Developing Credibility in Public-Private Partnerships: The Case of Manila Water Supply

Abstract

This paper is based on a case study of the water supply public-private partnership (PPP) in the city of Manila after ten years of operation. It aims to provide insights on how institutional design impacts the success of PPPs for water supply systems, with particular emphasis on factors that enhance credible commitments by both the private operators and the government in order to create the basis for a trust-based long-term relationship. The data was collected from interviews, supplemented by official documents, archival records and websites of the two water utilities, and visits to the water treatment plant, wastewater treatment plant, and slum areas served in Manila. Nine officials were interviewed. Three represented the views of regulators, three the views of private operators and the remaining three the views of other interested parties - World Bank officials and Asian Development Bank (ADB) officials.The paper concludes that the Manila water PPP has been successful because it is thoroughly embedded in the particular conditions of the Philippines while also utilizing international expertise. International expertise was applied in both the design of the PPP with the help of international consulting firms and in the composition of the concessionaires that included major French and British water operators. Yet the structure and operation of the PPP was also closely tied to the Philippine situation. The Filipino characteristics of the PPP design and the Filipino partners of the international companies have facilitated the effort to solve problems and disputes with positive expectations on both sides rather than the suspicion and negative expectations that sometimes occur between a government and a foreign company. The positive expectations have been developed through extensive interaction on a face-to-face basis over a wide range of major and minor issues. The monitoring and enforcement capacity of the Regulatory Office is critical to the political credibility of the contractual arrangements, helping to sustain a long-term contract against political concerns that the private companies have too much power over the quality and price of water.