Strengthening Economic Regulation of Water and Sanitation Services in the Philippines

3. Aggregating water and sanitation services delivery in the Philippines

Abstract

This chapter examines the challenges associated with the highly fragmented structure of water supply and sanitation service delivery in the Philippines and its implications for efficiency, service quality, financial sustainability and access. A range of practical pathways for aggregation, from voluntary collaboration to more structural integration is explored. The chapter concludes with recommendations for government and regulators to embed aggregation within broader sector reform and investment frameworks.

Key findings and recommendations

The Philippine water supply and sanitation sector remains highly fragmented, with overlapping mandates, uneven performance and limited economies of scale. This fragmentation contributes to inefficient investment, weak financial sustainability, variable service quality and persistent access gaps, particularly in sanitation and in rural and poorer regions. Many service providers, especially LGU-run utilities, barangay systems and small private operators, lack the scale, technical capacity and resilience required to deliver reliable and expandable services.

International experience shows that rationalising service delivery through aggregation, ranging from functional co-operation to full financial consolidation, can improve efficiency, service quality, resilience and regulatory effectiveness. However, aggregation requires clear objectives, supportive policy and regulatory frameworks and sustained national leadership. In decentralised systems, fully mandated consolidation may face political and operational constraints. Nonetheless, experience also shows that voluntary and purely bottom-up approaches are insufficient to overcome entrenched fragmentation. Effective reform therefore combines national direction with graduated, incentivised pathways.

There is no single aggregation model suitable for all contexts. A portfolio of pathways should be pursued in parallel, tailored to local conditions and management models. These include professionalising and ring-fencing LGU-run utilities; integrating barangay and community-based systems into LGU or water districts; encouraging inter-LGU collaboration for shared infrastructure; supporting water district mergers and expansion; formalising private and small-scale providers through licensing; and, where appropriate, piloting regional or metropolitan utilities.

Aggregation should be embedded within broader sector reform and investment programmes, rather than treated as a stand-alone objective. National and donor-funded water supply and sanitation initiatives, including those under the Philippine Water Supply and Sanitation Master Plan (PWSSMP), can encourage clustered or multi-LGU projects through targeted financing, performance-based incentives and PPP frameworks, strengthening creditworthiness and long-term sustainability.

Stronger economic regulation and aggregation are mutually reinforcing. Fragmentation undermines regulatory effectiveness, while clearer and more consistent regulatory frameworks can actively support aggregation. The proposed Water Regulatory Commission could itself drive aggregation by reducing uncertainty around tariffs, service obligations, licensing and performance monitoring, while progress on aggregation would significantly enhance the impact of the proposed Water Regulatory Commission by simplifying oversight, standardising requirements and improving data quality and benchmarking.

Tariff policy, licensing regimes and common performance indicators all play enabling roles. Aggregation does not require immediate tariff harmonisation; gradual approaches can help manage political and affordability concerns. Harmonised licensing and KPIs can improve compliance, transparency and comparability across providers, encouraging co-operation and voluntary consolidation over time.

Finally, aggregation is a human and institutional transition as much as a technical one, and its success depends on effective change management, capacity building and stakeholder engagement. The establishment of the Water Regulatory Commission alongside a future Department of Water Resources, offers a timely opportunity to set a national agenda for rationalising service delivery, supported by targeted studies, pilot initiatives and aligned regulatory, fiscal and investment incentives.

The Water Regulatory Commission will play a role in harmonising and clarifying economic regulation (tariffs, service standards) across all providers and ensure consistent rules. However, while economic regulation is central to improving utility performance, alone it cannot resolve structural fragmentation. As discussed in Chapter 2, strengthened economic regulation, particularly through cost-recovery enabling tariffs, can improve financial viability and support sustainable service delivery. However, many service providers in the Philippines face structural limitations that tariffs alone cannot overcome. These include insufficient scale to achieve economies in procurement, staffing and investment, limited technical and managerial capacity, weak creditworthiness constraining access to finance, and, in the case of the smallest providers, service areas too small or dispersed to sustain viable operations. These constraints are examined in the state of play analysis below.

Aggregation can be designed to support actions under the Water Regulatory Commission. It can provide a complementary pathway to reduce costs, improve operational efficiency and enhance financial resilience. At the same time, fragmentation increases regulatory complexity and weakens sector-wide coordination; reducing the number of disparate entities through aggregation can therefore reinforce regulatory effectiveness by enabling more consistent oversight, clearer benchmarking through common KPIs and stronger enforcement. The proposed Water Regulatory Commission could itself drive aggregation by reducing uncertainty around tariffs, service obligations, licensing and performance monitoring, while progress.

This chapter examines the challenges associated with the highly fragmented structure of water supply and sanitation service delivery in the Philippines and its implications for efficiency, service quality, financial sustainability and access. A range of practical pathways for aggregation, from voluntary collaboration to more structural integration, is explored. The chapter concludes with recommendations for government and regulators to embed aggregation within broader sector reform and investment frameworks. This chapter is complemented by Annex C, which identifies the policy, regulatory and financial conditions required to support their implementation and Annex D which shares experiences of successful aggregation and benefits accrued.

3.1. State of play analysis

Fragmentation and overlapping responsibilities for delivering water supply and sanitation services across the Philippines contributes to inefficient service delivery. Most water service providers are not financially or technically capable of delivering the required services to a rapidly growing population. They face challenges associated with cost-recovery, poor performance and limited water supply coverage. A lack of exclusivity zones has contributed to overlapping provision of water service, where there can be multiple providers in a single zone, yet with large gaps in service coverage in that zone overall. Lack of scale in service provision contributes to higher costs, linked for example to parallel procurement for materials and difficulties for service providers in attracting qualified personnel (this is particularly true in small island environments, where costs are significantly higher).

The investment needs to achieve universal access to water supply and sanitation are substantial and will require that funds are used strategically to maximise benefits and that assets are well maintained to avoid costly anticipated replacements. A fragmented sector and overlapping mandates have led to a lack of coordination and uneven, often duplicative, public-sector investments.  

3.1.1. There are more and less successful management models for water services

The complexity of the water supply and sanitation service market structure is partly linked to successive government programmes that have promoted specific provider models as a precondition for obtaining public or donor funding. Water districts, for instance, have been incentivised over the years through exemptions to paying income tax, access to development and concessional finance schemes and support under the Water Operator’s Partnership Programme. They take their origin to Presidential Decree No. 198, otherwise known as the Provincial Water Utilities Act of 1973.

Water districts demonstrate varying levels of financial sustainability. A more recent survey on the performance of water districts demonstrated relative similarities across service providers in terms of performance, described in Table 3.1 (World Bank, 2015[1]). Most surveyed water districts operated profitably and those that reported profits had access to financing, whether through the Local Water Utilities Administration (LWUA), a specialised institution for the promotion, development and financing of water districts, or through the Land Bank of the Philippines, a government-owned financial institution. The debt service ratio indicated that most water districts have the capability to cover their loan obligations. The non-revenue water averages ranged between 25 and 27%. Collection efficiency was between 91 and 95%. These indicators would point to good potential for sustainable expansion. Furthermore, service coverage points to ample opportunity for coverage to be increased, as water districts over 3000 connections tend to cover between 60 and 70% of population in their service areas. Smaller water districts (below 3000 connections) notably lag, serving an average of 30% of their service area (NEDA, 2021[2]).

Table 3.1. Performance of water districts in Terms of Operating Ratio in 2015

Indicators	Category A	Category B	Category C	Category D	All Categories A–D
Number within samples	5	10	19	11	45
Percentage of Population Served in service area	70 %	62 %	60 %	30 %	54 %
Service Connections per Employee	218	204	286	197	238
Operating ratio	81%	79%	78%	83 %	80 %
Non-Revenue Water	27 %	24 %	25 %	24 %	25 %
Average collection period	42	35	38	44	39
Collection efficiency	95 %	93 %	91 %	89 %	91 %
Current ratio	4	6	7	3	5
Debt service ratio	8.07	3.32	9.74	2.26	6.30
Debt-equity ratio	23 %	18 %	37 %	73 %	40 %
Net income margin	22 %	19 %	19 %	20 %	19 %

Note: In 2015, the World Bank conducted a study to assess the operating and financial performance of 45 sample WDs.

Source: (NEDA, 2021[2]; World Bank, 2015[1])

LGU-run utilities were described in the Philippine Water Supply and Sanitation Master Plan as “the least successful management model for providing water supply” (NEDA, 2021[2]). According to the Department of the Interior and Local Government, which provides support to LGU-managed utilities, LGUs face a challenge in providing coverage within their service area. Poor performance is linked to a lack of political will to implement utility reforms and to implement cost-covering tariffs. The mandates of elected government officials often conflict with the autonomy of the utility, leading to excessive responsiveness to short-term political considerations we (NEDA, 2021[2]). For LGU-run utilities, their “Sanggunian” (local board) is in charge of setting tariffs, which exposes this process to political interference. As a result, LGUs do not generate adequate revenue to invest in service provision.

In addition, LGUs suffer from a lack of technical capacity to manage the provision of water supply and sanitation services and to undertake long-term planning. In terms of performance, DILG reports notable challenges to performance. LGU-run utilities report an average of 19 hours of water availability per day. Production is often not measured and the absence of commercial protocols is quite prevalent. For example, accounts are not ring-fenced, connections are not metered, collection efficiency is low, staff-to-1 000-connections ratio reaches 34, where over 15 can already be considered relatively high. The best-performing utilities in the world have less than 2.5 staff per 1 000 connections (NEDA, 2021[2]). There is a push to encourage LGU-run utilities to become economic enterprises either run by LGUs and/or with private partners and ring fence activities for local water supply and sanitation services. This has shown notable positive outcomes, with municipalities gaining access to finance through the Land Bank of the Philippines.

Private concessionaires play a significant role, particularly in Metro Manila. The Metropolitan Waterworks and Sewerage System (MWSS) has delegated service provision to two privately-run concessionaires, Manila Water Company and Maynilad Water Services, established in 1997. In addition, the Subic Water & Sewerage Co manages the operation of the water supply and sewerage facilities at the former US Navy Subic Naval Base as well as the water supply system of the Olongapo City Water District. Manila Water Company and Maynilad Water Services, Inc. respectively serve 1.2 million service connections (7.3 million customers) in the East Zone and 1.5 million service connection (10 million customers) in the West Zone, primarily through Level III water service provision (Manila Water Company, 2024[3]; Water, 2024[4]).

MWSS concessionaires are financially capable of carrying out their investment plans. Concessionaires’ tariffs are based on their concession agreements as discussed further in Chapter 2 on tariff arrangements. The MWSS Regulatory Office oversees tariff adjustments during rate rebasing, which is guided by the conditions outlined in the concession agreements. These agreements provide a framework for cost recovery, allowing concessionaires to recover operational costs, capital investments and debt servicing, while earning a reasonable rate of return. Additionally, their agreements include provisions for regular performance monitoring, service obligations and mechanisms such as the Consumer Price Index adjustment and Foreign Currency Differential Adjustment to address inflation and foreign exchange fluctuations. Both concessionaires have ventured into partnerships with other water service providers in the country and explored areas for expansion in the Southeast Asian Region. Manila Water has the strongest level of performance as compared to other service providers.

There is increasing interest from private utilities. Several water districts and LGUs have contracted with large companies with strong track records for performance in urban, peri-urban and rural areas. This includes Prime Water Infrastructure Corporation (PrimeWater) which serves a network of 1.7 million service connections over 161 municipalities and Balibago Waterworks which serves 200 000 households throughout its franchise areas across regions (Prime Water, 2024[5]; Balibago Water Works, 2024[6]). Small private companies can also take the form of Homeowners’ Associations or Real Estate Developers, but there is comparatively less data for these service providers.

Relatively strong performance is reported by Community-based organisations (CBOs) and smaller private operators. Operating in areas that are not covered by MWSS, LGU-run utilities and water districts, this includes 517 licence holders of Certificates of Public Convenience (CPC) under level 3 service provision granted by NWRB, serving nearly 2 million households. Licence holding service providers report to NWRB that non-revenue water is very low at 17% across the 349 reporting private service providers and that service is provided over 22.47 hours a day. However, the NWRB lacks human resources to verify reporting and to validate these numbers, which means that it is difficult to assess their accuracy (NWRB, 2024[7]).

There is an increasing number of bulk water supply projects under development or lined up for future development throughout the country due to rising challenges with accessing water sources, with a rapidly expanding population and in the context of more frequent and intense extreme weather events. Some water districts and LGUs have entered contracts for bulk water projects to augment water supply to meet increasing demand. Examples are Manila Water’s contract with Metro Cebu Water District (MCWD), MWSS’ Bulacan Bulk Water Supply Project and Apo Agua’s bulk water supply for Davao City Water District. Several other bulk water supply projects are in various stages of project preparation or procurement process. In 2023, the Department of Environment and Natural Resources (DENR) began working with the Department of Finance of the Philippines to see how the government could incentivise public-private partnerships for bulk water supply, alongside other projects to deliver water where it is most required (DENR-WRMO, 2024[8]). Several public-private partnerships are already underway and account for the majority of bulk water supply projects.

Critically, comparing performance across types of service providers is difficult due to the lack of data availability and comparability. Available data on service performance does not cover all service providers. In addition, due to capacity limitations of various regulatory authorities, the data self-reported by service providers is often not verified, which poses significant questions regarding its accuracy.

3.1.2. Sanitation services are generally lagging

There is a notable lack of data on sanitation services. In Manila, where sanitation coverage is highest, services are provided by the concessionaires Manila Water Company and Maynilad Water Services. Currently, there is no comprehensive survey of sanitation service providers operating outside Metro Manila. Local governments are responsible for implementing sanitation plans, including the development of sanitation infrastructure under the Local Government Code of 1991, but service can be delivered by a range of providers, including water districts, LGU-run utilities, private sector operators and cooperatives. Households and communities are responsible for constructing toilets and septic tanks in compliance with the National Building Code. On-site systems, such as septic tanks must be maintained by a service provider of sanitation services (emptying of septic tanks, also referred to as desludging) or sewerage services (NEDA, 2021[2]). Many private operators have entered the market to undertake private desludging, commonly referred to by terms such as Malabanan and Pozo Negro. However, many lack access to proper treatment facilities and may dispose of collected waste directly into the environment, creating environmental and public health risks (NEDA, 2021[2]). Unofficial estimates in 2021 suggested the existence of just 36 septage treatment facilities nationwide (for a population of 113 million at that date), varying in operational status (NEDA, 2021[2]).

Despite important subsidy programmes, such as National Sewerage and Septage Management Programme (NSSMP) (2012), investments remain insufficient, as evidenced by the low levels of faecal sludge management infrastructure development in cities outside Manila and a limited number of pilot project cities (Domingo and Manejar, 2021[9]). This has been attributed in part to institutional fragmentation and disjointed efforts in the absence of an overarching framework and master plan, leaving the burden to mostly fall to local government to initiate and implement plans. Despite financial support available, a lack of readiness and political will to implement programmes at LGU level and low willingness to pay fees amongst end users has been a challenge, notably in smaller cities and poor performing LGUs (Domingo and Manejar, 2021[9]; DENR-WRMO, 2024[8]). While both concessionaires in Metro Manila have made notable progress through a focus on septage, there are still important steps to be taken to better manage faecal waste. In 2015, on average, the two concessionaires safely disposed of approximately two-fifths of the faecal waste generated. However, it was estimated that around half of on-site sanitation services use private operators who either dump waste in the environment, abandon pits when full or allow for the overflow of full septic tanks (WSP, 2015[10]).

3.2. Key opportunities for aggregation

Aggregation reforms in the Philippine water supply and sanitation sector can take various forms, from voluntary partnerships to more structural regional utilities. Initial discussions with water districts on aggregation pathways have already taken place, although no agreed model has yet emerged. Further study and stakeholder dialogue is therefore needed to define approaches suited to the Philippine context at this stage of the reforms.

3.2.1. Forms and benefits of aggregation

Scope, scale and process

International experience (discussed further in Annex D) shows that rationalising service delivery through aggregation can improve efficiency, service quality, resilience and regulatory effectiveness. Aggregation is the grouping of several entities, their functions or assets, into a single administrative structure for the provision of a particular service. There are multiple approaches to aggregating water and sanitation service provision, each shaped by specific objectives and the processes employed. The literature highlights several key dimensions that distinguish different approaches to aggregating service delivery (World Bank, 2005[11]; REAL-Water, 2023[12]):

• Scale: aggregation can involve as few as two neighbouring municipalities or extend to encompass numerous municipalities within a region or even across broader territories. The scale of aggregation directly influences the potential for economies of scale and the complexity of governance.

• Scope: aggregated structures may deliver a single service (such as bulk water supply or sanitation) or manage the full spectrum of water and sanitation services, from raw water abstraction to septage management. Within each service, responsibilities may range from specific functions like procurement to comprehensive roles covering operations, maintenance, investment and financing.

• Governance: the governance arrangements of aggregated entities can vary widely. In some models, governance is exercised through inter-municipal boards or public entities, while in others, such as market-led aggregation, contract management and regulatory oversight by municipalities or higher authorities are central. In cases of full consolidation, governance is typically centralised under a single new entity that assumes unified management, financial control and strategic direction for all participating areas. Effective governance is crucial for ensuring accountability, transparency and service quality.

• Ownership: asset ownership may remain with individual municipalities, be transferred to a new aggregated public entity. In market-led models, ownership may stay public while operations are delegated to private firms or depending on the contractual arrangement and local legal frameworks, ownership may remain or become private. The choice of ownership structure affects investment incentives and risk allocation.

• Process: Aggregation can be initiated in several ways (World Bank, 2005[11]; REAL-Water, 2023[12]):

  • Voluntary aggregation occurs when municipalities join forces based on mutual interest and local initiative.

  • Market-led aggregation arises when a single water company (public or private) provides services to multiple municipalities through service contracts, enabling economies of scale without municipal mergers.

  • Incentivised aggregation occurs when a higher level of government encourages municipalities to aggregate by offering benefits such as financial subsidies, favourable lending terms, technical assistance or regulatory advantages.

  • Mandated aggregation occurs when a higher level of government (such as national or regional authorities) requires municipalities to aggregate their water and sanitation services.

In addition, the process may be established for a specific, time-limited purpose or designed as a permanent arrangement.

The choice of aggregation model will depend on several factors, including the prevailing legal framework for water supply and sanitation, the level of decentralisation of public services, the social and political dynamics of the country and also on investment requirements. Approaches can range from loose partnership models (for example, where municipalities join forces to purchase goods or services or share equipment) to full ownership transfer where municipalities may join together to form a single new entity that owns all assets and provides water supply and sanitation services (REAL-Water, 2023[12]).

Table 3.2 provides an illustration of approaches to aggregation through increasing levels of formalised co-operation of management models and governance.

Table 3.2. Increasing levels of formalisation and transfer of responsibility

Model	Proposed definition	Description
Informal co-operation	An informal relationship where two or more water systems work together without contractual obligations.	Small water schemes work together for mutual benefit, through sharing equipment, sharing bulk supply purchases and establishing mutual aid arrangements.
Contractual assistance	Formal agreements between independent providers to deliver specific services or functions for one another.	Consists of agreements for delegated operations and maintenance, outsourcing, purchase of bulk water. This entails contractual obligations and shared responsibility.
Shared governance	Creation of a jointly governed entity by several schemes that continue to operate independently.	An entity (e.g., a regional water authority or inter-municipal association) governs multiple schemes or jurisdictions. These scheme or jurisdictions can continue to operate independently and interlocal agreements can define how governance, decision-making and operations are shared or delegated. For example, one entity may own utility assets, while regional governments share authority over rates and service expansion through such agreements.
Franchising	Granting rights to operate under a utility’s brand, systems or standards in a specific area.	Through franchising arrangements, the franchisor provides technical expertise and operational systems to franchisees, improving service quality and efficiency. This model is relevant in contexts where water service authorities lack the institutional capacity, whether in staffing or systems, to provide adequate services.
Ownership transfer (full consolidation)	Two or more legal entities merge into a single entity with unified governance, management and finances.	Complete integration of systems and administration across regions. Models include direct acquisition, joint merger or balanced merger. Example: Regional utility formed from several local providers.

Source: (REAL-Water, 2023[12]).

Cooperative approaches (partnerships) to water and sanitation aggregation, including informal co-operation and contractual assistance, often prove easier to implement than full aggregation, such as full ownership transfer, due to lower political and administrative barriers, allowing municipalities to retain autonomy while collaborating on specific functions (Table 3.1). Their flexibility, lower transaction costs and preservation of local accountability facilitate implementation. They can offer a pragmatic way to achieve some of the benefits of aggregation, such as cost savings and improved service quality without the significant challenges and risks associated with full integration. Cooperative models can also serve as a stepping stone towards deeper forms of aggregation. Municipalities may start with informal or contractual co-operation, building trust and experience and later decide to pursue more comprehensive integration if the benefits become clear.

Deeper aggregation or consolidation, including where municipalities fully merge governance, management and ownership can unlock greater economies of scale, enable more consistent service standards and facilitate larger investments in infrastructure and technology. It can also streamline decision-making and enhance professional capacity by centralising expertise and resources. The trade-offs include the potential loss of local autonomy and responsiveness, increased complexity in governance and the risk that the specific needs of smaller communities may be overlooked. Additionally, the process of full integration can be politically and administratively challenging, requiring significant time, negotiation and sometimes legislative change. The law (RA. 6234) creating MWSS in 1971 to provide water supply and sanitation in Metro Manila, Rizal, Cavite and Bulacan is an example of consolidation. To overcome barriers, deeper aggregation will often need to be driven by higher levels of government that provide a top-down mandate on aggregation. Ultimately, the choice between cooperative models and full consolidation involves balancing the benefits of scale and efficiency with the value of local control and tailored service delivery.

International experiences of aggregation

International experience shows that aggregation can unlock major gains in efficiency, investment capacity and service quality, but only when it is supported by clear institutional design, credible regulation and, in many cases, carefully structured incentives. There are different pathways to achieving aggregation; three contrasting country experiences presented in Box 3.1 illustrate how aggregation can be pursued through (i) voluntary inter-municipal co-operation, (ii) sequenced mandated and voluntary reforms and (iii) incentivised regionalisation. Annex D describes these country experiences in more detail.

Box 3.1. Lessons from France, Portugal and Brazil on aggregation

Voluntary, market-led aggregation through intercommunal structures in France

France’s water and sanitation services are formally the responsibility of around 36 000 communes, creating an inherently fragmented service landscape. Over more than a century, municipalities have voluntarily pooled responsibilities through intercommunal syndicates and other inter-municipal entities, resulting in aggregation into roughly 18 000 structures. French law provides standardised models for co-operation, including governance arrangements, entry/exit rules and tariff-setting mechanisms, reducing transaction costs for municipalities that choose to aggregate. A distinctive feature is the widespread use of delegated management contracts with private operators (notably Veolia, Suez and SAUR), where operations are outsourced while asset ownership remains public. This has enabled small communes to access technical expertise and economies of scale without transferring ownership or fully merging municipal structures. By 2020, nearly 69% of municipalities had transferred water and sanitation responsibilities to inter-municipal bodies, improving professionalisation and service quality, particularly in rural areas. However, France also illustrates the risks of insufficient oversight of private operators, including limited cost control, transparency challenges and market concentration, highlighting the importance of strong regulatory and contractual capacity.

Sequenced aggregation in Portugal: mandated for bulk services, incentivised for retail

Portugal’s experience unfolded in two distinct phases shaped by EU compliance requirements, financing constraints and municipal capacity limitations. First, from the mid-1990s, aggregation was promoted, largely on a mandatory basis, for capital-intensive bulk water supply and wastewater treatment. Regional multi-municipal systems were created through public–public partnerships involving municipalities and the state, often through the Águas de Portugal group, enabling economies of scale and the mobilisation of large investment. This phase was reinforced by blended financing: EU Cohesion Fund grants, long-term development lending (including from the EIB) and utility revenues. By the late 2000s, most bulk services were delivered through a limited number of regional systems. However, the reforms also revealed governance challenges, notably political sensitivity around cost-sharing and tariff structures across municipalities with different income levels and service needs. From around 2015, the focus shifted to voluntary aggregation of retail services (distribution and local wastewater collection), supported by incentives and funding access. Progress was slower and more uneven, reflecting the higher political sensitivity of customer-facing services, tariff implications and local autonomy concerns.

Brazil: aggregation linked to finance and regulatory reform, benefits and trade-offs

Brazil’s aggregation experience reflects extreme municipal fragmentation and large regional inequalities. Under PLANASA (1970s–1990s), the federal government incentivised municipalities to delegate services to newly created state-level companies by linking access to federal financing to participation. This enabled rapid expansion of urban water supply and cross-subsidisation, but it also weakened local ownership, left sanitation behind in many areas and suffered from fragmented and weak regulation. In 2020, Brazil introduced a new sanitation legal framework that shifted towards mandated and incentivised regionalisation: municipalities are required to join regional service blocks, with access to federal funding conditional on participation and contracts increasingly awarded through competitive processes to attract investment. Early implementation suggests improved investment momentum and stronger national standard-setting, but challenges remain around tariff harmonisation across heterogeneous municipalities, persistent inequalities and the need for robust regulatory capacity to ensure that investment translates into equitable service improvements. Brazil’s case highlights that long-term outcomes depend on accountability, regulatory strength and sustained attention to equity.

Table 3.3 distils the three country experiences across key dimensions and enabling conditions, highlighting parallels with the Philippine context.

Table 3.3. Comparative overview of aggregation experiences and lessons for the Philippines

Dimension	France	Portugal	Brazil	Relevance for the Philippines
Primary process	Voluntary, market-led	Sequenced: mandated (bulk), then voluntary (retail)	Incentivised (1970s), then mandated regionalisation (2020)	Combine national direction with graduated, incentivised pathways
Initial driver	Municipal capacity gaps over time	EU compliance and investment needs	Federal financing access and universalisation targets	PWSSMP investment needs and universal access targets
Institutional vehicle	Intercommunal syndicates; delegated contracts with private operators	Regional multi-municipal systems (Águas de Portugal partnerships)	State-level companies (CESBs); regional service blocks	Water districts, LEEs, inter-LGU partnerships, potential regional utilities
Asset ownership	Public, with delegated operations	Public, regional consolidation	Public, with growing PPP participation	Mixed; PPP Code (2023) enables private participation under public ownership
Financing model	Local revenues; delegated contracts	Blended (EU grants, EIB loans, utility revenues)	Federal funds (FGTS), increasingly private capital	URAF prioritises clustered/multi-LGU projects; PPP frameworks
Regulatory anchor	Decentralised; reliance on contractual oversight	Sector regulator (ERSAR) with strengthened mandate	National Water Agency (ANA) under 2020 framework	Proposed Water Regulatory Commission alongside DWR
Coverage outcome	~69% of municipalities aggregated by 2020	16 bulk systems; 234 municipalities in retail aggregation by 2020	Urban water coverage rose from 45% to 95% (1970–1990)	Target: universal access by 2030 (PWSSMP)
Key enabling condition	Standardised legal models reduce transaction costs for co-operation	Linking finance access to regional governance accelerates bulk consolidation	Empowered national regulator alongside legal default for regionalisation	Clear legal framework, aggregation menu and empowered WRC sequenced with finance
Principal limitation	Oversight of private operators; market concentration	Political sensitivity of retail-stage tariff harmonisation	Tariff harmonisation; uneven regulatory capacity	Local autonomy concerns; archipelagic geography

Source: adapted from (World Bank, 2005[11]; Martins and Fortunato, 2016[13]; Albuquerque, 2020[14]; Smiderle et al., 2020[15]).

Country experience and international evidence highlight that aggregation can generate significant benefits, including improved access to financial and technical resources, stronger operational performance, expanded service coverage and greater resilience to shocks. In the context of economic regulation, a more coherent market structure can also strengthen regulatory oversight, benchmarking and enforcement (World Bank, 2005[11]; World Bank, 2008[16]; Ferro, Lentini and Mercadier, 2011[17]).

Potential benefits of aggregation include:

• Economies of scale and efficiency: aggregation enables utilities to spread fixed costs over a larger customer base, reducing per-unit costs and improving resource allocation. Larger, aggregated entities can negotiate better contracts, optimise procurement and invest in more advanced technologies, leading to greater operational efficiency and, in many cases, lower tariffs for consumers. An OECD analysis in 2020 of water service reforms globally highlighted that regionalisation could lead to more professional management and better investment planning (OECD, 2024[18]).

• Service quality and compliance: by pooling resources and professional expertise, aggregated utilities are better equipped to meet increasingly stringent regulatory standards and improve service quality. Larger organisations can attract and retain specialised staff, invest in modern infrastructure and implement best practices in operations and maintenance, resulting in more reliable and higher-quality service delivery. Portugal’s aggregation reform saw the creation of regional multi-municipal water companies co-owned by the national utility Águas de Portugal, enabling small municipalities to meet EU drinking water standards and greatly expand wastewater treatment coverage. By pooling technical know-how, the multi-municipal utilities lifted service quality above what each town could achieve alone (Albuquerque, 2020[14]).

• Access and expansion of service: by consolidating fragmented providers into larger, regionally co-ordinated utilities, aggregation can enable the pooling of financial resources, technical expertise and infrastructure investment capacity. This can enable aggregated entities to extend networks, reach more users and finance major expansion projects that would be unattainable for individual small providers. In Chile’s case, the move to regionally consolidate and privatise the urban water companies in the late 1990s, under a single national regulatory regime, resulted in near-universal urban water coverage and a dramatic increase in wastewater treatment within about a decade (Molinos-Senante, Maziotis and Villegas, 2022[19]).

• Greater resilience to shocks: aggregated systems are generally more resilient to shocks such as droughts, natural disasters or economic downturns. They can mobilise resources across a wider area, diversify water sources and coordinate emergency responses more effectively than fragmented, smaller providers. This has been particularly evident in Australia and Portugal, where regionalised entities have managed drought and supply risks more successfully than isolated local utilities. In Australia, for example, state-wide or regional water corporations have been better able to respond to extreme droughts by flexibly managing water grids and investing in climate-resilient infrastructure (such as desalination and inter-basin transfers) covering multiple cities (Akimov and Simshauser, 2020[20])

• Simplified regulation and oversight: aggregation simplifies the regulatory landscape by reducing the number of entities that regulators must oversee and by standardising service and compliance requirements across larger service areas. This facilitates more consistent enforcement of standards, streamlined reporting and clearer accountability, making it easier for governments to ensure sector performance and protect consumer interests. Oversight becomes more feasible when regulators engage with a smaller number of stronger entities, rather than thousands of scattered providers. A consolidated sector allows the government to harmonise tariffs and service standards across broader service areas, making the playing field more level for consumers. It also reduces the burden on regulatory agencies, for instance, instead of trying to oversee thousands of barangay systems and LGUs, a national regulator could focus on a few hundred clustered entities. For the Philippines, the proposed Water Regulatory Commission will be far more impactful if aggregation progresses in parallel. Thus, aggregation and regulatory reform go hand-in-hand.

However, the benefits of aggregation are not guaranteed: their scale and nature depend on how aggregation is designed and implemented and on the broader reform context (World Bank, 2005[11]; World Bank, 2008[16]; Ferro, Lentini and Mercadier, 2011[17]). Aggregation is inherently complex and subject to multiple institutional, financial, political and operational barriers that can constrain its scale, pace and effectiveness. These constraints need to be explicitly recognised in the design of any national strategy for aggregating water supply and sanitation services. Table 3.4 summarises the key challenges that must be addressed to ensure that aggregation delivers sustainable efficiency, service quality and investment outcomes.

Table 3.4. Barriers to full aggregation

Obstacle	Description
Preference for local control	Communities value local ownership and decision-making, fearing loss of autonomy and influence over tariffs/economic development.
Socio-political resistance	Smaller communities may resist perceived “takeover” or power imbalances when merging with larger entities.
Financial constraints	Aggregation may require upfront investment and cost recovery can be difficult in low-income or low-density areas.
Unequal distribution of benefits	Some areas or staff may benefit more than others, leading to perceptions of unfairness and reduced support.
Knowledge and capacity gaps	Lack of understanding or technical expertise can hinder willingness or ability to pursue aggregation
Consultation demands	Significant time and resources are needed for effective stakeholder and community engagement.
Structural/legal complexities	Differences in state laws, asset ownership or water sources can complicate or limit aggregation benefits.
Unclear responsibility delineation	Ambiguity over liabilities, debt and capital maintenance responsibilities can deter aggregation.

Source: (World Bank, 2005[11]; World Bank, 2008[16]; Ferro, Lentini and Mercadier, 2011[17]).

3.2.2. Opportunities in the Philippines

Collaborations for shared Infrastructure

Aggregated service structures can support investment in new infrastructure. By collaborating, multiple LGUs or water utilities can deliver services together without the need for full institutional mergers. These cooperative arrangements may range from simple service contracts to formal joint ventures or inter-local consortia.

For example, two neighbouring municipalities could jointly develop a sewage treatment plant, sharing both costs and capacity, rather than each building a smaller, more expensive facility. Such agreements allow participants to leverage a larger customer base, reduce unit costs and avoid duplicating infrastructure. Through collaboration, small providers can access modern technology and expertise that would otherwise be unaffordable.

Common avenues for horizontal integration include:

• Shared sanitation facilities: a key challenge highlighted in the Philippines is that LGUs often lack the scale for modern wastewater investments. In this context, neighbouring cities or water districts can co-finance septage treatment plants or sewerage systems to serve their combined populations. A jointly operated wastewater facility can achieve more efficient treatment than fragmented septic systems, with costs allocated based on usage. By grouping together (through Memoranda of Agreement or creation of a joint utility), clusters of LGUs can develop regional sanitation solutions (whether septage treatment plants or sewerage systems) that meet environmental standards at lower cost per household (Mercado and Rodil-Ocampo, 2023[21]).

• Bulk water supply systems: LGUs and WSPs can co-operate to develop a bulk water source (such as an impounding reservoir or treatment plant) that provides treated water to multiple service areas. Instead of each municipality drilling separate wells or building separate treatment works, a larger-scale bulk water system can ensure reliability and quality for all partners. For instance, in Bulacan province (Luzon), a bulk water supply project now delivers treated water from a central facility to about 24 local water districts, resulting in one of the lowest bulk water tariffs in the country (BBWSP, 2017[22]). By spreading the infrastructure cost and yield across a broader base, participating utilities in Bulacan have expanded service coverage while keeping water affordable. Similar inter-utility arrangements can help other regions of the Philippines increase water supply coverage (e.g. developing a shared surface water source to replace over-extracted local aquifers).

• Joint investment and procurement: beyond physical infrastructure, horizontal collaboration can extend to joint planning, financing and even procurement. Multiple small water districts might coordinate their expansion plans to apply for financing as a group, making projects more bankable. Likewise, LGUs can undertake joint procurement for equipment or services (pumps, treatment chemicals, management contracts), benefitting from bulk discounts and shared technical evaluations. Such co-operation builds solidarity among providers and can gradually standardise service practices across a region. A key concern with joint financing is the risk of default by one partner, especially under solidary obligations, where others may be liable for the full debt. To address this risk, mechanisms such as securing a loan guarantee from a government financial institution (e.g., LGU Guarantee Corporation, now PhilGuarantee Corporation) can be considered, though this approach introduces additional costs. These added financing costs should be weighed against efficiency gains from joint investment, such as lower procurement prices and operational savings. This requires careful financial analysis and clear agreements on risk-sharing; overall, the benefits of joint financing can outweigh the costs while protecting all participants.

Voluntary aggregation does not immediately alter the legal autonomy of each participating LGU or utility, which can be a politically sensitive point. Each partner can retain its identity and control over local distribution networks or customer service, while ceding certain functions (like water production or wastewater treatment) to a shared entity or agreement. This flexibility can be an attractive approach, where full mergers or creation of regional utilities may face political or institutional hurdles. Joint service provision can be formalised through instruments like inter-LGU memoranda of understanding, consortium agreements, backed by clear rules on cost-sharing, decision-making and asset ownership. Over time, successful co-operation can build trust among local leaders and demonstrate the benefits of aggregation, potentially paving the way for deeper integration (Mercado and Rodil-Ocampo, 2023[21]).

Aggregation under different management models

Different strategies leading to aggregation could apply to different management models, with the most effective approaches building on existing efforts and targeting practical entry points. In all cases, the goal is to align with government-supported mechanisms (e.g. ring-fencing finances, establishing Local Economic Enterprises (LEEs) and supporting inter-LGU or LGU-Water District partnerships, rather than imposing a one-size-fits-all solution.

Water Districts

There are hundreds of water districts nationwide, but many are very small, around 300 water districts are reportedly non-operational or barely operational due to lack of scale. The law (P.D. 198) empowers the LWUA (Local Water Utilities Administration) to effect system integration, including annexation of service areas or merging districts when economically warranted. In practice, some water districts have already expanded beyond their original boundaries: for example, the Vigan-Bantay Water District in Ilocos Sur extended service to three neighbouring towns and evolved into the Metro Vigan Water District, demonstrating multi-jurisdictional integration under a single utility (Metro Vigan Water District, 2025[23]). Such multi-LGU WDs demonstrate the viability of horizontal integration among local utilities.

Water districts can also potentially merge or cluster to improve efficiency, sharing operations, infrastructure and management. Stronger water districts may integrate adjacent underperforming districts, or several neighbouring water districts may pool resources for joint facilities. It will be important to clarify legal uncertainties. For example, section 44 of Presidential Decree No. 198 provides for the legal basis for LWUA’s action to require the merger or consolidation of water districts’ facilities and operation if, after a public hearing, it is determined to be in the best interest of the residents of the districts involved. However, under the current state of laws, it may not be legally feasible to try to “enforce” merger or consolidation of water districts on LGUs because the Local Government Code of 1991 guarantees their local autonomy and right to self- determination.

Non-Operational Water Districts (NOWD)

NOWDs are water districts which are registered with LWUA but have failed to organise and operate viably. Based on LWUA’s data, there are around 164 municipalities with non-operational water districts (NOWDs) where LGU-run utilities provide water supply and sanitation services. In some cases, water districts fail due to competition with LGUs, who operate their own systems with tariffs set below cost recovery and with less stringent water quality practices, undermining the viability of water district operations. LGU involvement can also be a consequence of water district failure; when a water district is non-operational or unable to deliver adequate services, LGUs have an obligation under their general welfare mandate and their responsibility for basic service delivery under the Local Government Code to ensure that their constituents retain access to essential services, including water supply and sanitation. In practice, both dynamics are mutually reinforcing, underscoring the need for clear service-area arrangements and viable tariff frameworks.

LWUA offers assistance for NOWDs to re-activate, but ultimately, the decision lies with LGUs, who need to support a local board resolution and appoint a new set of board members for this to happen. Additionally, the LGU must acknowledge responsibility for any financial obligations for the concessional loans that were granted as seed money for initial operation (which includes interests and penalties). This creates strong counterincentives for LGUs to reactivate water districts. In this context, many LGUs also opt to continue to operate as an LGU-run utility or delegate water supply and sanitation service provision to a private operator.

Local Government Unit (LGU)-Run Water Utilities

Many municipalities and cities directly operate water services, especially where no water district exists. These LGU-run utilities are often small and under-resourced. A practical first step is to ring-fence water operations as a semi-autonomous enterprise, separating water service accounts from the general LGU budget. The Local Government Code (RA 7160) allows LGUs to establish revenue-generating utilities as Local Economic Enterprises, with their own financial records and commercial management. Recent policy highlights the need for financially and technically capable water supply and sanitation providers and supports reforms such as ring-fencing and the creation of Local Economic Enterprises for water utilities (NEDA, 2021[2]). Joint Memorandum Circular (JMC) No. 02, series of 2024 provides guidelines on ring-fencing and the creation of financially viable, self-sustaining LGU-run water and sanitation utilities in the Philippines (DBM, 2024[24]).  This can also apply to areas and assets covered by non-operational water districts if the concerned LGU opts not to re-activate them and continue to provide water supply and sanitation services through LGU-run utilities.

Beyond internal reforms, LGUs can pursue aggregation through cooperative arrangements. Adjacent LGUs may share water sources or facilities via Memoranda of Agreement (MoA), pooling resources for mutual benefit. LGUs can also partner with water districts, for example, by contracting a Water District to operate or supply bulk water to an LGU system. These flexible partnerships let LGUs leverage the technical capacity of larger utilities without losing asset ownership, especially useful for small, inefficient LGU-run systems.

LGU could also pursue aggregation by consolidating service provision under an adjoining water district to cover the entire municipality, or to merge with specific barangays. The scope may vary to cover certain aspects of operation and financing to full annexation eventually paving the way to the formation of a metro water district.

Barangay Water Systems

At the Barangay1 level, there are thousands of small water systems, which are often managed by Barangay Water and Sanitation Associations (BWSAs) or local committees. Their prevalence reflects the country’s geographical and settlement conditions, including its archipelagic nature, dispersed and mountainous communities and the presence of geographically isolated and disadvantaged areas, where conventional utility-based service provision may not be technically or financially viable. In these contexts, community-based providers play a critical role in extending access to underserved areas. While they provide basic water supply in rural areas, many face severe capacity and funding constraints. Most were built with government or donor support and have struggled to sustain operations once this external support ended (Castro, 2017[25]), leaving behind a patchwork of small systems, many with low service quality or in disrepair.

Although they contribute to sector fragmentation, their contribution to delivering universal access also needs to be recognised. The BWSAs can be strengthened in several ways, depending on local circumstances and particularly when they remain the most viable option in remote areas. Strenghtening can be achieved through capacity building and formal registration in the first instance, particularly for isolated systems. Clustering or federation of several associations under one management can help improve scale; and, where larger providers are within reach, integration with the LGU or a water district’s network through performance contracts or a phased takeover can also be considered. Contracts should specify required service level standards and parameters for supervision and the provision of technical and financial support (NEDA, 2021[2]).

There is a good opportunity to formalise and aggregate barangay schemes under LGU and water districts. The establishment of dedicated ring-fenced local economic enterprise for water supply and sanitation will be a critical first step. For this purpose, DILG-DENR-NEDA-DBM-DOF JMC No. 2 (September 23, 2024) may be used as a guide. Relatedly, JMC No. 2 also encourages LGUs with LGU run utilities to integrate BWSAs and other community-based water supply and sanitation providers. The operationalisation of the JMC nonetheless remains a gap. Its full implementation requires dedicated funding resources, a tailored capacity-building programme for LGUs and LGU-run utilities and systematic monitoring of performance and results. The Framework for Municipal Centralised Management System (MCMS) for Local Water Supply and Sanitation Services prepared under the USAID Safe Water Programme supports this process with reference material on how to integrate BWSAs with a ring-fenced local economic enterprise.

National policy encourages such integration, recognising that small rural systems are more viable when connected to larger, professionally managed utilities. Some municipalities have already created central waterworks offices to support barangay networks. This includes the Magallanes LGU which established the Magallanes Waterworks Office in 2006 initially providing water supply and sanitation services in the población area and gradually expanding to outlying barangays. LGU Magallanes now covers all its 16 barangays.

Rural Water Supply Association (RWSA) and cooperatives

Beyond barangay-level associations, many rural areas are served by community-based providers such as cooperatives, rural water service associations (RWSAs) and other user-managed systems. Together, these community-run schemes account for a significant share of water service in rural zones. They are typically small and informal, which makes it challenging to maintain professional standards or access finance. There are existing and successful efforts to rationalise community-based providers by formalising and networking them rather than eliminating them outright. Formal registration effectively consolidates the community’s efforts into an entity that can be regulated, that can access technical support and even enter partnerships. For instance, the Talaga Barangay Water Service Cooperative in Batangas has been cited as a successful model: as a registered cooperative, it achieved financial sustainability and reliable service delivery in its village (Arminga B, 2016[26]).

Where feasible, community-based providers can also be gradually integrated with larger utilities. This might mean a cooperative contracting with the LGU or Water Districts for bulk water supply, or multiple small associations forming a federation to share technical expertise. In remote areas, a well-run cooperative might remain the best solution, but it can still be connected to the broader sector through licensing and technical assistance. Programmes like the National Water Resources Board’s technical service provider accreditation have already linked dozens of small utilities to expert support (Castro, 2017[25]), which is a form of functional integration (sharing know-how and standards). The low-hanging fruit for community-based systems is identifying those that are too weak to stand alone and facilitating their partnership with stronger institutions.

Large – Private Water Utilities

The Philippines encourages private sector participation to contribute to meeting the required investment to improve access to water supply and sanitation services. The enabling environment for mobilising private sector investment for financing, designing, construction, operating and maintaining infrastructure and provision of services, including water supply and sanitation, is provided in Republic Act No. 11966 (2023) or the PPP Code of the Philippines (2023).

There is interest from many large private water utilities to enter into PPP contracts with existing water districts and LGUs for provision of water supply, bulk water supply and sewerage/septage management services. They typically look at project scale, return on investment and associated project risks (including regulatory risks).

Water Supply Services

Private water utilities can benefit from economies of scale when covering several municipalities or service areas. This can help to develop, scale and improve operational efficiency and support project financial viability. A centralised water system is not always required. Sometimes multiple independent water systems may be more appropriate for the geographic characteristics of areas to be served. However, a centralised technical support, accounting and financial management and commercial operations, including procurement of supplies, for clustered municipalities or service areas can provide the required operational efficiency to improve and sustain financial viability. This business model has been adopted for example by the Balibago Waterworks Systems Inc, which grew from a local water provider in Angeles City and Mabalacat, Pampanga into a privately-owned provincial water distributor.

However, may not always be possible to set and implement uniform tariffs across two or more municipalities or service areas, especially in contracts with different types of water utilities that have different tariff-setting methodologies and regulators. In which case, each municipality or service area may be treated as separate projects but part of an overall investment portfolio.

Bulk Water Supply

There is a lot of interest from large private water utilities to invest in bulk water supply projects to fill current supply gaps and meet future demand and to support government efforts to reduce reliance on groundwater and shift to surface water for domestic and municipal purpose (PDP).

Considering the large investment required for the development of bulk water supply projects (especially surface water), project viability will depend on large demand for water. Therefore, water districts operating in highly urbanised cities and municipalities may be best suited to explore bulk water projects. Projects designed to support water demand for two or more water districts or LGUs supports greater project viability and spread commercial risks.

Identifying and securing the water rights to develop a water source that can potentially produce sufficient volume to justify project feasibility is critical. NWRB issued Resolution No. 090624 (28 June 2024) declaring a policy directive to reserve water for future use (in preparation for bulk water supply projects), but the implementing guidelines for its implementation has not been formulated.

Currently, the regulation of bulk water supply projects and charges is ambiguous. NWRB issued Resolution No. 15-1024 (30 October 2024) to regulate bulk water supply which is tied to applications for water permits, but it has not been tested or implemented.

Sewerage/Septage Management

There is also interest from large private service providers in sewerage septage management services and because of the required huge investment to construct and operate a wastewater treatment plant, investors look at water districts operating in highly urbanised and municipalities or may consider clustering of two or more smaller water districts and LGUs to support project viability.

Many water districts welcome proposals for partnership from private water utilities because they (together with LGUs) are mandated to implement sewerage/septage management services under the Clean Water Act.

The regulation of tariffs for sewerage/septage management is ambiguous, especially for private water utilities. While tariffs for wastewater services provided by water districts lie with LWUA as expressly provided under Presidential Decree No. 198, an opinion issued by the DOJ stated that the NWRB (which regulates private water utilities) does not have the legal mandate to regulate sewerage and septage management services.

Many LGUs are reluctant to impose mandatory desludging programmes of septic tanks because many households do not have the capacity or willingness to pay or are not ready to receive service (due to improperly designed septic tanks).

Integrating private providers through licensing

Small-scale Private Water Service (SSP)

A significant share of the population relies on small-scale private water service providers (SSPs), such as water tanker operators, independent piped networks and private bulk suppliers, especially in areas unreached by formal utilities (NEDA, 2021[2]). However, these SSPs often operate informally or with minimal oversight, leading to inconsistent service quality and opaque pricing. Strengthening licensing (through instruments like NWRB Certificates of Public Convenience) and permits frameworks can formalise these providers’ operations and embed them in the regulated service landscape. This can also ensure compliance with drinking water standards and environmental rules. Efforts in the Philippines are already underway. In Baguio City, authorities have urged all “colorum” (unregistered) deep-well operators and water delivery businesses to legalise their operations by obtaining permits. This is aimed at enforcing water extraction limits and standards for tanker-supplied water (Government of the Philippines, 2025[27]).

Licences can encourage interoperability with public networks and support partnerships or joint ventures. The regulatory framework in the Philippines enables and encourages LGUs and water districts to contract private micro-utilities, licensed by the NWRB, to manage water systems in new housing subdivisions and rural barangays (Velasco et al., 2021[28]). NWRB grants CPC to such private operators, sets tariffs and monitors compliance with service standards, supporting formal partnerships to expand water access in peri-urban and rapidly growing areas. Licencing can therefore support formal service agreements with LGUs or water districts. A small licensed piped network can be contractually engaged to serve areas that the main utility cannot yet reach. However, as noted, many SSPs often operate informally or with minimal oversight. At present, water tankers are not regulated as a utility and are not required to secure license. However, they are regulated by LGUs.

By recognising and regulating these actors, local governments ensure that service delivery gaps are filled in a safe, accountable manner, while laying groundwork for eventual system integration. In Misamis Oriental (Mindanao), the municipality of Opol recently addressed its water shortages by partnering with both a neighbouring water district and a private bulk supplier (South Balibago Waterworks). The private firm, which holds an NWRB licence, delivers treated bulk water to the LGU’s system under a contract, illustrating how private operations can complement public providers to expand access (Business Week National, 2024[29]).

This can take the form of "minimal" or "relaxed" regulatory oversight. As an example, Manila Water’s Tubig Para sa Barangay is a partnership with People’ Organisations (POs) to supply water in areas occupied by informal settlers, which cannot be individually connected due to landownership issues. The NWRB has issued guidelines for small private water networks operating in this zone, which requires a simple registration and supervision by main utilities (NWRB Reso 03-0609 dated June 17, 2009).

Crucially, license terms can include targets and enable the benchmarking of performance, with renewal contingent on compliance. Under the proposed creation of a Water Regulatory Commission, the regulator would be empowered to attach technical, expansion and tariff conditions to licenses, thereby further strengthening sector oversight. Regulatory bodies in many countries use licensing regimes to set and enforce technical, expansion and tariff conditions, with the authority to impose sanctions, require data disclosure and incentivise performance (OECD, 2015[30]; World Bank, 2025[31]).

Countries such as Kenya, Tanzania, Zambia and Uganda have regulatory agencies that issue licenses to utilities and set clear performance indicators (KPIs) for water coverage, quality, economic efficiency and operational sustainability. Utilities are benchmarked against these KPIs and continued licensing is contingent on meeting targets for service expansion, hours of supply, water quality and other operational benchmarks. Performance awards can also be introduced for exceeding targets providing incentives for expansion (ESAWAS, 2017[32]). Under Brazil’s new water and sanitation regulatory framework, the National Water Agency (ANA) is responsible for setting national performance standards, including universalisation goals (e.g., targets for expanding access to water and sanitation by 2033). Licenses and concession agreements for both public and private providers now include specific expansion and quality requirements, with ongoing compliance monitored by regulators (Clifford Chance, 2020[33]).

Small Private Water Utilities (SPWU)

SPWU are NWRB-regulated water utilities operating in enclosed areas in cities and municipalities where water districts or LGU-run utilities also operate. This includes real estate developers, homeowners’ associations, private operators and industrial locators. They install, operate and maintain their own water systems, consisting of deep-wells and distribution pipelines, to provide water supply to customers.

SPWUs hold CPCs or licences from NWRB with performance, service level and financial reporting conditions and are valid for 5/10 years. The NWRB or Water Regulatory Commission may explore adding a mandatory condition to CPCs or licences to compel integration (within a specified period) with the water district or LGU-run utility operating in the same city or municipality. This also supports efforts to strictly regulate and discourage continued reliance on deepwell sources, especially in areas where groundwater aquifer is over-extracted and surface water is available as an alternative source, such as Metro Manila, Cavite, Bulacan, Cebu, Batangas and Pangasinan Provinces (Padronia, 2023[34]; Province of Pangasinan, 2024[35]; Balaoing, 2025[36]). The policy issuance may include a menu of options ranging from treated bulk water supply to full aggregation (turn-over of operation).

Establishing regional utilities

A more structural option is to create regional water and sanitation utilities that transcend individual LGU boundaries. This could be done by aggregation of governance and management at territorial level. These entities could be new corporations set up under national law, or expansions of existing ones.

Creating regional water and sanitation utilities that transcend LGU boundaries can enable utilities to pool resources, standardise operations and achieve economies of scale, which are particularly important for improving efficiency and service quality in fragmented sectors. International experience shows that aggregation can lead to more resilient utilities capable of managing larger infrastructure investments and responding to sector challenges such as climate variability and rapid urbanisation (World Bank, 2005[11]).

This type of reform could build on the success of well-run water districts as anchors for regional utilities. However, implementing regional utilities may require national legislation or executive action on any rules that limit the expansion and merger of water districts. The creation of regional utilities could also be aligned with the administrative regions, though some regions are large and diverse so sub-regional grouping might be preferable. Any such approach should consider factors like population, geography and resource availability; the aim is to define service areas that are large enough for efficiency but not so large as to be disconnected from consumers.

A notable international example comes from Hungary, where the government encouraged small municipalities to form regional utilities: as a result, several large regional water companies emerged, each serving dozens of towns, which simplified regulation and improved service standards (Kis and Maria, 2017[37]).

Another approach is through the Metropolitanisation of services, expanding the Metro Manila concession model to other metropolitan areas (Metro Cebu, Metro Davao, etc.), where multiple LGUs can be served by one utility via concession or corporatised utility. The Metropolitan Cebu Water District (MCWD) already serves multiple LGUs and could evolve into a broader regional utility through partnerships or corporatisation (MCWD, 2025[38]).

International experience (including in Australia and Brazil) highlights the importance of a clear legal mandate and supportive regulatory frameworks for successful aggregation. Implementing regional utilities in the Philippines would require either amendments to existing laws or the passage of new legislation, potentially through the proposed Department of Water Resources (DWR) and Water Regulatory Commission. However, there are already avenues within the current framework in the Philippines. Presidential Decree No. 198 specifically allows for the creation of a Water District that includes one or more municipalities, cities or provinces (Section 4 (b)). Additionally, LWUA may require the merger or consolidation of 2 or more water districts to create Metro Water Districts if it is determined, after due notice and hearing, to be in the best interest of the residents served by concerned WDs.

3.3. Conclusions and recommendations

Aggregation of water supply and sanitation services requires a supportive enabling environment to overcome the political, financial and technical challenges involved. A number of policy measures may need to be considered to ensure aggregation efforts succeed and deliver the expected benefits, depending on the process adopted.

For the Philippines, moving towards greater aggregation of water and sanitation services, especially when combined with the creation and operationalisation of the Water Regulatory Commission, can be an opportunity to reduce fragmentation, clarify regulatory responsibilities and enhance service delivery.

Before undertaking aggregation in the water and sanitation sector, it is important to carefully consider a range of institutional, economic, social and technical factors. Lessons from country experience and the broader literature, highlight several key considerations and potential lessons for countries such as the Philippines.

3.3.1. Determining the agenda for aggregation

The Water Regulatory Commission and future Department of Water Resources have a key role to play in setting the vision, aligning incentives and coordinating actors. International experience, from Portugal to Brazil (discussed in Annex C), shows that top-down leadership, paired with bottom-up momentum, can create a virtuous cycle of aggregation and reform. In the case of Portugal, the first wave of successful aggregation of bulk water supply was driven by a top-down mandate.

In decentralised systems, fully mandated consolidation may face political and operational constraints. Nonetheless, experience also shows that voluntary and purely bottom-up approaches are insufficient to overcome entrenched fragmentation. Effective reform therefore combines national direction with graduated, incentivised pathways. Early and tangible progress is often achieved by prioritising aggregation around shared infrastructure (such as bulk water supply systems or septage treatment facilities), contractual co-operation and shared governance arrangements. These mechanisms can preserve local autonomy in the short-term, while establishing a clear trajectory towards more integrated service provision over time.

In the short to medium-term, practical priorities include professionalising LGU-run utilities through ring-fencing and the use of Local Economic Enterprises; integrating barangay and community-based systems into municipal or water district arrangements through contractual arrangements or phased takeovers; and scaling inter-LGU collaboration for joint investment, procurement and shared services. Where economically justified, water district mergers and multi-jurisdictional expansion should be actively supported, alongside the formalisation of small private providers through licensing and performance requirements. To support effective licensing and permitting frameworks, the OECD developed a set of Best Practice Principles on Licensing and Permitting (Box 3.2) (OECD, 2025[39]).

In selected priority areas, more ambitious forms of aggregation may be warranted, including the piloting of regional or metropolitan utilities. More formal aggregation can ultimately involve consolidated governance or management of LGU water service providers, Barangay Water Systems and Rural Water Supply Associations under a single entity, such as a water district or regulated private utility, where this offers clear efficiency and service delivery gains.

Already, the Philippine Water Supply and Sanitation Master Plan (PWSSMP) 2019–2030 outlines goals for universal coverage. The creation of the Department of Water Resources and Water Regulatory Commission provides an opportunity to open discussion on aggregation. This may include:

• Undertaking an in-depth study to identify areas where efficiency gains could be generated through aggregation.

• Determining potential pathways for aggregation, considering scale, scope, process, governance, ownership and incentives and other areas.

• Defining the role of the future Water Regulatory Commission and Department of Water Resources, for example in championing regionalisation initiatives and mediate any inter-agency issues.

• Ensuring mechanisms are in place to sustain its long-term success.

• Discussing top down and bottom-up measures.

The role of enabling regulation policies and principles is discussed further in Annex C.

Box 3.2. OECD Best Practice Principles on Licensing and Permitting

The Best Practice Principles on Licensing and Permitting aim to support governments in designing and implementing licensing and permitting (L&P) frameworks where they are needed, in a way that restores public trust, ensures fairness and transparency, supports growth and competition and helps manage risk in a rational and evidence-based manner. They include six principles:

• Focus on policy outcomes: L&P processes should be designed and implemented to align with broader policy goals and their results should be evaluated based on how well they meet those goals. Licensing authorities should ensure adequate resources and capacity to achieve intended outcomes.

• Keep L&P proportionate to risks: The use of L&P processes and their requirements should be limited to cases where activities cannot be regulated effectively ex post and be tailored to the level of risk of a business or activity. L&P should only be applied when the potential impact is significant and irreversible, meaning the damage cannot be easily undone.

• Link L&P with enforcement: L&P should be linked with enforcement and inspections and encourage meaningful compliance.

• Make L&P processes user-friendly: Licensing authorities should adopt a user-centric approach, providing easy access to information and support for individuals and businesses, while actively engaging stakeholders in the process.

• Streamline L&P processes and keep them flexible: Burden and complexity should be minimised through streamlined and standardised L&P processes, supported by enhanced coordination. Processes should be designed, implemented and monitored with flexibility to adapt to changing needs and promote innovation, while effectively using available resources.

• Ensure fairness and integrity in L&P: Licensing authorities should ensure their processes are fair, ethical and transparent and are supported by independent accountability mechanisms.

Source: (OECD, 2025[39]).

3.3.2. Potential pathways for aggregation in the Philippines

There is no single route for aggregation in the Philippine water supply and sanitation sector, but a range of mutually reinforcing pathways can be pursued in parallel.

• Continuing to strengthen local foundations through ring-fencing and professionalisation: A critical first step is improving the internal governance of LGU-run systems and smaller providers. Ring-fencing water operations, whether through Local Economic Enterprises or corporatised structures, can professionalise management, clarify performance and enable future partnerships. It also lays the foundation for deeper integration, allowing LGUs to enter joint service arrangements or outsource operations to more capable entities without losing transparency or accountability. This should be complemented by the formalisation of small private providers through licensing and performance requirements. Proportionate licensing regimes can bring small providers into the regulatory perimeter, improve service quality oversight and unlock access to finance, provided requirements are scaled to provider capacity.

• Integrating community-based and barangay systems: for the smallest providers, integration into municipal or district-level systems is essential. This can take the form of service contracts, co-management models or cooperative aggregation under umbrella organisations. The goal is not to eliminate community providers, but to connect them to the formal system through contracts and franchising and ensure service standards are met. Flexible transition mechanisms and technical support would be important here.

• Enabling voluntary clustering and inter-LGU collaboration: inter-local partnerships offer a pragmatic entry point for aggregation, especially where full merger is politically unfeasible. These can range from shared septage treatment plants to joint bulk water sourcing or co-ordinated investment plans. Bulk water and sanitation infrastructure are particularly well-suited to shared provision, offering economies of scale and immediate service improvements. The national government can support this with standardised MoUs, co-financing and performance-based incentives for clusters.

• Targeting sanitation and bulk water: Septage treatment and bulk water projects present concrete opportunities to kick-start aggregation. These services naturally span multiple jurisdictions and require costly infrastructure, making them good opportunities for joint investment and service integration. Bulk water systems, such as those piloted in Bulacan, can serve as anchor projects for multi-jurisdictional coordination, supported by PPPs and concessional finance. By targeting these high-leverage areas, aggregation can be embedded in tangible service improvements.

• Supporting water district integration and service expansion: Water districts can be a logical home for regionalisation. Stronger water districts could be supported to absorb or partner with weaker neighbours, through formal mergers, bulk supply agreements or sanitation contracts with LGUs. This allows districts to evolve into full-cycle utilities, providing both water and sanitation services across multiple jurisdictions. Regulatory reform and over time tariff adjustment, can facilitate this transition. Regional utilities can also play a role in water resources management and river basin management.

• Piloting regional utilities in high-need areas: in selected regions, such as Eastern Visayas, Mindoro or South Central Mindano, more ambitious structural aggregation could be piloted. Options include the creation of regional utilities through amalgamation, or joint ventures across provinces. These pilots can be co-developed with local champions and development partners, serving as learning laboratories for scaling up.

• Embedding aggregation in broader sector investment: rather than financing aggregation as a standalone reform, this approach should be integrated into all major water supply and sanitation programmes, from climate adaptation to sanitation expansion. Investment frameworks, PPP pipelines and blended finance instruments can be designed to reward integrated service delivery across LGU boundaries. Bundling water and sanitation projects can also help scale viable infrastructure deals. An existing example includes the recently issued Guidelines of NEDA Board Reso 41 (Unified Resource Allocation Framework), which prioritises proposed projects that maximise economies of scale such as bulk water supply and sewerage/septage management for clustered WSPs to provide and expand service transcending LGU boundaries.

• Setting the agenda: The Water Regulatory Commission can act as a platform for aligning LGUs, water districts and private providers under coherent rules and shared objectives, particularly around shared resource management, inter-jurisdictional service delivery and long-term infrastructure planning. However, it will be equally important for the central government to set the agenda on aggregation with a top-down mandate, as well as putting in place incentives to support aggregation efforts from the bottom up.

References

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[14] Albuquerque, A. (2020), Portuguese experience on the aggregation of water supply, sanitation and solid waste utilities, Smart Water Magazine, Lisbon.

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Note

← 1.  A Barangay is a small territorial and administrative district forming the most local level of government.