manila water amidst new realities and fresh opportunities How we approach our business
2015 was the year that Manila Water laid the foundation for a renewed and energized business. We started in March by aligning our organizational structure with our strategy of transforming our operating models across the enterprise and accelerating growth. Our new organization gives equal focus between our platform and new businesses, with a leadership team to support our growth and diversification efforts.
For the existing businesses, the new set-up enables us to get closer to our customers and be more attentive to their needs. It also allows us to be more responsive and agile in acquiring new businesses, and therefore be more competitive in the industry. Our new wins attest to the relevance of our products and services, the value of our experience in the industry, and the appeal of the new business models we have developed.
metro manila east zone concession Sustaining our base business and expanding our service targets
Being the sole provider of water and used water services to about 6.3 million people in the East Zone of Metro Manila, this concession continues to be the largest contributor to Manila Water’s consolidated net income, accounting for 84% in 2015. The East Zone encompasses 23 cities and municipalities spanning a 1,400-square kilometer area that includes the central business districts of Makati, Bonifacio Global City in Taguig, Ortigas Center in Pasig and the emerging Quezon City. Its customer base is composed of a broad range of residential, commercial and industrial customers. With its size and breadth, the areas covered by our concession area is estimated to account for a quarter of the national economy.
Over the past 18 years of the concession, the East Zone has managed to make dramatic improvements in the delivery of water and used water services. Prior to Manila Water’s takeover in 1997, piped water connections only reached 67 percent of the population. Water availability was only at an average of 16 hours per day at pressure of less than 7 psi. Non-revenue water (NRW) was at 63 percent, while used water and sanitation services were almost non-existent. With the solutions provided by Manila Water, water supply coverage currently spans 93 percent of the concession area and 99 percent of customers connected to the distribution system enjoy 24x7 supply of potable water. NRW has been reduced and consistently maintained at 11.2 percent by the end of 2015, which is at par with many developed cities. Water availability is 24 hours a day at a minimum pressure of 7 psi. Used water service coverage has reached 13 percent.
The growth of the East Zone has not ended. There is still about one million new customers to be connected in the Rizal expansion area, notwithstanding the growth in the areas already served. Billed volume is estimated to grow from two to three percent per annum over the remaining life of the concession. The three percent growth registered in 2015 is in line with the estimate.
A large part of the company's capital expenditure is focused on environmental sustainability which intends to cover 60 percent of target population by 2022 with used water and sanitation services and to improve coverage to 100 percent in some municipalities by the year 2037. The company achieved milestones with the completion of its largest used water treatment plant in the East Zone. These include the Marikina North Sewerage Treatment Plant (STP) with a 100 million liters per day (mld) capacity, Taguig North STP with 75 mld capacity and the North and South Pasig Sewerage System, also known as Ilugin STP, with 100 mld capacity. On the water supply side, the East Zone is also set to start the Rizal Provincial Water Supply Improvement Project which involves the construction of a 50 mld expandable to 100 mld water treatment plant that will abstract and treat water from the central bay of Laguna de Bay to supply and serve the growing population in the towns and municipalities of Rizal.
With the existing regulatory challenges, the company goes into a transformation to ensure operational efficiency and increased productivity. Consequently, the company will adopt new technologies in our capital expenditure design and programs to sustain the gains of the aforementioned operational efficiency.
manila water PHILIPPINE VENTURES Laying the foundations for future growth and profitability
As part of our efforts to sustain growth beyond the Metro Manila concession, we restructured the organization in April 2015 and designated Manila Water Philippine Ventures (MWPV) as our vehicle to expand the water business in the Philippines. With focus on geographic expansion, its specific mandate is to look for new acquisitions and partnerships while leveraging on the track record set by the new businesses in Boracay, Cebu, Clark and Laguna.
BORACAY ISLAND WATER
Located approximately 315 kilometers south of Manila and 2 kilometers off the northwest tip of Panay Island in the Western Visayas region, Boracay Island is a leading tourist destination renowned for its warm blue waters, powder-fine white sand and a palm fringed four-kilometer beach with a healthy marine life. Set within a thousand-hectare land area, Boracay is made up of three small communities: Yapak in the north, Balabag in the middle, and Manocmanoc in the south. Hilly elevations up to 100 meters above sea level characterize Yapak and Manocmanoc, thus the big number of resorts and hotels are concentrated in Balabag. The local population is relatively small at 35,000 but the main driver of billed volume growth is tourist arrivals. In 2015, Boracay attracted almost 1.6 million visitors during the year, growing by 6 percent year-on-year.
Boracay Island Water is a joint venture with the national government’s Tourism Infrastructure and Enterprise Zone Authority (TIEZA), holding a 25-year concession until 2034 to serve potable water and operate the sewerage system on the island. At the end of 2015, water service coverage has reached 100 percent while used water coverage was at 35 percent. In 2015, Boracay Water started the construction of the 5 mld Manocmanoc STP to augment the capacity of the 6.5 mld Balabag STP. By the end of 2016, used water coverage in the island is expected to increase from 35 percent to 75 percent.
Growth of the Boracay concession will be driven by the continued rise in billed volume through tourist arrivals and adherence to its service commitments to expand used water coverage and ensure water security. These will be set forth in the upcoming rate rebasing as Boracay Water submits its business plan in March 2016 for rate rebasing approval and implementation in January 2017.
Cebu Water provides bulk water to Metro Cebu, and commenced operations in January 2015. In partnership with the Provincial Government of Cebu, its 30-year water supply contract until 2043 is to provide the Metropolitan Cebu Water District with 35 million liters per day of treated water. In turn, the water district distributes the water to customers in Metro Cebu, particularly in the cities of Cebu, Lapu-Lapu, Mandaue and Talisay, and four other municipalities. The center of Metro Cebu is Cebu City, the highly urbanized capital of the province, with a population of about 900,000. In aggregate, Metro Cebu is the second most populous metropolitan area in the Philippines next to Metro Manila, with a total population of more than 2.5 million. An additional 1.3 million people reside in the rest of the province bringing the total population of the province of Cebu to 3.8 million.
The contract included the construction of a water diversion structure, a water treatment plant and laying of a 32-kilometer pipeline from the plant in the town of Carmen to the intake of the water district. It is the first water treatment facility in the province to draw from surface water source in an island that relies heavily on deep wells.
The potential for growth is high in this province. Cebu Water is geared to take part in the improvement of the water system in progressive Metro Cebu and its environs as local government opens itself up to more public-private partnerships.
Located 60 kilometers northwest of Metro Manila, Clark Freeport Zone is a redevelopment of the former Clark Air Base into an industrial hub with modern infrastructure and facilities. Clark Freeport Zone has a main zone spanning 4,400 hectares and a sub-zone with a much bigger land area of 27,600 hectares. The vision for the zone is to transform it into an airport-driven urban center targeting high-end IT enabled industries, aviation and logistics-related enterprises, tourism and other sectors.
Clark Water took over operations from its previous owner in 2011. The original concession was for a period of 25 years until 2025 but this has since been extended for another 15 years until 2040. Together with its regulator, Clark Development Corporation, Clark Water has an approved business plan that is committed to expanding its water and used water coverage and enhancing its service quality and efficiency over the life of the concession. Clark Water is one of the most efficient water operators in the Philippines with its non-revenue water of 4.5 percent as of the end of 2015.
Capital commitments from 2015-2040 for the existing concession is estimated at P5 billion for water source development, construction of water treatment and used water treatment plants, sewer lines and pumping stations. Higher billed volume is expected to come from the expansion of existing customers within the Clark Freeport Zone and the migration of industrial players in the area. Another driver of billed volume growth is the sale of bulk water to nearby water districts.
Directly southeast of Manila, the Province of Laguna hugs the southern shores of Laguna de Bay, the largest lake in the country. It encompasses six cities and 24 municipalities over a land area of 1,760 square kilometers with a total population of over three million. With its proximity to Metro Manila, some cities and towns have become industrialized while the rest of the province continue to engage in agricultural production.
In partnership with the Provincial Government of Laguna, the original concession of Laguna Water was for the provision of water services in the cities of Biñan, Cabuyao and Sta. Rosa for a period of 25 years until 2034. Prior to Laguna Water’s takeover, the water system had limited service coverage of only 14 percent, infrastructure was aged and poorly maintained, customers had intermittent water supply of unsafe quality, and non-revenue water (NRW) was high at 48 percent. The transformational journey embarked by Laguna Water in the past six years has yielded remarkable results. At the end of 2015, service coverage has risen to 67 percent, capital expenditures of P2.8 billion has been invested for infrastructure rehabilitation and development, customers now enjoy 24x7 water supply, and NRW has been lowered to 11 percent.
The strong performance of Laguna Water has paved the way for bigger prospects. Laguna Water signed in June 2015 an amendment to its Concession Agreement with the Provincial Government of Laguna expanding the territorial scope of its water supply services from the cities of Biñan, Cabuyao and Sta. Rosa to all cities and municipalities of the Province of Laguna. The amendment likewise included the provision of used water services and the establishment of an integrated sewage and septage system in the province. Laguna Water is currently developing a masterplan for the entire province.
NEW BUSINESSES IN THE PHILIPPINES
Manila Water continues to explore opportunities around the country. Its first investment in Mindanao, the southernmost group of islands in the Philippines, is a 10-year non-revenue water reduction project in Zamboanga City. It is the first venture of Manila Water with a water district and is also the first performance-based non-revenue water reduction project to be implemented in the Philippines. Commencing construction in January 2015, the project aims to save 10 million cubic meters throughout the life of the project. It will be done in phases with the early stages necessitating the replacement of pipes and meters, and extensive leakage detection and repair throughout the distribution network.
In July 2015, Manila Water signed its second project in Mindanao for a bulk water supply project in Tagum City, the capital of Davao del Norte. The project involves the construction of a water treatment plant with a capacity of 38 million liters per day (mld). Once completed in 2018, it will supply the Tagum City Water District with 26 mld of treated water on the first to third year of operation, 32 mld on the fourth to sixth year and 38 mld for the remaining years of the 15-year delivery period from 2018 to 2032. The project will be undertaken by a joint venture composed of a consortium led by Manila Water and the Tagum City Water District.
Meanwhile, Estate Water has the potential of operating across the Philippines. Created in 2015, it has signed an agreement with Ayala Land to provide water and used water services to all Ayala Land developments nationwide, making it the preferred full-service private operator in more than 45 greenfield and brownfield developments of Ayala Land to date. In turn, the value of Estate Water is its ability to provide best-in-class level of service and efficiency gained from operating large concessions.
manila water ASIA PACIFIC Targeting our expansion in the region
We have set our sights on expanding in the region. We believe that the skill sets we have developed in the Philippines can be leveraged to expand to countries with similar characteristics. The mandate of Manila Water Asia Pacific (MWAP) is to look for new acquisitions and partnerships in the ASEAN. At present, MWAP has projects in Vietnam, Indonesia and Myanmar in varying degrees of market penetration. It is geared to take advantage of opportunities in countries that encourage foreign investments in water infrastructure and establish itself as a formidable regional player.
THU DUC WATER AND KENH DONG WATER
Ho Chi Minh City, formerly known as Saigon, is Vietnam's largest and most populated city with an estimated 8.2 million people. The city is divided into 24 districts - 19 inner districts and five suburban districts - each of which offer distinct characteristics. Piped water distribution is controlled by the state utility, Saigon Water Company (SAWACO), but treated water is sourced from different bulk water suppliers. Manila Water’s two existing bulk water companies have a combined capacity of 450 million liters per day (mld), effectively supplying one-third of the demand of Ho Chi Minh City’s population.
Thu Duc Water is one of the largest private bulk water suppliers in the northern part of Ho Chi Minh City having a supply contract with SAWACO at a minimum consumption of 300 mld on a take-or-pay arrangement. Bulk water coming from Thu Duc Water supplies two new urban (Districts 2 and 7) and three suburban (District 9, the Nha Be District, and the Thu Duc District) districts. The second bulk water company, Kenh Dong Water, likewise has a supply contract with SAWACO for a guaranteed minimum purchase of 150 mld of its 200 mld treatment capacity. Bulk water coming from Kenh Dong Water supplies the three suburban districts of Binh Tan, Tan Phu and District 12 in the southern part of Ho Chi Minh City.
Negotiations are underway with the local government in Ho Chi Minh City for the expansion of capacity of Thu Duc to 600 mld. Kenh Dong also has the potential of being maximized immediately to 200 mld as another project of Saigon Water begins to utilize its available capacity.
Aside from the two bulk water companies, Manila Water has a 31.47 percent stake in Saigon Water Infrastructure, commonly referred to as Saigon Water. It is a holding company listed in the Ho Chi Minh City Stock Exchange that is engaged in or exploring projects in Vietnam ranging from non-revenue water reduction to water distribution and used water services.
A significant win in 2015 was the awarding of a concession-type project in the Cu Chi District of Ho Chi Minh City, Vietnam to Saigon Water. Cu Chi is one of the suburban districts of Ho Chi Minh City located about 50 kilometers northwest of the city center with a population of close to 400,000. Only 3 percent of the population is served with treated water by SAWACO and other rural water supply enterprises while the rest of the population rely on wells. The local government directly assigned the project to Saigon Water to address the gap and its target is to achieve 100 percent water supply coverage. Saigon Water created a company called Cu Chi Water to implement the project. Meanwhile, Kenh Dong Water will provide treated water to Cu Chi Water for distribution in the district. In 2015, it has built a 500-kilometer pipe network and established 17,000 water service connections.
PILOT PROJECTS IN MYANMAR AND INDONESIA
Two projects in their pilot phases are currently being undertaken in Myanmar and Indonesia to broaden the regional reach of Manila Water through MWAP. The first is for the development of a non-revenue water (NRW)reduction project in Yangon City, Myanmar. Together with Mitsubishi Corporation, Manila Water signed a Memorandum of Undestanding with the Yangon City Development Committee (YCDC) for Manila Water to propose solutions to the high NRW problem being faced by the city. YCDC is an administrative body of the city government of Yangon in charge of the water infrastructure.
In November 2015, MWAP signed another Memorandum of Understanding with the PDAM Tirtawening Kota Bandung (PDAM Bandung) for a demonstration project to reduce NRW in Bandung City, Indonesia. PDAM Bandung is a water utility company owned and controlled by the regional government of Bandung City. This development marks Manila Water’s initial foray in the country and the first step in the implementation of other cooperation schemes for the development of PDAM services.
manila water total solutions Our engine for vertical growth
As the third leg in our thrust to grow the businesses outside of the original concession, Manila Water Total Solutions is focused on vertical expansion through the creation of innovative products and services that are not as regulated as concession-type arrangements. Its current offerings include after the meter services that create and deliver ingenious solutions for difficult, cumbersome, and hard to notice problems of customers and communities.
One of the original products of Manila Water Total Solutions is Pipelaying. It is a type of service that offers solutions to the water and used water network needs of its clients. Its target customers are property developers as its primary service is the design and build of water, used water and gray water networks of horizontal developments and townships. It also offers repair and improvement services on existing networks such as leakage detection and repairs, installation of appurtenances, and cistern cleaning.
To date, it has gained a steady stream of projects from its customers. The Pipelaying business anticipates continuous growth through a robust pipeline of projects and further streamlining and improvement of the business model through targeted standards, improved price of materials, and further expansion to other major developers.
INTEGRATED USED WATER SERVICES
The Integrated Usedwater Solutions (IUS) business addresses the unserved market currently in need of used water management services. As customers in the commercial and industrial sectors continue to struggle with finding cost-effective means to sustainably comply with environmental regulations, IUS provides holistic customer-specific solutions that have been developed through value-engineering and integration of various technologies.
In its first year of commercialization in 2015, IUS generated positive net income through the execution of key projects for major land developers, commercial customers and utilities. Following its initial success, IUS is targeted to gain momentum through the pursuit of opportunities for growth in the design and build sector while building upon the continuous development of ingenious solutions for difficult customer problems.
Manila Water Total Solutions is beginning to fulfill its new product and services mandate through the roll out of Integrated Usedwater Solutions and Healthy Family on top of its Pipelaying business. Realizing its full potential as the third growth leg of the Company will be an ongoing challenge and opportunity.
HEALTHY FAMILY BOTTLED WATER
Manila Water Total Solutions launched in 2014 Healthy Family Purified Water on a pilot basis to test the appetite of the market for high-quality yet affordable purified water in a five-gallon bottle. Especially formulated and customized to the drinking needs of the whole family, the bottles are produced by Healthy Family and distributed to customers by a network of partners.
From a single plant producing 5,000 bottles per day, it has expanded its capacity by building three more Food and Drug Administration-certified plants in 2015 with a combined capacity of 43,000 bottles per day. The partner distributors have grown from three at the start to 212 at the end of 2015, representing two thirds coverage of the Metro Manila East Zone. Collectively, the partner distributors sold a million bottles in 2015.
Moving forward, Healthy Family will build two additional plants and acquire over 200 new partners. The near-term goal is to cover 100 percent of Metro Manila through a network of six plants and almost 500 partner distributors.