Infrastructure

38 MANILA WATER COMPANY, INC. (THE PHILIPPINES): A private water and wastewater company achieving financial success and dramatically improving the quality and availability of water to the poor. PROMIGAS S.A. E.S.P. (COLOMBIA): A locally controlled gas-transmission company focusing on sustainable processes that improve living conditions. GRAMEEN SHAKTI (BANGLADESH): A nonprofit solar-energy company extending power to rural areas and improving productivity and the quality of life. SUSTAINABLE HEALTHCARE FOUNDATION (KENYA): An innovative franchise model to improve the delivery of health care in rural areas. 39 Infrastructure In many low- and middle-income developing countries, investment in economic and social infrastructure is inadequate, with serious implications for future growth and poverty reduction. According to World Bank estimates, governments are significantly underfunding infrastructure, and private sector investment is not filling the gap because of the regulatory and other challenges of operating in many of these areas. IFC supports efforts to address existing constraints on private sector growth in infrastructure, health, and education, through project development, public-private partnerships, advisory services to governments, subnational finance, and innovative financing for social sector projects. 40 INFRASTRUCTURE THE PHILIPPINES Manila Water Company, Inc. A private water and wastewater concessionaire, Manila Water transformed a leaky, inefficient government-owned utility into a world-class provider—showing that water privatization can succeed economically and deliver for the poor. COMPANY ACHIEVEMENTS With solid operational and financial performance, Manila Water expands service to an additional 100,000 people in low-income neighborhoods every year. It also works with partners to protect watersheds vital to the city’s water supply. Since its contract began in 1997, Manila Water has achieved significant improvements in water quality and availability, with a particular emphasis on service to poorer areas. The company has almost doubled service coverage (from 325,000 to 600,000 households) and the volume of water running through its distribution network (from 440 million to 864 million liters). Water loss is down from 63 percent to a record low of 35 percent. Manila Water accomplished these improvements in a cost-effective manner that have earned it growing profits every year since 1999. The company successfully launched an IPO in 2005, raising an additional $65 million to invest in the continuing rehabilitation and expansion of the water infrastructure. SEVERE CHALLENGES When the Philippine government awarded Manila Water a 25-year concession contract in 1997, the existing government-owned utility, MWSS, provided water to only about 60 percent of households in its service area, home to 5 million people. The poor (about 40 percent of the population) were disproportionately underserved. Service was characterized by low water pressure and intermittent supply. MWSS had the highest rate of water loss among major cities in Asia. Twothirds of the water it produced was lost because of leaks or illegal tapping. Studies showed that Manila would soon face serious water-supply shortages if nothing was done to correct operational inefficiency and years of insufficient investment. Manila Water also faced significant external challenges to its operational performance, including the Asian financial crisis of 1997 and a severe drought caused by El Niño in 1998. WORKFORCE POLICIES Inheriting the existing water utility’s workforce of 2,000, Manila Water instituted policies that transformed these former public servants into motivated and committed employees. It did so by delegating authority to frontline staff, investing heavily in training, and building a strong corporate culture. Manila Water’s mission statement reads, “We shall pursue our vision to become an efficient, customerdriven, Filipino-led, world-class water service company that uses the best in global technology and the very best in Filipino manpower.” CUSTOMER SERVICE One of Manila Water’s new corporate values is customer service, exemplified by its monthly “customer care day.” Each month every employee, from CEO Antonio “Tony” Aquino to the meter readers and leakrepair crewmen, “walk the line” by going house to house to visit customers. Employees assess firsthand how the company’s services affect customers, particularly those living in informal settlements. This interaction with customers increases employees’ knowledge, enriches their work experience, and builds customer loyalty and goodwill. Manila Water’s engagement of employees and customers, along with efficient operational management, earns it an impressive track record of service and profitability. MANILA WATER COMPANY, INC. 41 Manila Water delivers clean, reliable piped water and promotes efforts to revive and protect watershed areas. WIDER RESPONSIBILITY In addition to efficient business management, Manila Water attributes its success to a clear understanding of the business case for proactive relations with communities, and solid business reasons for protecting the natural environment. Community Development: Manila Water's culture of marginalized communities. The company is building on its relationship with these neighborhoods by launching a pilot microenterprise program. Environmental Practices: Forming alliances with community engagement is most evident in its flagship program, “Tubig Para Sa Barangay” (water for poor communities), aimed at residents of poor neighborhoods and informal settlements. Under this program, Manila Water representatives assist these people in purchasing water collectively and in managing and protecting their own water connections. For Manila Water, this initiative has reduced leaks and illegal tapping of water lines while winning the company a significant customer base. For customers, it delivers clean, reliable piped water to their door at a fraction of the cost of trucked water, thus offering significant economic and health benefits to these government and NGOs to protect upstream water resources, Manila Water is involved in reforestation efforts and livelihood programs for illegal residents whose presence in the watershed area historically has contributed to erosion and pollution, threatening the raw water supply. The company also launched a pilot program to use sludge from wastewater treatment plants to reclaim soil in areas rendered nonarable by ash from the eruption of Mount Pinatubo. SUSTAINABILITY REPORT Manila Water communicates its social and environmental performance to the public through an annual sustainability report—the first for a Philippine company. Through a revitalized organization culture, with emphasis on providing efficient service, Manila Water successfully rehabilitated an aging utility and extended services to previously unserved communities. The company’s performance provides an example of successful private sector involvement in the water sector and positions the company to make significant progress toward the Millennium Development Goals. IFC Involvement • Acted as transaction adviser in structuring the concession • Provided a $15 million investment in equity • Granted two $30 million loans to help finance infrastructure rehabilitation • Brokered a relationship with a local microfinance institution • Helped develop a sustainability strategy and sustainability report • Contributed to Manila Water’s corporate governance manual 42 INFRASTRUCTURE COLOMBIA Promigas S.A. E.S.P. With emphasis on sustainability, Promigas generates financial benefits to stakeholders—and economic, social, and environmental benefits to the low-income communities in which it operates. COMPANY OVERVIEW Since its founding in 1976, Promigas has transformed itself from a local gas-transmission company to a major national player at the forefront of Colombia’s natural gas sector. It is the oldest private participant in the natural-gas sector in Latin America, and it remains one of the few locally controlled gas-transmission companies in the region. Promigas transports gas to local distribution companies that serve more than 1.3 million end users (approximately 7 million people) in 174 towns. At the end of 2005 the company had assets of $635 million and shareholders’ equity of $421 million. In fiscal 2005, it reported a net income of $73 million. SUSTAINABILITY MISSION As expressed in its public statements, “Promigas believes business can contribute to social transformation by focusing on sustainable processes that improve living conditions.” The company’s sustainability mission is based on the promotion of natural gas as a substitute for less efficient and less environmentally friendly fuels. Depending on the type of fuel being replaced, switching to natural gas can reduce emissions of nitrogen oxides by up to 60 percent, suspended particles by up to 60 percent, and carbon monoxide by up to 90 percent. The company’s sustainable development strategy is to extend gas transmission and distribution to underdeveloped areas throughout the Colombian coast, providing an efficient and inexpensive source of fuel for industrial and residential consumers, thereby encouraging economic growth. IFC Assistance to Promigas • Has been an investor since the foundation of the company in 1976 • As a shareholder (1976–2005), carried out six financing operations • Committed approximately $90 million to Promigas since 1976; mobilized about $70 million in syndicated financing • Partnered with the World Bank to provide a $5 million grant through the Global Partnership for Output-Based Aid to provide connection subsidies for low-income users • Recently provided a corporate loan to support international expansion initiatives and extend the benefits of natural gas to other areas of Latin America As part of its program for the distribution of natural gas, Promigas constructed several regional transmission lines to reach low-income communities in which the introduction of gas has high social impact. More than 85 percent of its residential natural-gas consumers belong to the lower socioeconomic strata in Colombia. Promigas is working to provide connection subsidies to 35,000 of the lowest income families on the Colombian Caribbean coast, for whom gas may be accessible and affordable but initial connection costs are too expensive. SUSTAINABLE EMPLOYMENT The company’s employment practices also fit with its sustainable development strategy. Promigas employs 310 full-time staff, 91 percent of whom are local Colombians. The company pays a minimum wage that PROMIGAS S.A. E.S.P. 43 Promigas owns 2,286 kilometers of gas pipelines and operates an additional 1,000 kilometers of pipelines owned by others. is 43 percent higher than the national average, and all employees receive benefits, private medical insurance, and social security. Employees also can take advantage of scholarships, house and car loans, economic-hardship loans, an extensive training program, and workshops on social issues such as alcoholism and drug abuse. As a result, Promigas boasts low employee turnover. Employees remain with the company an average of 10 years. ENVIRONMENTAL, SAFETY, AND SOCIAL POLICY Promigas has an integrated policy encompassing environmental, occupational health and safety, and social issues. The company holds ISO 9001 (quality management) certification, and expects to obtain certificates in ISO 14000 (environmental management) and OHSAS 18000 (occupational health and safety) in 2006. FUNDACIÓN PROMIGAS Committed to developing long-term, mutually beneficial relationships with communities in its area of operation, the company invests about $1 million per year in Fundación Promigas, a foundation that sponsors local programs related to education and employment. Since its inception in 1997, the foundation’s Employment Generation program has created 1,800 microbusinesses, 3,600 direct jobs, 19,000 indirect beneficiaries, and $12 million in sales, thus revitalizing the local economy in many low-income communities where Promigas operates. It encourages the growth of small businesses in 86 communities near the main gas pipeline through microlending and training. Through alliances with and funding from governmental organizations and NGOs, Fundación Promigas also works to reform education policy at the national, local, and community levels and manages health care and owner-built housing programs. Its leading programs— following the guidelines and policies of the National Ministry of Education—focus on improving the quality of education at primary public schools at the local and community levels. Every year some 380 schools of the Colombian Caribbean participate in these programs, training 1,500 teachers and benefiting more than 200,000 students. PORTFOLIO COMPANIES The company’s development impact is amplified by its diverse portfolio of gas-transmission and -distribution interests. Promigas has ownership interests in five of the most important gas-transmission companies in Colombia, and it leverages its interests in these companies to reach the lowest socioeconomic groups. Promigas is considering a number of new investments that will capitalize on its expertise in natural gas to expand its transmission and distribution operations to neighboring countries. The company’s subsidiary, GNC, provides compressed natural gas for vehicles through more than 120 service stations in 18 Colombian cities. Promigas has demonstrated that it is an integral partner in the sustainable development of Colombia. 44 INFRASTRUCTURE BANGLADESH Grameen Shakti A nonprofit renewable-energy company, Grameen Shakti improves rural life by providing solar power—often key for private sector development. The company is a model of sustainable human and economic development. PARENT COMPANY SUPPORT Grameen Shakti, which means “village power” in Bengali, focuses on researching, developing, and delivering different renewable-energy systems to rural households and small businesses. Founded by the Grameen Bank in 1996 to address the shortage of electrical power in Bangladesh, the company is one of more than two dozen members of the Grameen network, a successful and respected development institution in Bangladesh. Shakti is the dominant player in the Bangladeshi solar market and is committed to improving the quality of rural life through electrification. It received the Energy Globe award in 2002 from Austria, the Eurosolar Prize in 2003 from Germany, the Best Theme Award in 2003 from USAID, and the Solar Prize Award in 2004 and Best Organization Award in 2005 from Infrastructure Development Company Ltd. THE CHALLENGE Bangladesh is a densely populated, low-income country, largely dependent on subsistence agriculture. Private sector activity centers on two large cities, Dhaka and Chittagong. Inadequate infrastructure and a very poor business climate raise the cost of doing business elsewhere in the country. A reliable supply of energy is essential to improving livelihoods, facilitating industrial development, and stimulating economic growth, but roughly 70 percent of Bangladeshi households do not have access to electricity. Traditional energy technologies are problematical in Bangladesh, owing to frequent cyclones and floods, low levels of urbanization, and slow implementation of political and economic reforms. Selected Accomplishments • Installed more than 65,000 solar home systems in rural communities • Provided clean energy, improving the quality of life, for more than 400,000 Bangladeshis • Installed SHSs with a total capacity of 3.25 megawatt peak • Established 168 unit offices for serving clients SOLAR SOLUTION Renewable-energy technologies offer attractive alternatives to grid-based energy, and high average solar radiation (4.0 to 6.5 kilowatt hours per square meter) makes Bangladesh ideal for solar energy. Before Shakti, however, the country experienced minimal solar-industry activity because of heavy import taxes on solar panels, a shortage of local suppliers, and a general lack of market awareness of the technology. Despite such market challenges, Shakti established itself as the first viable photovoltaic vendor in Bangladesh. Shakti raised awareness of solar-energy systems and developed the organizational capacity needed to implement a consumer-credit model to sell solar home systems (SHS). Shakti’s solar electrification program helps improve the living standard for large numbers of rural poor. The company specifically targets individuals in remote and underdeveloped communities, particularly those with a low probability of receiving grid power within five years. GRAMEEN SHAKTI 45 Shakti’s solar-electrification program helps improve the living standard for large numbers of rural poor. IFC Involvement A $750,000 loan to Shakti in 1997 for: • Market development and expansion • Customer-education initiatives SHS BENEFITS SHS contribute to improved public health and help address global climate-change concerns by avoiding biomass-based kerosene and diesel fuels. By providing better light after dark, SHS also help improve education and open new possibilities for generating income. MANAGED GROWTH Despite rapid expansion, Shakti management carefully considers the location of new unit offices, giving preference to regions where the Grameen Bank already has social networks and physical presence to benefit new offices. Other factors include existing electricity coverage, level of corruption, and competition. In selecting new locations, Shakti also requires adequate means of communication with headquarters and maintenance of operational controls. Sound administrative procedures and financial controls, frequent negotiations with suppliers, on-site assembly of SHS components, and partnerships with educational institutions help Shakti reduce prices while maintaining profitability. Some village entrepreneurs with SHS create microenterprises by purchasing cell phones and selling phone minutes to other villagers. The revenue generated enables them to pay off loans—for their phones and SHS—and increase their income. COMMUNITY PRESENCE Shakti’s strong commitment to meeting its clients’ needs earns it an excellent reputation in the villages where it does business. Unit office employees make regular visits to SHS owners’ homes to perform system inspections, adjust payment schedules in times of financial hardship, and provide training seminars in basic system maintenance and troubleshooting. Shakti’s warranties are the most comprehensive in the market, even including a buy-back guarantee if the national energy grid is extended to a client’s home. NEXT STEPS As rural electrification improves, Shakti is working toward its goal of scaling up production, distribution, and repair and maintenance services in order to bring these services to the doorsteps of rural people at minimum cost. To meet this goal, Shakti is initially setting up 30 Grameen Technology Centers (GTC) to be the focal point in providing services to rural customers. Shakti has already set up 15 GTC and started its training program for women technicians, who will provide repair and maintenance services to SHS owners on a contractual basis. The project also will address renewable technologies in rural communities, providing employment opportunities, especially for women. Shakti has constructed more than 300 biogas plants to provide rural communities with pollution-free, efficient energy for cooking and other purposes. This program also paves the way for implementation of efficient and cost-effective waste-management systems in rural areas, because biogas technology transforms waste materials and pollutants into clean, efficient energy. 46 INFRASTRUCTURE KENYA Sustainable Healthcare Foundation SHEF is an active participant in Kenya’s fight against childhood diseases and mortality from treatable causes. Its sustainable delivery system to lowincome and rural communities improves access to medicines for diseases with the highest mortality rates. FRANCHISE MODEL A nonprofit organization, Sustainable Healthcare Foundation (SHEF) uses a modified franchising model to deliver higher quality care than do typical rural health care programs. By leveraging low-cost sourcing of high-quality generic medicines, and by centrally managing franchise operations, the foundation creates a sustainable delivery system of quality medicines to underserved communities in rural Kenya. By the end of 2005, SHEF had 54 outlets, 26 of which are clinics providing basic primary care and essential medicines to roughly 400,000 patients, generating an average annual turnover of $3,000 per clinic. Through careful selection of locations, SHEF hopes to expand this network to more than 200 franchises, serving 1.5 million patients annually, by 2008. THE NEED At the root of public health crises in developing countries are the interlinked issues of poverty and lack of access to health services, water, and proper sanitation. By some accounts, inadequate access to basic medicines is responsible for the deaths of about 25,000 children per day worldwide (441 in Kenya). Many of these deaths are from infectious diseases (for example, malaria, diarrhea, and pneumonia) that are treatable with medicines costing about $1 or less per course of therapy. Millions of rural Kenyans must walk for hours or days to reach a clinic or receive quality medicines. Once there, they often wait hours for medical attention, or they receive compromised therapy owing to chronic shortages of essential medicines and the prevalence of counterfeit and expired drugs. This is especially true within the public health care network, particularly in rural areas. HOW SHEF WORKS Established in 1997 by Scott Hillstrom and Eva Ombaka, SHEF aims to improve access to essential drugs and basic health services in the developing world. Registered in Kenya as a nongovernmental, nonprofit organization in 1999, SHEF licenses forprofit micropharmacies and clinics, which benefit from access to quality drugs at affordable prices. As a franchiser, SHEF provides outlets with uniform branding, systems, and training for consistency and greater recognition within Kenya, careful selection of effective locations, and strict quality controls for consistent care. To maintain a franchise, the owneroperator must follow guidelines for diagnostics, courses of therapy, and drug handling. Any violation results in loss of the outlet’s operating license and its franchise affiliation. SHEF provides up to 86 percent of the approximately $1,900 for set-up. A franchise owner has three years to repay the $845 working-capital portion of the loan at below-market interest rates and receives a no-interest loan of $550 for fixed assets. SHEF-Model Benefits • Standardized quality of care and medicines • Business and clinical training and support • Sharing of best practices • Lower cost structure • Logistical assurance to avoid shortages of stocks • Brand recognition and trust SUSTAINABLE HEALTHCARE FOUNDATION 47 SHEF has operations in three main regions in Kenya: the Mt. Kenya region, Nairobi, and Western Kenya. The foundation expects to scale up operations to cover more regions. One of the most successful operators, Credence started the rural Jesmah Clinic and treats more than 1,000 patients per month. Once an outlet is established, SHEF remains deeply engaged in the franchise’s operations, providing continuing training and support, sharing best practices across the network, and acting as central management for local, regional, and national political and regulatory issues. In exchange for these services, SHEF applies a franchise fee to the price of drugs charged to the clinic owner, which acts as a disincentive to underreport sales or deviate from standard pricing. BENEFITS TO FRANCHISE OWNER-OPERATORS Owner-operators of SHEF network clinics are licensed nurses; owner-operators of micropharmacies are community health workers. Since clinics are more profitable, the organization will not open any more micropharmacies and will convert existing ones to clinics. This strategy provides more opportunities for nurse practitioners to operate a profitable business and net an attractive wage, averaging $1,000 per year, thus helping to offset the “brain drain” of qualified workers to OECD countries. Franchises also improve the standard of health care through increased competition. SHEF outlets offer treatments at prices of about $0.50 per treatment, forcing competitors to improve the quality, availability, and cost of their drugs. OUTREACH TO COMMUNITIES Outreach efforts of SHEF outlets not only benefit their communities but also serve as marketing opportunities by raising awareness of the clinics’ capabilities. As part of a preventive health program, for example, nurses from SHEF clinics established routine school screenings to teach children and their parents about basic health care and common diseases. Working with government and educational organizations on these initiatives, SHEF outlets transform their communities and build credibility for their own services. POTENTIAL FOR EXPANSION The SHEF microfranchise model offers great potential for expansion, not only within Kenya but also throughout the developing world. The competitive advantages of this business model include low-cost sourcing of high-quality drugs, central management of regulatory issues, knowledge-building, and sharing of overhead and other fixed costs. This initiative also helps reverse the loss of health care professionals in Kenya by providing good jobs with attractive incomes to trained personnel. IFC Support • A $200,000 capital loan, payable over six years • A $54,500 grant for improved governance structures and strategic planning USES OF IFC FUNDS: • Improve outlets’ performance by - converting shops to clinics - implementing a sales promotion plan - improving microenterpreneurs’ businessmanagement skills - creating a school screening program - improving data collection • Improve franchise management by developing, monitoring, and enforcing implementation of standard procedures