Is an arm of the World Bank tied to 8-fold rise in water rates in Manila?

If a city can’t provide safe drinking water, should it turn the whole operation over to a private company? No, we’re not talking about Flint, Mich. This concerns the southeast Asian city of Manila, the capital and biggest city in the Philippines.

In 1997, officials in the Pacific island nation set up not one but two private companies to deliver water to homes and businesses. One of those companies has been a financial success. So healthy, that the private banking arm of the World Bank, the International Finance Corporation, became a part-owner in 2004 for about $15 million.

During a hearing on April 27, 2016, the International Finance Corporation’s role drew criticism from Rep. Gwen Moore, D-Wis.

"In Manila, for example, when the IFC, the development arm, took an equity position in the water company, water rates were raised up to 845 percent," Moore said. She was pressing a Treasury Department official on how to make international development banks more accountable.

We decided to see whether residents had to pay more than eight times as much for their water once the International Finance Corporation bought a stake in the Manila Water Company.

What we found, between 2004, when the IFC bought its share of the company, and 2012, is that rates did climb. But they only rose by about 170 percent, not the 845 percent Moore cited.

Moore’s office said she relied on a 2010 resolution from the Philippines House of Representatives.

Making apples-to-apples comparisons of rates is challenging. The soundest data we could find was in a 2013 report from local regulators, the Metropolitan Waterworks and Sewerage System. This table shows the average price (in Philippine pesos) of a cubic meter of water at three points, when privatization took place in 1997, when the IFC gained part ownership in 2004 and 2012.

 

1997

2004

2012

Average rate
(pesos/cubic meter)

4.02

14

38.12

Change from 1997 (percent)

 

248%

848%

Change from 2004 (percent)

   

172%

PolitiFact analysis of a
typical bill

     

Typical household bill
(1997 pesos)

121

295

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As you’ll see, the increase from 1997 to 2012 was 848 percent, near the increase Moore claimed.

The 2010 resolution from the Philippines House of Representatives said that the cost of water rose by 845 percent between 1997 and 2009.

The problem, though, is that the IFC did not become a part owner until 2004. The rate increase between that year and 2012 was about 170 percent.

There are a few other important dimensions to bring into the picture.

A better water service

By the mid 1990s, Manila’s public water system was in crisis. About a third of the city’s residents, roughly 3.5 million people, had no running water. Leaks and water theft were literally draining the pipes. Water pressure could drop at any moment, leaving many with a completely unpredictable water supply. Cholera and infection-related diarrhea were on the rise.

The Philippine government turned to the World Bank, which brought in the International Finance Corporation to devise a privatization plan. Gregory Pierce, a lecturer at Urban Planning at UCLA, told us privatization "was a big fad in the early to mid 1990s."

The IFC’s role was advisory, but the framework it crafted produced the circumstances that exist today. Major capital investments, and rising rates to pay for them, were part of the plan.

In other words, while Moore linked her comment to the year when the IFC took an equity position, its involvement dates back years earlier to the launch of a privatized water system.

The Manila metro area was divided into two zones, and an international consortium, that included the American Bechtel Corporation, was the winning bidder for the eastern section. The company was called Manila Water.

Manila Water soon spent over $300 million to install more than 1,200 kilometers of piping.

The good news is, by every measure, quality and reliability went up. In 2007, an article in Economics and Management in Developing Countries reported that by 2002, the fraction of people with service had gone from about 60 percent to over 80 percent. Unlike before 1997, the water moving through the pipes met government drinking water standards. Leaks were repaired twice as quickly and while service might drop out, the average went from taps running 17 hours a day before the change to 21 hours a day afterward.

As the authors of the journal article put it, "If one goes by the numbers for water coverage, availability and quality, water privatization in Metro Manila seemed to have worked. However, water rates had risen dramatically during the same period."

Frederick Jones, a spokesman for the International Finance Corporation, said the benefits have been widely shared.

"While tariffs have increased for some residents of Manila, many of the people not previously connected to water services were poor families, who were forced to pay $3 a cubic meter for bottled water on the open market," Jones said. "Today, the average tariff in Manila is $1.30, but this tariff is helping subsidize the poorest families, who now only pay 18 cents per cubic meter."

Two ways to look at price hikes

Moore couched her claim in terms of the percentage rise in the cost of water. But Nathaniel Meyer, a senior organizer with the advocacy group Corporate Accountability International, said from a household perspective, what really matters is how much you pay.

"If a family in Manila in 1997 paid 4 pesos for their water and it’s gone up in absolute pesos, that's going to leave them less for food, health care, clothes for the kids and everything else," Meyer said.

We ran the numbers for a household paying the average rate on 30 cubic meters of water a month. In its publications, Manila Water says 30 cubic meters is the amount used by the typical household.

In inflation-corrected pesos, the typical bill went up about 20 percent faster each year after 2004 than before.

Our ruling

Moore said that when the International Finance Corporation became a part-owner of Manila Water, rates rose 845 percent. The source cited by Moore’s staff undermines that number.

The International Finance Corporation bought its stake in 2004. Between 2004 and 2012, rates rose about 170 percent. Moore incorrectly used a figure that would apply to the period from 1997 to 2012.

However, the IFC crafted the plan for privatization in the first place. All parties knew that important capital investments would follow, and that rates would go up. It is also true that in terms of the actual size of a family’s water bill, rates rose faster each year after the IFC bought its share than before.

Moore wrongly pegged the rate increase to the date of IFC’s equity position, but the development corporation played a key role from the start. We rate this claim Half True.

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