Republic of the Philippines

Capital: Manila
Currency: Peso
Geography: Archipelago of 7,107 islands - Three Island Groups: Luzon,
Visayas, and Mindanao
Climate: Tropical marine
Population:
107 Million, 12th most populous country in the world
1,8 % population growth rate
Average age of the population 23,5 years
Ethnicity:
Christian Malay 91.5%
Muslin Malay 4%
Chinese 1.5%
Others 3%
Religions
Roman Catholic 83%
Protestant 9%
Muslim 5%
Official languages: Filipino and English
Government: Democratic, presidential form with a bicameral congress
Administration: 17 regions, 80 provinces, 138 cities, 1,496
municipalities, and 42, 025 barangays
Economy: $ 272 Billion 2013, GDP growth 7,2 % in 2013
The second fastest growing country in Asia, only second to China
with 7,7 %
Expected GDP growth rate for 2014 - 6,4 % and for 2015 - 6,7 %
Education: National (public and private) - over 400,000 graduates
annually
After winning its first investment-grade rating from the three major
credit rating companies in 2013, Philippines received the highest credit
rating as of now in May 2014 when Standard & Poor raised the rating
again by one notch.
Standard & Poor, BBB
Fitch, BBB Moodys, Baa3

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Environment-Water
Opportunities for EU businesses
1

Water Environment in the Philippines

Water sector in the Philippines
JICA (Japan International Cooperation Agency) estimates that with
business-as-usual scenarios and at current population and development
growth rates, water demand in the country will increase from 30 BCM in
1996 to to 86.5 BCM in 2025, broken down as follows:
Domestic demand: from 1.95 BCM/year in 1995 to 7.43 BCM/year
by 2025 (or 3.8 times the 1995 level)
Agricultural demand: from 25.53 BCM/year in 1995 to 72.97
BCM/year by 2025 (or 2.8 times the 1995 level).
Industrial demand: from 2.23 BCM/year in 1995 to 4.99 BCM/year
by 2025 (or 4.48 times the 1995 level under a high growth scenario
of 8.7%) or 3.31 BCM/year (or 2.4 times the 1995 level under a low
growth scenario of 5.9%). Industrial water consumption in cities
alone is expected to rise seven times
Philippines Water business
Metro Manila
MWSS-RO is the regulating agency from Philippines government
that supervises the operations of the two private water utilities
serving Manila. MWSS is also the Implementing Agency of
several very large PPP projects to diversify water supply of Metro
Manila residents.
Manila Water (Ayala group) is publicly listed on Philippines Stock
Exchange since 2005 Manila Water is the concessionaire of East
zone of Manila serving 921,898 connections, total billed water
433.3 million cubic meter, and Non-Revenue Water of 11.2% in
2013. In 2013, Manila Water has achieved Revenues of 15,280
million Pesos, and EBITDA of 11,647 million Pesos, for a net
income of 5,752 million Pesos with the East zone concession.
Maynilad is part Metro Pacific Investment Corp., one of the
largest utility group in the Philippines. Maynilad is serving a
population of 8,4 million inhabitants of Manila. They have
reduced their Non-Revenue Water (NRW) to 35.40% by the end
of 2013 and are targeting to reduce them to less than 30% by
2017. Maynilad realised a turnover of 16.895 billion Pesos and
EBITDA of 11.083 billion Pesos in 2013 for a net income of 6.936
billion pesos in the West zone concession.
In the province
LWUA is the governmental agency that supervises the
operations of more than 500 local water districts, serving the
remaining 85 million population of the Philippines. Organized by
LGU (Local Government Unit), water districts are responsible of

water distribution and sanitation. Sanitation is still in infancy

stage in the province and regulations are seldom implemented
and enforced. LWUA is providing training and assistance to the
operations of water districts and it also assists them with the
financing of their projects.
Water districts covers different realities and type of operations
from basic supply of water from a deep well to a common faucet
in small communities (level I type of operation), to supply of
water thru a piping system to a common water point (level II
type of operations) to modern water supply to individual
connections in urban area (level III).
Water districts are classified from very small to very large.
Davao water district is serving a population of 6.6 million
inhabitants; Metro Cebu water district is servicing 2.2 million
people.
Water filling stations
Everywhere in the country even in Manila where water produced
by water utilities is tested and approved as safe for drinking
consumption, purified drinking water in typical blue containers
or in bottles is distributed by a network of small retailers. This
water is produced by thousands of private operators of small
water treatment plants.
Bulk water supply
Local water districts are not always capable to provide the
necessary funds to finance treatment plants to supply demand.
Private operators and investors venture into long term contract
with water district or with private real estate developers on the
delivery of water in bulk and operate the infrastructures until
the term of contract.
Advantages
Safe drinking water access and sanitation are part of 8 Millenium
development goals and funding from World Bank and Asian
Development Bank are ongoing and will be available in foreseeable
future.
Privatization of water distribution in Manila has created 2 prime and
sound companies that are now starting to expand in the province and
even regionally in the case of Manila Water.
The government has named the industry as priority investment area.
Fiscal and non-fiscal benefits are offered to the qualified investors.
Additional incentives apply to the investors that locate in designates
zones of the Philippine Economic Zone Authority (PEZA). By the end of
2013 PEZA had named 40 IT parks and 157 single buildings to qualify
as preferential zone.
Income tax holiday 100 % exemption from corporate income tax
from 4 to 6 years
Additional 3 years may be granted for expansion project
Upon expiry of the Income Tax Holiday 5 % Special Tax on Gross
Income and exemption from all national and local taxes
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 Tax and duty free importation of equipment and parts

Exemption from wharfage dues on import shipments of equipment
VAT zero-rating of local purchases of goods and services, including
land-based telecommunications, electrical power, water bills and
lease on the building
Exemption from payment of any and all local government imposts,
fees, licenses or taxes. However, while under Income Tax Holiday,
no exemption from real estate tax, but machineries installed and
operated in the economic zone for manufacturing, processing or for
industrial purposes shall not be subject to payment of real estate
taxes for the first three years of operation of such machineries.
Production equipment not attached to the real estate shall be
exempt from real property taxes
Exemption from expanded withholding tax
Non-resident Foreign Nationals may be employed by PEZAregistered Economic Zone Enterprises in supervisory, technical or
advisory positions
Special Non-Immigrant Visa with Multiple Entry Privileges for the
following non-resident Foreign Nationals in a PEZA-registered
Economic Zone Enterprise: Investor/s, officers, and employees in
supervisory, technical or advisory position, and their spouses and
unmarried children under twenty-one years of age.
Growth potential
In 2009 (Manila Water) and in 2010 (Maynilad) have exchanged a 15
years extension of their concession agreement (now until 2037) vs
Capex investment plan of 1 billion USD for each concessionaire to
treat waste water in Manila. This program has been funded by a loan
from World Bank in 2012 (275 million USD), private operators will cofinance thru equity. MWSS is mandated by a Supreme Court decision
and is monitoring the implementation of this plan, which is also under
the scrutiny of very active environmental associations.
Since 2009, Manila Water has already bid out projects to increase its
capacity for sewerage treatment from 135 MLD to 500 MLD (bid out
and/or under construction).
Under the extension of concession
contract, the new targets for sewerage connections for East Manila
(Manila Water) are 30 percent coverage by 2012; 45 percent by 2016;
63 percent by 2021 and 100 percent by 2037. For West Manila
(Maynilad) are 14 percent by 2012; 31 percent by 2016; 66 percent by
2021; and 100 percent by 2037.
95% of Manilas water supply is coming from the 3 Dams system
(Angat, Ipo, La Mesa Dam) which are located in a seismic area, which
is a threatening issue in case of disaster. MWSS has been tasked to
develop alternate water supply to mitigate that risk and cope with
forecasted increase of demand: Feasibility study has been approved
by NEDA for the New Centennial Water Supply Source (PPP from
PPP office (MWSS): 18.724 Billion PhP, approved by NEDA to be rolled out soon
before called Laiban dam project), Bulacan Bulk Water Supply (PPP

from PPP office (MWSS) 24.4 Billion PhP (invitation to Pre-qualify to bid
issued on 20th June 2014, 1,000 MLD in a three phase project), rehab
of water lines and aqueduct feeding La Mesa Dam.
ADB is already providing support and technical assistance to improve
Water Supply and Sanitation services for Water Districts in the
province (Project reference: 42363-013), Davao Water districts and
Metro Cebu Water districts. Total investment of 800 millions USD is
needed before 2022 thru a combination of public and private debt,
and equity for Davao and Cebu alone, but others that remained to be
identified will join this project.

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Success cases of EU investments in the Philippine market

VEOLIA water solutions
Veolia water solutions has won 2 Sewerage Treatment Plants with
Maynilad (8 and 10 MLD), using Mixed Bed Bio Reactor technologies, to
reduce footprint needs. In the densely populated West concession area,
available footprints are very rare and the use of innovative technology or
design for compactness is certainly an competitive advantage. Veolia
water solutions has also won the bidding for a large WWTP (Marikina
STP:100 MLD) with Manila Water, it is currently under construction and
commissioning.
I2O
I2O is an innovative technology provider from England for water pressure
management. Thru remote monitoring of hotspots and automatized (by
an IT program) adjustment of the pressure and pumping in the network,
they were able to demonstrate the capabilities of their proposal during a
pilot with Manila Water and Maynilad (30% of work time reduction for the
personnel, savings in energy and water leak reduction) and have now
ongoing business with both operators.
Degremont-Suez Environnement
Degremont has built more than 50 treatment plants in the Philippines and
they have built La Mesa Treatment plant for Maynilad (total capacity of
2,400 MLD), which was at the time of construction the largest treatment
plant worldwide. They are now participating the new biddings of both
concessionaire for their Waste Water Treatment Plant.

Vatech-WABAG
This Austrian and German company (now part of Mittal group and publicly
listed in Mumbay stock Market) has won 3 Sewage Treatment Plants (6-8
and 10 MLD using SBR and Fluopur process) and one water treatment
plant (Putatan treatment plant: 100 MLD) from Maynilad and one Sewage
Treatment Plant (Ilugin STP: 100 MLD) from Manila Water.

JAEGER
This German company has supplied air diffusers for the Sewerage
Treatment Plant built by Veolia water solutions in Marikina for Manila
Water and has now successful ongoing operations in the Philippines.

Opportunities for European SMEs

As demonstrated here above, success stories for EU technology providers
(SME) are relying on the very innovative quality of their proposal to
Philippines customers and also on their willingness to shoulder the risk to
conduct pilot projects with them before entering into business.

 Another way that might be considered is to approach the Philippines

market following the steps of very large international technology
providers and to supply them with otherwise difficult equipment to
procure on the local market and then to establish locally a proper office
or to rely on a local distributor.

Challenges in the Water sector in the Philippines

Drinking water supply diversification
Although the 3 dams system (Angat, Ipo and La Mesa dam) has until now
provided good water supply to the population of Metro Manila (12 millions
residents and 15 millions if you include population commuting to the city
for work), this population is still growing. The current source of water is
reputed to be able to accommodate 20 millions (4000 MLD total
production capacity for a population consuming on average 100 liters
/day), but moreover these dams are located in seismic prone areas and a
major earthquake affecting the stability of these dams (constructed in
the 60s and in need of proper maintenance and repairs) could cause
major disruption in the supply of drinking water to the population of
Metro Manila.
A risk of such magnitude is not politically sustainable, and Philippines
government have searched to tab alternate water sources to supply
Metro Manila. A first development is the Putatan Treatment plant (Phase
1 is already completed and produce 100 MLD, Phase 2 is expected to
increase production by 200 MLD), that has been built by Maynilad to
supply the real estate developments along the South Lex Highway and to
answer the needs of this growing population by treating the water from
Laguna de Bay lake. Another project also exists within Manila Water to
tap the water from the Laguna lake to supply their customers: the Rizal
Province Water Supply Improvement (RPWSIP treatment plant) but this
project is at the moment put on hold after being reduced from 200 MLD
to 50 MLD. Laguna lake water is a very challenging water to treat for
drinking purpose: water from Laguna Lake is naturally brackish due to
reflux of sea water in the lake (mascaret phenomena from Pasig river,
every 8 years during El Nino), it is heavily polluted by industrial waste
water from factories located along its shores and densely population
(growing) without access to proper waste water facilities yet, siltation of
the lake is also critical as the average depth of the lake is now 2 meters,
in short this lake is in eutrophisation phase.
Of course, improved technologies have now reached a level that enable
to treat any water up to drinking water quality (proper for human
consumption): desalination plants to tab the sea as a source of drinking
water (using reverse osmosis membranes), waste water treatment up to
re-use of the effluent as drinking water do exists and satisfy any even
most stringent water quality standard but of course these technologies
have a cost in terms of capex (capital expenses for the construction of
those treatment plants) but also in opex (operations expenses), which
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both impact the price to be charged to the consumer.

Alternative sources of water supply for the growing population of Metro
Manila have been identified in a feasibility study requested by ADB to the
French experts of Sogreah and this study mentioned as possible water
sources for Metro Manila: Laiban dam project, that was once proposed by
San Miguel Corporation as a PPP (BOO) to the Philippines government,
Sierra Madre, or even Taal lake. Some of these projects are currently
listed as possible PPP projects in MWSS and in PPP office (please check
above latest developments: 1 Water environment in the Philippines
Growth Potential).

 High energy cost

Availability and price of energy is a major concern for water utilities. At 9
Pesos/kwh, electrical power is one of the most expensive in Asia, lack of
investment in infrastructures and power plants has plagued Philippines
development and situation is not forecast to change any time soon.
Situation in the province is even worse with regular brown outs and
infrastructures being affected by recent typhoon Yolanda.
Energy efficiency and/or energy production from waste water or sludge is
an important concern and any technology that will permit to save or
better produce power will be interesting for water utilities serving Manila
or the province and even industrial operators (e.g. distilleries, sugar cane
factories, breweries, dairies, meat processors, etc.
Schemes for rehabilitation, replacement of outdated equipment such as
pumps, aerators or new equipment that will increase efficiency of
operations definitely have a market here.
Sanitation and sludge management
The sludge collected from the free servicing of the septic tanks of the
customers of Maynilad and Manila Water has lead to the construction of 2
fully mechanized septage treatment facilities (Manila Water) and the use
of Dagat-dagatan sewerage treatment as disposal facilities (Maynilad).
Each septic tanks should be desludged every 5 years to ensure proper
treatment capacity of these basic anaerobic treatment plants.
With many operational sewerage treatment plants (total treatment
capacity of 155 MLD, soon to be increased to reach 500 MLD) and many
more in construction or in commissioning phase, residual sludge to be
treated will become a increasingly worrying problem. Re-use of treated
sludge (coming from FTI septage treatment plant of Manila Water) as
fertilizer for agricultural purposes, is a convenient practice for the water
utility and for the peasant but considering the huge amount of sludge to
be disposed of, transportation of the sludge to the location where it can
be re-used might become an issue especially if you consider the heavy
traffic already affecting Manila.
Technologies that can reduce the sludge production or that can reduce
their weight and volume (dewatering, filter press, etc.), will be needed in
the very near future. Another line of reasoning, especially for the very
large Waste Water Treatment Plant (WWTP), is to use anaerobic
treatment to produce biogas. Sludge digestion has been proven to
produce enough biogas to cover one third of the energy needs of a
WWTP, but these technologies only make sense when applied to large
capacity treatment plants.
In other countries, sludge can also be
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disposed of thru incineration that can also be used to produce electricity

but DENR is at the moment still prohibiting that practice in the
Philippines. Co-digestion (mixing sludge with oil and grease collected
from grease traps commonly in use by food and beverage operators)
and/or cogeneration and even more advanced technologies are currently
being reviewed by Manila Water to solve this issue. Manila Water has
recently launched a neutral cost waste water program targeting to
reduce cost of operations for waste water treatment plants to zero, any
technology providers that can help to achieve this ambitious goal is
welcome to join.
Centralized vs decentralized system for waste water treatment
Lack of available footprints, heavy traffic load affecting Manila, non
existent sewer network (which construction might affect traffic even
more), all of the above has led some experts to recommend to rely on a
decentralized system of small to very small Sewerage Treatment plants
to treat the waste water in Manila. Several technology providers have
developed small (<5000 inhabitants equivalent) to household size (<5)
treatment plants that can treat waste waste to the standards of DENR
(class C). They can be buried underground and the space above them
can be used as playfields for children, basket ball courts, garden or else.
They can also be fully automatized and with scada system, they might be
remotely control from an operation centre. Access to pipe connection for
periodical desludging operations and servicing can be also designed for
ease of operations. These small to very small STP can totally blend with
their environment (becoming barely noticeable) and causing zero
nuisance to the neighbourhood.
Nevertheless, you need also to consider the cost of water treatment
using this type of equipments. Of course, it will spare you the need to
block traffic to dig the ground in order to build a sewer network proper,
which also involve heavy expenses. Politically this is certainly something
to consider, but it is a fact that a decentralized system would cost water
utilities more to build and operate than a more centralized system relying
on bigger STP. It will also prevent onsite sludge digestion, dewatering
and treatment for reuse, and transporting the sludge from WWTP to
Sludge treatment facilities (centralized) will entice large number of trucks
on the already congested streets of Manila.
Outside urban area, it does also make sense to consider smaller size
STPs discharging their effluent locally instead of laying very long
distance of pipes to bring the waste water to a centralized system. This
is to be considered by real estate developer for their residential projects
or in rural area.
As I have been told by an expert in waste water treatment, the easiest
and most cost effective way to treat waste water is using very large
facilities. The larger the facility, the lower the total cost of treatment but
it might not be possible everywhere, and a decentralized system needs

to remain an option when other choice are not practical or even possible.
Combined vs separate sewer network
Historically in Europe (going back as far as the roman empire), cities were
built on top of sewer networks that accommodated storm water together
with the waste water produced by the inhabitants (a combined sewer
network). When environmental regulations were passed at the European
level in the 70s to reduce water pollution, water utilities simply
connected these existing sewer network to large WWTP that treated the
combined flow of water before releasing it in the environment, most
frequently in the rivers.
When one need to build a sewer network from scratch, as it is the case in
Manila, one might consider the option to go for a separate network. As
matter of fact, disaster mitigation (and flood control system) is a
responsibility of public government while treating the waste water
produced by their customer is the responsibility of the water utilities,
when those are private operators the cost sharing of building such a
network and choosing between a separate and a combined sewer
network become a political discussion where the interests of each party
are different.
From the government perspective, sharing the burden of building storm
water system with private water utilities, is of course convenient. A
sewer network can indeed be used as a way to alleviate flooding risks.
On the other side, accommodating combined water flow will increase the
cost of water treatment as typically WWTP are designed based on the
peak flow, (or 95% of it in the recent biddings organized by World Bank),
which occurs during the rainy season this entails oversizing of the tanks
and treatment capacity and it definitely involves extra costs for the water
utility operator.
For the general public, flood mitigation and treatment of their waste
water is an equally relevant concern that need to be addressed. It is also
necessary to avoid the burden and cost of digging the streets twice (one
to build the storm water system and one to build the sewer network
proper), traffic and embarrassment of the daily commuters in Metro
Manila should also be taken into account. Coordination and cooperation,
including for the maintenance of these systems, is of the essence.
Footprint reduction
Due to the density of the population living in Manila, the cost of land and,
in some part of the city, the total absence of available footprints,
technological solutions to reduce the footprint of a waste water treatment
plant will be required to solve this issue. As said above, concentration of
the flow (using a separate sewer network), decentralisation and reuse of
the available footprint on top of underground WWTP might be part of the
solution, but most probably it will not suffice.
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Aside from conventional activated sludge water treatment, which

requires large water tanks and thus large footprint, the water industry
has developed more compact technologies such as:
Single Batch Reactor (SBR) where the different phases of
water treatment occurs in one single tank (settling, aeration,
clarifying and discharge) have been specified by both water
utilities for their project.
Mixed Bed Bio Reactor (MBBR) that maximizes the contact
zone between the bacteria that digest the carbon load (using
bio-media to fix and grow the bacteria) and the Hydraulic
Retention Time is a another way to reduce the size of the tanks
needed to treat the influent. Several projects, using that
technology, are currently being commissioned to Maynilad.
Membrane Bio Reactor (MBR) is also a technology of
interest for both water utilities in Manila even if more costly to
build and operate than conventional treatment.
Other design have already been necessary (like piling up tanks in height
instead of surface) to reach required treatment capacity within the
available footprint. Any innovative technology that might contribute to
this footprint, will thus be considered by the water utilities in Manila.
Nuisance reduction
Nimby (Not In My BackYard) effect is also very pregnant in Manila,
although environmentalists are also very active to relay their concerns
politically and in the media, Odor and noise control technologies are
more than welcomed here even if they imply sometimes additional costs.
Opposition from neighbours and real estate devaluation because of the
proximity of an STP is a concern that might arise and that should be
addressed.
Nutrients removal
Although this is not yet the case, any technology providers for water
venturing in the Philippines should be prepared to add nutrients removal
to their process as this possibility is currently being discussed by the
regulators. Algae pollution and water lilies proliferation are already
affecting rivers and lakes (such as Laguna Lake and Pasig river) and
might become a growing concern in the future although this is not yet the
case.
Competitive bidding process and level playing fields
It is worth to mention that current biddings and procurement processes,
are reputed to be transparent and level play. For the waste water
program of both water utilities, they are organised under the supervision

of the World Bank and their consultants (Aecom, Arup are very frequently
in charge of the organization of these bidding), procurement is following
with only minor deviation FIDIC rules and most international players (we
can name: Veolia, Degremont-Suez Environnement, Vatech Wabag, JFE,
Kingsford, Westech,etc.) are already attending and submitting bids for
the projects of these private entities. This is a highly competitive process
though between very determined and qualified competitors and it
contrasts with the poor reputation of the Philippines for transparency and
integrity even if situation has been improving a lot under the presidency
of Begnino Noynoy Aquino who has been elected on a program to fight
corruption as his priority tasks. Business climate is also improving a lot
with a fast growing (>7%) GDP and investment grade notations from
international agencies.
Water tariff rebasing
One of the most debated issue affecting at the moment the water
industry as a whole but more specifically Maynilad and Manila Water is
the litigation process that is taking place at the moment before an
international arbitration court in Singapore regarding the water tariff
rebasing. Although both concessionaires were applying for a tariff
increase (Manila Water: P8.58 raise per cubic meter for an average tariff
of P42.55 per cubic meter, Maynilad: P5.83 for an average tariff of P34.12
per cubic meter) due to the heavy capex involved with waste water
treatment implementation, it was denied by the regulator MWSS RO.
Instead the regulator proposed a tariff decrease of 4.82 % of the tariff of
Maynilad and 29.47% of the tariff of Manila Water. The reason argued by
MWSS RO is related to the tax exemption that benefits the water utilities
while both of them are now enjoying profitable operations.
This case is currently under review by an arbitration court in Singapore
and in the meantime tariff has stayed the same but this litigation process
has already caused postponements and delays of some investments by
both concessionaries for waste water projects. The tax exemption being
fully part of the concessionaire agreement, opinions are that the two
concessionaires have a strong case but issue is still pending at this
moment.

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