Credit, Financing and Investments in the Water Supply Sector Dr. Ma ...

Philippine Water Supply Sector Roadmap 

Credit, Financing and Investments in the Water Supply Sector 

Dr. Ma. Ceciliano G. Soriano 

August 2008 

NOTE: This document was prepared under the auspices of the Philippine Water Supply Sector Roadmap, jointly chaired by the National 

Economic and Development Authority and the National Water Resources Board and supported by GTZ. This document has been analysed 

by members of the Philippines Water Dialogues with their commentary incorporated. 

PART I: Background of the Problem 

Description of the Problem: Under-investments in water supply and sewerage facilities and water sector regulation. 

Data show that investments in the water supply sector have grown in recent years, but surveys also show a decline in water 

supply coverage from 87% in 1990 to 85% in 2002. Of these households covered , only about 44% have piped connections. 

This indicates that infrastructure development has not kept up with population growth. 

Outcomes of Prior Efforts to Solve Problem: Lack of sustainable investments in water supply, particularly in rural areas 

Studies show that the water facilities that were built did not remain operational or prove sustainable for the expected period of 

time. This also helps explain the decline in water supply coverage. 

In financial terms, lack of sustainability can also be observed from many cases where foreign-assisted projects were not 

followed by additional or continuing investments by the beneficiary communities themselves, the concerned local governments 

or national government corporations. For example, LWUA cannot gather its second generation funds yet because the loans it 

extended and which have long matured have not yet been paid . This is in contrast to the Municipal Development Fund Office 

which has been able to accumulate its own internal funds partly because of the good repayment record of its LGU borrowers. 

Another reason is the fact that its foreign loans are serviced by the National Treasury in line with PD 1914 which created the 

Municipal Development Fund as a revolving fund . There are other good examples of water districts which upon obtaining 

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loans from LUWA put them to good use to generate their own funds which they invest in their expansion projects. Some water 

user associations are also able to accumulate from user fees enough funds to cover operation and maintenance costs, though the 

majority are not yet able to do so. 

PART II: Scope and Significance of the Problem 

Assessments of Past Policy Performance 

1. 2003 Study on Reforms in the Financing Policies in the Water Sector, Graduation Policies for Water Districts 

and Approaches to Various Regulatory Issues prepared for the Department of Finance under the Miyazawa Initiative 

for the Philippines Water Sector Reform administered by the World Bank 

The study noted that inefficiencies in the water sector institutions and in the allocation of financing led to the following 

outcomes: 

(a) 

(b) 

(c) 

(d) 

(e) 

(f) 

(g) 

Financial flows to the water sector have become increasingly limited as donor funding itself has been 

limited by sectoral/institutional concerns, and NG resources have becoming increasingly scarce; 

Available funding is not always used effectively – concessional funding is accessed mostly by the more 

capable water districts while other water service providers do not have financing options; 

Private sector participation has been limited, cost recovery tariffs are not always sought or paid, and the 

fragmentation of the sector spreads out the available resources too thinly; 

Although GFIs had started to lend for water projects; such projects though were mostly implemented by 

LGUs; 

LWUA which lends to water districts has mixed mandates, being regulator, financier and provider of 

technical assistance all the same time 

Most LGUs and water districts are not properly organized for accountability and bankability; and 

Other financing sources such as the LGUs’ IRA, private capital, ODA and water users have not been 

optimally utilized. 

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In view of the above findings, the study made the following recommendations, most of which were later incorporated in 

Executive Order No. 279: 

(a) 

(b) 

(c) 

(d) 

(e) 

All Water Service Providers (WSPs) including WDs and LGUs will be categorized as creditworthy (CW), 

Semi-Creditworthy (SCW), Pre-Creditworthy (PCW) and Non-Creditworthy (NCW) in order to better 

allocate various types of financing; 

Given the limited support from NG that could leverage donor funding, other sources of funding must be 

tapped including loans from GFIs and PFIs, LGUs IRA, water users through cost recovery tariffs and 

equity from the WSPs; 

The CW WSPs will be encouraged to access loans from GFIs and PFIs with transparent, commercial 

banking terms; 

Concessional debt and grants will be properly allocated to SCW and PCW WSPs with the potentials for 

viability; 

NCW WSPs should revert to the financial responsibility of the LGUs, with support from the DILG and 

potential financing through the MDFO and NGOs. 

2. 2003 Study titled “Rural Water: Models for Sustainable Development and Sector Financing” commissioned by 

the Water Supply and Sanitation Performance Enhancement Project (WPEP), a demand-driven action research 

project jointly funded by the Government of Australia, the Water and Sanitation Program of the World Bank and the 

Government of the Philippines, represented by the DILG. 

An assessment of 15 rural water supply facilities funded by eight major rural water supply projects in the 1990’s, some before 

and some after the implementation of the 1991 Local Government Code brings out the following conclusions: 

a) The large, centrally managed projects installed less than half the intended number of systems, many of 

which were operational for only a few years and offered lower levels of service than desired by the beneficiaries. Most 

of the beneficiary communities were not given a choice regarding the level of service. One of the projects offered Level III but 

none of the four communities covered chose this level. However, seven of nine systems that started at Level II were upgraded 

to Level III by the communities after they obtained additional financing. The study found that Level III facilities were the most 

sustainable because of the relative ease of collecting user fees from the individual household connections. 

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b) When technical problems arose, the local WUA had no access to technical advice and support. Relatively 

simple technical problems therefore threaten project sustainability. New projects should therefore aim for fewer facilities but 

for more investments in capacity building of both the water user associations and the LGUs concerned so that both of them can 

gradually accumulate the skills needed to monitor, advise and assist the rural water supply systems within their jurisdiction. 

c) Most of the projects did not benefit the poor. Although poverty alleviation was not an explicit objective of 

most of the projects studied, the impact of the projects on the poor was still measured since 60 percent of the poor live in rural 

areas. The impact was negligible because the locations of the new facilities that were built were often determined by the 

availability of donated land, ease of construction or lower costs. Future projects should aim to improve access for the poor 

who should be clearly identified. Funding incremental improvements to existing water supplies used by poor households may 

be preferable to developing new facilities whose benefits are more likely to be captured by households that are not poor. 

d) Contributions from the LGUs and communities increased their commitment to maintaining the water 

facilities funded by the NG and ODA. The involvement of the LGUs and communities in project preparation, 

implementation and management increased their stakes in the project , thus improving the sustainability of the projects even 

after the donors and implementing NG agency have completed the project. 

3. 2005 Study on a Financing Framework for Water Districts 

In 2005, the World Bank fielded a mission to review the financing framework for water districts as outlined in EO 279, 

identify the constraints to implementing the framework and provide advice on policies to overcome the constraints. After 

reviewing the recent developments and future prospects for increased participation of GFIs and PFIs in the WSS sector and the 

role of LWUA and ODA, the mission recommended two major sources of financing for water districts: loans from GFIs that 

blend ODA and domestic private capital (either from PFIs or the GFI’s own resources) and loans from the LWUA-Water 

Development Financier which would have two windows – a proposed Water Revolving Fund for creditworthy and semicreditworthy 

WDs and a Concessional Fund Window for pre-creditworthy and non-creditworthy WDs. The former will open 

long-term funds from the domestic capital market through bond flotation backed up by reserve funds from ODA or the national 

government budget while the latter will make available concessional ODA loans and grants as well as grants from the national 

government and private foundations. Given the financing needs of the water sector, it is imperative that steps be taken to tap 

the long-term funds of insurance companies and pension funds. Combined with the technical expertise and regulatory powers 

of LWUA, access to these long-term domestic funds can help WDs implement their expansion and upgrading projects and 

gradually reduce dependence of the water sector on ODA. 

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4. 2007 Study to develop an Incentive Framework for LWUA and Water Districts to Support the Graduation 

Process under EO 279 

In 2007, World Bank commissioned several studies on the implementation of EO 279, one of which is the Study on An 

Incentive Framework for LWUA and Water Districts to Support the Graduation Process under EO 279. The study notes the 

progress made by LWUA in categorizing 280 out of the 453 operational water districts, endorsing the proposed projects of 11 

of them to the Development Bank of the Philippines, and entering into an agreement with the LGU Guarantee Corporation to 

co-finance loans with PFIs and provide fee-based technical assistance to water districts, five of whom have been able to avail 

of loans from PFIs. After an assessment of the financial performance of LWUA since the Stone & Webster study in 2003 and 

projected performance until 2012, the study proposes an action plan to provide LWUA with additional financial resources and 

other incentives to hasten the implementation of EO 279 as well. It also provides more details on the types of financial and 

technical assistance products that LWUA could offer the different types of WSPs and the other financing options available to 

them from GFIs, PFIs, LGUs, MDFO and DILG. The study also highlights the need for an independent economic regulator, 

more comprehensive resource regulation and more effective pollution control to spur investments in water supply and 

sewerage facilities. 

5. 2008 DILG Presentation on Provincial Water Supply, Sewerage and Sanitation Sector Planning 

NEDA Board Resolution No. 5, series of 1989, mandated the DILG to assist LGUs in the preparation of Provincial Water 

Supply, Sewerage and Sanitation Sector Plans (PW4SP) to ensure that sector investments are optimized to result in sustainable 

outputs considering budgetary constraints and water source availability. The aim is to accelerate sector development through 

equitable o of resources between urban and rural areas and through institutional reforms at all government levels. The plan 

allows the interface and coordination of provincial plans with project proposals from the municipalities. 

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Following are the issues and concerns raised: lack of deeper appreciation by the LGUs of the costs to health and the 

environment of poor water supply and sanitation services, multi-tasking of LGU functionaries, lack of funding support for plan 

preparation and updating, and need for technology transfer from DILG to LGUs. 

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Significance of the Problem 

1. Human Right to Water 

In its 29 th session in November 2002, the Committee on Economic, Social and Cultural Rights issued General Comment No. 

15 – The Right to Water to address the Substantive Issues Arising in the Implementation of the International Covenant on 

Economic, Social and Cultural Rights (ICESCR) which entered into force on 3 January 1976. The General Comment carries 

significant legal weight although it is not legally binding because the Committee cannot create new obligations for the States 

Parties to the ICESCR. The Philippines signed the ICESCR as a State Party in 1973. The ICESCR seeks to put in more 

concrete, substantive and enforceable terms the more general commitments made in the Universal Declaration of Human 

Rights which was adopted on 10 December 1948 by the General Assembly of the United Nations of which the Philippines is a 

founding member. 

The realization of rights under ICESCR is envisaged to be “achieved progressively”. They are often perceived more as “goals” 

or “objectives” which each State Party takes steps to achieve to the maximum of its available resources and through 

international assistance and cooperation particularly economic and technical. 

General Comment No. 15 starts with the recognition that “Water is a limited natural resource and a public good fundamental 

for life and health. The human right to water is indispensable for leading a life in human dignity. It is a prerequisite for the 

realization of other human rights.” 

At the national level, the right to water imposes three types of obligations on States Parties: 

b) Obligations to respect: Refrain from interfering directly or indirectly with the enjoyment of the right to water. 

(e.g. destroying water facilities during armed conflicts) 

c) Obligations to protect: Prevent third parties from interfering in any way with the enjoyment of the right to 

water, by establishing an effective regulatory system (e.g. over-abstraction, pollution) 

d) Obligations to fulfill: Provide water directly to those who do not have the means to access water on their own 

Promote through education the proper use of water and protection of water resources 

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Facilitate through the following: 

a) National recognition of the human right to water and sanitation 

b) National water strategy and plan of action 

c) Appropriate and competent institutions 

d) Ensuring affordable and sustainable access to water and sanitation particularly in rural and deprived 

urban areas and for socially disadvantaged groups 

It is clarified that “where implementation of the right to water has been delegated to regional or local authorities, the State 

Party still retains the responsibility to comply with its Covenant obligations, and therefore should ensure that these authorities 

have at their disposal sufficient resources to maintain and extend the necessary water services and facilities.” 

It is further clarified that “a State which is unwilling to use the maximum of its available resources for the realization of the 

right to water is in violation of its obligations under the Covenant. If resource constraints render it impossible for a State Party 

to comply fully with its Covenant obligations, it has the burden of justifying that every effort has nevertheless been made to 

use all available resources at its disposal in order to satisfy, as a matter of priority, the obligations outlined above. ” 

With respect to international cooperation, the following guidelines are to be kept in mind: 

a) “International financial institutions, notably the International Monetary Fund and the World Bank, should 

take into account the right to water in their lending development projects, so that the enjoyment of the right to 

water is promoted.” 

b) “International assistance should be provided in a manner that is consistent with the Covenant and other 

human rights standards, and sustainable and culturally appropriate.” 

c) “Priority in the provision of aid, distribution and management of water and water facilities should be 

given to the most vulnerable or marginalized groups of the population.” 

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2. Millennium Development Goals and the Medium Term Philippine Development Plan 

As mentioned above, realization of the right to water is a prerequisite for the realization of other human rights. Water is 

therefore recognized to be at the very center of the attainment of the Millennium Development Goals. Target 10 of Goal 7 on 

ensuring environmental sustainability is to halve the proportion of people with no access to safe drinking water and basic 

sanitation by 2015. This means that water supply needs to be provided to 14.3 million Filipinos. Estimates prepared for the 

proposed Philippine Water Revolving Fund indicate that this would require investments of around PhP 73.4 billion. 

The Medium Term Philippine Development Plan (MTPDP) is even more challenging as it envisions the provision of potable 

water supply to 212 waterless areas within Metro Manila and 633 waterless municipalities outside Metro Manila which would 

result in 90% coverage by 2010. 

3. Pollution of Water Sources and Climate Change 

As summarized by the World Bank in its 2003 Philippines Environment Monitor with focus on Water Quality, the Philippine 

Government’s monitoring data indicate the following: 

(a) 

(b) 

(c) 

(d) 

Only 36% of the country’s river systems are classified as sources of public water supply with just 1% requiring 

disinfection to meet the National Standards for Drinking Water (NSDW) and 35% requiring complete treatment 

to meet the NSDW; 

Up to 58% of groundwater sampled is contaminated with coliform and needs treatment; 

Approximately 31% of illnesses monitored over a five-year period were caused by water-borne sources; and, 

Many areas are experiencing a shortage of water supply during the dry season. 

Experts have warned that the shortages can become more pronounced as global warming makes the dry season longer and 

dryer. 

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The World Bank adds that of the nearly 2.2 million metric tons of organic pollution produced annually, 48% is caused by the 

domestic sector, 37% by the agricultural sector and 15% by the industrial sector. Untreated wastewater that goes directly into 

bodies of water spread disease-causing bacteria and viruses making them unfit for drinking or even recreational use. 

The above data indicate that the poor who have traditionally relied on rivers and streams or shallow dug wells for their 

drinking water no longer have this option if they are to avoid the risk of water-borne diseases. Due to the growing water 

pollution, it has become imperative for the government to provide access to safe potable water to all sectors of society 

particularly the poor, vulnerable and marginalized groups in both rural and urban areas. 

As climate change begins to make its effects felt, investments to assure the continued supply of water to urban centers as well 

as communities spread out in rural areas need to be made before demand far outstrips supply. To the extent possible, demand 

management should also be encouraged through water supply tariffs that cover all costs including the cost of watershed 

management and possibly raw water pricing coupled with consumer education. This can lead to increased water re-use and 

recycling and even rainwater harvesting and possible delays or reduction in the need for new infrastructure. 

Need for Data and Analysis 

More than analysis, the following data are needed to make realistic plans and appropriate decisions and to set the baseline 

scenario for future monitoring and evaluation activities: 

1. Location, amounts and outcomes of previous investments in water supply and sewerage; 

2. Location, cost, coverage and quality of service of existing water supply and sewerage facilities; 

3. Institutional set-up, technical capacity, financial performance and plans for expansion of existing water service 

providers; 

4. Location, quantity, quality and current extraction/utilization of surface and ground water resources; 

5. Past and projected water demand vis a vis supply in LGUs as well as river or drainage basins. 

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PART III : Historical Investments in the Water Supply Sector 

Historical Background on Institutional Framework 

Pre-Local Government Code 

The Carriedo System laid out in Old Manila in 1897 became the Manila Water Supply System in 1908 and the Metropolitan 

Water District (MWD) in 1919. In 1955, Republic Act (R.A.) No. 1383 created the National Waterworks and Sewerage 

Authority (NAWASA) by combining the MWD, the Wells and Drills Sections of the Bureau of Public Works (BPW), and 

other government-owned waterworks, sewerage and drainage systems. 

In 1971, R.A. No. 6234 dissolved the NAWASA and created the Metropolitan Waterworks and Sewerage System (MWSS) to 

cover Metro Manila, Rizal, Cavite and Valenzuela, Bulacan. The Wells and Springs Department of NAWASA was moved 

back to the BPW. Provinces, cities and municipalities were given the choice to separate from the MWSS. The MWSS and 

LGUs were given authority to set their own rates. Cases contesting rates were submitted to the Public Service Commission for 

resolution. 

In 1973, Presidential Decree No. 198 or the Provincial Water Utilities Act of 1973 authorized provinces, cities and 

municipalities to create water districts to operate and maintain reliable and economically viable water supply and wastewater 

disposal systems for their population centers. Under PD 198 Title II or the Local Water District Law, the legislative body of 

any city, municipality or province may form a water district by enacting a resolution and forwarding this to the Local Water 

Utilities Administration (LWUA) which was created by PD 198 Title III or the Local Water Utilities Administration Law. 

The LWUA was created primarily as a specialized lending institution for the promotion, development and financing of local 

water utilities serving urban centers including water districts. The LWUA would also set technical, financial and management 

standards for local water utilities and monitor their conformance. It would also provide technical assistance and institutional 

development support to them. LWUA was given the power to review the rates established by local water utilities to establish 

compliance with the guidelines set by PD 198. Appeals could be made to the National Water Resources Council (NWRC) 

whose decisions are appealable to the Office of the President. Local water utilities are defined to include water districts, LGUrun 

or investor-owned public utilities or cooperative corporations which own or operate a water system serving an urban 

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center. SLWUA was formally organized on September 18, 1973. In its first eight years, LWUA secured foreign loans from 

USAID, DANIDA, ADB and WB totaling over $155M and relent them to over 90 WDs. 

Letter of Instructions No. 683 issued on March 30, 1978 established basic policies for the water supply sector. Attainment of 

complete coverage of water supply services for the whole country was declared a policy of the State and was to be effected 

primarily through the following: 

(a) Rationalization of the organizational structure for the water supply sector; 

(b) Formation of water districts, associations, cooperatives or corporations for the construction, operation and 

maintenance of water supply systems in preference to systems directly operated and managed by local 

governments; and 

(c) Encouragement of self-help and self-reliant water supply projects. 

Rationalization of the water supply sector structure was to be pursued using the following strategies: 

(a) 

(b) 

(c) 

(d) 

(e) 

The MWSS would concentrate its operations in Metro Manila and other contiguous areas; 

The LWUA would promote water districts in cities and municipalities with a population of at least 20,000 each. 

LWUA would continue to give water districts institutional, technical and financing assistance; 

The BPW would be mainly responsible for the construction of wells and development of springs in rural areas; 

The Department of Local Governments and Community Development (DLGCD) would be responsible for the 

formation of water associations and cooperatives that will operate and maintain water supply systems for 

communities in the provinces covered by the Provincial Development Assistance Program (PDAP). The 

DLGCD would provide institutional, technical and financial support to these associations and cooperatives; and, 

The Task Force on Rural Water Supply System under the NWRC would provide similar support to water 

associations and cooperatives in the non-PDAP areas. 

The Task Force was also mandated to recommend an appropriate institution to be responsible for rural water supply on a 

permanent basis. Per recommendation of the Task Force, the Rural Waterworks Development Corporation was established in 

1980 to provide institutional, technical and financial support to Rural Waterworks and Sanitation Associations (RWSAs). 

However, it was dissolved after only a few years of operation. The functions, assets and liabilities of RWDC were transferred 

to LWUA. 

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The NWRC was also made responsible for coordinating the implementation of the above policies and for submitting to the 

President periodic reports on the status of the entire water supply sector and the performance of each agency (MWSS, LWUA, 

DPWH, DILG) in relation to the overall policy framework for water supply. 

Post-Local Government Code 

In 1991, the Local Government Code (LGC) was passed by Congress to introduce a paradigm shift in relations between the 

National Government (NG) and local government units (LGUs). The LGC provided for local autonomy wherein LGUs were 

given additional responsibilities as well as additional resources with which to carry out those responsibilities. 

Provinces were made responsible for infrastructure facilities intended to service the needs of the residents of the province and 

which are funded out of provincial funds including inter-municipal waterworks, drainage and sewerage, flood control, and 

irrigation systems. Cities and municipalities were to be responsible for infrastructure facilities intended primarily to service 

the needs of the residents of the city/municipality and which are funded out of city/municipal funds including small water 

impounding projects and other similar projects; artesian wells, spring development, rainwater collectors and water supply 

systems; seawalls, dikes, drainage and sewerage, and flood control. Barangays were to maintain barangay water supply 

systems. 

The NG or the next higher level local government were authorized to provide the basic services assigned to a lower level LGU 

if it is unable to provide the services adequately. The NG and LGUs were also to share the responsibility for the maintenance 

of ecological balance. Local autonomy was also to be realized through improved coordination of national government policies 

and programs and extension of adequate technical and financial assistance to less developed and deserving LGUs. LGUs may 

also, through appropriate ordinances, group themselves or coordinate their efforts, services and resources for purposes 

commonly beneficial to them. Participation of the private sector in local governance, particularly in the delivery of basic 

services, is also to be encouraged to support local sustainable development. Lastly, the NG shall ensure that decentralization 

contributes to the improved performance of LGUs and quality of community life. 

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Historical Investments in Water Supply 

Table III.1 Public Infrastructure Expenditures 

(In Thousand Pesos) 

(2001 - June 2007) 

Type of Project NG GOCCs SUB-TOTAL LGUs 

Water Supply 3,728,863 12,266,492 15,995,355 N.A. 

Irrigation 41,379,348 0 41,379,348 N.A. 

Flood Control 52,186,468 0 52,186,468 N.A. 

Total Water Projects 97,294,679 12,266,492 109,561,171 N.A. 

Other Infrastructure 

Projects 

344,981,419 190,450,552 535,431,971 N.A. 

Total Infrastructure 

Expenditures 

442,276,098 202,717,044 644,993,142 224,178,892 

Source of Basic Data: DBM 

Based on the above data from the Budget of Expenditures and Sources of Financing (BESF) prepared annually by the 

Department of Budget and Management (DBM), the National Government and the government-owned and controlled 

corporations allocated close to PhP 645 billion for infrastructure during the period 2001 up to the first semester of 2007. 

Together with over P224 billion from LGUs, total public infrastructure expenditures amounted to over P869 billion during the 

period. 

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Table III.2 Percentage Distribution of National Infrastructure Expenditures 

(2001 - June 2007) 

Type of Project NG GOCCs TOTAL 

Water Supply 0.84% 6.05% 1.84% 

Irrigation 9.36% 0.00% 4.76% 

Flood Control 11.80% 0.00% 6.00% 

Water Projects 22.00% 6.05% 12.61% 

Other Infrastructure Projects 78.00% 93.95% 87.39% 

Total Infrastructure Projects 100.00% 100.00% 100.00% 


Of the PhP 442 billion allocated by the National Government for infrastructure projects, 22% was for water-related projects. 

However, the bulk was for flood control, 11.8%, and irrigation, 9.36%. Less than 1% was for water supply projects. Including 

the expenditures by the two GOCCs in the water sector, MWSS and LWUA, the percentage share of water supply projects in 

national infrastructure expenditures goes up to 1.84%. 

Among water-related projects, water supply received only 3.83% of the NG budget and 14.6% of the combined NG and 

GOCCs budget, the latter having been three times bigger than the former. 

Table III.3 Percentage Distribution of National Expenditures on Water Projects 

(2001 – June 2007) 

NG GOCCs TOTAL 

Water Supply 3.83% 100.00% 14.60% 

Irrigation 42.53% 0.00% 37.77% 

Flood Control 53.64% 0.00% 47.63% 

Water Projects 100.00% 100.00% 100.00% 


The National Government itself has allocated very minimal, almost token amounts for water supply, especially compared with 

irrigation and flood control—primarily, a consequence of the creation of MWSS and LWUA which have been tasked to 

expand water supply coverage inside Metro Manila and the urban centers outside Metro Manila, respectively. Since the 

passage of the Local Government Code in 1991, responsibility for the provision of water supply services was also devolved to 

the LGUs. 

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Table III.4 Annual National Expenditures on Water Supply Projects 

(In Thousand Pesos) 

(2001 – June 2007) 

Jan-June 

2001 2002 2003 2004 2005 2006 2007 Total 

NG 735,044 995,828 343,979 68,622 263,774 715,210 606,406 3,728,863 

DPWH 0 0 0 0 75,292 500,000 500,000 1,075,292 

DA 0 0 0 0 94,241 107,605 53,203 255,049 

ARF 2,700 49,782 143,979 48,622 94,241 107,605 53,203 500,132 

MDF 732,344 916,046 200,000 0 0 0 0 1,848,390 

LGEF 0 30,000 0 20,000 0 0 0 50,000 

GOCCs 3,725,510 2,081,372 1,202,450 0 1,714,010 1,054,315 2,488,835 12,266,492 

LWUA 821,280 203,732 7,000 - 6,070 8,445 8,445 1,054,972 

MWSS 2,904,230 1,877,640 1,195,450 - 1,707,940 1,045,870 2,480,390 11,211,520 

Total 

Water 4,460,554 3,077,200 1,546,429 68,622 1,977,784 1,769,525 3,095,241 15,995,355 

Supply 


Under the President’s Priority Program for Water launched to provide water to waterless barangays/villages inside Metro 

Manila and waterless municipalities outside Metro Manila, Php 500 million was provided in the 2006 and 2007 budgets of the 

Department of Public Works and Highways (DPWH). This accounted for PhP 1 billion of the PhP 3.7 billion NG budget for 

water supply during the period under study. The balance was for water supply projects chosen by LGUs themselves from 

among a list of projects eligible for NG support under various projects of the Department of Agriculture (DA) or demanddriven 

financing facilities such as the Agrarian Reform Fund (ARF), Municipal Development Fund (MDF) and Local 

Government Empowerment Fund (LGEF). 

MWSS which services Metro Manila received PhP 11 .2 billion or over 91% of the NG funds coursed through the two water 

GOCCs. Its two private concessionaires also made their own investments for the completion of the Umiray-Angat Transbasin 

Tunnel and Angat Water Utilization and Aquaduct Improvement Projects and also for the provision of potable water to 

waterless areas or communities, as shown in the table below. 

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Province 

NCR 

NCR 

Type of Service 

Provider 

Private 

Concessionaire/ 

MWSS 

Private 

Concessionaire/ 

MWSS 

Program/ 

Project Title 

Umiray- 

Angat 

Transbasin 

Tunnel 

Project 

Construction 

of a 13 

kilometers x 

4.30 meters 

diameter 

tunnel that 

conveys about 

9 cms (780 

million liters 

per day) of 

raw water 

from the 

Umiray River 

to the Angat 

Reservoir 

through Macua 

River across 

the Sierra 

Madre 

mountains. 

Angat Water 

Utilization 

and Aqueduct 

Improvement 

Project – 

Phase 1 

Construction 

of a 5.50 

kilometers x 

Table III.5 Metropolitan Waterworks and Sewerage System (MWSS) 

Loans- 

Years Population 

Loans - 

ICG ODA/ 

Private Grants Others Total 

Covered Served 

Private 

GFIs 

1997 - 

2000 

(constructi 

on 

period); 

2000 to 

present 

(commissi 

oning 

period) 

2004 - 

2006 

(constructi 

2.34M PhP 42M PhP 2,727M 

(ADB) 

1.20M PhP 1,203M 

(BN 

Paribas) 

PhP 1,168M 

(Concession 

aires) 

PhP 129M 

(Concession 

aires) 

PhP 166M 

(Equity) 

PhP 

4,103M 

PhP 

1,332M 

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Province 

NCR 

NCR 

Type of Service 

Provider 

Private 

Concessionaire 

Private 

Concessionaire 

Source: MWSS 

Program/ 

Project Title 

3.30 meters 

diameter 

aqueduct that 

will serve as a 

by-pass 

aqueduct while 

the existing 

parallel 

Aqueduct is to 

be repaired 

due to 

leakages or a 

recovery of 

about 394 

million liters 

per day. 

Patubig ni 

PGMA (East 

Service Area) 

Providing 

potable water 

to waterless 

areas/ 

communities 

Patubig ni 

PGMA (West 

Service Area) 

Providing 

potable water 

to waterless 

areas/ 

communities 

Years 

Covered 

on 

period); 

2006 to 

present 

(commissi 

oning 

period) 

2004 - 

2007 

2004 - 

2007 

Population 

Served 

ICG 

Loans- 

ODA/ 

GFIs 

Loans - 

Private 

Private Grants Others Total 

350,000 PhP 1,044M PhP 

1,044M 

320,000 PhP 864M PhP 864M 

18


LWUA which is responsible for urban areas outside Metro Manila received only about PhP1 billion from the NG. However, 

together with internally generated cash of PhP 2.5 billion and PhP 6 billion in foreign loans and grants, LWUA was able to 

fund investments close to 

P10 B over the period 2000 to June 2007. 

Table III.6 Local Water Utilities Administration 

Total Project Investments (2000 – June 2007) 

SUBSIDY ICG TOTAL FOREX 

GRAND 

TOTAL 

Foreign – Assisted 

Projects 

813,200,501 -2,872,316 810,328,185 6,072,557,495 6,882,885,680 

Locally Funded Projects 120,090,100 78,375,652 198,465,752 - 198,465,752 

Congressional Initiative 

Fund 

75,506,185 - 75,506,185 - 75,506,185 

Others 1 282,730,695 2,478,970,446 2,761,701,141 - 2,761,701,141 

Grand Total 1,291,527,481 2,554,473,782 3,846,001,263 6,072,557,495 9,918,558,758 

Source of Basic Data: LWUA 

1 Special Funds, Lingap, LandBank loan, WDs’ equity, WDs’ advances, deposit portfolio. 

19


Table III.7 Local Water Utilities Administration 

Annual Project Investments (2000 - June 2007) 

2000 2001 2002 2003 2004 2005 2006 Jan- June 2007 2000-June 20 

AND TOTAL 746,726,195 732,106,008 1,212,519,179 1,645,134,667 2,396,542,607 1,665,574,174 1,239,493,329 280,462,599 9,918,558,75 

FOREIGN - 

SISTED PROJECTS 

397,831,894 606,596,677 1,036,632,661 1,186,802,277 1,611,282,896 1,294,520,193 658,683,216 90,535,866 6,882,885,68 

NIDA 1,040,759 80,186 - - - - - - 1,120,945 

B 8 ( Phil Urban 

9) 

127,947,232 206,563,013 120,084,443 5,178,890 1,603,750 5,826,568 - - 467,203,896 

JBIC 19TH YEN 117,640,750 39,120,608 223,677,546 289,324,252 149,973,020 46,333,316 9,491,855 4,676,792 880,238,139 

KFW I & II 728,583 94,046 1,518,152 4,072,860 30,388,710 463,323,916 441,930,014 50,917,309 992,973,590 

JBIC 20th YEN 28,453,196 53,720,780 84,532,171 264,529,766 339,322,501 85,830,999 25,411,450 15,409,002 897,209,865 

SAID 25,188,234 85,700,829 139,785,316 101,097,667 135,580,989 - - - 487,353,035 

C 21ST YEN 43,499,161 61,172,279 181,392,725 248,609,305 03,198,715 615,386,657 181,849,897 19,521,156 1,754,629,89 

A Projects - 118,521 - - - - - - 118,521 

B 1472 30,607,844 113,764,552 275,156,435 265,942,962 546,187,634 77,818,737 - 11,607 1,309,489,77 

BIC BAY 1599 - - 4,285,873 7,546,575 5,027,577 - - - 16,860,025 

A WATER 

ALITY 

- - - - - - - - - 

ROVEMENTS 

B 1057 530,000 2,461,863 - - - - - - 2,991,863 

NCH PROTOCOL - - - - - - - - - 

CF II (PH-124) - - - - - - - - 

NIDA GRANT 22,196,135 43,800,000 6,200,000 500,000 - - - - 72,696,135 

B 100 - - - - - - - - - 

LOCALLY 

NDED PROJECTS 

53,562,129 30,399,709 62,206,678 22,695,706 16,720,911 11,397,438 1,186,832 296,349 198,465,752 

ONGRESSIONAL 

TIATIVE FUND 

28,830,661 3,819,998 9,356,188 6,545,525 3,939,539 2,350,874 663,400 - 75,506,185 

OTHERS 

ecial Funds, Lingap, 

dbank, WDs equity, 

s Advances, Deposit 

266,501,511 71,289,624 104,323,652 429,091,159 764,599,261 357,305,669 578,959,881 189,630,384 2,761,701,14 

tfolio) 

Source of Basic Data: LWUA 

20


Foreign loans and grants have also been channeled through the Municipal Development Fund Office (MDFO) of the 

Department of Finance to finance activities that have been devolved to LGUs. The MDFO has undertaken demand-driven 

projects like the Local Government Finance and Development (LOGOFIND) Project on its own, the Mindanao Rural 

Development Project (MRDP) with the DA and numerous foreign-assisted projects with the Department of Agrarian Reform 

(DAR). LGUs or agrarian reform communities are able to choose what projects they wish to implement. Twenty eight (28) 

water supply projects were funded under the MRDP, 5 under LOGOFIND and 528 under DAR-administered programs. 

Source of Basic Data: MDFO 

Table III. Water Supply Projects Funded by Municipal Development Fund Office 

No. of 

Water Loan 

Total 

Equity 

Total (Php) 

Supply Proceeds 

Releases 

Projects 

Mindanao Rural 

- 

Development Project 28 14,683,720.99 

14,683,720.99 14,683,720.99 

(MRDP) 

LOGOFIND 5 70,516,106.35 15,700,015.19 39,396,230.55 86,216,121.54 

Total MDFO 33 85,199,827.34 15,700,015.19 54,079,951.54 100,899,842.53 

Table III.9 Department of Agrarian Reform 

Potable Water Supply Projects 

Year Number of Sub-projects Number of Systems Total Project Cost (PhP) 

1997 6 6 1,827,670 

1998 15 29 8,454,770 

1999 37 126 31,900,783 

2000 32 45 38,356,680 

2001 56 79 75,455,114 

2002 44 58 25,666,039 

2003 64 207 74,173,197 

21


Source: DAR 

2004 48 67 126,497,933 

2005 51 72 183,711,294 

2006 62 68 125,690,366 

2007 113 171 290,719,881 

Total 528 928 982,453,727 

The MDFO along with the Department of Interior and Local Government (DILG) has recently launched the Millennium 

Development Goal Fund (MDG-Fund) which municipalities belonging to 4 th to 6 th income class can avail of to undertake water 

supply projects. The MDFO is using its second generation funds sourced from repayments of loans previously given to 

LGUs to offer loans at lower than usual interest rates. The DILG, through its Water Supply and Sanitation Project 

Management Office, has also undertaken various foreign-assisted projects singly or with other national government agencies 

like the DPWH. 

22


Table III.10 Water Supply and Sanitation – Program Management Office 

WATER SUPPLY AND SANITATION PROJECTS 

Project 

Description 

Implementation 

Arrangement 

Funding 

Donor 

Total 

Cost (M) 

Duration Coverage Accomplishments 

1. Rural Water Supply Provision of L-1 water DPWH: Lead Agency; ADB $57.4M 1998 - 

Abra, Apayao, - 4,041 (91%) out of 4,453 

Benguet, 

BWSAs have been organized. 

& Sanitation Sector supply & sanitation provides const'n. (Loan) 2003 

Kalinga, Ifugao, 

Mountain 

. 

Project (RW3SP) facilities in rural areas in materials & funds for 

Province, Batanes, 

Aurora, 

the 20 SRA priority 

Note: Project Steering 

civil works 

Romblon, Masbate, 

provs.; 

Committee 

Includes LGU capability DOH: Sanitation Antique, Guimaras, 

approved recommendation of 

ADB Review Mission to 

bldg. & community component 

E. Samar, Biliran, S. 

Leyte, 

increase BWSA organization 

participation DILG: Provision of Basilan, Agusan Sur, targets to insure sustainability 

capacity bldg. for 

Surigao Sur, Sulu, 

Tawi-Tawi 

of installed water systems. 

LGUs & formation 

of 

BWSAs & trainings 

LGU: Implements 

target facilities 

2. First Water Supply, A World Bank-assisted DPWH - Lead Imple- WB P203.30 M 1991 - 

Sewerage & Sanita- proj. implemented jointly menting Agencg (Loan) 1996- 

tion Sector Project 

by DPWH, DOH & 

DILG. 

(FW4SP) The project provided L-1 DOH - Coordinating 

Ln 3242-PH) water supply facilities & agency for Sanitation 

WB 

Benguet, Mt. 

Province, 

Ifugao, Kalinga, 

Apayao, 

La Union, 

Pangasinan, 

Cagayan, Isabela, 

Bulacan, 

Bataan, Tarlac, 

Pam- 

household latrines to the component panga, Nueva Ecija, 

municipalities of the 29 

Laguna, Cavite, 

Completed in 1998 

23


Project 

Description 

Implementation 

Arrangement 


Donor 

Total 

Cost (M) 

Duration Coverage Accomplishments 

provinces of Luzon 

DIL.G - Coordinating 

agency for 

Institutional 

component 

Batangas, 

Romblon, Palawan, 

Quezon, 

Marinduque, 

Aurora, 

Catanduanes, 

Sorsogon, 

Masbate, Albay, 

Cam. 

Sur, Camarines Norte 

3. Institution Building Provision of technical UNDP 

$1,367,737 

Agusan del Sur, 

1994 - 

M 

Apayao, 

for Decentralized assistance in institutional 1997 

Capiz, Cotabato, 

Kalinga, 

Implementation of strengthening for decen- 

Surigao del Sur, 

Zambo. 

Community Ma- tralized planning and Sur 

naged Water Supply implementation of water 

& Sanitation 

(UNDPsupply 

(L-1, 11) and 

PHI/93/010) sanitation services for 

poor communities 

Completed in December 31, 

1998 

4. Poverty Alleviation 

Provision of Water 

Supply 

Fund 2 (PAF-2) and Sanitation facilities to 1998 

5th and 6th class municipalities 

GOP P 550 M 1997 - 960 5th and 6th class Completed in mid-1999 

municipalities 

nationwide 

24


tion Objectives Components 

Regions 

Table III.11 DSWD - KALAHI-CIDSS: KKB Project 

Program / Projects 2008-2010 

Service 

Coverage 

Implementing partner 

Type 

No. of Cities/ 

Municipalities 

No. of 

Beneficiaries 

(level I, 

II) 

Organization 

Role 

Contribution 

Project 

Cost 

Time 

Frame 


source / 

Financing Mix 

Status 

11 

regions 

( CAR, 

4B, 5, 6, 

7, 8, 9, 10. 

11, 12 & 

Caraga) 

Phase 3A = 33 

Mun; Phase 3B 

= 28 mun; 

Phase 4 = 54 

mun 

DSWD, 

MLGU, DILG 

technical 

planning & 

design 

2008- 

2009 

GAA 

ion of 

ater 

s 

for community 

members to 

actively 

participate in the 

local decision 

making process 

particularly on 

development 

interventions 

Construction 

& 

improvement 

of rural water 

supply systems 

11 

regions 

( CAR, 

4B, 5, 6, 

7, 8, 9, 10. 

11, 12 & 

Caraga) 

Phase 3A = 33 

Mun; Phase 3B 

= 28 mun; 

Phase 4 = 54 

mun 

54,000 HH Level I 

& level 

II 

LGUs. NGOs, 

CBOs 

( BWSA) 

Funding/ 

technical 

designs and 

operation & 

maintenance 

P483.397 

million 

2008- 

2009 

Loan Proceeds, 

PLGU, 

MLGU, BLGU 

and community 

contributions 

Completed 

589 system 

124,885 HH 

620 baranga 

for a total c 

of P619.908 

(CY 2003-2 

25


The Department of Social Welfare and Development (DSWD) is also implementing the World Bank-funded Kapit-Bisig 

Laban sa Kahirapan-Comprehensive and Integrated Delivery of Social Services (KALAHI-CIDSS) Project in which poor 

communities are given grants for investment projects of their choice. During the period 2003-2007, 589 Level I or II water 

systems were completed, 292 systems were under construction and 150 more were approved. 

Table III.12 DBP Loans for Water Supply Projects 

(In Million Pesos) 

World Bank Funds DBP Funds Total 

No. Amount No. Amount No. Amount 

LGUs 20 466.80 15 866.19 35 1,332.99 

WDs 3 389.10 13 2,096.53 16 2,485.63 

Private 2 201.30 1 500.00 3 701.30 

Total 25 1,057.20 29 3,462.72 54 4,519.92 

Source of Basic Data: DBP 

The Development Bank of the Philippines has also availed of loans from the World Bank to finance water supply projects of 

both LGUs and water districts. Under the LGU Urban Water Supply and Sanitation Project implemented from 2000 to 2007, 

25 projects amounting to over PhP 1 billion were implemented. Using its own funds, DBP has also funded 29 projects with 

total cost of close to PhP3.5 billion. 

Utilizing both internal funds and loans from various ODA sources including the Asian Development Bank, Japan Bank for 

International Cooperation and World Bank, the Land Bank of the Philippines funded 556 water supply projects between 1998 

and 2007 with total releases of over PhP 7 billion. 

26


Table III.13 LBP Loans to LGUS for Water Supply Projects 

(In Million Pesos) 

Year 

No. of Water Total Release on Water 

Projects 

Related Projects 

Outstanding Balance 

1998 15 62.65 48.48 

1999 18 163.94 118.14 

2000 23 191.58 134.48 

2001 30 281.92 183.41 

2002 39 291.77 202.14 

2003 61 414.37 263.23 

2004 65 623.65 434.92 

2005 81 1,183.86 931.88 

2006 104 1,829.93 1,401.86 

2007 120 2,184.49 1,662.61 

Total 556 7,228.16 5,381.15 

Source of Basic Data: LBP 

From the basic information summarized in the tables above, it has been observed that the number of water supply projects 

being undertaken by LGUs and water districts has grown significantly in the last three years. 

In addition, some water districts have already been able to access loans from private commercial banks starting in 2007. 

Silang Water District has availed of a PhP 160.65 million loan from the PNB and the Metro Iloilo Water District refinanced 

with PNB PhP 39 million of its loans from LWUA. The Bank of Philippine Islands has granted loans to Calamba WD 

amounting to P34 M, Laguna WD , P85 M and Legazpi City WD, P105 million for bulk water supply projects. 

With respect to regulation, very limited funds have been allocated in the annual budget of the National Government for the 

National Water Resources Board which has extensive and nationwide policy coordination, resource and economic regulatory 

functions in accordance with the Water Code of the Philippines and various other laws. Its revised organizational structure in 

line with EO 123 issued in 2002 has not yet been approved. NWRB is therefore not yet able to take over the rate review 

function from LWUA as mandated by EO 123. 

27


YEAR 

Table III.14 Annual Budget of the National Water Resources Board 

Regular Budget + Foreign-Assisted Projects 

1998 29.525 + 7.000 = 36.525M 

1999 25.774 + 13.933 = 39.707 M 

2000 27.052 + 11.877 = 38.929 M 

2001 26.480 + 11.877 = 38.357 M 

2002 28.633 + 17.200 = 54.931 M 

2003 25.320 + 12.807 = 38.127 M 

2004 26.242 M 

2005 27.673 M 

2006 27.714 M 

2007 32.419 M 

Source: National Water Resources Board 

28


Part IV: Problem Statement 

Definition of Problem: The lack of investments in water supply and sewerage facilities is due to lack of effective 

demand for and supply of responsive financing. 

Lack of Effective Demand for Financing 

1. LGUs do not have ready access to technical advice on how they can carry out their responsibility to 

ensure the provision of water supply services to their constituents. 

2. LGUs and many WDs do not have the technical capacity or funds to hire consultants to prepare 

feasibility studies for proposed projects 

3. Water districts need to make more investments to increase service coverage, improve water supply 

services, treat wastewater, protect water sources, etc. but do not have much incentive to do so or do not 

face severe penalties if they don’t because of weak economic and resource regulatory regimes. (e.g. in 

previous financing programs of LWUA, water districts back out 20 to 30% of the time, with no penalties 

or costs) 

4. Other water service providers also have low appetite to borrow. LGUs tend to wait for grants or pork 

barrel funds. 

Lack of Supply of Responsive Financing 

1. There are no dedicated financing facilities for water supply projects of LGUs. Water supply is just one 

of the options in rural development, agrarian reform community development, community-based 

resource management projects. 

2. Existing financing facilities and policies of GFIs (e.g. need for collateral) are not attractive to water 

service providers and do not have enough training and capacity building activities for LGUs before and 

after project construction. 

3. LWUA’s ability to finance more projects of WDs is constrained by delays in repayments of WDs for old 

loans and LWUA’s limited capital stock, domestic and foreign borrowing authority, and subsidies from 

NG. 

29


4. Although within its mandate, LWUA has not provided institutional, technical and financial support to 

WSPs that are not water districts. 

5. PFIs have started to lend for water supply projects but can offer only medium term loans. 

Goals and Objectives 

In line with General Comment No. 15 on the Human Right to Water, the provisions of the 1991 Local Government Code and 

the reform objectives of EO 279, the following are the goals and objectives to be pursued: 

1. For LGUs, to carry out their responsibility to have water services provided to their constituents, including the 

poor and marginalized groups. 

2. For WSPs, to improve their services and increase service coverage. 

3. For WSPs, to improve their financial self-sustainability and creditworthiness. 

4. For LGUs and WSPs, to work together with DENR and other stakeholders to ensure environmental 

sustainability. 

5. Institutional strengthening of WSPs, LGUs, NGAs, regulators and financiers. 

Measures of Effectiveness 

The following are recommended as measures of effectiveness of the reform measures to be undertaken: 

1. Sustainable increase in % of population served, especially the poor 

2. Lower incidence of water-borne diseases 

3. Adequacy (quantity and quality) and reliability of water supply services 

4. Number of WSPs able to access private capital and amounts involved 

5. Number of PFIs lending for water supply projects and volume of loans 

6. Mechanisms in place to leverage ODA to bring in private capital to the water supply and sewerage sector 

Potential Solutions 

1. Updated Provincial Water Supply, Sewerage and Sanitation Plans including priority investments and technical, 

institutional and financing options 

30


2. Graduation plans of WDs and 5-year business plans of other WSPs including priority investments and financing 

options 

3. Comprehensive and updated database on water resources, water supply and sewerage facilities, and projected 

demand for water 

4. Timely and responsive institutional support, technical assistance and financing for all WSPs through clearly 

designated and capacitated intermediaries 

5. Legislation to establish an independent economic regulator 

6. More funding and staff to enable NWRB to carry out its many mandates 

7. Capacity building for all stakeholders 

Part V: Policy Alternatives 

Description of Alternatives and Future Consequences 

Option 1: Do Nothing/Keep Status Quo 

Water supply coverage will continue to go down. Sewerage coverage will remain very low. These will have adverse 

consequences on public health, economic development and the environment. 

Option 2: Fast-track Implementation of EO 279, LGU Financing Framework and other reform measures 

This will make possible more sustainable investments in water supply and sewerage as well as water source and watershed 

protection, and institutional development. Investment sources are the various domestic stakeholders such as the National 

Government, local government units, government financial institutions including specialized lending institutions such as the 

LWUA and MDFO, private financial institutions and the water users themselves. With more sustainable investments, the 

objectives of safeguarding public health, promoting economic development and protecting the environment are better served. 

31


Executive Order No. 279 

In 2003, the Study on Reforms in the Financing Policies in the Water Sector, Graduation Policies for Water Districts and 

Approaches to Various Regulatory Issues was conducted for the Department of Finance (DOF) under the Miyazawa Initiative 

for the Philippines Water Sector Reform administered by the World Bank. The study included examination of institutional 

roles related to financing of urban water supply projects and preparation of a draft Executive Order (EO). The Infrastructure 

Committee of the NEDA Board finalized the draft EO and recommended signing by the President. EO 279 was issued on 2 

February 2004. 

Objectives 

All concerned government agencies and instrumentalities of the water supply and sewerage (WSS) sector including the DOF, 

DILG, DBM, DENR, DPWH, NEDA, LWUA and GFIs were directed to pursue and implement the following reform 

objectives and policies: 

(1) Improvement of investor confidence in the WSS sector; 

(2) Rationalization in the allocation of scarce financial resources in the WSS sector through classification and 

graduation initiatives; 

(3) Freedom of choice of WSPs in sourcing financing; 

(4) Increase in the participation of LGUs, GFIs and PFIs in the financing of the WSS sector; 

(5) Stimulation of improved service and creation of financial self-sustainability for WSPs; 

(6) Grant of incentives for the improvement and graduation of WSPs; 

(7) Encouragement of initiatives aimed at self-sufficiency of WSPs including amalgamation, private sector 

participation, cost-recovery tariffs, and resource pooling; 

(8) Education of consumers towards treating water as a scarce economic good; and 

(9) Establishment of an independent economic regulator for the WSS sector. 

Institutional Roles 

Part IV of EO 279 on Financing Policies spells out the roles and responsibilities of LGUs, DILG, LWUA, MDFO, GFIs and 

other financial institutions vis a vis different categories of WDs and other WSPs. 

32


LGUs: “In line with the principle of devolution of the provision of basic services under the Local Government Code, LGUs 

shall be encouraged to provide delivery of water supply and sewerage services through, but not limited to, investments in or 

loans to WSPs. LGUs shall, as a general policy, be financially and operationally responsible for the WSPs within their 

respective jurisdictions.” (Sec. 11) In particular, LGUs are encouraged by EO 279 to provide financial and operational support 

for non-creditworthy WDs and other WSPs within their respective jurisdictions. (Sec. 12d) 

DILG and MDFO shall, in turn, provide the necessary technical and financial support to LGUs in line with their respective 

mandates. (Sec. 12d) 

GFIs: “GFIs shall strengthen their skills base and develop lending programs specially tailored to the needs of the WSS sector.” 

(Sec. 12a) 

GFIs and PFIs: “The classification of WSPs shall merely be a determinant of eligibility for the various sources of financing, 

and shall not in any way be construed as an outright guarantee of actual financing from the designated source.” (Sec. 13) Thus, 

GFIs and PFIs are to make their own credit decisions and take the credit risks of their loans for water supply projects, using as 

starting point the categorization of WSPs provided by LWUA. 

LWUA, as the focal government agency for providing financing and institutional support to water districts, was tasked to 

refocus its objectives and rationalize its operations through the following measures: 

(1) LWUA to enhance and streamline its waiver procedures to effect the reform objectives and policies of EO 279. 

(Sec. 12a) 

(EO 279 refers to creditworthy WDs only, to make sure that only those truly deserving get access to financing from 

GFIs and PFIs. However, this can also be applied to top tier of semi-creditworthy WDs.) 

(2) LWUA-WDF to provide concessional debt financing to semi-creditworthy WDs, deeply concessional financing 

for pre-creditworthy WDs and financing for non-creditworthy WDs. (Sec. 12b,c,d) 

(3) LWUA-WDG to provide guidelines and necessary incentives for graduation such as extension of greater 

flexibility in WD’s operations as it graduates from one stage to the next. (Sec. 12) 

33


(4) LWUA to review its organizational structure and internal policies and programs, rationalize its operation and 

refocus its objectives to include other WSPs. (Sec. 9) 

LWUA to constitute and designate from its current organizational set-up three 

responsibilities: 

operating groups with the following 

(a) 

Water Development Group (WDG) 

• institutional development services including classification of WSPs 

• graduation plans for less creditworthy WSPs 

• cost recovery tariffs and possible amalgamation 

• private sector participation and resource pooling with host LGUs 

• improvement of management structures and governance 

(b) Water Development Financier (WDF) 

• lending to semi, pre and non-creditworthy WSPs based on sound development banking principles 

• collection and separate accounting of previous loans 

(c) 

Technical Assistance Group (TAG) 

• offer project-related TA to GFIs and creditworthy WSPs on a competitive basis, consistent with government 

procurement laws 

• above a certain value threshold determined by LWUA, offer project related TA to semi-creditworthy WSPs 

on a competitive basis, consistent with government procurement laws 

• offer project-related TA to pre- and non-creditworthy WSPs, with or without charge, within a certain value 

threshold determined by LWUA, to support projects funded by LWUA-WDF 

Sources of Financing by type of WSP 

Part IV of EO 279 on Financing Policies also specified the sources of financing that could be accessed by water service 

providers, depending on their viability and level of creditworthiness. 

1) Creditworthy – financially self-sustaining and capable of accessing financing from GFIs and/or PFIs at 

commercial lending rates (viable and bankable) 

34


2) Semi-creditworthy – with demonstrated ability to achieve creditworthiness in the short-term but either fail to 

meet all the criteria for creditworthiness or do not meet them consistently; eligible for concessional debt financing 

from LWUA-WDF, as well as loans from GFIs and PFIs whenever possible (viable and almost bankable) 

3) Pre-creditworthy – not likely to become creditworthy in the medium-term due to performance issues but can 

demonstrate potential for creditworthiness in the long-term; eligible to source grants from donors and deep 

concessional financing from LWUA-WDF (viable but not yet bankable) 

4) Non-creditworthy – with potential to reach pre-creditworthy status in the medium-term; eligible for financing 

under LWUA-WDF. (potentially viable) However, LGUs are encouraged to provide financial and operational 

support for NCW WDs and other WSPs within their respective jurisdictions. DILG and MDFO to provide the 

necessary technical and financial support within their respective mandates. 

Creditworthy WSPs which can be said to be both viable and bankable are ready to obtain loans from government as well as 

private banks at commercial lending rates. Semi-creditworthy WSPs can be said to be viable but not quite or consistently 

bankable. Some of them may be able to access loans from GFIs and PFIs while those who are not yet able to do so may still 

obtain concessional debt financing from LWUA mostly in the form of long-term fixed-interest rate loans. Pre-creditworthy 

WSPS can can also be viable but are not yet bankable. They are are eligible for grants and deeply concessional loans such as 

zero or low-interest loans with medium to long-term maturity. Non-creditworthy WSPs are not yet bankable but are potentially 

viable. They may also be eligible for financing support from LWUA but they would need first more institutional advice and 

technical support to ensure their viability in the medium to long-term. The LGUs, DILG and MDFO can help to provide these 

various forms of support. 

Oversight Committee 

To coordinate and oversee the implementation of the reforms mandated by EO 279 in the financing, graduation and regulatory 

policies in the water supply and sewerage sector, an Oversight Committee chaired by DOF was created by EO 279. NEDA is 

Vice-Chair with DBM, DILG, OP and LWUA as members. Representatives of the GFIs and MDFO may be invited as resource 

persons. 

The Oversight Committee issued the Implementing Rules and Regulations for EO 279 in July 2004. The Oversight Committee 

also reviewed and endorsed LWUA’s rationalization plan, leading to the issuance of EO 421 in April 2005. Using the 

classification criteria approved by the Oversight Committee, LWUA has classified 280 WDs out of the total 453 operational 

water districts. The classification of these WDs was done using data for the years 2003-2005 and is presented below. The 

35


remaining 173 operational water districts remain unclassified to date due to unavailability of some of the information needed 

for classification. There are also 141 WDs that remain non-operational, mostly due to lack of financing and technical support. 

Table III.15 Classification of Water Districts 

Category Total CW SCW PCW NCW 

Small 144 11 75 39 19 

Average 32 3 19 8 2 

Medium 52 18 29 4 1 

Big 35 15 15 4 1 

Large 13 3 10 0 0 

Very Large 4 1 3 0 0 

Total 280 51 151 55 23 

Source: LWUA 

Of the 280 WDs classified, 51 or 18% are creditworthy (CW), 151 or 54% are semipre-creditworthy 

(PCW) and the balance of 8% or 23 are non-creditworthy (NCW). 

creditworthy (SCW), 55 or 20% are 

The remaining tasks for the Oversight Committee are the following: 

(1) Prepare an action/implementation plan including incentive schemes; 

(2) Prepare and submit quarterly reports to LWUA’s mother agency; and 

(3) Review LWUA’s charter and propose amendments, as necessary. 

The recommendations in this paper as well as the World Bank-funded study titled “ An Incentive Framework for LWUA and 

Water Districts to Support the Graduation Process under EO 279 “ could hopefully serve as useful inputs for the formulation of 

the action/implementation plan including incentive schemes as well as for getting consensus and strong support for the 

proposed amendments to LWUA’s charter. 

LGU Financing Framework 

To help prepare LGUs to carry out their additional responsibilities under the Local Government Code, the Department of 

Finance (DOF) spearheaded the formulation of the LGU Financing Framework that was presented to the Consultative Group 

Meeting in December 1996. Its basic premise was that neither the National Government nor ODA would be able to provide 

enough funds for all the investments that LGUs would need. The document recognized that “LGUs have varying levels and 

36


records of creditworthiness and bankability and that their financing needs are huge. Therefore, the private sector (BOT 

investors, bondholders, commercial banks), the GFIs and Municipal Development Fund (MDF) all have a role to play in 

meeting LGU Financing needs.” The ultimate objective of the LGU Financing Framework is “to graduate the more 

creditworthy LGUs to private sources of capital which are vast and promising but remain largely untapped”. 

The LGU Financing Framework recommended that steps be taken to achieve seven forward-looking reform objectives, 

namely: 

1. Increase LGU use of BOT (build-operate-transfer) arrangements; 

2. Develop the LGU bond market; 

3. Promote LGU access to private banks; 

4. Optimize the involvement of GFIs in LGU financing; 

5. Restructure and reorient the MDF; 

6. Improve the capacity of LGUs to raise their own revenues; and 

7. Tap ODA technical assistance and financing. 

While several LGUs have used BOT arrangements and bond flotations to build various municipal infrastructure, they do not 

yet have access to loans from private banks that are not government depository banks. While the Local Government Code 

allows LGUs to deposit their funds with private banks, government banks are still preferred and permission is needed from the 

DOF and BSP before LGUs can use private banks. GFIs, on the other hand, have significantly increased their loans to LGUs 

using both their own medium-term internal funds as well as long-term ODA which is not available to PFIs. This is particularly 

important for water supply projects where gradual increase in number of connections and revenues makes loan tenor a very 

important consideration in the decision to borrow. The MDF is now administered by the Municipal Development Fund 

Office (MDFO) under the Office of the Secretary of Finance. The MDFO was created in 1998 after the issuance of EO 41 but 

it received approval for its full personnel complement only in 2007. It has, nevertheless, been able to channel significant 

amounts of ODA to LGUs, either on its own or in partnership with other national government agencies. Own source revenues 

of LGUs as a proportion of their total income have declined since the passage of the Local Government Code and their receipt 

of the Internal Revenue Allotment but they are now being encouraged to increase not only their tax revenues but also non-tax 

revenues such as user fees and charges. A performance-based grant system for LGUs is also being designed to improve LGU 

creditworthiness and performance in various areas including revenue generation. The above initiatives have been supported 

by grants and concessional loans from various ODA sources. The remaining challenge is how to further utilize ODA to 

improve the access of LGUs and other sub-national entities to private capital. The Philippine Water Revolving Fund (PWRF) 

being designed with support from USAID and JBIC is seen as a positive step in this direction. 

37


NG-LGU Cost Sharing Policy 

The guiding principles for the NG-LGU cost sharing policy were laid down in a policy framework paper prepared by the 

NEDA in 1996. Titled “ Policy Framework for National Government Assistance for the Financing of Local Government 

Projects with Environmental and/or Social Objectives”, the paper led to the development of a loan-grant-equity-mix formula 

based on income class and type of subprojects. The first scheme was approved by the Investment Coordination Committee 

(ICC) of the NEDA Board in 1997. The MDFO-PGB prepared a new set of guidelines that were approved by the ICC Cabinet 

Committee during its 12 December 2002 meeting and by the NEDA Board in its 4 February 2003 meeting. The new financing 

mix aims to do the following: 

a) Rationalize the terms of financing assistance to LGUs; 

b) Channel financial assistance to the least creditworthy LGUs; 

c) Partially correct the distortion of the IRA formula which favors cities more than municipalities and provinces; 

and 

d) Expand the coverage to include other devolved activities that have greater impact on development. 

Cluster 1 – Sub-projects that are generally considered as public economic enterprises which include but are not limited to the 

following: 

Public Markets, Slaughterhouses, Bus and Jeepney Terminals, Municipal Wharves and Fish Ports, Post Harvest Facilities, 

Cold Storage Facilities, Ice Plants, Water Supply Level III, Public Memorial Parks 

LGU Income Municipalities and Province 

Cities 

Class Loan Grant Equity Loan Grant Equity 

1 st and 2 nd 0 0 0 0 0 0 

3 rd and 4 th 70 20 10 0 0 0 

5 th and 6 th 40 50 10 0 0 0 

Cluster 2 – Sub-projects that are generally social and green/blue environment-related which include but are not limited to the 


a. Social Sub-projects – Health Centers, Lying-in Clinics and Hospitals, School Buildings, Water Supply Levels I & II, 

Communal Irrigation, Farm-to-Market Roads, Rural Roads or Local Roads, Bridges 

38


b. Green/Blue Sub-projects – Reforestation, Forest-Related Activities, Soil Conservation, Mangrove and Watershed 

Protection, River and Seashore Protection 


Cities 





Cluster 3 – Consists of brown environment-related sub-projects which include but are not limited to the following: 

Solid Waste Management Project, Drainage, Sewerage, Sanitary Support Facilities 

Spillovers and Externalities 


Cities 





1. The policy and institutional reforms that will be recommended in this paper will also help to achieve the following 

objectives: 

Coordinated water sector planning and monitoring at local and national levels 

Effective resource and economic regulation in a decentralized context 

Sector-wide availability of technical assistance and financing options 

Viable and creditworthy water service providers 

Environmentally sustainable and equitable access to water supply 

2. They will require capacity building of all stakeholders including the following: 

 

 

 

Local governments and communities 

Water service providers and financing institutions 

National government agencies and regulators 

39


3. Investments will have to be made not only in water supply but also in the following: 

 

 

 

 

 

 

Sanitation 

Water source and watershed protection including reforestation, solid waste management and monitoring of 

chemical pollution 

Wastewater treatment and sewerage systems 

Capacity building 

Regulatory regime 

Data gathering, pooling and analysis 

4. To enable the general public to understand the measures that have to be taken, an information and education campaign 

should be launched to propagate the following values: 

 

 

 

Water is both a social and economic good 

Water is a finite and vulnerable resource 

Reducing demand for water can decrease need for investments in new water supply facilities. Savings can be 

used for other investments. 

5. To push WSPs to invest more in water supply and sewerage projects, an Independent Water Regulatory Commission 

has to be set up with the following characteristics: 

 

 

 

 

 

Full-time commissioners from different fields of expertise 

A body to oversee economic regulation of all WSPs including WDs, LGUs, MWSS and other private 

concessionaires and water utilities 

Can have regional and field offices 

Will push for full service coverage of water supply and wastewater treatment/sewerage facilities 

Will explicitly include cost of water source and watershed protection in cost-recovery tariffs 

6. The National Water Resources Board needs a revised staffing pattern and a bigger budget so that it may carry out its 

many mandates: 

 

Expand coverage of water permitting system 

40


 

Introduce raw water pricing 

7. Stronger enforcement of environment and other related laws and standards is needed to ensure social and 

environmental sustainability of the water supply and sewerage facilities being built: 

 

 

 

 

 

Clean Water Act 

Sanitation Code 

National Standards for Drinking Water 

Ecological Solid Waste Management Act 

Clean Air Act 

Constraints and Political Feasibility 

There is growing awareness of the need to provide safe water supply for all. In light of the challenges posed by climate change 

and widening pollution of water bodies, treating wastewater, improved sanitation coverage and ecological solid waste 

management are increasingly seen as key elements to achieve this objective. With the collective push from all stakeholders 

including water users, water service providers, local governments and concerned national government agencies and strong 

support from the country’s development partners, the reform objectives outlined in EO 279 and the LGU Financing 

Framework can be achieved in the medium term. Strong leadership by the Oversight Committee as well as its member 

agencies is critical to the successful accomplishment of those objectives. 

One of the obstacles that should be overcome is the Writ of Preliminary Injunction against the implementation of the new 

staffing pattern for LWUA in line with EO 421 and EO 279. Hearings are ongoing and the case hopefully will be resolved 

before the end of the year. The case was filed by the LWUA Employees Association for Progress (LEAP) in view of the 

reduction of the personnel complement by 26 to 35%. Representatives of DBM and LWUA, the respondents in the case, will 

be asked to give their testimonies after the LEAP witnesses have finished giving theirs. 

41


Part VI: Policy Recommendations 

Criteria for Recommending Alternatives 

The policy recommendations that follow are doable and feasible under existing laws and executive issuances, and within the 

existing mandates and capacities of the institutions involved. Some of the proposals may need minor revision of existing 

policies but they are in line with announced policy goals and objectives. 

Description of Preferred Alternative(s) 

Acceptance by all stakeholders of EO 279 as: 

 

 

Directional (no specific penalties or deadlines but with incentive schemes) 

Reform process takes time but objectives should be consistently pursued 

Full implementation of EO 279 by setting up incentive mechanisms for WDs, LGUs and other water service 

providers to increase their investments 

Preparation and advocacy of legislation to create an Independent Economic Regulator 

Outline of Implementing Strategy 

Based on the findings presented in earlier sections, the following action/implementation plan to introduce the appropriate 

incentive schemes for different categories of water districts and other corporate water service providers as well as LGUs is 

recommended for consideration and adoption. 

42


For Water Districts: 

Group I: For the 51 CW water districts and top tier of SCW water districts (or perhaps the 57 that range from Medium 

to Very Large) which should be encouraged to explore various financing options including those from PFIs and GFIs, 

the following efforts should be continued and/or initiated: 

a) LWUA : to update categorization of above WDs using data up to 2007, prepare a short summary of major 

findings for each WD and make these available to interested parties including PFIs and GFIs. 

b) DOF and LWUA: to support ongoing efforts of the USAID and JBIC through the PWRF Support Program and 

other donors to organize training workshops for PFIs and GFIs to familiarize them with WDs and credit 

evaluation of water supply projects so as to encourage them to take the appropriate credit risks. 

c) LWUA with the support of USAID, JBIC and other donors: to organize training courses/study tours/mentoring 

programs for key officials and staff of above WDs to train them in good governance, business planning, 

investment programming and evaluating various financing options including loans from PFIs/GFIs and bond 

flotations. 

d) DOF and LWUA: to provide access for above WDs to a Project Preparation Fund that can help them to finance 

feasibility, willingness to pay and/or detailed engineering studies with training/technology transfer component. 

The studies/training may be done by LWUA or by other parties following standards set by LWUA. 

e) LWUA: to streamline its waiver procedures and refrain from offering loans for water supply projects to WDs 

that can accessprivate capital, except as co-financier and/or provider of technical assistance. 

f) LWUA: to encourage above WDs to undertake sewerage projects by offering long-term loans with use of longterm 

ODA funds. 

g) DOF: to oversee the development of mechanisms to level the playing field between PFIs and GFIs with regard 

to access to long-term ODA funds and to utilize these to tap long-term domestic capital such as pension and 

insurance funds for WD projects. 

h) DOF: to support efforts of the LGU Guarantee Corporation and other institutions to help WDs access private 

capital. 

To encourage the more creditworthy WDs to borrow from their potential financiers and for the latter to actually offer loans to 

deserving WDs, it is essential that the necessary information be made readily available in a systematic fashion. PFIs and GFIs 

need to know more about WDs in general as well as specific WDs that they may be interested in lending to. On the other hand, 

WDs need to have good governance practices, credible business plans and realistic feasibility studies as well as the ability to 

explore and evaluate various financing options. When a possible match between WDs and PFIs/GFIs has been identified 

43


through market forces and information, LWUA should facilitate the finalization of the deal by giving its waiver after due 

diligence of the proposed project or co-financing the loan. LWUA may continue to offer the more creditworthy WDs loans for 

sewerage projects, with co-financing from PFIs, if possible. To encourage PFIs to lend for water supply and sewerage 

projects, ways must be found to use long-term ODA funds to complement the medium-term funds of the PFIs, possibly 

involving LWUA as a specialized lending agency. LWUA and the GFIs should also be encouraged by DOF to use 

concessional ODA funds as credit enhancements for tapping long-term domestic capital. The LGUGC also deserves DOF 

support for its forthcoming capitalization activities. This will enable LGUGC to enlarge the coverage of its guarantee 

functions beyond the CW WDs. 

Group II: For the lower tier of SCW WDs (or perhaps the remaining 94 WDs that are Small or Average) and the 55 

PCW WDs which should be encouraged to improve their creditworthiness and eventually graduate to private financing 

sources, the following efforts should be continued and/or initiated: 

(a) WDs: to form “Graduation Teams” with representatives from the Board of Directors, top and middle 

management, and rank and file employees. 

(b) Graduation Teams: to undergo training courses and lead formulation of a Graduation Plan with mentors from 

LWUA-WDG, other WDs, academe, private sector, international agencies and NGOs. 

(c) Graduation Teams: to identify and push for implementation of graduation measures that do not require 

financial outlays (e.g. improvements in management structure and governance). 

(d) Graduation Teams: to lead the development of proposals to access modest amounts of funds from the 


(e) Efficiency Improvement Fund to improve operational and collection efficiency, reduce and recover costs, train 

personnel, optimize use of ICT (low-interest loan, can be partially converted to a grant based on good 

performance) 

(f) Special Studies Fund to explore amalgamation, resource pooling with LGUs and PSP options (low-interest loan 

can be partially converted to a grant upon adoption of feasible options) 

(g) Project Preparation Fund that can help to finance feasibility, willingness to pay or detailed engineering studies 

with training/technology transfer component (low-interest loan can be paid over time using own funds or in 

lump sum with loan proceeds, some very targeted grants possible.) 

(h) WDs: to prepare water supply and sewerage project proposals with assistance of LWUA-TAG for concessional 

funding (fixed low-interest loans with long-term maturity) by LWUA-WDF. 

(i) LWUA-WDF: to simplify its loan products, terms, conditions and procedures and offer more competitive rates. 

44


Group III: For the 23 NCW WDs, 173 operational WDs that have not yet been categorized according to 

creditworthiness and 141 non-operational WDs which should all be carefully evaluated for potential viability and 

financial self-sustainability, the following steps should be taken: 

(a) 

(b) 

(c) 

(d) 

(e) 

LWUA-WDG: to conduct the above evaluation within a reasonable time frame; 

LWUA-WDG: to work with the DILG and DOF-MDFO and LGUs concerned in exploring the following 

options, depending on the evaluation made by LWUA-WDG; 

WD to be dissolved by its Board of Directors and any remaining assets turned over to the host LGU; 

WD to be annexed to another WD by LWUA; or 

WD to be consolidated or merged with another WD or WDs by LWUA. 

As emphasized in the 2003 Stone and Webster study, to be eligible for graduation programs and concessional financing 

through the LWUA-WDF, a WSP must have the potential to reach creditworthiness, based on a range of indicators including 

service area size, topography, potential customer base, and potential to implement full cost recovery tariffs. This is to ensure 

that scarce resources are given to WSPs that can reach financial self-sustainability. WDs without demonstrated potential to 

reach creditworthiness should therefore not be eligible for financing from the LWUA-WDF. They may receive institutional 

support and advice from LWUA-WDG so that the option with the highest benefit or potential benefit to the concerned 

residents is chosen and implemented well. 

In setting up an incentive framework involving grants or concessional funding, it is essential to clearly define who should not 

be getting those incentives. Otherwise, the system would be abused, resources wasted and the objectives of the incentive 

framework not achieved. Not giving incentives to WDs that have no potential viability does not mean that their residents are 

being abandoned. It only means that an alternative institutional arrangement to meet the water needs of those residents in a 

sustainable manner has to be found. 

For Other Corporate WSPs: 

Group IV: For investor-owned public utility or cooperative corporations, which should also be regulated and assisted 

by LWUA, per PD 198, the following efforts should be initiated: 

a) LWUA : to set up a specialized group to set up standards for corporate WSPs excluding water districts and 

those regulated by contract (e.g.,MWSS, Subic Water). 

b) LWUA: to evaluate and classify them according to their creditworthiness. 

45


c) LWUA: to offer its technical assistance, institutional advice and training programs to these WSPs for a fee. 

d) LWUA: to give the less creditworthy but viable WSPs access to the following funds: 

For LGUs: 

• Efficiency Improvement Fund to improve operational and collection efficiency, reduce and recover 

costs, train personnel, optimize use of ICT (low-interest loan) 

• Project Preparation Fund that can help to finance feasibility, willingness to pay or detailed engineering 

studies with training/technology transfer component (low-interest loan can be paid over time using own 

funds or in lump sum with proceeds of investment loan). 

• Investment Fund for water supply and sewerage projects (loans with market-based interest rates and 

long-term maturity periods) 

Since provinces, cities and municipalities are primarily responsible for ensuring that their constituents have access to 

safe water supply and adequate sewerage services, they should be given the appropriate technical and financial 

assistance by the concerned national government agencies and corporations through the following measures: 

a. DILG: to issue a directive to all provinces to form teams to update their Provincial Water Supply, Sewerage and 

Sanitation Sector Plans (PW4SP) and send these teams to a training/mentoring program jointly organized by 

DILG, LWUA and DOF. (program costs and accommodations to be borne by NG and donors, LGUs to pay for 

travel costs) 

b. As part of the training program, provinces and municipalities are to be made aware of the various WSP options 

and to make/confirm their choice afterwards. 

c. If the province/municipality already has a WD or wishes to create a new WD or annex/consolidate existing 

WDs, assistance to WDs will be provided by LWUA in line with measures identified earlier for Groups I, II or 

III, as appropriate. 

d. If the province/municipality already has a corporate WSP other than a WD, assistance will be provided through 

the measures mentioned above for Group IV. 

e. If the province/municipality wishes to run or continue to run their own water utility, assistance will be provided 

according to definite guidelines on the condition that the water utility is viable or potentially viable. 

f. The DOF-Bureau of Local Government Finance (BLGF): to categorize the provinces and municipalities that 

run or wish to run their own water utility according to their creditworthiness and make the assessment available 

46


to PFIs interested in lending to them. Categorization guidelines were drafted in 2007 under a technical 

assistance grant from the Asian Development Bank. 

Group V: For Creditworthy LGUs which should be encouraged to explore various financing options including those 

from PFIs and GFIs, the following efforts should be continued and/or initiated: 

(a) 

(b) 

(c) 

(d) 

(e) 

(f) 

(g) 

(h) 

DOF: to support ongoing efforts of the USAID and JBIC through the PWRF Support Program and other donors 

to organize training workshops for PFIs and GFIs to familiarize them with LGUs and credit evaluation of Level 

III water supply projects so that they may be encouraged to take the appropriate credit risks. 

DOF and DILG with support of USAID, JBIC and other donors: to organize training courses/study tours for 

key officials and staff of above LGUs to train them in good governance practices, investment programming and 

evaluating various financing options including loans from PFIs/GFIs and bond flotations. 

DOF-MDFO, DILG and LWUA: to provide access to a Project Preparation Fund that can help to finance 

feasibility, willingness to pay and/or detailed engineering studies for water supply and sewerage projects, with 

training/technology transfer component. The studies/training may be done by LWUA and DILG or by other 

parties following standards set by LWUA and DILG. 

LWUA: to offer fee-based technical assistance to LGUs for operating and maintaining water supply facilities 

and to encourage WDs to do the same. 

Creditworthy provinces and municipalities may also be eligible for 30% grants through the DOF-MDFO for 

Level I or II water supply facilities for poor, marginalized or vulnerable groups or communities. 

DOF-MDFO and GFIs: to encourage above LGUs to undertake sewerage projects by offering long-term loans, 

possibly with co-financing from PFIs and technical assistance from LWUA. 

DOF: to oversee the development of mechanisms to level the playing field between PFIs and GFIs with regard 

to eligibility to accept LGU deposits and access to long-term ODA funds and to utilize these to tap long-term 

domestic capital such as pension and insurance funds for LGU projects. 

DOF: to support efforts of the LGU Guarantee Corporation and other institutions that help LGUs access private 

capital. 

In line with the LGU Financing Framework, creditworthy LGUs are encouraged to improve their access to private capital 

through loans from PFIs or bond flotations. To achieve this objective, the LGUs need to have good governance and cost 

recovery practices, realistic feasibility studies as well as the ability to explore and evaluate various financing options. 

Creditworthy LGUs may still be eligible for grants equivalent to 30% of capital costs of Level I or II water facilities in line 

with the NG-LGU Cost Sharing Policy approved by the NEDA Board in 2003 (with creditworthiness replacing income class as 

47


the basis for eligibility for matching grants). Long-term loans for sewerage projects should also be made available by the GFIs 

or DOF-MDFO. To ensure sustainability of their investments, it is essential that LGUs continue to have access to technical 

assistance even after loans have been fully drawn. Arrangements can be made with LWUA and/or neighboring water districts 

to avail of their technical expertise for free or for a fee. 

For their part, PFIs need to know more about LGUs in general as well as specific LGUs that they may be interested in lending 

to. To encourage PFIs to lend for water supply and sewerage projects, ways must be found to use long-term ODA funds to 

complement the medium-term funds of the PFIs, possibly involving the DOF-MDFO and GFIs. The policy issue regarding the 

use of PFIs as LGU depository institutions ought to be resolved soon. The GFIs should also be encouraged by DOF to use 

concessional ODA funds as credit enhancements for tapping long-term domestic capital. The LGUGC also deserves DOF 

support for its forthcoming capitalization activities that will enable LGUGC to enlarge the coverage of its guarantee activities. 

Group VI: For the Semi-creditworthy LGUs which should be encouraged to improve their creditworthiness and 

develop viable water utilities, the following efforts should be continued and/or initiated: 

(a) 

(b) 

(c) 

(d) 

(e) 

(f) 

(g) 

LGUs: to form a dedicated water services group or department or provincial/municipal economic enterprises 

office to operate its water utility as professionally as possible. 

LGUs: to do separate accounting for revenues and costs related to its water utility to be able to determine net 

revenues generated. 

LGUs: to participate in the Local Government Performance Monitoring System (LGPMS) administered by the 

DILG, prepare and make public its State of Local Governance Report, and submit its Statement of Income and 

Expenditures regularly to the DOF-BLGF. 

LGUs : to develop proposals to access any of the following funds to be administered by the DOF-MDFO in 

collaboration with the DILG and LWUA. 

Water Governance and Efficiency Improvement Fund for LGUs to improve their water utility’s institutional 

cost recovery and accounting set-up as well as operational and collection efficiency (low-interest loan, can be 

partially converted to a grant based on good performance). 

Special Studies Fund for LGUs to explore clustering, other WSP or PSP options (low-interest loan can be 

partially converted to a grant upon adoption of feasible options). 

Project Preparation Fund that can help to finance feasibility, willingness to pay or detailed engineering studies 

for water supply or sewerage projects, with training/technology transfer component (low-interest loan can be 

paid over time using own funds or in lump sum with loan proceeds, some very targeted grants possible. 

48


(h) 

(i) 

Investments Fund for water supply and sewerage projects with loan terms and conditions based on nature of the 

project and LGU’s capacity to pay. These may include low-interest loans with long-term maturity or fixed 

market-based interest loans with long-term maturity and matching grants based on NG-LGU Cost Sharing 

Policy approved by the NEDA Board in 2003, with Semi-creditworthy LGUs eligible for the same grants as 

LGUs in the 3 rd and 4 th income classes). 

LWUA: to offer fee-based technical assistance to LGUs for maintaining and repairing water supply facilities 


In line with the LGU Financing Framework, LGUs are encouraged to improve their creditworthiness over time so that they 

may gain access to private capital. To achieve this objective, LGUs need to increase their own source revenues. Some LGUs 

see the provision of water supply as a potential source of such revenues. However, these LGUs need to make sure that this 

activity will indeed bring in the expected net revenues by adopting the appropriate cost control and recovery policies and other 

best practices of water utilities. These LGUs should also undertake self-assessment activities facilitated by the LGPMS and 

comply with the financial reporting requirements of various government agencies including the BLGF. 

With its many years of experience of lending and giving grants to LGUs, the DOF-MDFO is in a very good position to create 

and offer various financing facilities for LGUs that choose to operate their own water utility. The MDFO can channel Official 

Development Assistance to LGUs as well as use these grants and concessional loans to leverage private capital and its own 

second-generation funds. Using the latter, the MDFO is presently offering through the MDGs Fund low-interest loans for 

Level I and II water supply facilities in 4 th to 6 th class municipalities. New foreign-assisted projects to be implemented by 

MDFO are currently being prepared and they can provide additional funds for water supply and sewerage projects of LGUs. 

The design of the new projects will be guided by the NG-LGU Cost Sharing Policy approved by the NEDA Board in 2003. It 

is proposed that the Semi-creditworthy LGUs be made eligible for the same grants as the LGUs in the 3 rd and 4 th income 

classes, namely, 20% grant for Level III water supply and 40% grants for Level I and II water supply and sewerage projects. In 

line with the NG-LGU Cost Sharing Policy, the latter grants should be used to achieve social objectives such as providing 

basic water supply services to poor, marginalized or vulnerable groups or communities. 

To ensure sustainability of their investments, it is essential that LGUs continue to have access to technical assistance even after 

loans have been fully drawn. Arrangements can be made with LWUA and/or neighboring water districts to avail of their 

technical expertise for free or for a fee. 

49


Group VII: For Pre-creditworthy LGUs which should be encouraged to improve their creditworthiness and develop 

viable water utilities, the following steps are recommended: 

(a) 

(b) 

(c) 

(d) 

(e) 

(f) 

(g) 

(h) 

(i) 

LGUs : to form a dedicated water services group or department or provincial/municipal economic enterprises 

office to operate its water utility as professionally as possible. 

LGUs : to do separate accounting for revenues and costs related to its water utility to be able to determine net 

revenues generated. 

LGUs : to participate in the Local Government Performance Monitoring System (LGPMS) administered by the 

DILG, prepare and make public its State of Local Governance Report, and submit its Statement of Income and 

Expenditures regularly to the DOF-BLGF. 

LGUs: to develop proposals to access any of the following funds to be administered by the DOF-MDFO in 

collaboration with the DILG and LWUA. 

Water Governance and Efficiency Improvement Fund for LGUs to improve their water utility’s institutional, 

cost recovery and accounting set-up as well as operational and collection efficiency (low-interest loan, can be 

partially converted to a grant based on good performance) 

Special Studies Fund for LGUs to explore clustering, other WSP or PSP options (low-interest loan can be 

partially converted to a grant upon adoption of feasible options) 

Project Preparation Fund that can help to finance feasibility, willingness to pay or detailed engineering studies 

for water supply or sewerage projects, with training/technology transfer component (low-interest loan can be 

paid over time using own funds or in lump sum with loan proceeds, some very targeted grants possible.) 

Investments Fund for water supply and sewerage projects with loan terms and conditions based on nature of the 

project and LGU’s capacity to pay. These may include low-interest loans with long-term maturity or fixed 

market-based interest loans with long-term maturity and matching grants based on NG-LGU Cost Sharing 

Policy approved by the NEDA Board in 2003, with Pre-creditworthy LGUs eligible for the same grants as 

LGUs in the 5th and 6 th income classes). 

LWUA : to offer fee-based technical assistance to LGUs for maintaining and repairing water supply facilities 


Unlike water districts or other WSPs, all LGUs are potentially creditworthy since they have incomes other than revenues from 

their water services. In particular, they have their Internal Revenue Allotment (IRA) or their share of the internal revenues of 

the National Government. Still, LGUs will need to increase their own source revenues if they are to improve their 

creditworthiness. The provision of water supply services is seen by some LGUs as a potential means of generating such 

50


revenues. The NG-LGU Cost Sharing Policy approved by the NEDA Board in 2003 expanded the list of devolved activities 

that could be supported to include revenue-generating subprojects such as Level III water supply facilities. Since measures of 

creditworthiness of LGUs have recently been developed, although not yet officially adopted, the NG-LGU Cost Sharing Policy 

can be modified in the near future to make creditworthiness rather than the income class of the LGU the basis for determining 

the level of grant support. In particular, it is proposed that the Pre-creditworthy LGUs be made eligible for the same grants as 

the LGUs in the 5th and 6 th income classes. Such grants include a 50% grant for Level I, II and III water supply and 

sewerage projects of provinces and municipalities, and a 30% grant for Level I and II water supply and 20% grants for 

sewerage projects of cities. In line with the social objectives of the NG-LGU Cost Sharing Policy, the grants for Level I and II 

water supply should be used to provide basic water supply services to poor, marginalized or vulnerable groups or communities. 

LWUA: 

As the main repository of technical and institutional expertise in the water sector and specialized lending agency for WDs and 

other WSPs, LWUA will continue to play a major role in increasing investments in water supply and sewerage facilities and 

making them technically, financially, institutionally, sociallly and environmentally sustainable. For LWUA to be able to carry 

out its mandates, it must improve itself as a conduit of funds from the National Government, ODA and even the private sector 

and make itself more financially self-sustainable. 

To achieve these objectives, it is strongly recommended that LWUA undertake the following activities within a reasonable 

time frame: 

(a) 

(b) 

(c) 

(d) 

(e) 

(f) 

(g) 

Update categorization of 280 WDs using data up to 2007 and divide the SCW WDs into upper and lower tiers 

so the upper tier can join Group 1 and the lower tier can join Group 2, as described above. 

Evaluate the potential viability and creditworthiness of the NCW WDs, operational WDs that have not yet been 

categorized and non-operational WDs and give advice on the best institutional options to pursue. 

Evaluate the creditworthiness of WSPs with corporate form other than water districts and make them eligible 

for its technical and financial assistance, as appropriate. 

Develop new financial products for new and existing clients, as mentioned above. 

Intensify efforts to collect its accounts receivables from old clients so that it may improve its own 

creditworthiness. 

Develop new technical assistance and institutional advisory products and services with attractive and 

competitive terms for WDs, other corporate WSPs, LGUs and financiers. 

Incorporate the above in a business plan until 2015 showing how they can help the country achieve the MDGs. 

51


(h) 

Develop a long-term strategic plan showing how increases in its capitalization and domestic and foreign 

borrowing authorities will enable LWUA to carry out its mandates including those specified in EO 279. 

MDFO: 

Although LWUA is mandated by its charter to provide financial, technical and institutional support to all local water utilities 

including those run by LGUs, it has so far extended such support only to water districts and some RWSAs. EO 279 seeks to 

prepare LWUA to carry out its full mandate but it may take a longer period of time before LWUA can develop the capacity to 

service LGUs and for LGUs to retool their financial statements and institutional set-ups to approximate the more corporate 

clients that LWUA has been used to dealing with. The more appropriate instrument to use in the immediate sense is the 

Municipal Development Fund. This Fund was created in 1984 by PD 1914 precisely to provide financing support to LGUs 

from ODA as well as loan repayments from LGUs. The MDF Office created by EO 41 in 1998 was also tasked to provide 

technical assistance to LGUs “to enhance their capacity to conduct project identification and selection, loan proposal 

preparation, and project management and monitoring”. As mentioned in Part I, the MDFO has been funding water supply 

projects of LGUs as part of foreign-assisted projects to finance municipal infrastructure, rural development and agrarian 

reform communities. It has also been collaborating with DILG to train LGUs in water supply facilities management. 

In view of the need for LGUs to fast-track their planning and implementation of water supply projects in order to meet the 

MDGs, the MDFO may wish to consider the following as it draws up its strategic plan for the future: 

(a) 

(b) 

(c) 

(d) 

Enhancement of its role in providing financing for water supply and sewerage projects, including their 

preparation, as part of demand-driven financing facilities where LGUs can choose a water supply project from a 

menu of options or set up a financing facility dedicated to water supply and sewerage projects, using its secondgeneration 

funds and/or new ODA inflows. 

Making creditworthiness ratings being developed by DOF-BLGF instead of income class the loan-grant-equity 

mix for devolved activities. 

Working with DILG and LWUA to provide technical assistance to LGUs in choosing/confirming their choice of 

WSPs, preparing their Water Supply, Sewerage and Sanitation Sector Plans, implementing or monitoring the 

implementation of water supply projects including their operation and maintenance after project completion. 

Finding ways to attract private capital into the WSS sector including innovative ways to leverage ODA. 

52


DILG: 

As the national government agency tasked to provide capacity building interventions for LGUs and to guide LGUs in the 

preparation of the Provincial Water Supply, Sewerage and Sanitation Sector Plans (PW4SP), the DILG may consider the 


(a) 

(b) 

(c) 

(d) 

(e) 

(f) 

Mobilizing more resources for the Water Supply and Sanitation Project Management Office (WSS-PMO) to be 

able to organize together with the MDFO and LWUA training and mentoring programs for all provinces in 

updating their PW4SP and for creditworthy LGUs to access private capital. 

Coordinating the efforts of the WSS-PMO with the DILG’s Bureau of Local Government Supervision and 

Bureau of Local Government Development to encourage LGUs to participate in the LGPMS with its focus on 

improving service delivery and link their water supply, sanitation and sewerage plans to their land use and local 

development plans. 

Coordinating with the NEDA in advocating an integrated and equitable approach to providing water supply to 

both the rural and urban areas of LGUs including the poor and deprived communities in the urban areas. 

Working with the LWUA and MDFO to encourage LGUs to consider various WSP options and assist them in 

making the best possible decision based on future viability and bankability. 

Working with the MDFO and GFIs to extend accessible and attractive financing for water supply and sewerage 

projects and preparing LGUs for the task of operating their own water utility, one they decide to do so . 

Working with the LWUA to provide technical assistance to LGUs before and after project implementation. 

Oversight Committee 

In order to carry out its tasks under EO 279, the Oversight Committee may wish to consider the following next steps: 

(a) 

(b) 

(c) 

Consideration of and actions on all the foregoing recommendations; formulation and approval of an 

action/implementation plan including incentive schemes for LWUA, WDs and LGUs to pursue the graduation 

process envisioned by EO 279. 

Close monitoring of the updating and completion of the categorization process for all WDs by LWUA and the 

coordination among LWUA, DILG and DOF to assist the concerned WDs and LGUs in exploring more viable 

options including amalgamation and private sector participation. 

Review of the medium-term business plan and long-term strategic plan of LWUA; appropriate support for 

proposed increase in its capitalization and domestic and foreign borrowing authorities. 

53


(d) 

Spearheading the preparation of draft legislation to establish an independent economic regulator for all WSPs 

including LGU-run utilities and private operations now being regulated by contract. 

Provisions for Monitoring and Evaluation 

1. Monitoring of loans and grants and the benefits felt by target beneficiaries to evaluate the extent and degree to 

which national objectives are being attained. LGUs can set up the data gathering, monitoring and evaluation 

system by applying for the Water Investments Planning and Monitoring Fund which also financed the training 

programs for LGUs to prepare their WSSS plan. 

2. Monitoring of PFI lending to WSPs to ensure that only the creditworthy ones are receiving loans in amounts 

that are within defined limits. DOF to collaborate with PDIC and BSP to monitor and regulate PFI loans to 

LGUs, WDs and other WSPs. 

Limitations and Unanticipated Consequences 

Lending by PFIs for water supply projects should be based on balanced and validated information about their WD and 

LGUclients and the sustainability of the water supply facilities built or expanded. Technical support for the lending decisions 

should be made readily available by competent personnel,including those from LWUA. The lending activities of PFIs need to 

be monitored closely and carefully as mentioned above to avoid the usual pattern of over-lending and foreclosures by PFIs like 

what happened during the international debt crises of 1984 and 1997 and the ongoing sub-prime crisis in the United States. 

54


References 

Banluta, Fe. “LGU-Operated and Managed Waterworks Systems” presented at the Training Workshop on Water Sector 

Overview and Water Supply and Sanitation Project Appraisal, Quezon City, 22-23 August 2007. 

Banluta, Fe. “Provincial Water Supply, Sewerage and Sanitation Sector Planning (PW4SP)” presented at the Workshop on 

Setting the Water Supply Sector Policy Agenda, Quezon City, 28 January 2008. 

Congress of the Philippines. Republic Act No. 7160 “An Act Providing for a Local Government Code”, 1991. 

Department of Budget and Management. “Budget of Expenditures and Sources of Financing”, 2001 to 2007, 

www.dbm.gov.ph/dbm_publications/all_pub_2006.htm. 

Department of Finance. “LGU Financing of Basic Services and Infrastructure Projects: A New Vision and Policy Framework”, 

December 1996. 

Investment Coordination Committee of the NEDA Board. “Policy Framework for National Government Assistance for the 

Financing of Local Government Projects with Environmental and/or Social Objectives”, May 1996. 

Municipal Development Fund Office of the Department of Finance. “Guiding Principles and NG-LGU Cost Sharing Policy in 

the Evaluation and Processing of Projects Involving Devolved Activities”, November 2002. 

Pellegrini, Anthony and Soriano, Ma. Cecilia. “A Study to Revisit the LGU Financing Framework and Its Implementation” 

submitted to Department of Finance, August 2002. 

Pellegrini, Anthony, Gebhardt, J., Soriano, M.C. and Sy, J. “Study on a Financing Framework for Water Districts” submitted 

to the World Bank, March 2005. 

Pellegrini, Anthony, Soriano, M.C., et. al. “Status Report/Issues Paper on LGU Financing in the Philippines” submitted to the 

World Bank, October 2006. 

Porciuncula, Alma. “The Proposed USAID-JBIC Supported Philippine Water Revolving Fund” presented at LCP-PEMSEA 

Seminar and LGU Sharing Forum on Financing Sustainable Environmental Projects, Manila, 26-28 April 2006. 

55


Reinoso, Ruben Jr. “Welcome Remarks at the Opening Ceremony of the First National Conference on Small Water Service 

Providers”, Quezon City, 9 August 2007. 

Salman, S. and McInerney-Lankford,S. “The Human Right to Water: Legal and Policy Dimensions”, The World Bank, 

Washington D.C., 2004. 

SAPROF Team for Japan Bank for International Cooperation (JBIC). “Special Assistance for Project Formation (SAPROF) for 

the Philippine Water Revolving Fund”, December 2006. 

Stone & Webster Consultants, IDP Consult, Inc., et. al. “Study on Reforms in the Financing Policies in the Water Sector, 

Graduation Policies in the Water District and Approaches to Various Regulatory Issues” submitted to Department of Finance, 

August 2003. 

Soriano, Ma. Cecilia . “Paper on the Application of Zero Grant Policy on Non-LISCOP Projects” submitted to Laguna Lake 

Development Authority and Municipal Development Fund Office, June 2007. 

Soriano, Ma. Cecilia and Test Consultants. “Rural Water: Models for Sustainable Development and Sector Financing” 

prepared for Water Supply and Sanitation Performance Enhancement Project, August 2003. 

Soriano, Ma. Cecilia, Demigillo, R. and Cortez, M. “Draft Final Report for the Preparation of an Incentive Framework for 

LWUA and Water Districts to Support the Graduation Process under Executive Order No. 279” submitted to the World Bank, 

December 2007. 

World Bank. “Philippines Environment Monitor: Water Quality”, Manila, 2003. 

56


Year Project Title Conduit 

World Bank 

1991 - First Water 

1998 Supply, 

Sewerage & 

Sanitation Sector 

Project (FW4SP) 

1999 - 

2004 

2000 – 

2007 

1998 – 

2004 

Water District 

Development 

Project 

LGU Urban 

Water Supply 

Project 

Community 

Based Rural 

Management 

Project 

(CBRMP) 

construction 

materials and 

funds for civil 

works from 

DPWH, 

sanitation 

component 

from DOH, 

capacity 

building and 

training fro 

DILG 

Annex Table 1. Foreign Loans for Water Supply Projects 

Loan 

Amount 

Project 

Cost 

Eligible Projects 

P203.3 M Level 1 water 

system, household 

latrines 

LBP Loans $56.8 M Water supply, 

sanitation, 

drainage, 

wastewater 

treatment 

DBP Loans/ 

DILG 

MDFO Loans 

and Grants 

$250 M Level 3 water 

system, sanitation, 

urban drainage, 

project 

preparation, 

training of LGUs 

$ 33 M Level I & 2 water 

system, farm to 

market roads, 

rehabilitation of 

upland & coastal 

Eligible 

Beneficiaries 


1 st to 3 rd class 

LGUs, WDs 

Coverage 

29 provinces 

of Luzon 

Nationwide 

(outside of 

Metro 

Manila) 

Small & Nationwide 

medium sized 


and cities with 

no water 

districts or their 

water districts 

are not in 

LWUA’s 

current program 

of assistance 

All LGUs Regions 5, 7, 

8, 13 

57



2001 – 

2006 

2000 – 

2003 

Local 

Government 

Finance & 

Development 

Project 

(LOGOFIND) 

Mindanao Rural 

Development 

Project (MRDP) 

Asian Development 

Bank 

1999 – Small Towns 

2005 Water Supply 

1998- 

2003 

2002 – 

2007 

Sector Project 

Rural Water 

Supply and 

Sanitation Sector 

Project 

(RW3SP) 

Infrastructure for 

Rural 

Productivity 

Enhancement 

Sector Project 

(INFRES) 

MDFO Loans 

and Grants 

Loan 

Amount 

Project 

Cost 


resources 

$ 60 M Water supply, 

other revenue & 

non-revenue 

generating 

municipal 

infrastructure, 

social & 

environmental 

projects 

DA Grants $ 27.5 M Level 1 water 

system, communal 

irrigation, farmto-market 

roads 

LWUA Loans $ 24.8 M $ 50 M Level 3 water 

system 

construction 

materials and 

funds for civil 

works from 

DPWH, 

sanitation 

component 

from DOH, 

capacity 

building and 

training fro 

DILG, 

$57.4 M Level 1 water 

system, sanitation, 

capacity building 

for LGUs, 

formation and 

training of 

BWSAs 

DA Grants $ 75 M $ 150 M Level 1 & 2 water 

system, communal 

irrigation, roads 

and other access 

infrastructure 

Eligible 

Beneficiaries 

All LGUs 

Selected 

municipalities in 

5 provinces 

WDs 

Barangay Water 

and Sanitation 

Associations 

(BWSAs) 

All LGUs 

Coverage 

Nationwide 

Mindanao 

Nationwide 

20 Social 

Reform 

Agenda 

(SRA) 

provinces 

Island 

provinces in 

Region 4, 5, 

8, and 

Mindanao 

2002 – Mindanao Basic LBP Loans/ $ 60 M Water supply, LGUs with Mindanao 

58



2007 Urban Services 

Sector (MBUSS) 

Project 

JBIC 

1999 – 

2005 

Local 

Government 

Units Support 

Credit Program 

(LGUSCP) 

KFW 

1999 Provincial 

Towns Water 


Sanitation 

Program – Phase 

1 & 2 

2004 Provincial 

Towns Water 


Sanitation 

Program – Phase 

3 

DILG 

LBP Loans 

Loan 

Amount 

LWUA Loans PhP 870 

M 

LWUA Loans 

Euros 

10.2 M 

Project 

Cost 

PhP 

1.175 B 


drainage & 

sewerage, solid 

waste 

management, 

urban roads & 

bridges, public 

market 

improvement, bus 

terminals, 

slaughterhouse, 

tourist & 

recreational 

facilities 

Water supply, 

sanitation, flood 

control, waste 

disposal, forestry, 

health projects, 

low-cost housing 

projects 

Level 3 water 

system 

Level 3 water 

system 

Eligible 

Beneficiaries 

population over 

20,000 

Credit worthy 

LGUs 

WDs 

WDs 

Coverage 

Nationwide 

Nationwide 

Nationwide 

59


Year Project Title Conduit Grant 

Amount 

UNDP 

1994- 

1998 

JICA 

2005 - 

2010 

USAID 

Institution 

Building for 

Decentralized 

Implementation of 

Community 

Managed Water 


Sanitation 

Small Water 

Districts 

Improvement 

Project 

Pilot Support for 

Regional and 

Local Water 

Supply Project 

Annex Table 2. Foreign Grants for Water Supply Projects 

Project 

Cost 

Eligible 

Projects 

DILG $1,367,737 Level 1 and 2 

water systems 

and sanitation 

services 

LWUA 

Grants 

LWUA 

Grants 

PhP 100 M Personnel 

training, Level 

3 water system 

improvements 

Target 

Beneficiaries 

Poor 

communities 

Small & less 

credit worthy 

WDs 

Laguna Water 

District and 

Misamis 

Occidental 

Water District 

Coverage 

Agusan del 

Sur, Apayao, 

Capiz, 

Cotabato, 

Kalinga, 

Surigao del 

Sur, 

Zamboanga 

del Sur 

Nationwide 

Pilot Phase 

60

Credit, Financing and Investments in the Water Supply Sector Dr. Ma ...

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