequately cope
with. Although many WDs have matured over the last thirty years,
quite a number still need technical support. Fortunately, many of
these technical support functions can now be satisfactorily handled
by the private sector. It would be to the benefit of the entire
water supply sector that such services be provided to WDs and other
WSPs on a fee-for-service basis to allow competition in providing
such services and ensuring that the WDs make effective use of these
services. Moreover, LWUA could privatize some of its activities
that can well be performed by the private sector, like financing
of WD investments, preparation of feasibility studies, design of
system facilities, construction supervision, and training of WD
staff in the operation and maintenance of water supply systems.
5. Marginal or Nonviable WDs. In 1986, the First People Power Revolution
ushered in a complete top-to-bottom change of "leadership in
government from the presidency down to the departmental and agency
level. This, consequently, brought about drastic changes in many
governmental operating policies. LWUA, for its part, pursued an
aggressive program to increase the number of WDs with a sudden shift
in its policy - from that of "viability and self-reliance"
to that of "service with equity". This resulted in the
formation of smaller WDs, not a few of which are now finding difficulty
developing into viable systems. For the marginal, nonviable WDs,
it is possible to improve their viability ratings through amalgamations,
management mergers, responsive service standards, institutional
and technical assistance, and financial restructuring. This issue
can be better attended to under the "classification and graduation"
scheme provided for in EO # 279.
let's go to the problems and issues relating to Water Districts
While many WDs are now well managed and performing to high standards,
there are still a number of implements to WD self-sufficiency and
Inadequate financing for system expansion. In some cases, even if
funds are available for projects, the rate of disbursement and subsequent
project completion seems to be a bit slow.
2. Adverse political interference. This could be traced partly'
to the fact that the LGU chief executive continues to exercise appointive
powers over the members of the WD Board of Directors.
3. Inadequate skills and technical expertise necessary for the efficient
management of water supply systems. This is a continuing concern
of management in its quest for excellence and a matter of investing
more attention to human resource selection, development and motivation.
4. Water source problems and competition from private wells, with
serious environmental consequences. Our water resources continue
to be polluted, salt water
are intruding into our coastal water supplies and groundwater aquifers
are being destroyed or unduly depleted. Previous and current studies
have underscored the need for a centralized effective control and
regulation in the proper marshaling and management of our water
resource. Until now, efforts in this direction seem to be wanting
if the results are any indication.
5. Technical and operating problems, such as, over designed
systems, that is the cost of the installed systems does not match
the modest requirements of the community, constraints on pricing
or underestimated water tarrifs which do not account for the true
costs of the service.
6. Marketing problems, e.g., limited service area, slow growth of
service connections, or situations where households have easy access
to ground water sources which reduces demands for the WDs services.
Given the above situations and problems, some of the major issues
affecting the WDs that need to be looked into and resolved are:
Private Character. The WDs have a need for a legally defined and
clear ownership and control structure. They also require incentives
to promote efficient performance by management and staff. Section
6 of PD 198 provides that a WD "shall be considered as a quasi-public
corporation performing public service and supplying the public wants".
However the Supreme Court's decision of 13 September 1991, in the
case of Davao City WD, et al versus the Civil Service Commission
and the Commission on Audit ruled that WDs are government-owned
or controlled corporation. This implies that the hiring and firing
of a WD personnel will be in accordance with the Civil Service rules;
their salaries and wages will be in accordance with the civil service
rules; their salaries and wages will be in accordance with the corresponding
regulations for regular government employees; its financial operations
will be subject to COA audit contrary to a specific provision of
the enabling act (Sec. 20, PD 198); and for social insurance and
pension purposes, they will be covered by GSIS instead of the SSS.
This has serious implications on the WDs considering that water
services are generally to be provided on an efficient commercial
Privatization. At the core of the proposed water supply sector reforms
in the privatization of WDs. In this context, privatization can
take various forms, from the privatization of parts of the WD operations,
like billing and collection activities, or the operation and maintenance
of the system, to the conversion of the WD into a private corporate
structure. As a bottom line condition, WDs should be able to operate
on a private, commercial basis. The Water Supply Sector Reform Study
of 1993 provides three options on the possible ownership and corporate
structure of WDs: (a) First option is a private corporation under
the Corporation Code of the Philippines under BP #68. This option
is suitable to WDs that have the necessary market of at least 50,000
service connections, the capital strength and the capacity to operate
as a private corporation and be managed as such; and (b) Second
option is a private corporation under a further amended PD 198 which
clearly defines WDs as private institutions, under a foundation
ownership system with their charter specifying management and financial
guidelines and constraints, the legal accountability of its board
directors and permanency of its management officers who may not
be removed except for cause and after due process.
And a third option is a cooperative of water consumers under the
Cooperatives Code of the Philippines
under RA 6938, with the consumers converted into shareholders, with
voting rights after contributing equity to the enterprise. This
option is suitable to the smallest of WDs where meaningful interaction
and communication with members are feasible. These cooperatives
should have the further option to incorporate under the to-be-amended
198 or under the Corporation Act at a suitable future time in their
3. Operational Issues. Some of these operational issues are: (a)
WDs should provide the type and level of service their customers
demand or require and are willing to pay, and accordingly should
charge financially sustainable water tariffs that cover the full
cost of the service; (b) WDs should be allowed to avail of engineering,
financial, institutional development, business management and material
procurement services from LWUA or the private sector on a competitive
basis. This means that LWUA will have to compete with the private
sector for providing these support services on the fee-for-service
basis; (c) The minimum level of government regulations should be
imposed on WDs' operations, except those relating to health and
environment standards, maximum water tariffs, and minimum levels
of service which are all essential for the protection of water consumers;
(d) WDs should be allowed to avail of private bank loan funds, BOT
and franchise operations to encourage the inflow of private capital
and expertise into the water supply sector; and (e) WDs should give
particular and serious attention to the reduction of non-revenue
water (NRW) and the protection of their water sources as major efficiency
and cost reduction for 2004 an average NRW rate for all the WDs
of not more than 27%. This is very encouraging. As basis for comparison
and possibly a goal to aim at, Singapore's NRW rate, as I have last
heard of, is only 5%. That... is really something.
there you are. The basic organizational structure and concept exist
- a structure and concept that had worked reliably since its inception
thirty years ago. What is needed is to make that structure and concept
continue to work. If present results are still wanting, then let
us make it work within or inspite of the given constraints. Moreover,
it is necessary to resolve the emerging issues which seem to imply
deficiencies in the concept and to remedy and update them as needed.
LWUA and the Water Districts have come a long way. Last year, in
2003, LWUA, as if to prove its worthiness after 30 years of existence,
completed 47 projects, both comprehensive and interim, valued at
some P519 million, which will provide potable piped water service
for an additional 300,000 people living in the countryside. LWUA
has tremendously improved its financial operations which also reflect
the improving viability of WDs. For the past two consecutive years,
it disbursed loans as well as generated revenues each year in excess
of P1 billion. For 2003, it disbursed P1.6 billion in loans and
other assistance and generated a gross revenue of P1.2 billion,
mostly out of loan repayments from borrower water districts - and
in the process was cited by no less than the NEDA and the Department
of Finance as "among the few agencies that have been efficient
in the utilization of Official Development Assistance (ODA) funds
for their projects" and "among the few truly earning government-owned
and controlled corporations." These are achievements that can
speak well for the efficacy of the LWUA-WD Concept.
Resource availability and its optimal distribution and use, institutional
responsiveness and the clientele's well-being and satisfaction would
certainly be the ultimate yardsticks for measuring the success of
your efforts. Some internal reorganization would be required and
the updating of systems and procedures is called for. All these
mean people - the policy makers, the executives, the managers and
senior staff and the rank and file - people who are highly motivated,
knowledgeable, reasonably determined, who work hand in hand with
each other, and are not sidetracked or do not lose sight: the organization's
aims and objectives.
I do hope I have made clear my stand on the topic assigned to me
and sincerely wish I had struck some responsive chords in your minds
and hearts to make you realize how heavy and serious your responsibilities
are to our people as resource and service providers. I personally
consider the LWUA-WD concept as an institutional development strategy
worth developing, improving and pursuing to the fullest possible
extent for the benefit of our people.
As I end my talk, I am reminded of a prayer by Reinhold Niebuhr.
It is said that for one to be successful
in anything he does, his physical drive should be pushed by his
intellectual fortitude and sustained by his spiritual integrity.
The three-physical drive, intellectual fortitude and spiritual integrity
- together all spell success. So let me now quote that prayer as
a guide for us as we pursue our goals for the benefit of our people:
"God, grant me the serenity to accept the things I cannot change,
the courage to change the things I can, and the wisdom to know the
My friends, thank you and good day