Approved under BOT Resolution No.

59, series of 2017

ANNEX A

REVISED IMPLEMENTING GUIDELINES FOR APP\~OVAL OF SEPTAGE

AND/OR SANITATION FEES OF LOCAL WA~'ER DISTRICTS

I. BACKGROUND AND PURPOSE

A. The Revised Implementing Guidelines are issued to support LWUA Policy on

Septaqe/Sanitation Pricing (BOT Res. No. 89-2013), which granted Local Water
Districts the option to choose Uniform Rate per Cubic Meter or Percentage of
Water Bill pricing strategies applicable to its customers, and Flat Fee pricing for
non-Water District (WD) customers.

B. Scope and. coveraqe of LWUA approval considered sanitation projects

implemented by WDs in partnership with Local Government Units (LGUs) and/or
the private sector, and undertaken in various forms of management, collection
and service contract arrangements or joint venture aqreernents .:

C. Enhancements to the Septage/Sanitation Pricing Pclicy:

1. Stipulate that only costs incident to the implementation and operation of the
sanitation project should determine the fee; funding of reserves is ..excluded
from costs of operations to be recovered during tile 3 to 5 year cycle;

2. Clarify that only financing charges of loans secured to finance the WD's
Septage and/or Sanitation Management Program shall constitute debt
service;

3. Prescribe LWUA review and approval before application of percentage of

water bill when water rates are increased during the 3 to 5-year desludging
cycle":

4. Affordability criterion is applicable to the septage/sanitation fee for the first 10

cubic. meter water consumption; and,

5. Safeguards consumer with capped sanitation fee.

D. Require \NOs with existing sanitation fees established and implemented prior to
the approval of these guidelines to rinq-fence ' sanitation cost centers and
revenue streams from water supply accounts.

E. Standardize evaluation procedure for approval of septaqe/sanitation fees' .

consistent with applicable policy guidelines for approval of water rates
adjustments. .

1Based on DOH-prescribed desludging frequency for septic tanks (see page 5 ofLWUA BOT Res. 89-2013)
2 Ring-fence - segregation of funds for sanitation; guarantee that funds allocated for.sanltatton and specific to its operations
are not spent on water supply operations . .~
Revised Implementing Guidelines tor the Approval of Septage
and/or Sanitation Fees of Local Water Districts

II. SCOPE AND COVERAGE

A. The implementing guidelines shall apply to:

1. Initial fees of Septage and/or Sanitation Manage nent Programs of WDs;

2. Proposed increase in existing sanitation fef s of WDs, including fees

implemented before approval of these implemen:ing guidelines; and,

3. Proposed fees of sanitation programs implemented by WDs in partnership

with LGUs and/or the private sector.

B. It excludes user fees for sanitation projects established and implemented by

LGUs.

III. PRICING POLICY STRATEGY

A. Uniform Rate Per Cubic Meter

The customer is charged a fixed rate based on the volume of water consumed.
This is derived by totaling all costs incurred by the WD to implement the
Septage/Sanitation Management Program (SSMP), to include the initial
investment/capital costs, financing charges and costs of operation in a given
period of 3 to 5 years divided by the projected water billed or consumed in a
given period of 3 to 5 years.

Rate per cum (Php/cu.m.) = Total Cost

Total Water Billed in cu.m.

Where:
Total Costs include all Costs incident to the implementation and operation of
the sanitation project such as O&M Expenses, Financing Charges, Equity,
CAPEX and Government Taxes (prior to operation)

B. Percentage of Water Bill

The customer is charged a fee as a fraction of the water bill. .The resulting
percentage is derived by computing rate per cubic meter by average monthly
consumption and then dividing by the average water bill per consumer.

Rate percum. (Php/cu.m.) = Total Cost'- _

Total Water Billed in cu.m.

% of Water Bill = Rate per cum x Ave Cons/Conn/Month

Average Water Bill

Where:
Average Water Bill corresponds to Effective Rate (Php/cu.rn.) x Average
Consumption/Connection/Month
Revised ImplementinqGuldelines for the Approval of Septage
and/or Sanitation Fees ofLotal Water Districts

c. Flat Fee

The customer is charged an upfront and one-time 'ee utilizing the average cost
of servicing a septic tank. This is derived by com Juting for the total costs and
dividing by the projected average total connections; or average total households
to be served 4 in a given period of 3 to 5 years.

Ave. Cost for Servicing a = TI)tal Cost

Septic Tank (Php/Connection) Average Tr tal Connections or
Househo ds to be Served

IV. REVIEW AND EVALUATION

A. All proposed sanitation fees are subject to L WUA review to establish

compliance with applicable policy guidelines.

B. Tariff setting for sanitation services shall be based on full cost recovery
scheme utilizing the cash flow method and financial evaluation consistent with
the Revised Guidelines to the Preparation of Cash Flow Projections per LWUA
BOT Res. No. 2-2016.

C. WD updated 5-year Business Plan and the project feasibility of the sanitation
program shall support application for approval of sanitation fee.

V. CONDITIONS

A. Ring fencing of sanitation operations from water supply operations.

B. Only costs incident to the implementation and operation of the sanitation project
should determine the septage/sanitation fee; funciing of reserves is excluded
from costs of operations to be recovered during the 3 to 5 year cycle.

C.' Financing charges, e.g. interests, processing, commitment fees of loans incident
to the implementation and operation of the sanitation project shall comprise debt
service;
. .

D. The septaqe/sanitation fee shall be indicated as a separate and distinct account

and shall bean add-on item to the water bill. For non-WD customers,
desludging. fee is due upfront, on "pay-far-service" scheme.

E. WDs adopting Percentage of Water Bill pricing strategy shall.submit to LWUA for
. review and approval application of percentage of water bill when water rates are
increased during the 3 to 5-year desludging cycle, unless previously established
in the project feasibility study. " .

. '. .
3Connections - residential/commercial/institutional units connected to piped water supply provided by the local water district
, Total. households to be served jn the coverage area- based on data obtained from survey: a) 'cornpltance tar.gets or percent-of homes likely' to
participate; and b) target number of households wit~ desludgeable septic tanks (per Program Operations .Manual of DPWH NSSMP)
Revised Implementing Guidelines for the Approval of Septage
and/or Sanitation Fees of Local Water Districts

F. A cap shall be imposed equivalent to the rate ol the Flat Fee for residential
customers only, for both the Uniform Rate pe Cubic Meter pricing and
Percentage of Water Bill pricing .
..
l~

When utilization or compliance target is not attained, aggregate sanitation

fees per household are limited to the average cost )f tank servicing; billing shall
resume only after household has availed of sanitatic 11 service.

VI. AFFORDABILITY

A. Sanitation Fee for the first 10 cubic meter water consumption plus Minimum
Charge of water rates (for 1/2" residential connection) should not exceed 5% of
the average income of the Low Income Group.

B. Increase in sanitation fee should not exceed 60% ot the current sanitation fee.

VII. PUBLIC HEARING

A. Septage and/or sanitation fees shall be presented in public hearings and subject
to the same policy guidelines on the conduct of public hearings and effective
period of implementation for proposed water rates adjustments, as prescribed in
LWUA BOT Res. No. 85-1993 and amended by LWUA BOT Res. No. 99-1999.

B. Validity period of public hearings conducted to present sanitation fees shall also
conform to policy guidelines on public hearings promulgated by the LWUA
Board of Trustees.

VIII. DOCUMENTARY REQUIREMENTS

1. WD 1O-year cash flow projections per BOT Res. No. 2-2016;

2. Sanitation project feasibility study and WD updated 5-year Business Plan;
3. WD Board Resolution approving the .Septage and/or Sanitation Management
Program; Pricing Policy Strategy and Septage/Sanitation Fee;
4. Contract Agreements with LGU and/or private sector. if applicable; and,
5. Public Hearing Documents.

IX. REPEALING CLAUSE

All provisions of existing policy quidelines that are in conflict or inconsistent with
these Revised Guidelines are hereby repealed, amended or modified accordingly.

X.. EFFECTIVITY

These implementing guidelines shall take effect upon approval by the LWUA Board'
of Trustees. . .