An Analysis of 35 Water Districts Prospects and Pitfalls in ... - WSP

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Formed at the option of local governments, water districts are local publiccorporations serving urban areas that have a population of more than 20,000people.These water districts serve the largest portion of the urban populationwith house connections.Executive SummaryWater districts—local public corporations serving urbanareas with a population of at least 20,000 people—serve thelargest portion of urban populations with house connectionsof all providers in the Philippines. This Field Note looks intothe experience of integration among municipalities and citiesunder a water district structure. Using data from 35 integratedand 109 nonintegrated water districts, the study confirms thepotential advantage of increasing scale to the reduction ofunit costs. However, the study notes that integrated waterdistricts did not perform as well as nonintegrated waterdistricts of the same size because of higher fixed costs andgreater inefficiency.IntroductionThe biggest challenge for integratedwater supply in the Philippines is toimprove effi ciency in order to take fulleradvantage of economies of scale. This isa key fi nding of this empirical study of 35integrated water districts.The Philippine water supply sector ischaracterized by large numbers of serviceproviders – almost 2,000. There are manytypes of water operators, but across theboard, the large majority of these aresmall in scale. 1 Sector policy makersare therefore interested in understandingwhether integration, identifi ed by a singleadministrative structure providing servicesto more than one city or municipality,could be a strategy to increase access tosustainable services.The StudyIntegration outcomes were examined,primarily from water district data. Threeyearperformance and fi nancial data (2003to 2005) for 35 integrated water districtswere analyzed, and compared withparallel data from nonintegrated waterdistricts. To control for the effects of sizeand system design in the comparison,systems were categorized by type andsize, as shown in Tables 1 and 2.Table 1. Water Supply SystemsCategorized by TypeSystem 1System 2System 3Pump-fed (either sourcesupply or distribution) withchlorinationPump-fed with watertreatment facilityGravity-fed (both source anddistribution) with chlorination1 In 2007, representatives of the Philippine water sectormade several attempts to defi ne a “small” utility, but noconsensus was reached. However, Local Water UtilitiesAdministration (LWUA) water districts, which numberaround 468, are grouped by size into fi ve categories.Those categorized as small have a maximum of 2,000service connections. In addition, about 90% of around200 water cooperatives that have fewer than 2,000service connections have generally been categorized assmall utilities.2
Prospects and Pitfalls in Integrated WaterServices in the PhilippinesTable 2. Water Supply SystemsCategorized by SizeGroup AGroup BGroup CGroup DGroup EGroup FGroup GGroup HGroup Iless than 1,000 serviceconnections1,000 to < 2,000 serviceconnections2,000 to < 3,000 serviceconnections3,000 to < 4,000 serviceconnections4,000 to < 6,000 serviceconnections6,000 to < 8,000 serviceconnections8,000 to < 10,000 serviceconnections10,000 to < 30,000 serviceconnections30,000 and aboveWater district management andoperations are governed by a special law,which may affect some of the results. Thegeneral conclusions, however, were alsoobserved in the few cases of integrationinvolving nonwater districts, which arenot discussed in this note. 2Integration of WaterDistrictsFormed at the option of localgovernments, water districts are localpublic corporations serving urban areasthat have a population of more than20,000 people. They are establishedwith the support of a specialized nationallending institution, the Local WaterUtilities Administration (LWUA). Of allproviders, these water districts serve thelargest portion of the urban populationwith house connections – around 14million people in total.The Provincial Water Utilities Act of1973 stipulates rules on the formationof integrated water districts and allowsfor the consolidation of assets or jointoperation of services based on a fi nding2 De Vera, Calderon and Sy, ”Philippine Experience inIntegrated Water Supply Systems” (2008).of ‘best interest’ by LWUA and followinga public hearing.Number and Coverage: There are 45integrated water districts. Together, theyaccount for a quarter of the total numberof connections provided by the country’s468 water districts, which is an indicationof their size advantage. Fourteen of theseintegrated water districts fall within thesecond largest size category (between10,000 and 29,999 connections).Twenty-seven serve between three andnine municipalities or cities, while theremaining 18 cover just two municipalities(see Figure 1).Scope of Integration: Just under half of thesystems (20) are unifi ed by a single systemand network covering the service area;another 21 are clustered, with separateproduction and distribution systemsunder one entity; and four systems havebulk water supply arrangements.Where are theEconomies of Scale?A potential advantage of integrating watersupply services across administrativeunits is reduction of unit costs as scaleincreases.Figure 1. Integrated Water Districts by SizeNo. of Integrated Water Districts1614121086420The study found that in nonintegratedwater districts, cost per cubic meterdecreased with growth in utility size fromcategory A (< 1000 service connections) tocategory E (< 6000 service connections),before rising and remaining constantuntil the utility size reached category I (>30,000 service connections), as shown inFigure 2.Figure 2. Cost of Water (per cubicmeter) by Utility SizeCost per m3 (PHP)181614121086420A B C D E F G H ISize CategoryReturns to scale were further measuredusing a simple linear model thatforecasted the change in cost if thevolume of production was doubled. Onlydata from water districts using pumpfedwith chlorination systems (type 1)were studied, and only for utilities in sizecategories A, C, D, E, F, H and I, sincethese were the only categories that yieldedsuffi cient numbers of observations. Theforecasting was done for both integratedSize Category< 999 1000 - 1,999 2,000 - 2,9993,000 - 3,999 4,000 - 5,999 6,000 - 7,9998,000 - 9,999 10,000 - 29,999 30,000 and above3
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