(NAR) VOL. 15 NOS. 3-4 / JULY - SEPTEMBER 2004
a. Improvement of investor confidence in the water supply and sewerage sector;
b. Rationalization in the allocation of scarce financial resources in the water supply and sewerage sector through classification and graduation initiatives;
c. Freedom of choice of WSPs in sourcing financing;
d. Increase in the participation of LGUs, GFIs, PFIs in the financing of the water supply and sewerage sector;
e. Stimulation of improved service and creation of financial self-sustainability for WSPs;
f. Encouragement of initiatives aimed at self-sufficiency of water service providers, including, but not limited to, amalgamation, private sector participation, cost-recovery tariffs, and resource pooling;
g. Grant of incentives for the improvement and graduation of WSPs; and
h. Education of consumers towards treating water as a scarce economic good.
SECTION 4. Definition of Terms - For purposes of these IRR, the following terms are defined:
a. Amalgamation - consolidation, joint operation or annexation of two or more WSPs resulting into a WD.
b. Classification - categorization of WSPs into non-creditworthy, pre-creditworthy, semi-creditworthy or creditworthy to determine proper allocation of financing.
c. Cost Recovery Tariff - tariff that is required to cover investment in capital expenditures, operating expenditures and debt servicing, including minimal reserve for collateral or counterpart equity, and reserve for recovery of and some minimal return on LGU's investment/infusion in the WDs or WSPs.
d. Creditworthy WSPs - financially self-sustaining WSPs capable of accessing financing from GFIs and/or PFIs.
e. Government Financial Institutions (GFIs) - Development Bank of the Philippines (DBP), Land Bank of the Philippines (LBP) and other financing institutions owned and controlled by the Government.
f. Graduation - the progression of a WSP from non-creditworthy to pre-creditworthy status or from a pre-creditworthy to semi-creditworthy status and/or from a semi-creditworthy to creditworthy status based on improvements in financial and operational indicators.
g. Local Government Units (LGUs) - territorial and political subdivisions of the Philippines, consisting of provinces, cities, municipalities and barangays.
h. Long Term - period covering more than five (5) years.
i. Medium Term - period covering between three (3) and five (5) years.
j. Non-Creditworthy WSPs - WSPs with potential to reach pre-creditworthy status in the medium-term, based on relevant financial and operational indicators set by the Oversight Committee.
k. Pre-Creditworthy WSPs - WSPs which are not likely to become creditworthy in the medium-term due to performance issues but can demonstrate the potential for creditworthiness in the long-term, as may be determined based on relevant financial and operational indicators set by the Oversight Committee.
l. Private Financial Institutions (PFIs) - private entities which are primarily organized for the purpose of extending credit facilities to consumers and to industrial or agricultural enterprises. Financing institutions other than government financial institutions. These include universal and commercial banks.
m. Semi-Creditworthy WSPs - WSPs with the demonstrated ability to achieve creditworthiness in the short-term, based on relevant financial and operational indicators set by the Oversight Committee, but either lack the full criteria for creditworthiness or do not meet the criteria consistently.
n. Short Term - period covering one year (1) to less than three (3) years.
o. Technical Assistance - includes feasibility study, detailed engineering design, review of feasibility study and engineering design, preparation of work program, construction supervision, start-up operations, operations and maintenance assistance, rehabilitation of dilapidated systems, well drilling and construction of new wells, rehabilitation and repair of old wells and emergency repair of water supply system. Financing for technical assistance involving pre-feasibility or feasibility studies, project identification, sector survey, institution building activities including training, shall be charged against beneficiaries unless grants are available for the purpose. On the other hand consultancy/advisory services related to construction activities, including detailed engineering shall be considered as part of the project capital cost and may be financed by the project loan.
p. Value Threshold - the level at which LWUA may grant project-related technical assistance for free to the PCW and NCW WSPs without affecting LWUA's viability. This will be determined by the LWUA on a yearly basis depending on LWUA's capability to absorb such additional cost.
q. Water Service Providers (WSPs) - local water utilities such as WDs, LGU-run water utilities, rural waterworks and sanitation associations (RWSAs), and barangay waterworks and sanitation associations (BWSAs), regardless of location.
5.1 Local Water Utilities Administration
LWUA, subject to applicable laws and regulations, shall review its organizational structure and internal polices and programs, rationalize its operations and refocus its objectives to include other WSPs, whenever feasible or applicable, to facilitate implementation of and conform with the policies enunciated in EO 279. Further, LWUA shall conduct its operations in a transparent, efficient and effective manner.
LWUA shall constitute and designate from its current organization set-up, a Water Development Group (WDG), a Water Development Financier (WDF) and a Technical Assistance Group (TAG), or similar structures, with functions and responsibilities as follows:
5.1.A Water Development Group (WDG)
a) It shall be primarily charged with the continuation of LWUA's current institutional development services aimed at graduating WSPs, as well as the classification of WSPs.
b) It shall classify the WSPs into either creditworthy, semi-creditworthy, pre-creditworthy or non-creditworthy for the purpose of determining the appropriate sources of financing. WSPs initially classified by WDG as creditworthy and/or non-creditworthy shall be subject to further review by the Oversight Committee pursuant to Section 5.2(b) of these IRR.
i) financial indicators such as current ratio, debt service ratio, debt/equity ratio, profit margin ratio and cash flow ratio; and
ii) operational indicators such as collection efficiency, non-revenue water and service connections/staff.
a. It shall be primarily tasked to enhance and/or strengthen LWUA's lending functions and evaluate the applications for financial assistance.
b. Re-orientation Towards Banking Principles - LWUA, through the WDF, shall enhance and/or strengthen its mandate as a specialized lending agency under PD 198 as amended by providing financing particularly to non-creditworthy, pre-creditworthy and semi-creditworthy WDs, grounded on sound development banking principles. To this effect, LWUA shall adopt development banking principles, which cater to the financing needs of WSPs and shall develop its own procedures for the monitoring of its loan portfolio. LWUA shall develop lending policies and guidelines in pursuit of the policies and principles espoused under EO 279 in coordination with the MFC and GFIs within 90 days from its effectivity and submit the same to the Oversight Committee. The new lending policies and guidelines shall only apply to new loans to be approved by LWUA for prospective WD-borrowers.
c. Strengthening of Collection Function - In the exercise of its lending functions, LWUA shall also strengthen its collection function from WDs as well as enhance its payment of loans to LWUA creditors. To this effect, all collections arising from LWUA's receivables shall constitute a special fund to be apportioned to debt servicing of LWUA loans, additional funding necessary to support the LWUA's graduation and technical assistance functions under the WDG and TAG.
d. Segregation of LWUA Loan Portfolios - For purposes of identification and administrative efficiency, LWUA shall maintain separate accounting, payment and collection systems for existing loans and loans to be granted henceforth pursuant to the reforms instituted under EO 279.
a. It shall continue LWUA's program of providing technical assistance to WSPs, in accordance with the proceeding sections.
b. It shall extend project-related technical assistance to GFIs, PFIs and creditworthy WSPs on a competitive basis, consistent with the applicable laws, rules and regulations on government procurement.
c. Above a certain value threshold, which threshold shall be determined by LWUA in accordance with the definition provided for under Section 4 of these IRR, TAG shall extend project-related technical assistance to semi-creditworthy WSPs on a competitive basis, consistent with applicable laws, rules and regulations on government procurement.
d. It shall extend project-related assistance to non-creditworthy and pre-creditworthy WSPs funded by the LWUA-WDF. This assistance may be with or without charge within a certain value threshold to be determined by LWUA on a yearly basis.
Immediate actions include, among others, the review of LWUA Charter as provided under Section 5 of EO 279 including the classification of water districts, graduation of WSPs, reform in LWUA financial waiver process and compliance of LWUA to provisions of EO 279 and of these IRR within the specified timelines. On the other hand, medium term actions include the determination of appropriate incentives for GFIs and PFIs to lend to WSPs.
All functions of the Oversight Committee, which are continuing in nature, shall be performed by the DOF, as provided for under Section 15 of EO 279.
a. Creditworthy WSPs shall be eligible to source financing at commercial lending rates from GFIs and PFIs. Pursuant thereto, LWUA, with respect to creditworthy WDs shall enhance and streamline its waiver procedures to effect the reform objectives/policies enunciated under EO 279. However, LWUA shall work out an arrangement to GFIs/PFIs to ensure repayment of LWUA loan to WSP. GFIs shall strengthen their skills base and develop lending programs specially tailored to the needs of the water supply and sewerage sector;
b. Creditworthy WDs may be eligible for financing from LWUA in case no funds are available from other sources, subject to a prioritization criteria giving preference to NCW up to SCW WDs/WSPs, availability of funds and provided that these WDs undertake graduation initiatives such as pooling of resources, amalgamation, among others with the end objective of accessing financing from GFIs/PFIs and sources other than LWUA;
c. Semi-creditworthy (SCW) WDs shall be eligible to source concessional project financing as grants from donor agencies, financial assistance made available through representative of the District, LGU financial assistance packages or financing from other donors made available and are coursed through the LWUA-WDF. Said WSPs shall be re-oriented towards meeting the lending criteria of GFIs and PFIs to qualify them for eventual financing in the medium term whenever possible;
d. Pre-creditworthy (PCW) WDs shall be eligible to source grants from donors and deep concessional financing from the LWUA-WDF.
e. Non-creditworthy (NCW) WDs shall continue to be eligible for financing under the LWUA-WDF. However, LGUs are hereby encouraged to provide financial and operational support for such WDs and other WSPs within their respective jurisdictions. DILG and MFC shall provide the necessary technical and financial support within their respective mandates;
f. Whenever concessionary loan/grant funds are available from the NG and other sources, the LWUA shall allocate the said funds to the SCW, PCW and NCW and WDs which have the potential to demonstrate increased viability; and
g. WSPs, including eligible WDs, can access financing from the GFIs, PFIs, MFC, and LGUs, whenever possible and shall be consistent with the provisions of these IRR.
(SGD.) JUANITA D. AMATONG (SGD.) ROMULO L. NERI Secretary of Finance National Economic and Development Authority Chairman Director-General Vice Chairman (SGD.) EMILIA T. BONCODIN (SGD.) JOSE D. LINA, JR. Department of Budget and Management Secretary Department of Interior & Local Government Member Secretary Member(SGD.) GAMALIEL A. CORDOBA
(SGD.) LORENZO H. JAMORA Office of the President Local Water Utilities Administration Deputy Executive Secretary Administrator Member Member