Water Utility Management International 6.4 (2011) 16
The Philippine Water Revolving Fund: mobilizing private funds for public service delivery
Mary Joy Jochico and Alma Porciuncula
The Philippine Water Revolving Fund (PWRF) was conceptualized as a financing mechanism that leverages public with private sector funds in order to address the large number of Filipinos that have no access to a treated water supply. Here, Mary Joy Jochico and Alma Porciuncula review the experience of mobilizing private finance for public service delivery, the barriers to financing that had to be overcome, and the achievements to date.
Many people in the Philippines still do not have access to a piped water supply, a situation arising from a lack of private sector financing due to poor financial and operational capacity at utilities, unclear utility creditworthiness, political risk tied to regulatory issues and a lack of knowledge of the water sector marketplace. In order to address this, USAID (US Agency for International Development) set up the Philippines Water Revolving Fund Support Program (PWRF-SP) in 2005.
The PWRF-SP has four core financing interventions - the Water Revolving Fund mechanism, the LGUGC (Local Government Unit Guarantee Corporation) Credit Rating System, training on water project appraisal and technical assistance for project preparation. The PWRF mechanism allows for the co-financing of loans to utilities, mitigating much of the risk for private financial institutions (PFIs), providing a channel to attract private financing into the water utility marketplace. LGUGC plays a critical role in the use of the PWRF by providing a guarantee of up to 85% of a PFI’s financial exposure, and serving as an interlocutor between PFIs and utilities. The address the lack of knowledge within PFIs of the water market, project appraisal training and a guidebook were put together, in order to engage them, along with LGUGC and the Development Bank of the Philippines, in an exercise to evaluate financially viable water investment opportunities. Technical assistance for project development and transaction support provided help for utilities to develop new projects for PFIs to invest in, providing knowledge on available financing facilities and the mechanics behind assembling a proposal to access commercial funding.
This set of technical products and training have led to as of the end of October 2011, the financial closure of 21 water supply projects, with a total cost of US$95 million, of which US$58 million came from commercial bank funds. These projects will provide safe water access or improved services to over two million Filipinos, and the financing structure for water sector projects has been changed to where private banks are now major players. USAID, through the PWRF-SP, is now addressing long-term policy issues needed to deepen and sustain investments in the sector, and is assisting the Philippine Government to establish a rationalization programme for the allocation of public resources, as well as looking into the potential of investment from pension funds.
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