Water Privatization

Manila

Background: why did Manila privatize?

By the early 1990s, Manila’s public state-run utility, Metropolitan Waterworks and Sewerage System (MWSS), was failing, as it served only two-thirds of the population with intermittent water supply (16 hours a day) and lost over half its water through leaks, faulty measures and theft. Sewerage coverage was just 8%, and Government rules made procurement extremely slow and vulnerable to legal disputes, stalling major infrastructural projects like the Umiray-Angat Transbasin Project (Dumol, 2000, pp. 16–17). Hiring delays, red tape, and susceptibility to court cases hindered project execution. Privatization was seen as a way to circumvent this gridlock.

Furthermore, they were overstaffed with 13 employees per 1,000 connections which was 2 to 5 times the regional norm—and civil service protections made streamlining difficult (Dumol, 2000,p. 18). Financially, it relied heavily on government subsidies and loans, and couldn’t self-fund the $7 billion investment needed over 25 years (Dumol, 2000, p. 19).

The government, facing financial constraints and institutional inefficiencies, turned to privatization. In 1997, under the Water Crisis Act and with strong backing from President Fidel Ramos, MWSS was split into two concession zones and handed to private operators. The move was influenced by successful privatization efforts in the power sector and international models like Buenos Aires. Policymakers believed only the private sector could deliver urgently needed investment and improved service delivery.

Privatization and The IMF/World Bank

The Water Crisis Act allowed the negotiation of contracts for the water sector, reorganized MWSS, and criminalized water theft. The Act became the legal basis for privatization (Dumol, 2000, p. 26). The World Bank's International Finance Corporation served as the primary advisor to the Government of the Philippines on the planned privatization of MWSS at a fee of US$6.2 million (World Bank, 1995) (Perez-Corral, 2003). The World Bank (WB) and the Asian Development Bank (ADB) held $250 million of MWSS's total $307 million in long-term loans and the IFC held an equity share of $15 million (Perez-Corral, 2003) (Corporate Accountability, 2017).

The privatization plan specified that 25-year concession contracts would be granted through a competitive bidding process (Foshee et al., 2008). At the same time, MWSS would relinquish its role as the water distributor for Manila and shift to a regulatory function. Additionally, the plan included having two separate providers for the East Zone and the West Zone of Manila (Foshee et al., 2008).

The West Zone comprised 60% of Manila's population, mostly low-income people, while the East Zone housed most of the city's wealth (Foshee et al., 2008). Dual privatization was intended to create competition between concessionaires and backups for failure. However, both had to ensure water was provided indiscriminately. A consortium called Maynilad-Ondeo secured the bid for the West Zone and created the Maynilad Water Services, Inc., while the Manila Water Company was awarded the East Zone (Foshee et al., 2008).

The argument for privatization included that the private sector would attract foreign investment to help expand water services, reducing the financial strain on the national government, which subsidized MWSS. Additionally, the private sector would provide more efficient, less politicized, and less corrupt services (Perez-Corral, 2003).

Goals of Privatization

Maynilad Water Services and Manila Water promised to (Foshee et al., 2008) (Perez-Corral, 2003):

Reduce water rates or no real increase for the first 10 years.
Ensure 24-hour water supply.
100% coverage by 10 years.
Increase water pressure.
Meet World Health Organization standards. The wastewater program aimed to significantly improve public health and the environment.
Invest $7.5 billion in infrastructure and contribute an extra $4 billion in income tax revenues during the contract period. Help pay off MWSS’s $800 million debt through concession fee payments.

Impacts

Efficiency and Access:

West Zone

In the West Zone, residential service coverage increased from 58% before privatization to 84% after. As household coverage in the West Zone grew, operational efficiency decreased. More water was wasted with the increase in connections, leading to more losses due to higher operating costs. Some of this water was stolen and leaked to a growing black market, worth millions of pesos, due to the ongoing lack of service coverage (Foshee et al., 2008). Within a year, Maynilad-Ondeo started renegotiating its contract to allow for higher rates (Foshee et al., 2008). Over the next three years, the company renegotiated six more times and was rejected at the seventh request due to poor performance. Despite the rate increases, service stayed poor. Daily water supply and pressure targets were not met, expansion goals were delayed by up to five years, and nearly 600,000 of the West Zone's poorest residents still lacked water by 2003 while rates increased (Foshee et al., 2008) (Perez-Corral, 2003). Non-revenue water (NRW), water lost to leakages, unauthorized connections or disproportionate metering that is not billed or paid for, rose from 60% in 1998 to 68% in 2002 (Perez-Corral, 2003).

East Zone

Manila Water, which manages the East Zone, handled operations well and continues to provide water under its long-term concession, remaining profitable today. They cover a 1,400-square-kilometer area with 23 cities and municipalities in Metro Manila and Rizal with over 7.7 million customers (Manila Water Company, Inc, n.d.). Efforts to expand distribution lines and cut system losses improved water availability to almost 100% of the central system. They also reduced non-revenue water from 63% to an average of 13%, an unprecedented level for country’s water sector (Manila Water Company, Inc, n.d.; Corporate Accountability, 2017. 4).

Overstaffing was blamed for inefficiency and so after privatization, only 200 of the 5,400 MWSS employees stayed with MWSS. About 3,000 employees were displaced or forced to retire, and many of them remained unemployed (Perez-Corral, 2003) (Dumol, 2000. 40).

Public Opinion and Support

A 2000 survey by MWSS, conducted in 100 Metro Manila communities, found that 55% of residents felt there was no change in water service, 12% believed it had worsened, and only 33% noticed an improvement (Perez-Corral, 2003). Civil society groups criticized privatization, arguing that as a basic human right, water should remain publicly managed. They believe people should not be subjected to private sector profits to access water. Critics also emphasized a lack of transparency, poor government regulation, job losses, and the absence of a comprehensive approach in decision-making (Perez-Corral, 2003).

During summer water shortages, the Philippine press shared stories of the hardships people faced, from temporarily school shut downs to people feeling embarrassed about not being able to bathe (Corporate Accountability, 2017. 5). In one settlement, desperate residents broke a Maynilad pipe for water during the July heat. At 3 a.m., neighbors gathered to collect water, with some bathing on the street after waiting for hours (Corporate Accountability, 2017. 5).

Impact on the Urban Poor and Public Health

Both Maynilad and Manila Water have programs to improve water access in urban poor areas. Where this has been genuinely pursued, residents pay less for water compared to when they relied on vendors, and women and children no longer need to spend hours each day collecting water (Perez-Corral, 2003).

However, success has not been consistent. The high costs of connecting urban poor communities, installation fees, and issues with land tenure still leave hundreds of communities without access (Perez-Corral, 2003). In Parola, nearly 40% of families couldn’t afford the expensive connection fee, costing more than two weeks’ pay at minimum wage, and several months’ income for the poorest 20% (Corporate Accountability, 2017. 4). Some were not allowed to connect because they lived in slums that were set to be demolished. Maynilad also prohibited those with water connections from sharing or selling water and removed the public faucet, the most accessible water source (Perez-Corral, 2003). According to a Corporate Accountability report from 2017, only 55% of Metro Manila households had their own water connection and many still shared connections with neighbors (4).

Water quality has worsened, leading to serious health issues. For example, in October 2003, 600 people got sick and eight died after Maynilad's E. coli levels were found to be seven times higher than the national limit. Water services are further interrupted by national disasters like a major drought in 2010 (Corporate Accountability, 2017. 4).

A youth fills canisters with drinking water to sell in a poor district of Quezon City, east of Manila, in the Philippines.Photograph: Rolex Dela Pena/EPA (guardian)

Was it a success?

Both Manila Water and Maynilad Water Services continue to privately provide water in the East and West Zones of Metro Manila. The World Bank promotes Manila as a “success” story to support greater water privatization. In 2010, Manila Water was granted a 15-year contract extension until 2037 without any competitive bidding. In 2009, the MWSS Board extended Maynilad's Concession Agreement until 2037 and a revised agreement in 2021 confirmed this extension (Maynilad Water Services, Inc., 2023). However, the challenges faced by Maynilad in the West Zone and the unequal investment favoring the East Zone highlight privatization’s limitations in ensuring equitable and sustainable access to water for all.

On average water prices have continued to increase in both zones (Corporate Accountability, 2017. 1; Flores, 2025). Water quality has declined, leading to serious health issues, and the promised infrastructure improvements have been limited. Instead of investing in better access, private companies focused on cutting losses from non-billed water and pressuring regulators to keep profits high (Corporate Accountability, 2017. 1).

The process of privatization was highly corrupt and anti-democratic (Corporate Accountability, 2017). Privatization saddled a debt-ridden country with more debt. Loans in dollars meant their value in Pesos increased significantly with the Asian financial crisis. More importantly, the debt was split 10%/90% between Manila Water and Maynilad Water Services respectively. Maynilad Water Services was run by a partnership of the powerful Lopez family and a Suez subsidiary called Ondeo Water (Corporate Accountability, 2017. 2). As Maynilad took on 90% of MWSS's foreign loans when they stopped paying its monthly concession fees despite rate hikes or faced liquidity problems in 2004, the government bailed out their favored private client, and as such, taxpayers retained most of the risk (Perez-Corral, 2003). Some even argue that "dive bids" were submitted with the intention of renegotiating once contracts were secured (Corporate Accountability, 2017). Manila Water became the IFC's model for privatization who made biased investments in the more profitable East Zone (Corporate Accountability, 2017. 2).

Moreover, there is a lack of accountability because when water corporations are labeled as “contractors” and not public utilities, only contractual obligations can be enforced (Corporate Accountability, 2017. 2). It exempts Manila Water and Maynilad from public utility regulations, such as the legal limit of 12% return on assets for public utilities. Without risking their own capital, they can also pass their corporate income taxes, foreign exchange losses, and debts on to consumers (Corporate Accountability, 2017. 3, 6).

WB and Manila Water's financial metrics for success like cutting down on non-revenue water don’t always mean better access to water. In many big cities, poor communities often use unpaid connections. Rather than focusing on how much water is billed, we should look at how much is actually available for people. Maynilad estimates that only about half of their non-billed water is due to leaks.

Privatization should not reduce the government’s role (Corporate Accountability, 2017. 5). Whether public or privatized, the government must still regulate vital services to ensure their quality, reliability, and fair delivery (Corporate Accountability, 2017. 5).

While Manila's water services remain privatized and has improved access and system losses, the experience shows the risks of letting corporations control water and highlights their dependence on World Bank backing (Corporate Accountability, 2017. 4).

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