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A Presentation by the
National Water Resources Board
May 25, 2009
Economic Regulation of Philippine Water Utilities
The National WaterResources Board
PD 424 creating the NWRC (1974)
PD 1067 The WaterCode of the Philippines
(1976)
PD 1206 assigned the residual functions of the Board of Waterworks and the defunct Public Service Commission to NWRB
EO 123 reconstituted the NWRB Board; transferring NWRB to DENR and transferring regulatory functions of LWUA to NWRB (2002)
The National WaterResources Board
PD 424 creating the NWRC (1974)
PD 1067 The WaterCode of the Philippines
(1976)
PD 1206 assigned the residual functions of the Board of Waterworks and the defunct Public Service Commission to NWRB
EO 124-A converted NWRC to NWRB (1987); transferred
BRS to DPWH
EO 123 reconstituted the NWRB Board; transferring NWRB to DENR and transferring regulatory functions of LWUA to NWRB (2002)
Policy Formulation andCoordination
Resource Regulation
Economic Regulation
Water for AllWater for Food
Water for Domestic Water Supply and Sanitation
Water for EnvironmentWater for Economic Development
Our VisionOur Vision
To ensure access to safe, adequate water supply and sanitation at acceptable rates and levels of service;
To allocate sufficient water that will ensure food security and spur economic development of the country; and
To protect the water environment in order to preserve flow regimes, biodiversity and cultural heritage as well as the mitigation of water related hazards.
Our MissionOur Mission
WATERFOR LIVELIHOOD
WATERFOR LIVELIHOOD
WATERAS A RESOURCE
WATERAS A RESOURCE
Water and sanitationfor PEOPLE,
Rainfall and irrigationwater for FOOD
Water for INDUSTRY
Maintaining theRESOURCE BASE, bothsurface and groundwater- and biodiversity.
… while …
Resource RegulationResource Regulation
• The protection of consumers and the economic viability of water utilities by determining service standards and targets, tariff levels and schemes, monitoring and measuring company performance, enforcing compliance, and imposing sanctions
Viability ofUtility Consumers
Water Districts LGU-Run
RWSA/BWSA Cooperatives
Private EnterprisesProperty DevelopersHomeowners Assoc.
Water Peddlers
Economic RegulationEconomic Regulation
• Granting of Certificate of Public Convenience (CPC)
• Tariff setting• Business Plan Review• Conduct of Performance Audit of
CPC grantees• Adjudication and Resolution of
Cases• Testing and Calibration of water
meter• Monitoring of Compliance
Economic RegulationEconomic Regulation
• 5- Year Tariff Methodology
• Economic Regulatory Guidelines• WSPs Responsibilities• Use of Key Performance Indicators
(Technical and Financial)• Customer Service Manual
• Benchmarking of WSPs
Economic Regulatory InstrumentsEconomic Regulatory Instruments
5 – Year Tariff Methodology
• In 2005, the NWRB adopted the 5-Year Tariff Methodology (Res. 001-0105 dtd Jan. 14,
2005)
• Objective: Help WSP’s plan their business and attain full cost recovery.
Main Features:
• Tariff is computed based on agreed levels of service
• Requires the submission of a 5-Year Business Plan with detailed proposed OPEX and CAPEX
• Use of Excel-based tariff model
• Computation of average ROI to reduce price shocks.
• Mechanism for disallowances and upward adjustment in succeeding tariff proposal.
Setting Tariff Goals
• Levels of tariff should be established in consultation with customers or representatives.
• Hours of service• Water quality• Non-revenue water• Service coverage and pressure
Water Supply Planning
Levels of Service intended to be implemented
Projections of demand and supply levels• Projected new connections, volume sold and
population to be served.• Determine production capacity, NRW, water supply
shortage/surplus
Determine required investments Determine operating expenses to be incurred.
SUPPLY AND DEMAND PROJECTIONS
2007 2008 2009 2010 2011 2012
Actual Projected
SUPPLY
Installed Production Capacity, lps 15.00
15.00
15.00
15.00
15.00
15.00
Production Capacity (m3/year) 473,040
473,040
473,040
473,040
473,040
473,040
% Non-Revenue Water 52% 42% 37% 32% 27% 25%
Production Requirement (m3/year) 414,334
322,821
301,200
282,759
266,844
263,088
Bulk Water Purchases (m3/year) - - - - - -
Total Own Production and Water Purchases (m3.yr)
473,040
473,040
473,040
473,040
473,040
473,040
Water Surplus / (Shortage) (m3/year) 58,706 150,219 171,840 190,281 206,196 209,952
Water Surplus / (Shortage) (lps) 1.86
4.76
5.45
6.03
6.54
6.66
DEMAND
New Connections 15 3
10
10
10
10
Total Connections 740
743
753
763
773
783
Average Persons per Household 6 6 6 6 6 6
Population Served 4,440
4,458
4,518
4,578
4,638
4,698
Population in Service Area 4,878
4,878
4,878
4,878
4,878
4,878
% Population Served 91% 91% 93% 94% 95% 96%
Ave. Consumption/Conn./Month (m3) 22.63
21.00
21.00
21.00
21.00
21.00
Volume Sold (m3/year) 200,952
187,236
189,756
192,276
194,796
197,316
Full Cost Recovery
• Revenue requirement to cover the cost of delivering service
Revenue Requirements = OPEX + Dep + Max Net Income
• Required tariff derived by dividing revenue requirement by volume sold.
Personnel Power Bulk Water
Purchases Bad Debts Supervision &
Regulation Fee Depreciation
Operating Expenses include:
Management Fees Chemicals Repairs &
Maintenance Annual Water Charge General &
Administrative Taxes
Loans and Interest Expense
• Interest Expense is not allowed as part of OPEX.
• Proceeds of loans are capitalized and are entitled to return.
Depreciation = Acquisition Cost / Estimated Life
Depreciation: Straight Line Method
Depreciation Reserve Fund to cover maintenance, rehabilitation, replacement of assets.
May also be used for improvements, new constructions and extensions.
Maximum Net Income
NBV of Property & Equipment Entitled to Return + Working capital good for two months= Total invested capital entitled to returnx 12% rate of return
NBV of Property Plant and Equipment
Cost of PEER at the beginning of the year+ New investments entitled to return= Total PEER, at cost- Accumulated depreciation of the above assets
RETURN ON INVESTMENTS EVALUATION2007Average Total
Actual year 1 year 2 year 3 year 4 year 5 Years 1-5
Property & Equipment, beg 112,000 862,000 2,437,000 3,539,500 4,514,110 5,110,342
New Investments 750,000 1,575,000 1,102,500 974,610 596,232 -
Property and Equipment in Service Entitled to Return, end 862,000 2,437,000 3,539,500 4,514,110 5,110,342 5,110,342
Less: Accumulated Depreciation (142,200) (543,400) (999,725) (1,515,291) (2,050,731) (2,574,972)
Net Book Value 719,800 1,893,600 2,539,775 2,998,819 3,059,611 2,535,370
Add: Working Capital
Operating Expenses excluding depreciation 2,597,363 3,370,720 3,820,431 4,262,521 4,726,182 5,186,470
Allowed (Disallowed) Expenses
Personnel and Management Fees -
Power (1,296,833)
Chemicals (47,040)
Repairs and Maintenance -
Bulk Water Purchases
Bad Debts
General and Administrative Expenses (57,726)
NRW-related Adjustment -
Adjusted Operating Expenses 1,195,764 3,370,720 3,820,431 4,262,521 4,726,182 5,186,470
2-Months Average Cash Operating Expenses 199,294 561,787 636,738 710,420 787,697 864,412
Total Invested Capital Entitled to Return 919,094 2,455,387 3,176,513 3,709,239 3,847,308 3,399,782 3,317,646
Maximum Allowable Rate of Return 12.0% 12.00% 12.00% 12.00% 12.00% 12.00%
Maximum Allowable Net Income 110,291 294,646 381,182 445,109 461,677 407,974
Maximum Allowable Net Income 110,291 294,646 381,182 445,109 461,677 407,974
Operating Expenses 1,195,764 3,370,720 3,820,431 4,262,521 4,726,182 5,186,470
Depreciation 86,200 401,200 456,325 515,566 535,440 535,440
Revenue Requirement 1,392,256 4,066,566 4,657,938 5,223,196 5,723,300 6,129,884 25,800,883
Volume Sold, m3 176,398 192,936 209,473 226,010 242,548 259,085 1,130,052
Required Average Tariff (Php/cum) 7.89 21.08 22.24 23.11 23.60 23.66 22.83 Average Return on InvestmentsAverage Water Revenues/ m3 Sold 7.09 22.83 22.83 22.83 22.83 22.83 Rate of Return -156.0% 25.8% 15.9% 10.3% 7.2% 5.7% 12.0%
Projected
Quantity Block (m3) Public Tap Residential/ Institutional Commercial/ Industrial
First 10 m3 228.32 228.32
11-20 24.00 24.00
21-30 26.00 26.00
31-40 29.00 29.00
41-50 33.00 33.00
Over 50 38.00 38.00
First 25 m3 1150.00
26-1000 57.00
Over 1000 75.00
AFFORDABILITY CRITERIA
Household Income of Low-Income Household 9,257
Ceiling, 5% of such Income 463
Monthly Revenue from Minimum Charge 230
RESULT ACCEPTABLE
Affordability Criteria
• Notice thru publication and posting
• Hearing on the tariff application has due process
• Approved tariff must be posted within 7 days
PROCESSING PERIOD
Fili
ng
of
ap
plic
ati
on
A
pp
rov
al
Process:
6 months
Extra-Ordinary Price Adjustments
Utility may request for tariff increase before the end of the 5 year period due to extra-ordinary events, such as:
• Extra-ordinary price increase• Legislated wage increase• Service Area Extension• Etc.
WSP’s Review and Audit
• Agreed service level targets that were used in tariff determination were translated to:
• Level of Service Standards
• KPIs and KFIs Targets.
• Failure to meet agreed standards and targets will result to adjustments in revenue requirements for next tariff proposal.
Service Standards Or Levels Of Service
Water Quality
- in accordance with Philippine National Standard for Drinking Water (PNSDW)
Pressure Adequacy - not less than 5 psi (municipal) - not less than 25 psi (industrial zones)
Continuity of Supply - at least 8 hrs/day
Consumption Per Capita - 100 lpcd (municipal) - > 100 lpcd (industrial zones)
Service Standards Or Levels Of Service
FINANCIAL
VIABILITY
ProductionEfficiency
PersonnelManagement
Others
LIQUIDITY
PROFITABILITY
COST CONTROL
SUSTAINABILITY
Key Result Areas
OPERATIONAL PERFORMANCE INDICATORS
FINANCIAL RATIOS
Key Performance Indicators
CollectionPerformance
NWRB Plans, Program and On-going ActivitiesNWRB Plans, Program and On-going Activities
Finalization of NWRB guidelines on light handed regulation for small-scale water service providers and water cooperatives
Study on the Tariff-setting methodology adjusted for small-scale water service providers
Proposed capacity building program for water service providers under the Philippine Water Supply Roadmap
Capacity Development Strategic Alliance Building
14 Development ofSocial Assessment
Reporting(i.e., Report Card)
15 Rural WaterSupply and
Sanitation Project(VisMin)
6 LGU InstitutionalFramework and
Advocacy
11 IntegratedPlanning
Frameworkand Process
4 AdvocacyProgram for a
Single IndependentEconomic Regulator
2 Raw WaterAssessment forCritical Areas
13 Review ofLWUA's Financing
Frameworkand Structure
3 Inventory ofFinancing Windowsfor WSS Projects
1 EstablishingSector Baselinefor Planning andPolicy-making
9 LGU CapacityDevelopment for
Planning, Monitoringand Regulation
5 Social Marketing forthe PWSSR, IWRM,
Portal for variousStakeholders
10 WSP CapacityDevelopment for
Utility Performanceand Technology
Innovations
7 NGA CapacityDevelopment
8 Extension ofLWUA SupportServices to all
WSPs
12 EO 279 Programs
(i.e., SWIF)
Service Delivery
Priority Medium Term Programs
2010
Capacity Development Strategic Alliance BuildingCapacity Development Strategic Alliance Building
14 Development ofSocial Assessment
Reporting(i.e., Report Card)
15 Rural WaterSupply and
Sanitation Project(VisMin)
6 LGU InstitutionalFramework and
Advocacy
11 IntegratedPlanning
Frameworkand Process
4 AdvocacyProgram for a
Single IndependentEconomic Regulator
2 Raw WaterAssessment forCritical Areas
13 Review ofLWUA's Financing
Frameworkand Structure
3 Inventory ofFinancing Windowsfor WSS Projects
1 EstablishingSector Baselinefor Planning andPolicy-making
9 LGU CapacityDevelopment for
Planning, Monitoringand Regulation
5 Social Marketing forthe PWSSR, IWRM,
Portal for variousStakeholders
10 WSP CapacityDevelopment for
Utility Performanceand Technology
Innovations
7 NGA CapacityDevelopment
8 Extension ofLWUA SupportServices to all
WSPs
12 EO 279 Programs
(i.e., SWIF)
Service Delivery
Priority Medium Term Programs
2010
Philippine Water Supply Sector RoadmapPhilippine Water Supply Sector Roadmap
NWRB Plans, Program and On-going ActivitiesNWRB Plans, Program and On-going Activities
Finalization of Registration system and procedure for Non-pipe Water Service Providers (WSPs)
Proposed project for Small Water Supply Improvement and Financing (Phase 2) – Registration of Water Utilities for Regulation
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