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Summary of Proposed Investment
This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.
Water and Wastewater Utilities
Reg Ind, Infra & Nat Res, ASIA
Date SPI disclosed
October 11, 2006
Projected board date
November 14, 2006
Signed: November 22, 2006
Approved: November 20, 2006
View Environmental & Social Review Summary (ESRS),
Manila Water Company, Inc. (MWC or the company) is a Philippine company which provides water delivery, sewerage and sanitation services under the terms of a 25-year Concession Agreement to approximately five million people in the east part of Manila. Under the terms of the Concession Agreement entered into on February 21, 1997 with the Metropolitan Waterworks and Sewerage System (“MWSS”), MWC was granted exclusive rights to provide water and wastewater service in the so called “East Zone” as an agent and contractor of MWSS. The East Zone spans approximately 1,400 square kilometers encompassing 23 cities and municipalities.
Since taking over the East Zone concession in 1997 and as of December 31, 2005, the company invested a total of PhP 17.5 billion ($338 million) on programs focused on extending the water network, reducing system losses and improving water quality. A total of 1,274 kilometers of pipeline have been laid and MWC has more than doubled its customer base since 1997 to 708 thousand households. System losses have been brought down from 63% in 1997 to 35.5% by end-2005 helping the volume of water delivered to customers to grow from 440 million liters to 864 million liters per day. In addition, 95% of the population served now enjoys 24-hour water supply compared to only 26% in 1997.
MWC is an existing IFC client to whom the Corporation has extended a $30 million equivalent loan in Japanese Yen and committed an additional $30 million equivalent loan. IFC has also made a $15 million equivalent equity investment in the company in 2004, in preparation for an Initial Public Offering and the listing of MWC’s shares on the Philippines Stock Exchange that took place in 2005.
MWC approached IFC for a $30 million equivalent standby Loan/Guarantee facility to partially finance its capital expenditure program for the East Zone estimated at $355 million for the 2006-09 period. These expenditures will have the following components:
- Development of new raw water sources,
- Service expansion to the east and southeast areas of the concession,
- Network distribution improvements,
- Other pipe extension and improvement projects,
- Non-revenue water (NRW) reduction programs, and
- Expansion of sewerage & sanitation services.
Project sponsor and major shareholders of project company
MWC’s single largest shareholder (30.4% direct and indirect economic interest) is the Ayala Corporation, one of the oldest business conglomerates in the Philippines with operations in real estate, electronics, utilities, the automotive sector, banking, insurance, telecommunications, transportation, and food. Other large shareholders include: United Utilities B.V. (“UUBV”) of the Netherlands (direct and indirect economic interests totaling 11.8%); Mitsubishi Corporation of Japan (7.9% shareholder) and IFC (7.4%). MWC had an initial public offering in March 2005 and the public currently owns about 37.9% of the company.
Total project cost and amount and nature of IFC's investment
The proposed IFC investment provides for a $30 million equivalent standby Loan/Guarantee facility for IFC’s own account to partially finance MWC’s capital expenditure program for the East Zone estimated at $355 million for the 2006-09 period.
IFC investment as approved by Board
30 million (USD)
IFC Investment (million USD)
* These investment figures are indicative
Location of project and description of site
MWC’s operations cover the East zone of Metro Manila. The East zone comprises Pasig City, Pateros, San Juan, Taguig, Mandaluyong, a small part of old Manila, most of Makati, Marikina, Quezon City, Antipolo City, Rodriguez and San Mateo in Rizal Province and all of the Rizal municipalities.
Anticipated development impact of the project
The project will help MWC attain the targets set out under its concession agreement, including provision of water, sewerage and sanitation services to the general population in its concession area. By expanding the provision of reliable and affordable services, the project will bring direct benefits to consumers due to improved health and living standards. The project will have a particularly beneficial impact for poorer communities, where, under its “Water for the Poor Communities” program, MWC is providing lower income households with access to piped water at an affordable rate. The program has already benefited more than 141,000 poor households since its inception in 1997, and will be substantially expanded during the 2006-2009 project period.
At a macroeconomic level, badly run public utilities impose a great fiscal burden in resource-constrained environments by diverting funds from social programs. The transfer of management, investment and financing responsibility to well run and professional private sector operators such as MWC improves service delivery, contributes toward long-term sustainability of services, and reduces the fiscal burden of the government. Expanded coverage for industry and commercial customers generates employment and makes a direct contribution to economic growth.
IFC's expected development contribution
IFC's proposed $30 million equivalent standby Loan/Guarantee facility to MWC builds upon earlier IFC participation in the company. By supporting a private sector operator which has introduced substantial improvements in water quality, availability and coverage as well as client responsiveness in a sector that was privatized in 1997, IFC is sending a positive signal to the market and to other governments considering water privatization.
Aside from IFC’s experience in financing water projects, IFC also played a key role in helping MWC develop its sustainability initiatives (including assisting on the preparation of its Sustainability Report, which is the first in the Philippines) which proved very effective in allowing it to reach poorer areas within its concession. IFC is also able to provide local or foreign-denominated financing with longer maturities, which is important in the water business given the large capital requirements needed to improve water service.
Environmental and social issues - Category B
Like the two earlier IFC investments in MWC, this is a Category B project because a limited number of specific environmental and social impacts may result which can be avoided or mitigated by adhering to generally recognized performance standards, guidelines or design criteria.
MWC continues to manage its environmental and social performance in accordance with Philippine laws and regulations and international standards, including the IFC Performance Standards on Social and Environmental Sustainability. The Company has demonstrated its commitment to its social and environmental goals, which, in turn, have been integrated and aligned with their business goals. Ongoing activities that have social or environmental impact and risks are considered part of the Company’s recently established Corporate Social and Environmental Responsibility (CSER) initiative, which covers five areas:
- Activities aimed at improving services to the community;
- Improvements in health and safety for the public and employees;
- Initiatives for employee development;
- Environmental protection programs; and
- Economic development opportunities for local community cooperatives, SMEs and suppliers.
For inquiries about the project, contact:
Sherisa P. Nuesa or Frank BeaumontManila Water Company, Inc.Administration Building, MWSS Compound489 Katipunan Road, Balara, Quezon City, 1105 PhilippinesPhone: (632) 926-7999Fax: (632) 928-2450
For inquiries and comments about IFC, contact:
General IFC Inquiries
IFC Corporate Relations
2121 Pennsylvania Avenue, NW
Washington DC 20433
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