2019 Integrated Report
DEAR SHAREHOLDERS,
THE 2019 INTEGRATED REPORT OF MANILA WATER IS UNLIKE ANY WE HAVE PRODUCED IN THE PAST. ON TOP OF OUR COMPLIANCE TO THE STANDARD REPORTORIAL REQUIREMENTS AS WITH PREVIOUS YEARS, WE FEATURE A SPECIAL REPORTS SECTION WHICH PROVIDES YOU, OUR SHAREHOLDERS, A DIRECT AND OBJECTIVE VIEW INTO THE SIGNIFICANT EVENTS WHICH TRANSPIRED IN 2019. WE HAVE TAKEN THIS NEW DIRECTION FOR THE 2019 INTEGRATED REPORT BECAUSE CLEARLY, 2019 WAS NOT A NORMAL YEAR, BY ANY MEASURE. ALLOW ME TO RECOUNT SEVERAL OF THESE SIGNIFICANT EVENTS, THE DETAILS OF WHICH WILL BE EXTENSIVELY DISCUSSED IN THE PERTINENT SECTIONS IN THIS INTEGRATED REPORT.
For our East Zone Concession, 2019 will be remembered as the year of the water supply crisis. In March of last year, the decline in La Mesa dam water levels caused water service availability to drop drastically, with La Mesa reaching its lowest level at 68.43 meters in early May. The lack of available raw water supply caused widespread water interruptions in several communities in our service area.
We had to immediately respond by adapting our network operations to a markedly reduced water supply allocation regime. We achieved this by reducing overall pressure in the system while actively managing water supply flow. This unprecedented degree of network adjustment, wherein water flow in the system was redirected several times in a given day, was necessary to ensure that the limited water supply aligned squarely with customer requirements. Furthermore, to ease the inconvenience of affected customers, later that month we announced a one-time voluntary Bill Waiver Program for all customers, as well as for those communities which were severely affected by the water interruptions. This was implemented in April 2019 and was reflected as a sales discount in the customer’s billings. Subsequently, a Php534 million penalty was imposed on us by MWSS in relation to the water supply shortage. Even as we abided by the MWSS decision to impose the penalty by paying the determined amount, we firmly adhere to the fact that the root cause of the water supply shortage was the delay in the completion of the government’s new water source projects.
Following the low raw water levels in La Mesa, a similar decline was experienced at Angat Dam towards the middle of 2019, necessitating further reduction of raw water releases for domestic use. In July, raw water allocation from Angat Dam was set at its lowest, with releases limited to only 35 cubic meters per second (cms) for the MWSS Concessionaires. The aggravated deficiency of available raw water again tested our ability to provide reliable water service to our customers. In response, we pushed even harder towards network efficiency. Our efforts resulted in a more dynamic and efficient water distribution network, enabling us to restore water service to regulatory levels.
Coming from the water supply shortage, we continue to improve and stabilize operations to provide reliable service to our customers in the East Zone. The production at our Cardona Plant reached 98 million liters per day (MLD) as of December 2019. We likewise continue the recommissioning and development of new deep wells, with a total capacity of 55 MLD as of year-end. These initiatives, along with our continued proactive network management and optimization program, keep water availability within regulatory levels for our customers despite lower raw water supply allocation.
Regarding our commitment to provide and expand wastewater services in the East Zone, 2019 likewise saw us face considerable challenges. In August, the Supreme Court ordered each of the MWSS concessionaires, jointly and severally with MWSS, to pay more than Php921 million in fines for non-compliance with the Clean Water Act. Said decision stemmed from a case filed by the Department of Environment and Natural Resources (DENR) in 2009 which alleged that Manila Water failed to build sufficient treatment plants and connect its customers to the wastewater system. We affirmed that we would exercise all legal options in relation to this case, including the filing of a Motion for Reconsideration which we timely submitted to the Supreme Court on October 2, 2019. We firmly maintain our position that, as Concessionaires of MWSS, we have fully complied with our obligations under the Concession Agreement and the relevant provisions of the Clean Water Act.
Based on the original Concession Agreement, the wastewater coverage commitment for the East Zone is targeted at 55% by 2022. When the Philippine government approved the extension of the Concession Agreement in 2009, our obligation was increased to 100% East Zone wastewater coverage by 2037. The extension of the Concession Agreement for an additional 15 years allows us to expand wastewater coverage to more communities at more affordable rates. This new coverage target is in pursuant to a Supreme Court decision promulgated in 2008 for the clean-up and preservation of Manila Bay.
Consistent with our mandate as the MWSS concessionaire for the East Zone, we have invested close to Php43.56 billion in wastewater capital expenditures since the concession began in 1997, and plan to invest over Php38 billion more until 2022. These investments are part of the company’s government-approved service improvement plan to further expand sewerage and sanitation services in the East Zone. Notably, our wastewater capital expenditures outpace our collections of sewer and environmental charges that total Php40.65 billion from 1997 to 2019.
Our challenges were not confined to the East Zone. Our domestic and regional businesses experienced its own set of obstacles. Despite these, Manila Water remained resilient. Even in the face of operating and business development setbacks, our domestic subsidiaries under Manila Water Philippine Ventures significantly increased income contribution to the group, with the good performance of the core domestic operating subsidiaries providing a solid foundation. For our international operations under Manila Water Asia Pacific, the performance challenges in our Vietnam investments served to underscore the importance of managing our costs better, as well as of taking a more focused approach in business development.
As Manila Water looks to the future, we draw strength from the challenges we have faced. We do so because we know this where we will find the solutions that will make us even better.
Looking back at the year that was, the core which held us together and helped us weather the seemingly insurmountable challenges was our people. Manila Water’s strength lies in its unique mix of seasoned pioneers who provide experience and wisdom, coupled with young, dynamic leaders who inject energy, innovation and spirit. Whether young or old, the common thread which runs through every Manila Water employee is our commitment to our service mission. This is what defines us – a heart for Genuine Service which takes precedence above all else.
The Manila Water brand of Genuine Service is not confined to within the company alone. This dedication to service extends outward – from our employees, flowing through to our customers, partners and to government as we support their thrust towards national development. Only in working together with our stakeholders can we rise above the obstacles and find better ways to and fulfill our service mission.
As Manila Water looks to the future, we draw strength from the challenges we have faced. We do so because we know this where we will find the solutions that will make us even better. Equally, we draw inspiration from the trust and support given to us by our customers, partners and stakeholders. I thank our customers for their continued trust and support for the company. I thank our partners and stakeholders for their help in the projects and initiatives which enable us to provide consistent, reliable service to our customers. Finally, I thank my fellow Manila Water employees for their resilience and unwavering dedication to our mission – to render Genuine Service, in all that we do.
JOSE RENE GREGORY D. ALMENDRAS
President and CEO