Sunday, October 16, 2011

No. 99: Water business in Japan and the world (18) (October 17, 2011)

The Manila’s case
A state-run public corporation managed the waterworks in Manila, the capital of the Philippines, up to 1997. Back then, the spread rate of the water service was 67%, and leakage and steal reached 60% of the water supply. The Philippine government decided to privatize the water business to increase the spread rate and realize efficient renovation of the existing facilities. It adopted the concession system that gives a private company an integrated business right. A subcontracting private company can handle the whole business from the operation to capital investment.

The government divided the city into the western part and eastern part to diversify risk and avoid monopoly, and advertised an international tender. The western part with a population of 5.2 million went to a private company in which Suez Environment of France invested, and the eastern part with a population of 3.4 million went to a private company in which Mitsubishi Corp. of Japan invested. Five years later, the former went bankrupt with a large sum of deficit, while the latter got listed in 2005. The failure of the former company can be attributable to many factors including inadequate assessment of the assets and liabilities and incorrect estimates of profitability of the business. It drew a business plan only on the basis of the available materials without conducting detailed survey on the aging of the existing facilities.

The successful company, Manila WaterCompany., Inc. (MWCI), reduced the water charge by making multiple households share a water pipe. This measure enabled poor households to pay the water charge and reduced the amount of stolen water. The company made efforts to locate leakage as soon as possible and renovated the facilities without the least delay. These efforts combined reduced the ratio of leakage and steal from 60% to 20% in 2008. In addition, it divided the western part into 43 areas and entrusted the regional manager with the business of each area. And it enforced the system that pays the manager in accordance with results. This measure to increase the motivation helped improve the service level.

The Manila’s case indicates how important it is to conduct detailed survey on the assets and liabilities, elaborate the management method, and devise a system to motivate local staffs to promote privatization of the water business abroad. (To be continued)

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