Metro Manila s PPP experience in contributing to SDG 6. Mark Tom Mulingbayan 20 March 2017

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1 Metro Manila s PPP experience in contributing to SDG 6 1 Mark Tom Mulingbayan 20 March 2017

2 WATER SUPPLY AVAILABILITY: 3.1 million customers LEAKS ILLEGAL CONNECTIONS 26% 24/7 water service LOW WATER PRESSURE TO NO WATER POOR CUSTOMER SERVICE Water Supply before 1997

3 Sewer coverage at 3% mostly built before the 1970 s. More than 80% use septic tanks Most improperly designed Not regularly maintained The rest, esp. the urban poor, had no access to sanitary facilities Sewerage before 1997

4 Inherent weaknesses in government owned and controlled corporations Personnel Procurement Financing Public Private Partnership 4

5 Metropolitan Waterworks and Sewerage System (MWSS) CONCESSION AGREEMENT WEST ZONE EAST ZONE 1997 to 2022, extended to Public Private Partnership

6 The Ayala 360 Degree Sustainability Framework Ayala Group Strategy adopting the SDGs

7 Manila Water as part of the Ayala Group Pioneering in several industries for more than 180 years Real Estate Financial Services Telecommunications Water Utilities 47.1%* 48.3%* 30.7%* 51.8%* Leading and most diversified property developer in the country with the largest landbank Pioneering financial institution and one of the most profitable banks in the country Leading digital lifestyle and content producer, supported by a robust telecom platform Regional player in water infrastructure services and development (approx. $10-13B market cap) (approx. $7-9B market cap) (approx. $5-7B market cap) (approx. $ B market cap) Power and Transport Manufacturing and Automotive Social Infrastructure AYALA EDUCATION 100.0%* 100.0%* 50.7%* 100.0%* 100.0%* 100.0%* Emerging major player in power generation with a combination of both renewable and conventional power assets Growing portfolio of key transport infrastructure publicprivate-partnerships (PPPs) in the Philippines *Economic ownership as of July 2016 Global footprint with a focus on automotive and industrial EMS; among top 10 automotive EMS companies in the world ($ M market cap) Key player in Philippine automotive distribution and dealership with Honda, Isuzu, and Volkswagen New investments in educational institutions delivering affordable high quality education to improve outcomes and employability Developing a portfolio of businesses focused on affordable medicine and primary health care services Corporate sustainability anchored on corporate governance and strategic partnership. 5

8 Full Cost Recovery: Tariff Setting Mechanisms Performance Based Metrics CONCESSION AGREEMENT Regulation by Contract Dispute Resolution via Arbitration 8 How the PPP contract works 8

9 MILLION CUSTOMERS 6.6 MILLION CUSTOMERS 26% 99%* Losses from 63% to the current 11%. Water recovered from efficiency measures were made available to new customers. 24 hours hours 0 12 hours * Percentage of people reached by the network who have 24 hour water availability In the last 20 years, no new major water source was developed. 9 Water Supply situation 9

10 Service expansion and better quality Increased investment s Satisfied customers High collection efficiency Customers willing to connect/pay Full Cost Recovery

11 In 2017, 39 used water facilities (319 MLD cap) diverted 6,417 tons of BOD from the waterways of Metro Manila. Additional 100 MLD for commissioning in late more facilities for construction (~850 MLD) by end of concession. Used Water situation

12 Manila Water and UN SDGs

13 Growth Aspiration: replicate our successes

14 Water rates dependent on Governance Characteristics Efficiency in WD management Subsidies from the LGU Connection density Natural Characteristics Availability of water Source of water Quality of bulk water David, C.P. et al Statistical Analysis of Philippine Water District Characteristics and how these Affect Water Tariffs. Water International Journal Water services in the Philippines

15 1 2 Uncoordinated investment planning, despite wide fiscal space Inconsistency in interpreting regulations and timelines to comply 3 Different modes of water service regulation 4 Different tariff models depending on PPP partner & regulator 5 Local bank rates for subsidiaries not as attractive as those offered to mother Challenges

16 Policy Making NEDA Coordination / Regulation NWRB Water Quality & Sanitation Watershed Management Integrated Area Development Data Collection Flood Management EMB DOH BRL EHS LGUs MWSS LWUA-WDs FMB BSWM NIA NPC PAWB LLDA RDCs BOI PEZA RBCO NWRB BRS NAMRIA LWUA MGB PAGASA MWSS NIA DPWH-PMO OCD-NDCC PAGASA MMDA Irrigation Hydro Power Water Supply Research Cloud Seeding NIA DA BSWM DOE PSALM NPC PEMC NAPC-WASCO DOF-CDA DBP DAR DPWH MWSS LWUA-WDs PTA HUDCC DILG-PMO PEZA LGUs DOST- PCAFNRRD ERDB Fisheries BFAR PAF BSWM Institutional environment

17 Water PPP addressed inherent weaknesses in govt owned and controlled water corporations: people, procurement and financing. The water PPP exercise is successful to date, and has significantly contributed to the SDGs. But water service improvement has not really gained traction across the country, with or without PPP. Our Public Private Partnership contracts have clear service obligations and targets, and allow full cost recovery of expenditures through the water tariff. However, the regulatory setup is not uniform across the subsidiaries. Need for Water Sector Reform Summary

18 a mission to fulfill, not a business to run Fernando Zobel de Ayala Chairman Manila Water Company 18