Strengthening Economic Regulation of Water and Sanitation Services in the Philippines

5. Recommended action plan resulting from the National Dialogue on Water

Abstract

This chapter presents the recommended action plan resulting from the National Policy Dialogue on Water in the Philippines, highlighting the main elements of potential reform (ranging from short- to long-term actions) and the partners and champions that ideally should take part.

The action plan outlined in Table 5.1 consolidates the main findings and recommendations of the National Dialogue on Water in the Philippines set out in the preceding chapters, covering three priority areas: strengthening tariff-setting practices and governance in the water supply and sanitation (WSS) sector; rationalising service delivery through the aggregation of service providers; and developing a centralised national integrated water information system. For each area, the plan identifies concrete actions, the objectives they are intended to serve, the main partners and champions responsible for taking them forward and an indicative timeline distinguishing between short-, medium- and long-term priorities.

The action plan is designed to support a coherent and sequenced approach to reform. Short-term actions focus on establishing the foundations for change, including improved co-ordination among economic regulators, harmonised approaches to tariff design and data collection and piloting of new arrangements. Medium- and long-term actions build on these foundations, notably through the consolidation of the regulatory landscape, the establishment of an independent economic regulator and the legal anchoring of data governance and aggregation pathways in sector legislation. Successful implementation will depend on sustained political commitment, close co-operation among the institutions identified and continued engagement with service providers and other sector stakeholders.

Table 5.1. Recommended action plan resulting from the National Dialogue on Water in the Philippines

Main finding	Recommended action	Objectives of the action	Main partners and champions	Timeline
Strengthening tariff-setting practices and governance in the Philippines WSS sector (chapter 2)
Reshaping the regulatory landscape for the WSS sector in the Philippines would help consolidate regulatory functions that are currently spread across institutions.	Establish a “regulatory taskforce”, bringing together all economic regulators in the sector, to build consistency by increasing the level of co-ordination and foster harmonised approaches in relation to the functions performed, joint actions and guidance. Consider how such a taskforce can be used for capacity-building and resource-pooling through joint training programmes, secondments and staff exchanges or shared services, as well as connecting it to regional or international peer networks, to improve capacities across authorities.	Improve investment climate Build consistency and stability	NWRB DOF LWUA MWSS-RO LGUs Special zone regulators DENR WRMO DEPDev	Short term
	Prioritise the creation of a single independent economic regulator for the sector, thereby consolidating the fragmented regulatory landscape and removing regulatory gaps and overlaps. Grant the independent water regulator with robust authority and effective governance arrangements to support its effectiveness, including all aspects of independence (legal status, role clarity, government guidance, staff, leadership, resources and institutional culture) and accountability mechanisms – based on the OECD Best Practice Principles on the Governance of Regulators.			Medium term
Clarity on goals and priorities is essential for the effectiveness of economic regulation of the WSS sector in the Philippines.	A structured forum should be formed, such as a roundtable, task force or working group, bringing together policymakers, regulators and relevant stakeholders of the WSS sector to agree on the key regulatory objectives for economic regulation that can guide the work of regulators. These objectives can first be defined in interim guidance prior to the codification of objectives in legislation by policymakers to provide long-term certainty. Develop formal co-operation agreements (such as MOUs) to define roles and responsibilities and processes for consultation and joint action, to improve role clarity and coherence. Economic regulators should jointly define and publish core tariff design principles for tariffs for WSS services, applicable across all provider types, to build a shared understanding and support the achievement of regulatory objectives – this process should be government-mandated but regulator-led. A shared oversight committee of regulators could monitor the implementation of such principles.	Strengthen public sector effectiveness Improve role clarity	DENR WRMO DOF DEPDev NWRB LWUA MWSS-RO LGUs Special zone regulators Water providers User associations	Short term
	Policymakers should define in legislation the key regulatory objectives that should be achieved through tariff regulation, as well as the trade-offs that economic regulators are expected to make and the way in which conflicts should be resolved, thereby providing clarity to regulators on what they are expected to achieve. Periodically review the set of regulatory objectives for economic regulation as sector challenges evolve, to ensure objectives stay relevant and up to date.			Medium term
Challenging aspects of tariff design lie in balancing financial viability – by ensuring that tariffs reflect the full cost of water provision – with affordability.	Separate affordability and access objectives from tariff structures through guidelines on targeted subsidies and lifeline rates (considering all forms of subsidies, not only those implemented through water tariffs but also direct subsidies channelled through the social system), to avoid distorting or diluting cost-recovery and tariff incentives.	Support affordability Ensure financial viability	DENR WRMO DEPDev NWRB LWUA MWSS-RO	Short term
	Consider regional differentiation and apply affordability thresholds only to low-income households, to ensure affordability criteria target those most in need.			Medium term
The many tariff methodologies currently applied for the sector show various deficiencies and inconsistencies, resulting in a need to improve and harmonise approaches.	Economic regulators may jointly develop non-binding tariff methodology guidance and tariff protocols that provide standardised definitions and approaches, further supporting harmonisation and consistency in anticipation of the establishment of an independent water regulator. This process should be government-mandated but regulator-led and involve: Common tariff principles: the guidance should define a common set of tariff principles applied across the sector; Standardised definitions and approaches: these relate to the operational parameters, but will depend on the preferred framework (e.g. definitions for OPEX, capex, rate of return, KPIs, etc.); and Standardisation of reporting: uniform templates and guidance for tariff proposals, investment plans and KPI tracking. Develop a classification system of providers based on fundamental characteristics such as size, location, capacity or service coverage, to ensure proportionality by tailoring tariff methodologies and their complexity to the profile of providers. In developing this classification, care should be taken to keep the classification simple by limiting the number of “provider classes” to a minimum. Use the process of harmonising tariff approaches to remove existing deficiencies in methodologies, such as returns on investment that are currently not market-based. Regulators should explore the use of shared tools (benchmarking and performance metrics, shared registries and databases, open data portals, etc.) to enhance co-operation, harmonise approaches and build consistency. Procedural tools, such as codes of practice, can provide semi-formal rulebooks to guide the work of authorities.	Drive sector performance Improve investment climate	NWRB LWUA MWSS-RO LGUs Special zone regulators DENR WRMO DEPDev	Short term
	Consider the use of accounting costs as a basis for tariff setting at least for some (larger) providers, to improve tariff stability and cost-reflectivity over time. At the local/LGU level, initiate requirements for medium-term investment and service plans as a basis for tariff proposals, supported by technical assistance at the appropriate level (to be defined), to provide for full cost recovery and improve financial sustainability. Move from an interim non-binding tariff setting framework to a more formalised one, allowing for differentiation by WSP type based on fundamental characteristics but harmonising common principles and review cycles, thereby further improving consistency while maintaining proportionality. Aim to have a comprehensive hybrid model – combining cost-recovery (accounting costs-based) principles and performance incentives – implemented, especially for all larger providers, considering priority objectives and principles. Establish regulatory review protocols with clear adjustment mechanisms, evaluation cycles and dispute resolution systems as a next step in the evolution of the national framework, to ensure approaches can adapt to changing circumstances and remain fit-for-purpose. Consider how tariff principles and approaches for water supply and sanitation may be applied or adjusted for the development of tariff methodologies for bulk water supply arrangements.			Medium term
	Enable contract-based and benchmarking regulation for LGUs and smaller providers, supported by model contracts and shared support services.			Long term
Tariff incentives provide scope to encourage better performance, but their impact in the WSS sector in the Philippines is likely to be more limited in the short-term.	Introduce tariff incentives based on a gradual and phased approach, with fewer incentives and a lower complexity of methodologies for smaller providers, to keep approaches proportionate and effective.	Drive sector performance Improve investment climate	NWRB LWUA MWSS-RO LGUs Special zone regulators DENR WRMO DEPDev	Short term
	Launch pilot programmes for performance-linked tariffs and benchmarking regulation within selected WDs and LGU-run utilities, considering gradual implementation and low complexity, to test the effectiveness of approaches.			Medium term
Currently, the Philippine WSS sector suffers from significant information gaps.	Undertake a detailed diagnostic and feasibility assessment to explore different models of data governance, collection methods, reporting protocols and validation mechanisms, using workshop sessions with sector stakeholders. Where such frameworks do not yet exist, the assessment should also identify what data is currently available, its ownership and the extent of its accessibility. Map existing benchmarking practices across regulators to identify parallels, gaps and inconsistencies and support the identification of a common harmonised performance monitoring framework with KPIs. The complexity of the performance monitoring framework should be tailored according to the size and capacity of providers, avoiding a one-size-fits-all approach and the framework should be based on uniform definitions and data validation. Initiate benchmarking and transparency initiatives, such as a national performance database and reporting standards for providers, to improve the quality and comparability of data.	Strengthen regulatory effectiveness Improve data quality	NWRB LWUA MWSS-RO LGUs Special zone regulators DENR WRMO DEPDev Water providers User associations	Short term
	Develop a robust data strategy as a priority, outlining clear processes for data collection, storage, validation, analysis and dissemination based on a common set of data definitions and assigning responsibilities and resources, to support effective data management and usage. Integrate environmental and resilience indicators into the set of KPIs defined and monitored to improve insights into performance.			Medium term
In the current sector context in the WSS sector, additional policy instruments such as subsidies or public funding are likely needed to support policy objectives.	Assess the potential for tariff incentives to support policy objectives in terms of quality, service coverage and environmental sustainability based on a gap assessment in terms of sector investment needs. This assessment should feed into decisions on other policy instruments such as subsidies or public funding to complement tariff incentives to achieve policy objectives.	Drive sector performance Strengthen public sector effectiveness	DENR WRMO DEPDev NWRB LWUA MWSS-RO	Short term
Rationalising water and sanitation services delivery in the Philippines through aggregation (chapter 3)
Fragmentation undermines investment efficiency and leads to duplicative or underutilised infrastructure, particularly for sanitation and bulk water supply.	Embed aggregation and clustering criteria within national and donor-funded WSS investment programmes, including PWSSMP implementation. Prioritise multi-LGU and shared infrastructure projects (e.g. bulk water, septage and sewerage facilities) through grant allocation, concessional lending and PPP pipelines.	Improve investment efficiency Enable economies of scale Accelerate service expansion	DEPDev DENR-WRMO DBM DOF PPP Center Development partners	Short term
The Philippine WSS sector is highly fragmented, with many service providers lacking the scale, capacity and financial resilience to deliver efficient and sustainable services.	Develop and communicate a clear national vision for rationalising WSS service delivery, positioning aggregation of water and sanitation service providers as a means to improve efficiency, service quality and access rather than as an end in itself. Explicitly recognise multiple aggregation pathways (voluntary, incentivised, functional co-operation, consolidation) in national policy guidance.	Improve service quality and coverage Increase efficiency and resilience Provide strategic direction	DENR-WRMO DEPDev DILG LWUA Proposed WRC	Short term
Lack of comparable performance data constrains benchmarking and informed aggregation decisions.	Develop and roll out common KPIs and benchmarking frameworks across all provider types, extending beyond costs to service quality, coverage, resilience and business planning. Use benchmarking results to inform investment planning and assess aggregation options.	Improve transparency and accountability Support evidence-based decisions	NWRB / future WRC LWUA DILG Water providers	Short term
There is no single aggregation model suitable for all contexts; selected approaches must reflect local conditions, management models and service priorities.	Define and promote a menu of aggregation options tailored to provider type, including: ring-fencing and professionalisation of LGU-run utilities; integration of barangay systems; inter-LGU collaboration on shared infrastructure; and mergers or service-area expansion of water districts, supported by LWUA lending terms and technical assistance. Recognise private sector participation as an aggregation pathway, including formalisation of small private providers through proportionate licensing and joint ventures, concessions and bulk water PPPs spanning multiple jurisdictions. Issue practical guidance and model agreements (e.g. MoUs, service contracts, model PPP and JV templates) to lower transaction costs for voluntary co-operation.	Enable context-specific solutions Reduce political and institutional barriers Support gradual reform	DILG LWUA NWRB LGUs Water districts	Short term
Water districts offer a logical platform for regionalisation, but consolidation requires active facilitation and a clearer statutory basis.	Structure LWUA lending and technical assistance to favour water district mergers, joint investments and absorption of weaker districts by stronger neighbours, using LWUA performance data to identify consolidation candidates. Clarify the statutory pathway for water district mergers and service-area expansion in the proposed sector legislation.	Enable economies of scale Strengthen weak providers Reduce legal uncertainty	LWUA Water Districts DENR-WRMO Congress	Short to medium term
Cost-recovery remains a challenge and efforts to aggregate may also bear a cost. Financial incentives are critical to encourage voluntary aggregation in a decentralised governance context.	Design financing instruments (performance-based grants, results-based financing, climate finance, blended finance) that explicitly reward scale, collaboration and joint service delivery, including LWUA lending criteria that favour merged or clustered water districts. Support voluntary clustering through co-financing and performance-based incentives for LGU clusters and bundle water and sanitation projects to scale viable infrastructure deals, building on the NEDA Board Resolution No. 41 (Unified Resource Allocation Framework) prioritisation of clustered, multi-LGU projects.	Strengthen financial sustainability Improve creditworthiness Encourage voluntary participation	DBM DILG DOF DEPDEV	Short term
Tariff harmonisation is politically sensitive and should not be a precondition for aggregation.	Decouple aggregation from short-term tariff harmonisation, allowing efficiency gains to materialise over time. Develop tariff adjustment guidelines under the future WRC to ensure aggregation does not lead to excessive tariff increases while supporting cost recovery.	Safeguard affordability Maintain political feasibility Support sustainable aggregation	NWRB / future WRC LWUA MWSS-RO	Medium term
Weak and fragmented licensing regimes limit sector coherence and discourage integration of private and small-scale providers.	Harmonise licensing frameworks across public, private and small-scale providers, clarifying service obligations, coverage targets and quality standards. Use licensing conditions to encourage co-operation, mergers or partnerships over time.	Improve regulatory coherence Reduce service area conflicts Encourage integration	NWRB / future WRC LGUs DENR-WRMO	Medium term
Human resources and institutional aspects of aggregation need to be considered, not only technical ones.	Integrate capacity building, workforce transition planning and stakeholder engagement into aggregation initiatives. Support phased implementation and change-management programmes to build trust and legitimacy.	Ensure inclusive and sustainable reform Manage political economy risks	DILG LWUA LGUs Water providers Unions	Medium to long term
The creation of the Water Regulatory Commission offers a unique opportunity to foster aggregation and ensure that regulatory incentives are aligned.	Include in the future WRC’s mandate the objective to champion rationalisation of service delivery, including identifying priority areas for aggregation and coordinating with national investment planning. Pilot aggregation pathways in selected regions or services (notably sanitation and bulk water).	Strengthen regulatory effectiveness• Accelerate sector reform	Senate DENR-WRMO DEPDev Future WRC	Medium term
Development of a centralised national integrated water information system (chapter 4)
Fragmentation of water-related data across institutions limits effective regulation, planning and climate risk management in the Philippine water sector.	Establish a centralised national integrated water information system, supported by a national master plan defining system architecture, data standards, governance arrangements and a phased implementation roadmap.	Enable evidence-based regulation and policymaking Improve coordination across water-related institutions Strengthen climate resilience and disaster preparedness through data integration	DENR–WRMO, DEPDEV, LWUA, PAGASA, DPWH, DILG, LGUs	Short to medium term
The absence of structured system testing and phased implementation increases the risk of ineffective national roll-out and weak institutional ownership.	Pilot the integrated water information system in a priority province or basin (e.g. Bulacan) and use lessons learned to inform phased national expansion and system refinement.	Reduce implementation and operational risks Improve system usability and design Build institutional capacity and ownership	DENR–WRMO, DEPDEV, LWUA, PAGASA, DPWH, DILG, LGUs in Bulacan Water service providers Development partners	Short term
Unclear institutional responsibilities and capacity gaps threaten the modernisation and long-term sustainability of integrated information systems.	Clarify institutional roles for system ownership, operation and data governance; establish a cross-agency steering mechanism and invest in sustained capacity building, evaluation and system upgrading. Develop inter-agency governance protocols clarifying mandates Integrate digital water information provisions into the National Water Resources Act.	Ensure long-term system sustainability Build domestic technical expertise Strengthen institutional accountability	DENR-WRMO / proposed DWR NWRB / future WRC Civil Service Commission LGUs Training institutions	Short term
Inconsistent data standards and weak inter-agency data sharing undermine regulatory oversight, benchmarking and sector-wide planning.	Introduce national standards for water-related data collection, management and reporting and data exchange formats Mandate interoperability between agency systems and a central data hub. Issue sector-wide compliance guidelines to promote uniform adoption. Establish an integrated water resources information and data management system consolidating datasets across agencies Implement a provincial demonstration project to validate coordination mechanisms and data workflows.	Improve data quality, consistency and comparability Strengthen regulatory oversight and performance benchmarking Reduce duplication and reporting burdens	DENR-WRMO / proposed DWR NWRB / future WRC PSA Sector agencies Water service providers	Short to medium term
Technical capacity and readiness vary significantly across national agencies and LGUs, limiting system-wide modernization.	Implement targeted capacity-building programmes on hydrology, GIS, AI and data governance Establish a Water Information and Data Training Center.	Enhance institutional readiness for digital transformation Reduce disparities in technical and operational capacity	DENR–WRMO, DICT, PAGASA, LWUA, MWSS-RO, UP, Ateneo, LGA	Short–Medium term
Limited real-time monitoring and analytical capabilities constrain effective climate risk management, emergency response and operational decision-making.	Integrate real-time monitoring, satellite data and advanced analytical tools into the national water information system to support flood and drought forecasting, early warning and policy evaluation.	Strengthen climate adaptation and disaster risk management Improve early warning and response capacity Support proactive, risk-based regulation	DENR-WRMO / proposed DWR NDRRMC PAGASANWRB / future WRCLGUs	Medium term
Transparency and public access to water information remain limited, restricting stakeholder engagement and public awareness.	Publish an Annual National Water Information White Paper. Develop public digital portals for non-sensitive water data.	Improve transparency and public trust Strengthen stakeholder engagement and data-informed decision-making	DENR–WRMO, PSA, DEPDEV, LGUs, Civil Society, Academia	Medium term
The absence of a consolidated data platform limits the effectiveness of tariff regulation, service rationalisation and investment planning.	Use the integrated water information system as a core enabling platform for economic regulation, including tariff setting, performance monitoring and investment prioritisation, aligned with the future Water Regulatory Commission.	Strengthen economic regulation and transparency Improve investment planning and service outcomes Support coherent, evidence-based sector reform	Future WRC DENR-WRMO / proposed DWR DEPDev LWUA Economic regulators	Medium to long term
Weak legal anchoring of data governance risks perpetuating fragmentation even under institutional reform.	Explicitly embed provisions on integrated water information systems, data-sharing obligations, interoperability standards and public disclosure in the National Water Resources Act and related legislation.	Ensure durability of digital reforms Align governance and information infrastructure Strengthen transparency and public trust	Congress DENR-WRMO / proposed DWR NWRB / future WRC DICT NPC	Medium to long term
Underinvestment in monitoring infrastructure and bulk metering weakens data accuracy, NRW reduction efforts and utility performance management.	Scale up investments in bulk metering, network monitoring and smart water management tools, aligned with the integrated information system and national funding mechanisms.	Improve data accuracy and operational efficiency Reduce non-revenue water Strengthen service reliability and resilience	LWUA MWSS-RO LGUs Water service providers DEPDev Development partners	Medium term
Digital infrastructure and real-time hydrometeorological networks remain underdeveloped, limiting timely forecasting and risk management.	Deploy IoT-enabled hydrometeorological monitoring networks. Establish a cloud-based national water information hub.	Enhance real-time situational awareness and early warning capabilities Support digital modernisation and climate-risk management	PAGASA, DPWH, NIA, NPC, LGUs, DENR–WRMO	Medium to long term