Higher OPEX enables CAPEX savings - an analysis of the

cost effectiveness of the Maynilad NRW management

project
R Liemberger*, R Jamora** J Iglesia***,
*

Miya, 1321 Apolinario St., Bangkal, Makati 1233, Philippines, roland.liemberger@miya-water.asia

** Maynilad, 1321 Apolinario St., Bangkal, Makati 1233, Philippines, ryan.jamora@mayniladwater.com.ph

*** Maynilad, MWSS Compound, Katipunan Avenue, Balara, QC, julius.iglesia@mayniladwater.com.ph
Keywords: Non-Revenue Water, CAPEX, OPEX

Abstract
This paper analyses the NRW reduction efficiency gains made by Maynilad based on
NRW strategy design and constant improvement using Miyas know how and experience.
These different stages of project design and budgets have been analyzed:

The initial plans prepared in 2006

The final business plan prepared in 2008

The actual situation

The results confirm that a holistic, well designed, NRW management strategy and
sufficient OPEX budgets allow CAPEX reductions and helps to reduce NRW more
aggressively than initially planned.

Introduction
Much has been written about economic level of leakage calculations but very little
literature is available on the cost and benefits of comprehensive NRW management
projects in low and middle income countries.
The situation in Manila before the start of the project was similar to many cities in Asia:
a high level of NRW, a deteriorated distribution network, an unsatisfactory level of service
and coverage being far from 100%.
Since additional water resources were not available, Maynilad had no choice but to
embark on a massive NRW, mainly physical loss, reduction program. The authors have
analysed the initial plan to solve the problem with large-scale, nearly untargeted pipeline
replacement and compare to the present, well balance NRW management program.
These different stages of project design and budgets have been analyzed:

The initial plans that formed part of the MPCI/DMCI bid in 2006

The final business plan prepared in 2008

The actual situation between 2007 - 2011 and the latest (December 2011)
forecast for 2012.

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Brief Description of the Three Stages

Initial plans
As the present owners1 of Maynilad prepared their bid for the concession (2006), a largescale pipeline replacement program was budgeted for and it was envisioned that this
alone was sufficient to significantly and sufficiently reduce NRW. Massive CAPEX
provisions were made but the NRW management operations side was grossly
underestimated if not overlooked.
At the end of 2007 these initial plans were reviewed by an independent consultant,
engaged by the World Bank, as Maynilad was at that time negotiating a potential loan for
NRW reduction. (This loan did not materialize as Maynilad was able to finance all CAPEX
requirements with loans from their local banks).
This critical review, which highlighted the need for the development of a holistic NRW
management strategy, including institutional changes (formation of an NRW management
department) and human resource requirements, formed the basis for the 2008 business
plan.

2008 Business Plan

In 2008 Maynilad prepared an official business plan which had to be submitted to the
MWSS2 Regulatory Office as the basis for the establishment of the tariffs from 2009 to
2012. At that time Maynilad was already cooperating with Miya and the two partners jointly
developed a comprehensive NRW management strategy based on international best
practice. In the course of this process, CAPEX, OPEX and human resource requirements
were adjusted accordingly.
In parallel to the finalization of the NRW management strategy and the 2008 business
plan Maynilad, supported by Miya advisors, started with the establishment of the NRW
management team.

Actual Situation
In 2008 Maynilads NRW management project started on the basis of the new business
plan. With the help of Miyas advisors, the NRW management strategy was frequently
reviewed and fine-tuned and significant efficiency gains were made. Even in the beginning
of 2012, four years into the project, the strategy is adjusted whenever necessary.

Metro Pacific Investments Corporation (MPIC) and DMCI Holdings, Inc. (DMCI); they took over
operations in 2007
2
Metropolitan Water Works and Sewerage System

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NRW Levels and Performance Indicators

The internal NRW reduction forecasts which formed the basis of the MPIC/DMCI financial
proposal were realistic in the first two years but then very moderate.
During negotiations with the MWSS Regulatory Office aggressive NRW reduction
targets were agreed and are included in the business plan.
Table 1: NRW, % of System Input Volume

Table 2 shows the actual volumetric NRW reduction achieved. Except for the first two
years, the reduction is well below the initial plans but even below the 2008 business plan.
The higher than planned levels of NRW in 2008 and 2009 were the result of the level of
service (water supply hours per day and average pressure) improvement that has
exceeded the initial plans (and this has negatively affected the level of leakage).
Table 2: Volume of NRW, million m3/year

Table 3 shows NRW expressed in liters per customer per day. It has to be noted that
the number of service connections is less than the number of customers but since it is
close and no exact data is available it was decided to use the number of customers.
Because of a lack of accurate supply time data in the areas with intermittent supply,
the values are not adjusted to 24/7 (w.s.p. when the system is pressurized) and must
therefore not be used for comparisons with other utilities.
However, the results are impressive. NRW in l/customer/day has decreased by nearly
50% to 1,080 despite the significant level of service improvement.
Table 3: NRW, liters/customer/day

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By the end of 2012, the achieved NRW reduction will be around 650 MLD nearly
three times the original plan of 230 MLD and around 100 MLD more than as per the 2008
business plan.
Table 4: Reduction of NRW from 2007 level in Million Liters per Day (annual average)

NRW Reduction Budgets

The total annual costs for NRW for 2008-2012 were initially calculated with 286 million
USD, the amount was increased by USD 21 million in the 2008 business plan and is
actually USD 13 million below plan.
Table 5: Total annual NRW reduction cost

However, it is interesting to analyse how the split into CAPEX and OPEX has
changed. Table 6 shows that CAPEX has been reduced from the initially planned USD
259 million to USD 232 million (minus USD 27 million), but at the same time OPEX has
been more than doubled (from USD 28 to USD 61 million) (see Table 7).
Table 6: Annual NRW-related Capital Expenditure

The main difference between the CAPEX in the 2008 business plan and the actual
numbers is in 2010 (Table 6). The significant reduction was a result of putting many of the
blanket pipe replacement schemes on hold until better data was available. Better targeted
infrastructure replacement has enabled Maynilad to reduce the actual capital
expenditures.

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The significant increase of the OPEX budget required for the comprehensive NRW
management strategy was already reflected in the 2008 business plan. During the
implementation it was then realised that further increases were required.
Table 7: Annual NRW-related Operational Expenditure

Cost Efficiency
The enormous efficiency gains achieved by moving from a predominately CAPEX focused
pipe replacement program to a holistic NRW management strategy can be best seen in
the average cost per m3/d NRW reduction.
According to the initial plans, it would have cost USD 1,240 to reduce NRW by one
cubic meter per day, the cost was significantly reduced in the 2008 business plan and the
actual cost is only in the order of USD 450 per m3/day. This is below the USD 500 quoted
in ABDs NRW publication (Liemberger and Frauendorfer, 2010, page 7).
The high value in 2009 has two main reasons:

pipe replacement was not well targeted in 2008 and the beginning of 2009

A significant part of the savings was jeopardized by the level of service

increases.
Table 8: Average cost per m3/d NRW reduction for total volume since 2007

Summary
The comparison of the three phases of the development, and implementation, of
Maynilads NRW management has demonstrated that a well designed NRW management
strategy with a sufficiently high operating budget allows NRW related CAPEX reductions
and increases water savings.
With a total NRW reduction cost increase of below 3%, water savings have been
increased by more than 180% compared to the initial plans.
And compared to the 2008 business plan, whilst total cost were 4% below plan, the
volume of NRW reduced was 20% more than planned.

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Investment in the development of a tailored NRW strategy and the a good balance
between CAPEX and OPEX budgets has lead to significant efficiency gains and the
average cost per m3/d NRW reduction was reduced to only USD 449. It is planned to
reduce this number further in the years ahead.

References
Alegre H., et al. (2006) Performance Indicators for Water Supply Services. IWA Manual of Best Practice, 2nd
Edition. ISBN 1843390515
AWWA Research Foundation (2007): Evaluating Water Loss and Planning Loss Reduction Strategies.
Report 1P-4.5C-91163-03/07-NH
Dimaano I, Jamora R (2010): Embarking on the Worlds Largest Non-Revenue Water Management Project,
Conference Proceedings from Water Loss 2010, Sao Paulo, Brazil
Liemberger R, Frauendorfer R (2010): The Issues and Challenges of Reducing Non-Revenue Water, ISBN
978-92-9092-193-6, can be downloaded from ADBs webpage
Seago C, McKenzie R., Liemberger R. (2005) International Benchmarking of Leakage from Water Reticulation
Systems, Paper to Leakage 2005 Conference, Halifax, September 2005
Wide Bay Water Corporation and Queensland Environmental Protection Agency, (2005) Managing and
Reducing Losses from Water Distribution Systems, Manual 10 Executive Summary (ISBN 0724294988)

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