Presentation for the OECD-GIZ Conference on "The Role of Finance: Closing the Financing Gap for Water", by Shigeyuki Matsumoto.

1. 0
Blended Finance in the water sector
– lessons from case studies
The Philippine Water Revolving Fund (PWRF)
Shigeyuki Matsumoto
Global Environment Department
Japan International Cooperation Agency (JICA)
October 4, 2018

2. Water Supply Sector at a Glance
1
Number of Water Service Providers (WSPs) in the Philippines
Management Type
Total No. of
WSPs
Percent
Distribution
Water Districts (WD) 569 2%
LGU-Run Utilities 4,108 17%
BWSA/RWSA/Cooperative/
Unnamed Water Service Providers
15,938 66%
Others 3,533 15%
TOTAL 24,148 100%
Source: National Water Resources Board (NWRB), Listahang Tubig, Infographics (October 2014 to May 2015)
LGU – Local Government Unit
BWSA/RWSA – Barangay/Rural Water & Sanitation Associations
Coverage of piped water: National 47% (2000)  43%
(2015)
(JMP 2017) Urban 63% (2000)  59%(2015)

3. 2
Development Bank of the Philippines (DBP)
Philippine Water Revolving Fund (PWRF)
Creditworthy Water Service Providers
DBP/ MDFO
Stand-By Credit Line to
cover liquidity risk of PFI
loan (if 20 year tenor)
USAID/DCA
co-guarantees
LGUGC
LGUGC
partial credit risk
guarantees of PFI
loan
GRP (DOF)
provides sovereign
guarantee for JICA
loan
PFIs (Private)
lend to water service providers
through DBP’s PWRF
JICA (ODA)
concessional
loan to DBP
reflows
DBP collects repayment and distributes to
the PFI, DBP general fund, JICA and PWRF
Credit enhancers
Lenders
Borrowers
One loan agreement;
two promissory notes
Credit enhancement
& lending
MDFO – Municipal Development Fund Office
DCA – Development CreditAuthority
LGUGC – Local Government UnitGuaranteeCorporation
Co-Financing
PWRF Financing Structure
DOF – Department of Finance
GRP - Government of the Republic of the Philippines
PFIs – Private Financial Institutions

4. 3
Terms & conditions of PWRF facility with DBP
 Tenor: 20 years inclusive of maximum 3 year grace
period
 Financing mix: initially 75% JICA/DBP funds and 25%
PFI funds
 Interest rate: Fixed, benchmarked against a reference
rate + interest spread (1-3%) depending on credit risk
of borrower
 Equity requirement: Minimum of 10% based on total
project cost; may be waived on a case-to-case basis
 Take-out feature: offered to borrowers who cannot
afford the PFIs’ short tenor (minimum term of 7
years); DBP & PFIs have option to be taken out;
extend the loan or receive a balloon payment
Key Features of PWRF

5. 4
Credit risk guarantee for PFI portion of loan
 LGUGC can provide credit risk guarantee to PFIs
of up to 85% of PFI loan exposure; PFIs are
charged a 1% guarantee fee
 USAID-DCA will issue a co-guarantee to LGUGC
guarantee of PFI loan covering up to 50% of
LGUGC’s exposure
Key Features of PWRF

6. 5
Loan agreement
2008(Loan Expiry 2017)
(5 years for project formulation)
Final amount disbursed
JPY 7.6 billion
(Disbursement performance 100%)
A 40-year repayment period inclusive of a
10-year grace period
Interest rate 0.65%
On-lending interest rate Ranged from a low 6% to a high of 9.5%
Tenor
PFIs originally offered tenor ranged from
5-7 years only. PWRF up to 20 years.
Approved sub-projects
(as of Dec. 2016)
18
PhP 4.2 billion
Participating PFIs
Bank of the Philippine Islands (BPI)
Security Bank Corporation (SBC)
Default, Arrear None
Achievement

7. 6
Achievement (as of Jan. 2017)
Operation Indicator Achieved
Water production (m3/d) 233,400
Pipe network (km) 1,827
Effect Indicator Achieved
Service connection (no.) 216,872
Reduction in NRW (%) 14.37
Water conserved (m3/d) 31,935

8. Description: Rehabilitation and
expansion of water supply and
sewerage systems
Total Project Cost: PhP 1,631.1
Million
DBP Loan: PhP 750 Million
(46%)
PFI Share: PhP 250 Million
(15%)
Equity Share: PhP 631.1 Million
(39%)
PFI Partner: Security Bank
Corporation
Sub-project: Boracay Island Water Company
7

9. SERVICE CONNECTIONS
WATER AVAILABILITY
WATER PRESSURE
NON-REVENUEWATER
WATER DISTRIBUTED
POTABILITY
Before
(2009)
3,367 (water supply)
702 (wastewater)
8 MLD
15 PSI
49%
7.7 MLD
100%
After
(Dec. 2017)
5,121 (water supply)
1,146 (wastewater)
25 MLD
36 PSI
12%
18.79 MLD
100%
8Source: Boracay Island Water Company
Sub-project: Boracay Island Water Company

10. 9
 Political will of the Government of the Philippines
Executive Order 279 (2004): Government Financing
Policy to institute financing reforms for water supply and
sanitation sector; shift financing of creditworthy utilities
to market-based sources (e.g., banks)
 Donor coordination
US-Japan Clean Water for People Initiative: launched at
the World Summit for Sustainable Development in 2002
to accelerate efforts to achieve MDG for water supply
and sanitation
 Precursor
JICA supported DBP by a two-step loan project for
environmental infrastructure from 1999 to 2006, which
was functioned as a launching pad for discussions on
PWRF.
Drivers for PWRF Development

11. 10
Lessons learned (1) - Coordination
A limited number of creditworthy water service providers attract
funding sources, which leads to competition. A coordination rule is
necessary.
 Competitor (1) - LWUA (LocalWater Utilities Administration)
 LWUA is a regulator for Water Districts (WDs) and also financer as a
financially independent public entity
 Difficulty of WDs to secure waiver which entails that WDs secure prior
written consent from LWUA if they borrow from other sources
 Competitor (2) - PFIs
 PFI willingness to finance water supply and sanitation projects on their
own without paying the guarantee fee
 Competitor (3) - Grant
 Water service providers want to use grant if available.

12. 11
Lessons learned (2) – Capacity development
Financing mechanism is only a part of PWRF.The important feature
of the program is provision of a wide range of capacity development
for PFIs and water service providers.
 For PFIs
 Credit rating system
 Water project appraisal training
 For water service providers
Business planning
Project development (feasibility study)
Utility reform such as ring fencing and performance
contracting

13. 12
Lessons learned (2) – Capacity development

14. 13
Lessons learned (3) – Donor coordination
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JICA USAID
 Provision of concessional ODA
funds to DBP through a two-
step loan
 Long tenor and grace period
which enabled liquidity cover
to PFI loans
 Championed and introduced
an innovative co-financing
facility between DBP and PFIs
 Technical assistance for DBP
and some water districts for
project development
 Provision of co-guarantee for PFIs
 Institutional support, coordination
with PFIs and other stakeholders
 Assistance in project development
 Assistance in policy reform
 Utility reform (ring-fencing,
improvements in business planning
of water service providers)
 Training for PFIs and water service
providers
Complementary partnership between USAID and JICA worked well.

15. 14
Lessons learned (4) – Sector reform
Increasing creditworthy water service providers (WSPs) is a
challenge to sustain PWRF. WSPs in the Philippines are too small.
0 50 100 150 200 250
More than 30,000
10,000 - 29,999
3,000 - 9,999
Less than 3,000
Creditworthy
Semi-creditworthy
Pre-creditworthy
Non-creditworthy
Numberofconnections
Number ofWater Districts

16. 15
Lessons learned (4) – Sector reform
Analysis of the sector and its reform are important to increase
creditworthy water service providers which can use blended finance.
Percentage of number
of Water Districts
0% 20% 40% 60% 80% 100%
Creditworthy
Semi-creditworthy
Pre-creditworthy
Non-creditworthy
More than 30,000 10,000 - 29,999
3,000 - 9,999 Less than 3,000
Grant and T/A
to improve
creditworthiness
Private finance
Blended finance
Sector reform to enlarge water service providers

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Thank you for your kind attention
Japan International Cooperation Agency (JICA)
Global Environment Department
gegwt@jica.go.jp
Contact