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Ring-fencing: An effective strategy in utility reform

 

The Municipality of Jagna has been known to be an LGU who openly embraces innovative strategies in governance. With its implementation of several pilot projects, LGU Jagna is showing a fearless stance in adopting reforms to be able to enhance the delivery of its services to its people.

On March 22, 2011, Mayor Fortunato R. Abrenilla with Engr. Gerry V. Araneta, MPDC and head of Jagna Waterworks System (JWS) attended the “Symposium on Best Practices on Water” one of the activities of the celebration of World Water Day 2011. It was spearheaded by the National Water Resources Board held at Microtel, Mall of Asia in Pasay City. Mayor Abrenilla was one of the presenters in this event on sharing and learning best practices on water.  His presentation was “Ring-fencing Water Utility Accounts: Paving the Way for Utility Reform”.

LGU Jagna’s waterworks system was introduced to ring-fencing its water utility account in May 2009 when it was chosen as pilot utility for capacity building interventions by the USAID – funded Philippine Water Revolving Fund Support Program (PWRFSP) and the DILG.

In Mayor Abrenilla’s presentation, ring-fencing is defined as “a tool which involves the separation of financial accounts of a specific business activity from the general accounts of the LGU”. It is seen to “generate reliable financial reports, provide transparent basis for tariff-setting and facilitates monitoring of financial performance.

PWRFSP introduced to LGU Jagna the “Capacity Building Glide Path” which became the basis for operation under ring-fencing.

Jagna’s experience in ring-fencing strategy required the adoption and institutionalization thru policy actions. It has created the Ring-fencing Team thru an Executive Order in 2009 and the then Sangguniang Bayan issued a Resolution adopting Ring-Fencing Financial Management Guidelines. It now issues disconnection notices to delinquent accounts and has opened a separate bank account exclusively for waterworks.

Only more than a year old, the ring-fencing strategy has already delivered beneficial results to the Jagna Waterworks System. Key performance indicators were monitored and the bottom lines are: specific areas have been identified to need reforms and improvement; a 34% increase in revenue generation; shortened collection period; improved working ratio; increased return on assets; decreased average cost per cubic meter and a 33.22% decrease in subsidy level.

Currently, the LGU-run JWS is still facing challenges in its operation. But with constant monitoring of its performance the LGU will be able to further institute required reforms towards an efficient delivery of water service to the people of Jagna.

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