As you know, Manila Water experienced major challenges in 2019. The difficulties we experienced have drastically altered the way we view and operate our business.
The first set of challenges in 2019 were operational, but on a scale and magnitude never seen before in Manila Water’s history. In March last year, we experienced a severe water supply shortage in our East Zone Concession, with raw water volume in our main reservoirs reaching critically low levels. This caused prolonged service interruptions in several communities, significantly impairing the high standards of service which we have maintained for over 20 years. Furthermore, in August the Supreme Court rendered its decision to have Manila Water and MWSS pay more than Php921 million in fines for alleged non-compliance with the Clean Water Act. Both Manila Water and the MWSS have appealed the decision, and we are hopeful that the Supreme Court will sustain our position that the Clean Water Act did not require MWSS and its concessionaires to provide a centralized sewerage system for the MWSS service area within five years from March 2004.
Towards the end of the year, we faced an unprecedented and even more fundamental set of challenges – the kind which put into question the foundation on which we have built our business and credibility. It began in November 2019, when we received the award rendered by the Arbitral Tribunal in the arbitration proceedings between Manila Water and the Philippine government constituted under the Permanent Court of Arbitration (PCA) in Singapore. The Tribunal ordered the government to indemnify Manila Water in the amount of Php7.39 billion representing the actual losses Manila Water suffered from June 1, 2015 until November 22, 2019. The reaction of several key government officials to this arbitral award unfortunately resulted in the questioning of key terms in the Concession Agreement. In order to address the mounting regulatory and government pressure, we resolved to no longer collect the arbitral award issued by the PCA. Additionally, we indicated that we would defer the implementation of our Approved Rate Adjustment for 2020, while we continue to work with MWSS on an arrangement as to how and when this deferral will be addressed in the future.
Despite the very difficult political environment, Manila Water continued to provide reliable service to our customers. This dedication and commitment are characteristics which are distinctly Manila Water – the same values and principles which we have maintained since our concession agreement began.
Back in 1997, we established our commitment to national development by taking on the mandate of rehabilitating and expanding the MWSS water and wastewater system. At the time, systems losses in the East Zone were at a high of 63% and wastewater coverage was only 3%. In the face of great risk and difficulty, we accepted the challenge of improving water and wastewater service for the communities and households in the East Zone of Manila.
The results of that commitment speak for themselves. From 63% in 1997, we have successfully decreased system losses in the East Zone to a world class level of 10.37% at the end of 2019. The water we have recovered from the system enabled us to maintain water availability at near 100% in our Central Distribution System, with potable water flowing to our customers 24 hours a day and water pressure kept steady at regulatory levels. To ensure the adequacy of raw water supply for East Zone customers, we continuously tried to work with government on its development of medium and long-term new water sources. Unfortunately, there were disagreements on supply projections which prevented us from planning properly for the needs of our concession area. Last year’s water supply shortage has allowed us to fast track several new projects in collaboration with MWSS. Notably, the first phase of the Wawa-Calawis Bulk Water Supply Project is projected to supply 80 million liters per day to the East Zone by 2022 which can be expanded further to 518 million liters per day.
For wastewater, we now have over 30% wastewater coverage in the East Zone – equivalent to service for 2 million people coming from only 45,000 when we took over the system from MWSS. We continue to remain compliant with environmental standards as we execute our Service Improvement Plan approved by the government. Lastly, we remain open to discussions with the government on the Concession Agreement. The indication that government has engaged the Asian Development Bank for this purpose sends a positive signal that the discussions will be comprehensive and balanced.
The board has also decided to prepare for options to strengthen Manila Water’s balance sheet, which is why we are asking the shareholders to approve the increase of shares without pre-emptive rights to 900 million, so that the Company may issue shares as needed and open up opportunities for the entry of a strategic investor.
In Manila Water, we have always seen our responsibility to our customers as more than a business to run. When we committed ourselves to provide quality water and wastewater services to our customers more than 20 years ago, we knew then that it would not be an easy task. True enough, throughout Manila Water’s history we have persevered through many challenges – be it natural, economic or regulatory. Our experiences in 2019 once again bring this reality front-and-center.
What truly sets the Manila Water spirit apart is its heart for genuine service. In spite of the hardship and sacrifices, Manila Water has never hesitated to extend its hand to help and serve others – no matter when, or where it was needed
All these difficult challenges brought out the best in all of us. Each one made us stronger, more united and more committed to our service mission. As we weather these challenges, it inspires me to see that the strength and resilience which our company has built through the years, is very much alive in our people, our culture and in our work. What truly sets the Manila Water spirit apart is its heart for genuine service. In spite of the hardship and sacrifices, Manila Water has never hesitated to extend its hand to help and serve others – no matter when, or where it was needed. This commitment to genuine service is what will see us through the challenges we face today and the challenges that are still to come.
I hold on to the firm belief that Manila Water will always emerge stronger in the face of adversity. The company draws strength from its core – built upon resilience and strengthened by its commitment to genuinely serve its customers. I thank you for your continued trust and support, as we continue to champion our mission of providing access to water and sanitation services for the communities we serve.
I would like to thank our Board of Directors for their guidance and support, our management team and employees for their unwavering commitment, and finally our customers, partners and all our stakeholders who continue to inspire us as we fulfill our service mission.
FERNANDO ZOBEL DE AYALA