Equity Share in Net Income of Associates
As Manila Water’s platform of expansion outside the Philippines, MWAP leverages the company’s skillsets through sharing of environmentally responsible and sustainable practices among its peers in the water sector.
In 2008, Manila Water in partnership with Saigon Water Company (SAWACO) successfully ventured and started out a five-year World Bank–funded non-revenue water (NRW) reduction pilot project in the Zone 1 of Ho Chi Minh City. Today it has turned into a much longer and valuable business relationship between the two parties, testifying to the value and operational efficiency that Manila Water has been able to create in Vietnam.
The goal had been to recover 38 million liters per day (MLD) from the network, but the actual volume that was recovered at the end of the project contract in 2014 was threefold at 130 MLD. The successful implementation of the project had a substantial impact to the previously unserved service areas of SAWACO, and more importantly resulted in MWAP earning the trust of the Vietnamese authorities and its local partners. This paved the way for the expansion of MWAP’s business engagements in Vietnam as it acquired two more bulk water companies under a take-or-pay arrangement. Both Thu Duc Water and Kenh Dong Water supply treated water to SAWACO, effectively covering one-third of the demand of Ho Chi Minh City’s 8.5 million population.
Manila Water owns 49 percent stake in Thu Duc Water, which supplies 300 MLD to two urban (Districts 2 and 7) and three suburban (District 9, Nha Be, and Thu Duc) districts under a 50-year bulk water supply contract. Thu Duc Water consistently delivers its commitment under the contract, with 110.5 MCM sold for the period ending December 31, 2019, generating revenues of VND337 billion (under Vietnamese Accountin Standards). The company is currently seeking necessary approvals to expand its capacity to 600 MLD to serve more communities in Ho Chi Minh City.
Manila Water also owns 47.35 percent stake in Kenh Dong Water, which supplies to suburban districts of Binh Tan, Tan Phu, and District 12 in the southern part of Ho Chi Minh City. Kenh Dong Water operates under a 20-year bulk water supply contract for 150 MLD with a potential to expand to 200 MLD. Kenh Dong Water’s billed volume in 2019 is at 61.8 MCM, an increase by 8 percent from 2018, and translated to an increase in revenues by 12 percent to VND246 billion.
Manila Water likewise owns 37.99 percent stake of Saigon Water Infrastructure Corporation (Saigon Water), a holding company in Vietnam that is listed in the Ho Chi Minh Stock Exchange. It is MWAP’s vehicle to secure water supply, water distribution, and wastewater treatment contracts across the country. Cu Chi Water, its first concession-like project, is a Build-Own-Operate (BOO) water-supply system project in the Cu Chi District with a population of about 418,655.
Saigon Water’s major investments are Tan Hiep Water, a bulk water supplier to Hoc Mon in Ho Chi Minh City with a capacity of 300 MLD, and Gia Lai Water, a 20 MLD water distribution company servicing the Central highlands of Gia Lai Province. Hoc Mon’s population is around 446,056, while Gia Lai Province has a population of roughly 1,437,400.
The company recorded a total consolidated billed volume of 106.0 MCM in 2019, higher by 27 percent from the previous year due to the increase in the Cu Chi Project by 2.6 MCM and Tan Hiep 2 by 27.9 MCM. Total revenues of Saigon Water increased by 3 percent to VND 494 billion due to higher revenues from its Tan Hiep operations, but was partly offset by lower revenues from other investments.
At present, MWAP is the largest direct foreign investor in Vietnam’s water sector supplying approximately 50 percent of the bulk water requirements of Ho Chi Minh City.
In 2015, Manila Water strengthened its ASEAN presence by entering into a Memorandum of Understanding with PDAM Tirtawening Kota Bandung (PDAM Bandung), a water utility company owned and controlled by the city government of Bandung. Manila Water sought to reduce NRW in Bandung City, the capital of Indonesia’s West Java province.
Bandung is the country’s fourth largest city by land area and third largest city by population, with over 2.4 million inhabitants. As with its initial project in Vietnam, MWAP was able to establish to the Indonesian market its best practices after it completed the NRW reduction project and reduced its systems losses from 59 percent to 23 percent. Consequently, the project recovered 134,400 liters per day, which were enough to serve 379 new households or 1,590 people.
Manila Water also owns 20 percent stake in PT Sarana Tirta Ungarang (STU), a bulk water supply provider to industrial areas in Semarang, Indonesia. In 2019, PT STU sold 5.3 MCM, generating revenues of IDR21 billion. In the same period, PT STU reported net income of about IDR4 billion, higher by 44 percent from the previous year. Manila Water’s 20 percent share in income from PT STU is reflected in the consolidated financial statements at ₱1.48 million.
Manila Water’s strategic entry in Thailand commenced in 2018. Through a Share Purchase Agreement with Electricity Generating Public Company Limited (EGCO), Manila Water acquired an 18.72 percent stake in Eastern Water Resources Development and Management Public Company Limited (East Water). East Water is a water supply and distribution company whose shares are listed in the Stock Exchange of Thailand and is known to support sustainable practices in water supply and distribution.
East Water provides raw and tap water supply in the country’s eastern region, which covers the main industrial area of the country with a total area of 13,285 square kilometers or nearly as large as the CALABARZON region in the Philippines. The business draws its water from a combination of river diversion and ground water.
The earnings contribution from this newly acquired associate in Thailand have begun to pick up as it already contributed ₱295 million as of end of 2019 on the back of a 382.1 MCM billed volume.
MWAP continues to build partnerships in Thailand, underpinning Manila Water’s thrust to leverage on its operational successies which propels investments in the water and wastewater sector regionally.