FOR Manila Water, the question of whether the glass is half full or half empty is particularly resonant.
In January 1997, when the Philippine government privatised the water and sewerage system in the capital, the company won the auction for both halves of the concession area but was awarded just the eastern portion.
The government said it did not want a private monopoly in place of the state-owned utility that operated the water system in the city at the time.
However, this October, the joint venture set up by the wealthy Ayala family and United Utilities of the UK will have another chance to fill its glass and take what was denied it nine years ago.
Manila Water is one of five bidders for 84 per cent of Maynilad Water Services, the troubled company run by French engineering group Suez and the local Lopez family that holds the western half of the water concession.
After years of heavy losses, Maynilad was on the brink of bankruptcy in 2004 and defaulted on its debts and concession fee payments. It was bailed out by the government, which converted some of its claims on the company into an 84 per cent equity stake last year.
The government is now selling the stake and has received firm expressions of interest from Manila Water; as well as Marubeni Corp of Japan; Philippine construction group DMCI; a consortium of Rubia Holdings and Noonday Asset Management Asia; and Karunakaran Rainchand of India.
In contrast to Maynilad, Manila Water's performance has been exemplary. It became profitable from its second year and last year sold $89m worth of shares. It was the first Philippine company since the Asian financial crisis of 1997 to offer the bulk of an initial public offering to international investors. To sustain rapid growth, it is not only bidding for Maynilad but also planning to compete for water privatisation contracts in other Asian countries.
Officials who oversaw the 1997 auction originally feared for Manila Water, worried about how it could earn money -- after offering to cut water tariffs to extremely low levels.
The company won the auction by promising to charge customers less than one-third of the prevailing tariff and half the proposed rate of the next best bidder, Maynilad. "I was floored. The Ayala price looked like a mistake," recalls Mark Dumol, a public works engineer who helped supervise the privatisation. "I thought Ayala would admit their mistake and this would be a big mess."
Antonino Aquino, Manila Water's president, credits the company's success to "employee empowerment" and a decentralised approach to operations, which divided its 1,400 sq km concession area, covering roughly 5.0m people, into eight business centres that enjoyed a lot of leeway in decision-making.
"Small is beautiful and easier to manage," he says, pointing out that managing a service area as big as the Manila metropolitan area, which covers about 2,300 sq km and over 13m people, was one of the problems that bedeviled the state utility in the mid-1990s.
For Manila Water, winning over and motivating more than 2,000 employees it inherited from the indebted state water utility was the primary challenge in the first year of operation.
Even before the formal handover, an advance team of human resource experts visited employees to introduce the company and answer questions. It even helped process payroll accounts with an affiliate bank, allowing many of the workers to own an ATM card for the first time.
Later, the company sought to boost employee morale and productivity by introducing a compensation scheme linking pay to performance, holding continuous training and giving generous benefits to those who had to be retrenched.
Mr Aquino says that, without motivated and skilled employees, it would have been impossible for the company to cut the amount of water lost to leaks and theft from 63 per cent of water produced when it took over to just 31 per cent in June.
The massive reduction in so-called "non-revenue water" helped Manila Water more than double its billed volume in the past nine years. Helped by hefty increases in water rates, the boost in water sales helped quadruple the company's revenue over the past five years to 5.8bn pesos ($112m) in 2005, while net income has doubled in the past two years to 2.0b pesos.
Maynilad failed to bring down non-revenue water, which amounted to 69 per cent of water production in the first quarter of this year. This, along with a prolonged dispute with government regulators that delayed rate increases, translated into huge yearly financial losses, which reached a peak of 2.3bn pesos in 2004.
FT Syndication Service