MANILA WATER: FROM PRIVATISATION TO SUSTAINABLE GROWTH

(Written Analysis of the Case)

I. Summary/Background/Case Facts:

 It was the Philippine National Water Crisis Act of 1995 that authorized the President of
the Philippines to reorganize Metropolitan Waterworks and Sewerage System, resulting
in the privatization of water service delivery.
 The Ayala Corporation established Manila Water on January 6, 1997, in partnership
with Japanese, American and British investors, in order to contend for the concession
agreements from the MWSS privatization scheme.
 Service provision was auctioned off through two 25-year concession agreements that
divided Metro Manila into East and West. On August 1, 1997, Manila Water won the
East Concession and began operations on January 1, 2000.
 In 2009, Manila Water received a 15-year extension on the Concession to 2037.
 In 2013, Manila Water faced sustainable growth strategy as pressing issue since it was
fast approaching a saturation point in its core service market, the East Zone Concession
of Metro Manila.
 Manila Water implements a tri-sector engagement and leadership development and
adopts an inclusive people-centric business model, extending to all stakeholders.
 The company’s profitability is claimed to rely on service expansion and efficiency.
 Manila Water has defined a set of responsibilities known as the five marbles which are
Billed Volume, Customer Service, Non-Revenue Water, Credit and Collection and New
Service Connections.
 Increasing water rates was not an option to afford talent compensation at competitive
rates, rather, the company would have to look towards growing revenue in the East Zone
to afford it.
 Manila Water began the Cadetship Programme, a six-month programme focused on
business operations for young talents going into management roles. Promising talents
identified with general management potential was places into Manila Water’s Advanced
Management Training Programme.
 The company came up with the “Kabuhayan Para sa Barangay” (KPSB) programme
which helped finance and develop fabrication skills for small workshops in
disadvantaged communities.
 Outside Metro Manila, water service providers are government owned and controlled
corporations called “water districts”.

II. Statement of the Problem:

How will Manila Water Company, Inc. expand its service coverage taking into
consideration the approaching saturation of the East Zone Concession?

III. Objectives

1. To be able to explore on available business opportunities;

2. To be able to expand and grow operations; and

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3. To be able to further develop and maximize the company’s well-invested human resource or
promising talents.

IV. Areas for Consideration

a. SWOT Matrix

Strengths Weaknesses
1. Able to overcome transformation 1. Retirement-driven attrition; and
challenges; 2. Has no direct control over water rates
2. Expertise in dealing with regulatory
uncertainty
3. Reputable company that is a subsidiary of
a reputable corporation;
4. Non-Revenue Water reduction efforts are
effective;
5. Has existing partnerships with
international investors;
6. Invests in its human resource
development through talent development
programs such as Cadetship Programme and
Advance Management Training Programme;
7. Decentralized operations with empowered
employees;
8. Invests on competitive employee
incentives; and
9. Gives back to the community through
local programs such as the KPSB
Opportunities Threats
1. Existing local expansion opportunities 1. Possible non-extension of Concession
within and outside the East Zone Agreement with MWSS and the
Concession; Philippine Government at the end of
2. International business opportunities such 2037; and
as those in Vietnam and Indonesia; 2. Force majeure events that could
3. Possible extension of Concession damage dams and other water sources
Agreement with MWSS and the Philippine
Government

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 b. SWOT Analysis

Strengths

1. The company is able to overcome transformation challenges.

Manila Water was able to to encourage and transform non-performing

employees to become working and performing ones under its management resulting
in effective and efficient water services to the concessionaires of the East Zone.

2. The company has expertise in dealing with regulatory uncertainty.

This is evidence by the company’s successful partnerships with the

government, both local and international, in doing business.

3. Reputable company that is a subsidiary of a reputable corporation

Manila Water being a reputable company and being a subsidiary of one of the
country’s most reputable corporations attracts can attract investors that would pave its
way to sustainable growth not just within its current core market but elsewhere, both
in the local and international sphere.

4. Non-Revenue Water reduction efforts are effective

As stated in the case, Manila Water;s Non-Revenue Water is only at 11% to

12%, thus operating efficiency is commendable and and revenue generation is quite
efficient.

5. Has existing partnerships with international investors

The company’s existing partnerships with international investors enables it to

make way for international operational expansion and attracts more prospect
international investors to invest in the company.

6. Invests in its human resource development through talent development programs such
as Cadetship Programme and Advance Management Training Programme

This raises the probability of retaining employees that are really competent for
the job that Manila water does. It helps develop future capable leaders as well as
foster employee loyalty towards the company, thus, investment in human capital
would redound to the company even in the long-run.

7. Decentralized operations with empowered employees

This system empowers employees and helps nurture both managerial and
decision-making skills not only for managers but also for low-ranking personnel. This

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 gives way for fast decision-making and action within the company, thus, continuous
operations.

8. Invests on competitive employee incentives

This helps motivate employees to work hard and aim higher which gives
assurance that the company has hardworking and driven human capital.

9. Gives back to the community through local programs such as the KPSB

This helps the company create goo image for itself and help the native and/or
locals learn and enter a certain market where they are trained at. It can also be an
avenue for Manila Water in scouting potential employees and suppliers, as the case
may be.

Weaknesses

1. Retirement-driven attrition

Though the attrition rate was low at around four percent, that number was
expected to grow as more and more senior employees began to retire. The risk here
was that a significant amount of knowledge would be lost as the next generation
cycled in.

2. Has no direct control over water rates

The company can only opt to improve its efficiency and expand operations if
it wants to earn more and fund its programs and infrastructure activities as water rates
is regulated by the government.

Opportunities

1. Existing local expansion opportunities beyond the East Zone Concession

The company may opt to explore business opportunities outside it core

market, the east Zone in aiming to expand and attain continuous and sustainable
growth.

2. International business opportunities such as those in Vietnam and Indonesia

The company may opt to explore on possible international partnerships and

bring in more investments to attain continuous and sustainable growth.

3. Possible extension of Concession Agreement with MWSS and the Philippine

Government

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 Threats

1. Possible non-extension of Concession Agreement with MWSS and the Philippine

Government at the end of 2037

The company will have to focus on expansion even more to continue doing
business considering that this risk is a given.

2. Force majeure events that could damage dams and other water sources

Possible damages of water sources such as dams, springs and wells may cause
operational disruption and significant losses to the company as these sources are its
lifeline.

V. Alternative Courses of Action (ACA)

1. Take advantage of international business partnerships by entering into concession

agreements with other Asian countries such as Vietnam (Not only in Ho Chi Min, Vietnam,
but in all other cities/localities Vietnam)

a. It builds the company’s name and commendable reputation internationally.

b. It enables the company to expand its business reach and not solely depend its
business existence in just one area.
c. It increases revenues during the entire contract term.
d. It is a huge ready market that is not limited only to Metro Manila area where
Manila Water’s expertise can be utilized to maximize business opportunities.
e. It enables the company to build more internal and even local business partnerships
and networks that will pave the way for more business opportunities.
f. It exposes the company’s employees to new learning experiences that broadens
their view and strengthens their capability in assuming higher roles.
g. It helps the community enjoy better water services and is a way of giving back to
them thereby creating a better image to Manila Water as a reputable company.

Disadvantage

It is necessary to conduct a lot of research and planning, thus, resources (time

and money) are incurred before and during the actual commencement of the Joint
Venture.

2. Take advantage of local business opportunities by entering into Joint Venture

Agreements (Non-Revenue Water Reduction and Bulk Water Supply) with Local Water
Districts operating outside the East Zone

Advantages

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 a. It increases revenues during the entire contract term.
b. The company does not have to build its own infrastructure to start business as the
local water districts already have its own water system.
c. It is a huge ready market that is not limited only to Metro Manila area where
Manila Water’s expertise (Non-Revenue Water Reduction) can be utilized to
maximize business opportunities.
d. Acquisition and utilization of better resources for more efficient operations as the
required capital is shared by the venturers, thus, a lesser strain on the company’s
current financial capacity.
e. It enables the company to build more business relationships and networks for
further business opportunities.
f. It exposes the company’s employees to new learning experiences that broadens
their view and strengthens their capability in assuming higher roles.
g. It helps the community enjoy better water services and is a way of giving back to
them thereby creating a better image to Manila Water as a reputable company.

Disadvantages

a. Manila Water, as only one of the venturers, do not have full control of the business
undertaking with actions being very limited to the stipulation made in the contract
or agreement entered into with the local water district.

b. It is necessary to conduct a lot of research and planning, thus, resources (time and
money) are incurred before and during the actual commencement of the Joint
Venture.

c. Clash of business practices or culture with other venturer is expected.

3. Invest in additional infrastructure assets (reservoirs, treatment plants, sewerage systems)

and world-class technology to maximize operational efficiency and attain 100% water
service coverage in the East Zone

Advantages

a. Investing in infrastructure is the first step in operational expansion that creates

growth opportunities and long-term benefits for the company.
b. Utilization of world-class technology enables the company to provide world-class
water services at a higher operational efficiency.

Disadvantages

a. Investing in infrastructure requires high levels of one-time additional capital outlay

resulting in significant funding issues.
b. Capital turnover takes a significant amount of time with high cost of capital.
c. The infrastructures that will be built will take a toll on the natural environment.

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VI. Recommendation:

ACA 1: Take advantage of international business partnerships by entering into concession

agreements with other Asian countries such as Vietnam (Not only in Ho Chi Min, Vietnam,
but in all other cities/localities Vietnam)

This is the course of action that enables the company to address its existing major
problem on the the approaching saturation of the East Zone Concession and the attainment of
related objectives with the most expected benefits and the least disadvantages to the Manila
Water. It is equally important to note that this course of action is a safety net which ensures that
the company will be able to continue to exist and operate despite the possible threats
materializing. It is also where the company’s most valued expertise (Non-Revenue Water
reduction and regulatory expertise) lie, thus, the most practical course of action to take.

VII. Action Plan:

PERSONS-IN-
ACTION TIME FRAME
CHARGE
Manila Water – New
Business
Development Team and
1. Submit proposal and other related
the 1 Day
requirements to the concerned Agency
Concerned International
Agency(in Vietnam and
other countries)
2. Evaluation of proposal Concerned International
Within 6 months
Agency
Manila Water – New
Business
3. Negotiation Development Team and Within 6 months
the Concerned
International Agency
Manila Water – New
Business
4. Discussion and finalization of the
Development Team and 1 Day
results of Negotiation
the Concerned
International Agency
Manila Water – New
Business
5. Preparation of the Contract/Non-
Development Team and 1 Week
Revenue Reduction Agreement
the Concerned
International Agency
6. Entering/Signing of the Manila Water – 1 Day
Contract/Agreement Signatories and
Authorized

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 PERSONS-IN-
ACTION TIME FRAME
CHARGE
Officials/Signatories
Manila Water – New
Business
7. Processing and submission of other
Development Team and 1 Month
requirements and/or permits
the Concerned
International Agency
8. Commencement of Concession Manila Water and
Contract Term
operations or Project implementation Water District
Manila Water – New
Business
9. Attainment of objectives and terms of
Development Team and Contract Term
agreement
the Concerned
International Agency
Manila Water – New
Business
Extended Contract
10. Extension of concession agreement Development Team and
Term
the Concerned
International Agency

VIII. Potential Problem Analysis:

There could clash of social practices between Manila Water personnel and those of the
the other country’s which may affect their ways of doing their jobs.

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