The market for water supply and pollution control, which includes municipal and private clients, is currently the largest of the Philippine environmental market segments. For U.S. companies, significant opportunities exist for minority equity holdings (i.e., up to 40 percent) in the privatization of Philippine water and wastewater utilities. Several U.S. firms are already aggressively pursuing these opportunities. Competition is stiff from European firms. Large water infrastructure development loan projects of the World Bank and Asian Development Bank (ADB) earmark millions of dollars for imported equipment. U.S. companies are eligible to participate in the bank-sponsored international competitive bidding for these. In the industrial water and wastewater treatment market, good sales prospects exist for filtering and purifying, water recycling, materials recovery, and sludge dewatering systems for a range of industry categories.
Municipal Water Supply and Wastewater Treatment Privatization Opportunities
In 1995, concerns about severe water shortages led to the passage of the Water Crisis Act, which authorizes private participation in the water supply sector. Even prior to the enactment of this law, the Philippine Government initiated a major review of the water supply sector in 1993. In 1994, the National Economic and Development Administration issued a policy declaration encouraging the privatization of large commercially viable water utilities in urban areas, including Metro Manila, Cebu, Zamboanga, and Davao. The Build-Operate-Transfer (BOT) Law of 1994 provides a legal basis for this process.
The U.S. Agency for International Development (USAID) is funding the activities of the BOT Center that serves as a coordination point and clearinghouse for BOT projects in the Philippines, including those in the water and wastewater sector. The BOT Center, currently operated by Price Waterhouse LLP, is a good source of information for potential investors in the Philippine water supply sector. Contact information for USAID is provided in Appendix B.
The Philippine Department of Finance has started to implement the water supply privatization policy through pilot privatization's of several water districts. The Local Water Utilities Administration (LWUA) has about 600 water districts under its control, of which about 100, at the most, have a prospect of becoming financially viable in the foreseeable future. The difficult financial situation of many water districts has resulted in their failure to keep pace with growing water demand. Privatization can 1) facilitate technological development of water districts, 2) attract additional local or foreign funding for system rehabilitation and expansion, and 3) improve water supply and, if included, sewerage services, which would have positive public health and economic effects.
The first two water districts to be privatized are the Cagayan de Oro City Water District and the Zamboanga City Water District (ZCWD). The ZCWD privatization will include: 1) a BOT project for the construction and operation of a water intake structure, water treatment facilities, and a bulk water distribution main at an estimated cost of $60 million, and 2) a concession or management contract for the operation, management, rehabilitation, and expansion of the water distribution network at an estimated cost of $30 million. There is also a BOT project under evaluation worth approximately $160 million to privatize the Metro Cebu Water District. In addition, the Subic Bay Metropolitan Authority and the adjoining Olongapo City Water District are in the process of privatization.
LWUA will be reoriented to its original corporate mission as a specialized lending institution financing only viable water supply projects with tariffs formulated toward full-cost recovery. To the extent that the government may find it justifiable to provide subsidies to small nonviable systems, these subsidies will be channeled directly to the intended beneficiaries rather than through LWUA. Restructuring LWUA as a lending agency that can borrow funds from local and foreign private sources may enhance opportunities for private sector participation in water supply.
The Department of Public Works and Highways (DPWH) is currently completing privatization arrangements for the Metropolitan Waterworks and Sewage System (MWSS). MWSS's water supply and sewage treatment services are being privatized through a 25-year BOT contract, at the end of which the network will be returned to the government. Government regulations stipulate that Metro Manila must have two suppliers. A consortium led by Ayala Corp., the Philippines' leading property developer, but also includes United Utilities (U.K.) and Bechtel (U.S.), has received the rights to operate the eastern half of Metro Manila's water and sewage system, including the business districts of Makati and Quezon City. The western half will be operated by Benpres-Lyonnaise Waterworks, 60 percent-owned by Benpres Holdings, which controls the Philippines biggest power distribution company (MERALCO), and 40 percent by the French company Lyonnaise des Eaux. The two consortia are expected to spend about $7.5 billion over 25 years on water supply and sewage treatment infrastructure.
A bulk water supply and wastewater treatment proposal for the province of Cavite has been developed by Operations Management International (OMI), a subsidiary of the U.S. firm CH2M Hill. OMI, in cooperation with the local Titan Group, has received an exclusive agreement with the province of Cavite to conduct a feasibility study on the privatization of its bulk water and wastewater system under U.S. Trade and Development Agency funding. A bulk water supply project in Baguio is being pursued by the American group ALENCO. The large MANANGA II water project in Cebu aims to increase the present water supply of Metro Cebu by building a storage dam on the Mananga River.
BOT water sector projects currently marketed by the USAID-funded BOT Center on behalf of LWUA include the Bulacan Central Water Supply, a $19 million project involving the construction of a centralized bulk system to serve 432,000 area residents and industries in phase one and 13 municipalities in phase two, and the Puerto Princesa Water Supply Improvement Project, a $10 million rehabilitation effort to improve services to 95,000 inhabitants of Puerto Princesa City in Palawan.
With the exception of large, established systems such as MWSS, attracting private investment for the provision of water supplies will be difficult until the technical and organizational problems currently plaguing the nation's water utilities are successfully resolved. These problems include poor maintenance levels of existing facilities; substantial losses of revenue through leakage and pilfering (as is the case in Metro Manila); inappropriate tariff structures that discourage efficient water use; and the small size of administrative units in charge of water supply and wastewater treatment, which prevents economies of scale from being achieved. Infrastructure Development Opportunities
Major water supply infrastructure projects under development in the Metro Manila area include the Angat Water Supply Optimization Project. The project is worth $338 million and includes the construction of a water treatment plant, pumping stations, water distribution pipelines, and service connections. The $43 million Rizal Province Water Supply Improvement Project will provide a combination of surface water from Laguna de Bay and groundwater supply for remote towns of Metro Manila. The Cavite Water Supply Project is aimed at supplying surface water from Laguna de Bay to municipalities in northern Cavite province. It involves the construction of a water treatment plant, a pumping station, and transmission and distribution lines. The project is to be handled through a BOT contract worth about $127 million.
Two recent technical assistance projects funded by the Asian Development Bank (ADB) have resulted in the preliminary design of the Manila Water Supply Project III (Laiban Dam Project). Part of this $1 billion project (which includes a water treatment plant, transmission and distribution pipelines, etc.) is under consideration for BOT. Another project is the Manila North-East Water Supply Project. It is worth $131 million and includes, among other things, the construction of a regulating dam, a treatment plant, and transmission and distribution lines.
The World Bank is currently preparing the Water Districts Development Project that will support the government's efforts to encourage private sector participation, as well as finance the government's investment program for specific priority sewerage projects. The total value of the project is $53 million; it will be administered by LWUA.
The Philippine Government will also receive a $37 million loan from the ADB (approved in June 1996) to help finance a rural water supply and sanitation improvement project with a total estimated value of $57.4 million. The project will cover 20 provinces and about 3,000 rural communities throughout the Philippines. Scheduled to be completed by August 2001, it aims to improve health conditions by reducing waterborne diseases and poverty in these communities, the vast majority of which still rely on unprotected and usually contaminated open wells for drinking water and on rudimentary latrines or open watercourses for domestic sewage disposal. The executing agency, the Department of Public Works and Highways, will assist local government units in designing and constructing water supply and sewerage facilities.
In September 1996, the ADB also approved a $50 million loan for the Small Towns Water Supply Sector Project, designed to improve the water supply of about 1 million people in 80 small urban communities in the Philippines. The project is in line with the Philippine Government's target of expanding water supply coverage to the urban population up to 90 percent (from the current 50 percent) by the year 2000. The primary objective of the loan is the design and construction and/or rehabilitation of simple, low-cost piped water supply systems. LWUA will administer the project through the water districts and coordinate its health and water supply testing components with the Department of Health.
In the municipal wastewater treatment sector, MWSS is implementing the Metro Manila Sewage and Sanitation Master Plan, worth almost $1 billion in investments over 10 years. The plan consists of five construction phases extending until the year 2007. One of the most important components of the Master Plan is a phased septage management plan that addresses the need to create a land-based treatment facility to provide for regular desludging of septic tanks in Metro Manila. In the first stage of the septage management plan (1996-98), a pilot septage treatment plant will be constructed with a capacity of 200 cubic meters a day that would desludge around 300,000 septic tanks. In the following stages of the plan, several additional septage treatment plants are planned for construction to increase the combined treatment capacity to 3,000 cubic meters per day.
The World Bank is providing a loan of $37.5 million for the Manila Second Sewerage Project, which is part of the Master Plan and is intended to improve the quality of sanitation services for about 10 million people. The project includes the rehabilitation of the existing separate sewerage network and the Ayala treatment plant in Manila, as well as implementation of the first phase of the septage management plan. The project also includes the procurement of equipment, laboratory instruments, spare parts, and specialized vehicles for improved sewerage maintenance.
A majority of the equipment will be procured locally. However, the project includes $18 million for imported equipment, which presents a number of opportunities for U.S. equipment suppliers.
* The Dagat-Dagatan septage treatment pilot plant includes about $6 million in imported equipment, including screens, pumps, chemical feed equipment, and two-stage centrifugation.
* The Ayala treatment plant rehabilitation will require the procurement of $3 million worth of imported equipment, including pumps, mechanical solids removal equipment, blowers, and a diffuser.
* The Central Sewerage System upgrade is in need of foreign-made equipment for eight pumping stations, including pumps, motors and controls, and spare parts.
Bidding has been delayed for the Manila Second Sewerage Project pending the completion of the MWSS privatization process. It is also unclear whether MWSS or the concessionaires will have the responsibility for implementing the system once the concession has been awarded.
When the World Bank project is completed, MWSS will continue to operate and maintain the rehabilitated facilities and invest in further construction using revenues from charges for sewage discharges. The World Bank is currently considering two additional sewerage projects (Third and Fourth Sewerage Projects).
Industrial Water and Wastewater Treatment
The rapid industrial growth in suburban centers and the fast development of industrial estates and export processing zones in the Philippines are expected to significantly increase the need for industrial water and wastewater treatment equipment, provided that the 1993 industrial effluent standards are effectively enforced.
The outlook for waste minimization equipment, such as closed loop recycling systems, is not as positive, however. Despite the current government efforts to promote clean technology among local industries, most local firms express little appreciation of the waste minimization approach to pollution control. While the U.S. Department of Commerce (USDOC) estimates that the market for industrial wastewater treatment reached $72.4 million in 1994, and is growing at a rate of about 15 percent a year, the market for cleaner industrial technologies that affect wastewater generation is estimated at $23.7 million, with 3-5 percent annual growth. The move towards a national wastewater discharge fee should encourage industries to minimize waste generation rather than rely on end-of-pipe treatment.
Market opportunities also exist in the construction and operation of common treatment facilities for effluents from industrial estates. There are 180 industrial estates in the Philippines, most of which are concentrated in the Subic-Angeles area and Cavite on Luzon, Cebu, and the Cagayan-Iligan corridor in northern Mindanao. Only around 10-15 percent of these estates have functioning centralized treatment plants.
The development of the Regional Agro-Industrial Growth Centers (RGCs) also offers market opportunities in industrial wastewater treatment. RGCs are promoted by the Department of Trade and Industry and the Philippine Economic Zone Authority in an effort to move industry out of congested urban areas. There are 18 RGCs in the Philippines, of which 7 are in operation, 2 have developers identified, and 9 are in the planning stage. The government provides off-site development infrastructure for RGCs, and private investors provide on-site development, including wastewater treatment services.
In June 1995, the Laguna Lake Development Authority (LLDA) published a master plan for Laguna de Bay. The plan outlines the strategy and specific actions with respect to the future development and use of the lake as an essential natural resource. To protect the lake, the plan describes a pilot project proposal to design and construct a common industrial wastewater treatment facility to be used by industrial enterprises with similar wastewater characteristics. The local funding for this project is just $55,000, but LLDA is likely to seek additional outside funding. The pilot project is expected to set the stage for a full-scale common treatment facility with an estimated capital cost of $50 million. It is also possible that the LLDA area will be able to support more than one common treatment facility serving groups of industries on a subregional basis.
The main end-users of industrial water and wastewater treatment equipment, as well as cleaner technologies, are the food processing, textile, pulp and paper, leather, metal finishing, chemical, and electrical machinery industries. The USDOC estimates that the best sales prospects are:
* Heating and cooling plant machinery; plants and equipment for treatment and sterilizing apparatus such as slurry pumps, boiler systems, water softeners, economizers, boiling and cooling towers; and heat recovery steam generators. The requirements of food manufacturers are centered on this equipment. This market is expected to grow in the next five years.
* Filtering and purifying machinery and apparatus for liquid waste and parts such as dialysis and electrodialysis apparatus, ozonators, reverse-osmosis facilities and equipment, water filtration plants, filtration systems, filter cartridges, water purification equipment, ceramic filters, ultrafilters, microfilters, and filter presses. The growth of the chemical industry in the Philippines assures a high demand for these types of equipment.
* Clean technology process equipment for:
- sugar mills: equipment for bagasse recycling for absorption of grease and oil spills and collection tanks;
- breweries: yeast recovery facilities and road tankers;
- fish canning: fish oil recovery equipment, collection tanks, and boilers;
- metal galvanizing: facilities for zinc melting and electromagnetic equipment;
- electroplating: filtering apparatus, multiple re-use tanks, and sludge dewatering systems;
- pulp and paper industries: cooling system equipment, and feeder tube and fiber recycling systems; and
- textile industries: caustic soda recovery equipment and sand filters.