MORE WATER THAN JUST - Maynilad Water Services Inc.

Transcription

MORE
THAN
JUST
WATER
A N N U A L
R E P O R T
Maynilad supplies more than just water.
We provide services and opportunities for a better life.
Contents
04 The Year at a Glance
04 Company Highlights
06 Message from the Chairman
08 Report from the President
11 Maynilad Three-Year Highlights
13 Being More, Doing More
18 Giving More
20 Setting the Standard
21 More Than Expected
22 In the Pipeline
24 Board of Directors
26 Management Team
28 Audited Financial Statements
The Quick Read
Company Profile
Maynilad Water Services, Inc. (Maynilad) is the
water and wastewater services provider for the West
Zone of the greater Metro Manila area. We are the
largest water concessionaire in terms of customer
base in the Philippines.
Maynilad is managed by DMCI-MPIC Water
Company, Inc.—a joint venture between Metro
Pacific Investments Corporation (MPIC) and
DMCI Holdings Inc. (DMCI). The MPIC-DMCI
consortium took control of Maynilad on
January 24, 2007.
Our Coverage
The West Zone covers an area of 540.43 square
kilometers, and includes the municipalities of
Bacoor, Imus, Kawit, Noveleta and Rosario in Cavite
province and the cities of Manila (all but portions
of San Andres and Sta. Ana), Quezon City (west of
San Juan River, West Avenue, EDSA, Congressional,
Mindanao Avenue, the northern part starting from
the Districts of the Holy Spirit and Batasan Hills),
Makati (west of South Super Highway), Caloocan,
Pasay, Parañaque, Las Piñas, Muntinlupa,
Valenzuela, Navotas, Malabon and Cavite.
Key Priorities
1. Improve network and operational efficiency
2. Improve organizational efficiency
3. Ensure financial viability
4. Upgrade customer services
5. Improve corporate image
The Year at a Glance
-4%
Average
NonRevenue
Water
+7%
Customers with
24-hour water
supply
+12%
+11%
Billed Volume
Customers with 7 psi.
water pressure
Company Highlights
January
MWSS suspends implementation of
water rate adjustment for 2009
February
Groundbreaking
of water treatment
plant in Putatan,
Muntinlupa, the
first large-scale
membrane filtration
and reverse
osmosis plant in the
Philippines
MWSS allows implementation of CPI
adjustment in tariff
March
Potable water finally flows to BF
Homes-Parañaque after nearly 25
years of severe water shortage
Maynilad partners with international
water loss management company
Miya
Dagat-dagatan treatment plant
becomes the first IMS-certified
sewage and septage treatment
facility in the Asia Pacific Region
April
Maynilad renews its partnership with
customer contact center specialist
ePLDT Ventus to maintain the 24/7
operations of its Maynilad Hotline 1626.
MWSS partially
implements basic
rate adjustment
May
Brgy. 123 in Tondo,
Manila becomes
first Samahang
Tubig Maynilad
June
Successful public
consultations
strengthen Maynilad bid for 15-year
Concession Agreement Term Extension
4
MAYNILAD
Comparative Results
(P billion)
10
8
6
4
2
0
08
09
Net Income
Revenue from Operations
Maynilad supports multi-sectoral
effort led by Kabit Bisig para sa Ilog
Pasig to revive the Pasig River
August
Cashless Business Area system
established
Maynilad employees and
representatives of the National
Commission on Indigenous
People, PLDT-Smart,
DENR, MWSS and
the Bulacan local
government plant
2,500 saplings
on the Ipo Dam
watershed
09
08
Core Net Income
EBITDA
Income from Operations
September
SSS proclaims Maynilad as 2009 Top
Employer
MWSS Board of Trustees approves
Maynilad 15-year term extension
application
Maynilad begins
providing water
and wastewater
services to Ayala
Alabang Village,
Ayala Southvale,
Madrigal Business
Park and Alabang
Town Center
October
09
+52%
+29%
July
08
Dumadaloy ang Ginhawa media
campaign wins Philippine Quill Award
November
WHO adopts
Maynilad Water
Safety Plan
Tondo Sewerage
Pumping Plant gets
IMS certified
December
La Mesa Treatment plants receive
IMS certification
Water quality monitoring yields 100%
satisfactory compliance from January
to December 2009
Maynilad receives six-year income tax holiday
Laguna Lake Development Authority
grants Dagat-Dagatan Sewage and
Septage Treatment Plants Blue Rating
2009 ANNUAL REPORT
5
Message from the Chairman
To drive shareholder value and elevate the quality
of our services, we will persist in challenging our
systems and procedures. We will also strengthen
our social and environmental programs so we can
nurture more vulnerable communities and continue
protecting our natural resources.
DEAR STAKEHOLDERS,
I am pleased to report that for the second straight year,
Maynilad Water Services, Inc. (Maynilad) delivered a solid
performance despite challenging economic and operating
conditions.
Transformational management, aggressive execution of key
projects and the partial implementation of our rate rebasing
enabled us to surpass the key milestones we set in the
previous year.
Results and More
From over 760,000 water service connections in 2008, our
customer base increased by nearly 7.2% to 814,645 in 2009.
Billed volume also reached an all-time high of 350.23 MCM
(million cubic meters).
During the year, we were able to obtain approval of
the MWSS Board of Trustees for the extension of our
concession term by fifteen (15) years to 2037. We also
received the Board of Investments approval for a new sixyear income tax holiday (ITH).
6
MAYNILAD
Reported net income in 2009 significantly increased by
nearly 41.6% to P2.82 billion. The increase was primarily
driven by higher revenues arising from billed volume
growth and the partial implementation of the new rebased
tariff, both of which grew by double digits.
Core net income, which excludes the effect of extraordinary
gains and charges as well as non-recurring foreign exchange
gains or losses, grew by over 48.2% to P3.44 billion in 2009.
Earnings before Interest, Taxes, Depreciation and
Amortization (EBITDA) rose to P8.05 billion in 2009, a
73.1% improvement from the previous year. Excluding
extraordinary gains and foreign exchange gains or losses,
EBITDA margin stood at 65.7% up by over 5% from last
year’s figure.
Improving, Expanding
Given the pace that we have set and the changes we have
instituted, I am confident that we can sustain our solid
performance in the coming years.
Customers with 24-hour water service (in %)
75
60
To drive shareholder value and elevate the quality of
our services, we will persist in challenging our systems
and procedures. We will also strengthen our social and
environmental programs so we can nurture more vulnerable
communities and continue protecting our natural resources.
45
30
15
0
In 2010, we will carry forward our commitment to deliver
more than just water by aligning our initiatives and capital
expenditures with our brand promise of making a better life
flow for our customers and for future generations.
07
08
09
In 2009, around 65.0% of our customers enjoyed 24-hour
service while those who receive their water supply at a
pressure of at least 7 psi (pounds per square inch) increased
to 79.0%.
With the completion of our Putatan Water Treatment
Plant, Villamor and Pagcor Pumping Stations and pipe
replacement projects in 2010, we expect to further improve
and expand our service delivery capabilities across the West
Zone. We have also required our accredited contractors
to undergo training and development to raise the level of
workmanship, quality and safety standards of our service
improvement projects.
Board Changes
Dr. Fiorello R. Estuar, Atty. Noel A. Laman, Engr.
Leovigildo S. Veroy and Mr. Andrew G. Shepherd stepped
down as Directors of our Board with effect March 2009.
My sincerest gratitude goes out to these gentlemen for their
priceless contribution to Maynilad. I wish them well in their
current and future ventures.
In closing, I would like to thank the men and women
of Maynilad for meeting the challenges of 2009 with
determination and aggressiveness. We started the year on a
somewhat unsteady footing but we managed to accomplish
significant goals for our company and our customers. Your
efforts and dedication are deeply appreciated.
Sincerely,
Manuel V. Pangilinan
Chairman
More Than Just Water
I believe that Maynilad delivers more than just water. We
provide services and opportunities to our customers for a
better life.
This year, we were able to follow through on these
commitments by continuously investing in our facilities,
equipment and people. We generated growth and livelihood
prospects for our stakeholders even with the delayed
and partial implementation of our rate rebasing. For
example, despite the legal and technical complications that
confronted us, we succeeded in providing poor residents in
Tondo and waterless villages in Parañaque, in particular BF
Homes, with clean, reliable and affordable water.
We have taken a more aggressive stance in cleaning the
environment through our sewerage and sanitation projects,
reforestation activities and waterway clean-up drives.
2009 ANNUAL REPORT
7
Report from the President
After hurdling the initial challenges that come
with management transitions and infrastructure
modernization, we are now prepared to go for
excellence in our operations and customer service.
We will continue to seek ways of engaging our
customers for excellent service.
DEAR STAKEHOLDERS,
The year 2009 was a period of solid gains for Maynilad
Water Services, Inc. (Maynilad), as sound and well-executed
strategies effectively placed us on the path to sustainable
growth.
Despite the financial, regulatory and environmental
challenges that confronted us, we succeeded in significantly
improving our operations, service levels and financial
performance.
Capital Expenditures
To enhance our service delivery capabilities, we budgeted
over P6.5 billion for our 2009 capital expenditure projects.
Of the 185 projects for implementation, we completed 182.
We spent close to P800 million to expand our distribution
network in unserved areas in North Caloocan, Valenzuela,
Novaliches, Parañaque and Cavite. We also invested over
P2.4 billion to upgrade our treatment plants, pumping
stations, reservoirs and primary distribution lines. To
improve and expand our services in the Southern part of
8
MAYNILAD
our concession area, we also began the construction of our
Villamor pumping station and reservoir in Pasay City.
Another key project that we started in 2009 is our state-ofthe-art water treatment plant in Putatan, Muntinlupa. The
P1.3-billion facility is scheduled to supply 100 million liters
per day (MLD) of potable water to Muntinlupa and Las
Piñas by year 2010.
Water Loss Reduction
Shortly after our reprivatization in 2007, we launched one
of the largest and most ambitious Non-Revenue Water
(NRW) reduction programs in Asia.
In 2009, we managed to bring down our average NRW level
to 59.7%. Our goal is to bring down our water losses to at
least 40.0% by 2012.
Towards this end, we made a number of system
improvements and strategic moves in 2009. We continued
establishing more District Metered Areas (DMA) and
gauging points in our distribution network. We also
completed total pipe rehabilitation in Sampaloc, South
Manila, Pasay and Makati, where much of our supply
allocation for the South is lost because of leakage and illegal
connections.
To further streamline our operations in reducing water
losses, we centralized all leak repair activities from Business
Area Operations to Central NRW. We then increased
our leak detection teams, trained our young engineers in
water loss management, and acquired state-of-the-art leak
detection equipment to boost our operations.
Given these initiatives and our formalized Technical
Services Advisory (TSA) agreement with Miya, we expect to
further strengthen our expertise and accomplishments in
water loss management.
Service Coverage
14.4%
85.6%
Served Customers
Remaining Market
In 2009, we managed to bring down our
average NRW level to 59.7%. Our goal
is to bring down our water losses to at
least 40.0% by 2012.
New technologies such as the Sahara
Leak Detection System are valuable
innovations for Maynilad’s campaign of
addressing and managing NRW.
Service Expansion and Improvement
Around 52,000 water service connections were added to our
distribution network in 2009. This expanded our customer
base to around 7.2 million people, or 85.6% of the total
population in the West Zone.
We received consistently high ratings for our water quality
from the Metro Manila Drinking Water Quality Monitoring
Committee. And even at the height of Typhoons Ondoy and
Pepeng, we were able to maintain the safety and quality of
the water in our distribution system.
Our entry into BF Homes in Parañaque and takeover of the
water and wastewater operations in Ayala Alabang Village,
Ayala Southvale, Madrigal Business Park and Alabang Town
Center also strengthened our presence in the southern
portion of our concession area.
Our Call Center operations also continued to improve in
2009 as 94.0% of all incoming calls to our Hotline were
handled within 30 seconds, compared to only 69.0% the
previous year.
In addition to our expanded coverage, we made significant
enhancements in our service levels. By the end of 2009, 24hour availability and water pressure improved significantly.
These were more pronounced in Roosevelt and Quirino
in Quezon City, Sampaloc and South Manila in the City of
Manila, South Caloocan, Parañaque and Muntinlupa.
More Ahead
After hurdling the initial challenges that come with
management transitions and infrastructure modernization,
we are now prepared to go for excellence in our operations
and customer service. We will continue to seek ways of
engaging our customers for excellent service.
2009 ANNUAL REPORT
9
Report from the President
We will do this by challenging long-standing systems and
innovating in our policies and procedures. Among our main
initiatives is the reconfiguration of our network into water
districts and the realignment of Business Areas to make
our service delivery more efficient. We have completely
overhauled our network operations and meter management
functions.
As we strive to outdo our past achievements, we will rally
our workforce to ensure that Maynilad employees and
business partners are aligned to the dual mission of the
organization of providing public service and achieving our
business goals. Let us strive for excellence in everything
that we do so we can deliver the best possible services to our
customers.
To lower the costs and improve the quality of our CAPEX
projects, we will strengthen our construction supervision
and execution capabilities. We will also adopt and continue
to seek the latest technologies so we can be more effective in
addressing water losses in our mainlines.
Together, let us look forward and work even harder for
another successful year in spite of the challenges brought
about by an El Niño year.
Equally important, we will accelerate our sewerage and
sanitation projects so we can expand our sanitation services
in areas that need it most. We are committed to doing our
part to clear the waterways and protect the environment,
and we hope to encourage more Maynilad customers to do
the same by connecting to our sewerage system.
10
MAYNILAD
Sincerely,
Rogelio L. Singson
President and CEO
Maynilad Three-Year Highlights
Compound Annual
2007
2008
2009
Growth Rate
Revenue*
7,377
8,245
10,619
20.0%
Income from Operations
3,389
3,713
5,645
29.1%
Net Income
1,666
1,994
2,825
30.2%
Core Net Income
1,678
2,323
3,444
43.3%
Core EBITDA
4,156
4,981
6,973
28.9%
Core EBITDA Margin
56.3%
60.4%
65.7%
8.0%
Assets
24,458
34,752
38,179
24.9%
Liability
27,700
33,815
34,418
11.5%
Equity
(3,242)
937
3,761
286.0
314.6
350.2
10.7%
66.0%
63.8%
59.7%
-4.9%
703.5
762.3
814.6
7.6%
318
685
441
17.8%
Pipes Laid-to-date (in km)
4,893
5,578
6,019
10.9%
Capex Committed (in P millions)
4,985
7,499
6,350
12.9%
Capex Spent (In P millions)
3,085
6,629
4,504
20.8%
% 24-Hour Coverage
46.0%
58.0%
65.0%
18.9%
% over 7psi
53.0%
67.0%
79.0%
22.1%
FINANCIALS (IN P MILLIONS)
OPERATING HIGHLIGHTS
Billed Volume (in MCM)
NRW
Connections (in '00)
Pipes Laid during year (in km)
*Excluding the impact of extraordinary gains and charges, as well as non-recurring foreign exchange gains or losses.
2009 ANNUAL REPORT
11
We deliver world-class
services
Our La Mesa Treatment Plants 1 and 2, Tondo
Sewerage Pumping Station, and Dagat-Dagatan
Sewage and Septage Treatment Plant are all
Integrated Management System (IMS) certified,
proving that our systems and procedures meet
stringent, international standards for Quality,
Environmental, and Occupational Safety and Health
Management.
12
MAYNILAD
Being More, Doing More
The year 2009 was a banner year for
Maynilad, attaining all-time highs in both
operating and financial performances as
a result of our continued expansion and
service level improvements throughout our
concession area.
The partial implementation of our rate
rebasing increase in 2009, the six-year
income tax holiday granted by the Board
of Investments, and the MWSS Board
of Trustee approval of our concession
agreement term extension also enhanced
the sustainability of our business and
operations.
Combined revenues from water and sewer services
(P billion)
12
10
8
6
4
2
07
08
09
0
Combined revenues from water and sewer services grew
30.6% to P10.20 billion from P7.81 billion in the same
period last year. The increase was due to the 11.3% increase
in billed volume coupled with an average effective tariff
increase of around 17.4%.
The approved tariff increase for the year was composed of a
12.2% Consumer Price Index (CPI) or inflationary increase
implemented on February 20, 2009, and a rate rebasing
increase of 22.6% effective May 4, 2009.
The effective increase, however, was moderated by higher
billed volume growth coming from domestic consumption
whose rates are subsidized. As a percentage of billed
volume, domestic customers accounted for 76.0% of total
compared to 74.4% in the same period last year.
The growth rate was also tempered by the 20.0% discount
to “lifeline” customers (those consuming less than 10 cubic
meters per month), which took effect in April 2009.
Including other contracts and services, total revenue from
operations grew at a slightly lower rate of 28.8% to P10.62
billion from P8.24 billion last year.
Income from operations grew a robust 52.4% to P5.64
billion from P3.70 billion last year with operating expenses
growing lower than revenues. Net income increased at a
relatively slower pace of 41.6% to P2.82 billion from P1.99
billion last year, primarily due to the impact of the write-off of
approximately P1.70 billion in deferred tax assets following the
approval of Maynilad’s new six-year income tax holiday (ITH).
The impact of the write-off, however, was mitigated by the
extraordinary gain recognized upon the approval of the
rebased rate this year. Incorporated in the approval of
the rebasing increase was the final determination on the
treatment of certain collections that until recently had been
classified as deferred credits pending their resolution. The
net effect of the resolution of these issues is an extraordinary
gain of P1.16 billion.
Excluding the impact of these extraordinary gains and charges,
as well as non-recurring foreign exchange gains or losses, core
net income amounted to P3.44 billion, an increase of 48.2%
versus P2.32 billion last year.
Earnings before Interest, Taxes, Depreciation and
Amortization (EBITDA) amounted to P8.05 billion, an
increase of 73.1% versus P4.65 billion last year. The increase
was similarly driven by the extraordinary gain from the
resolution of rate rebasing issues, as compared to the foreign
exchange loss recorded on shareholder advances last year.
Excluding the impact of the extraordinary gain, as well
as forex gains or losses, EBITDA would have been P6.97
billion, a 40.0% increase versus P4.98 billion last year.
EBITDA margin excluding extraordinary gains and forex
gains or losses was at 65.7%, up from last year’s 60.4%.
2009 ANNUAL REPORT
13
Billed Volume and Customer Base
Billed volume increased by 11.3% to 350.1 million cubic
meters from 314.6 the previous year. The increase was due
to improved service levels and broadening customer base.
Customers by Classification
The replacement of almost 300 kilometers of old and
leaky pipes improved water service levels in some 29,000
households. From 58.0% in 2008, 24-hour water service
coverage increased by 7.0% to 65.0%. In 2009, 79.0% of
Maynilad customers also received their water supply at over
7 pounds per square inch (psi) pressure, which is a 12.0%
increase from the previous year.
Commercial
Maynilad spent nearly P800 million to lay 70 kilometers of
new water lines in North Caloocan, Valenzuela, Novaliches,
Parañaque and Cavite. The expanded coverage increased
new water service connections (WSCs) in these areas to
34,000.
In all, water service connections rose by nearly 7.0%
from 762,319 in 2008 to 814,645 the succeeding year.
Majority of the new connections were under the residential
classification, followed by Commercial and Semi-Business.
Number of Water Service Connections
1000
600
400
200
07
08
09
New sewer connections reached 51 in 2009, up from only 37
the previous year. Maynilad also took over the operations of
the Alabang Sewage Treatment Plant, increasing by another
4,326 accounts its total number of billed sewer services.
This brought Maynilad’s total number of sewer services to
54,383 as of the end of December 2009.
Maynilad offered sanitation services to 492,000 households
or 33.0% of all customers, with 2007 as base year. Free
cleaning of 55,576 septic tanks, representing 58,108
customers (a subdivision or multiple dwelling structure is
equivalent to one customer having several septic tanks),
was also conducted.
14
Semi-Business
Residential
Water Losses Reduction
Non-Revenue Water (NRW) level decreased by 4.2% from
63.8% in 2008 to 59.7% the following year. In effect,
Maynilad reduced water losses by 80 million liters of water
a day (MLD) from its NRW reduction drive.
From four Leak Detection Teams (LDTs) the previous year,
Maynilad increased its LDTs to 20. These LDTs undertake
active leak detection activities in the entire concession. In
2009, we were able to resolve 34,888 leaks—an increase of
11,792 or nearly 51.1% from the previous year.
Maynilad continued establishing District Metered Areas
(DMAs) across its delivery network for better supply
management. A total of 582 DMAs were established at the
end of 2009—a growth of 47.3% compared to 2008 figures.
DMAs with low NRW levels, called Green DMAs, also
increased from only 298 last year to 455 in 2009, suggesting
that previous DMAs with good NRW levels were sustained
while improvements were made in areas that previously had
high NRW.
800
0
Industrial
MAYNILAD
Summary of Statement of Financial Position
(In Million Pesos)
As of
Dec.’09
% to
Total
As of
Dec.’08
% to
Total
Increase
Unit
Increase
%
ASSETS
Cash
1,887
5%
1,363
4%
524
38.4%
Short-Term Investments
2,433
6%
5,575
16%
(3,142)
-56.4%
Accounts Receivable
1,536
4%
1,450
4%
86
6.0%
Other Current Assets
1,442
4%
733
2%
709
96.7%
7,298
19%
9,121
26%
(1,823)
-20.0%
29,062
76%
22,237
64%
6,826
30.7%
334
1%
330
1%
4
-1.2%
1,427
4%
2,996
9%
(1,569)
-52.4%
Other Noncurrent
58
0%
68
0%
10
14.7%
TOTAL ASSETS
38,179
100%
34,752
100%
3,427
9.9%
Trade and other payables
5,576
15%
5,656
16%
(80)
-1.4%
Payable to MWSS (Current)
2,116
6%
2,743
8%
(627)
-22.8%
942
2%
-
0%
942
-
8,634
23%
8,398
24%
236
2.8%
16,305
43%
16,456
47%
(151)
-0.9%
Deferred Credits
521
1%
2,810
8%
(2,289)
-81.5%
Pension liability
238
1%
331
1%
(93)
-28.1%
8,576
22%
5,742
17%
2,834
49.4%
143
0%
78
0%
65
83.3%
34,418
90%
33,815
97%
603
1.8%
3,761
10%
937
3%
2,825
301.5%
38,179
100%
34,752
100%
3,427
9.9%
TOTAL CURRENT ASSETS
Service Concession Assets
Property and Equipment
Deferred Tax Assets
LIABILITIES & EQUITY
Payables arising from rate rebasing
SUB-TOTAL:
CURRENT LIABILITIES
Interest-bearing loans
Payable to MWSS (net of current)
Other noncurrent
TOTAL LIABILITIES
STOCKHOLDERS’ EQUITY
TOTAL LIABILITIES & EQUITY
2009 ANNUAL REPORT
15
Expansion and Modernization
Maynilad spent more than P4.5 billion to expand and
modernize its water distribution network.
Three major pipe-laying projects initiated in 2008—the
P1.3 billion 2,000-mm steel pipe dedicated line to Pasay
Pumping Station, P300 million 600-mm primary line along
Gen. Tirona Highway, and P350 million 900-mm pipe along
South Luzon Expressway—were completed in 2009.
Almost 440 kilometers of pipelines, including secondary
and tertiary pipelines, were also laid, bringing to over
6,000 kilometers the total number of new pipes laid since
our re-privatization in 2007.
To address water losses due to old, leaking pipes in
Sampaloc, South Manila and Pasay/Makati, the three
Business Areas (BAs) underwent total pipe rehabilitation
for P2.8 billion. Cubic Meter per Day (CMD) improvement
projects—short pipe-laying activities that involve either
mainline extensions or pipe replacements—also enhanced
service levels in some areas.
Maynilad spent almost P1.90 billion to upgrade treatment
plants, pumping stations, reservoirs and other key facilities.
Construction of the Villamor Pumping Station and
Reservoir began in June 2009. Upon completion, the
P500-million facility is designed to provide 136 MLD of
water for Maynilad customers in the South.
The P700-million Pagcor Pumping Station and Reservoir
also broke ground in the last quarter of 2009. The facility is
expected to produce an additional 211 MLD of water for over
30,000 households in Muntinlupa and Las Piñas.
A state-of-the-art water treatment plant is also scheduled
to be completed in Putatan, Muntinlupa by 2010. The
P1.3-billion facility will source raw water from Laguna
Lake and treat the supply using microfiltration and reverse
osmosis technology. It will initially serve the areas of
Muntinlupa and Las Piñas.
Sewerage and Sanitation
Maynilad took over the operation of the Alabang Sewage
Treatment Plant in August 2009, thus increasing its total
number of billed services by 4,326. Over 50 new sewer
services were also connected to our sewer network in 2009
compared to 37 in 2008.
The number of sewer applications completed increased by
5% from 110 in 2008 to 116 in 2009. These applications
include new sewer service connections, repair, change pipe,
separation and relocation of tapping.
16
MAYNILAD
Customer Service Enhancement
In April, we continued subsidizing our lifeline customers by
providing them with a 20.0% discount on their water bill.
We also implemented certain tariff policies that would lower
charges to certain sectors. These include:
• The application of the residential rate for semi-business customers for the first 10 cu.m. of water consumption.
• The application of the semi-business rate to selected government accounts such as public schools, government hospitals, barangay health centers, and jails.
• The application of reduced connection charges for additional meters and clustered connections of low-
income and depressed communities. Under this policy, customers availing of additional meters could save up to P2,500, while clustered connections could save as much as P4,000.
To make payments easier and more convenient for our
customers and enable our Business Area offices to focus on
their account management and customer service initiatives,
we started implementing a cashless system in 2009.
Under the new cashless system, customers are no longer
required to visit the BA offices to pay service installation
and reopening fees, guaranty deposits, and meter
replacement fees. Instead, customers can pay at any of
Maynilad’s accredited payment centers or use various
payment facilities such as online banking and mobile phone
fund transfer.
We generate jobs
Through our aggressive investments, we are able to
generate employment opportunities for thousands of
Filipinos. About 10,000 jobs are provided for every
P1 billion worth of Maynilad projects.
2009 ANNUAL REPORT
17
Giving More
We are fortunate to be in the business of
improving living conditions. Our services
allow us to develop communities, protect
the environment and nurture the health of
future generations.
In 2009, we were able to extend our role as a responsible
corporate citizen by giving more to those who had less. And
when devastation hit many areas outside our concession
coverage, we went beyond our geographic boundaries to
provide some needed assistance.
Samahang Tubig Maynilad (STM) was developed
to address the problems of water inaccessibility and
irresponsible water use in Maynilad’s concession area.
Under STM, residents of urban poor communities are
organized and given competency trainings to enable them
to manage the water supply delivery system in their area.
We piloted the program in Barangay 123 in Tondo, Manila
where over 1,000 households benefited from the bulk water
system installed in their community. Six other STMs in
Pasay City, Caloocan City and Quezon City soon followed.
Lingkod Eskuwela was initiated to solve the problem of
poor and inadequate water supply in West Zone public
schools.
Beneficiaries were provided with water drinking stations,
as well as technical assistance and desludging services to
improve their plumbing and internal water network.
Thirty schools and over 146,000 students in Manila,
Quezon City, Makati, Parañaque, and Cavite benefited from
our Lingkod Eskuwela program.
Ipo watershed reforestation
We partnered with the National Commission on Indigenous
People, PLDT-Smart, DENR, MWSS, and the Bulacan local
government to plant 2,500 saplings on a portion of the Ipo
Dam watershed.
Together with PLDT-Smart and NCIP, we also conducted
trainings with the Dumagats for setting up cooperatives,
livelihood programs and stewardship of the planted trees.
We were also recognized by NCIP for being the first
program proponent to include the indigenous peoples in the
reforestation program.
Relief Missions
At the height of Typhoons Ondoy and Pepeng, we
distributed over 10,000 pieces of 5-gallon containers
containing potable water to a number of affected areas in
Luzon. We worked with the National Disaster Coordinating
Council, Local Government Units, foundations, nongovernment organizations and private companies in order
to reach typhoon victims in Valenzuela, Rizal, Laguna, and
other areas.
We also sent our water tankers to Lingayen, Pangasinan, so
displaced families in the area could have potable water. To
ensure that deepwell water could be made safe for affected
residents, we deployed our Mobile Water Treatment Plant
to Bayambang, Pangasinan, shortly after Typhoon Pepeng
pummeled the province.
To assist in the cleanup of Metro Manila, we authorized the
government’s fire trucks to draw water from fire hydrants
located throughout the West Zone. We also deployed
our vacuum tankers to assist in the dewatering of major
thoroughfares and submerged communities.
In the coming years, we will continue to align our business,
operations and other initiatives to uphold the safety, wellbeing and development of the people we serve.
18
MAYNILAD
We improve living
conditions
From the poorest communities in Tondo to the
water-deprived villages in Parañaque, we deliver
clean, reliable and affordable water so residents can
lead healthier lives.
2009 ANNUAL REPORT
19
Setting the Standard
We are committed to
delivering safe drinking
water to our customers.
Since 2007, we have
done our best to exceed
customer and regulatory
expectations in terms of
water quality and safety.
In 2009, the Maynilad Water Safety
Plan (WSP) was adopted by the World
Health Organization as a model in
over 30 countries in the Western
Pacific Region. The DOH has also
started using our Water Safety Plan
as a reference for over 120 local water
districts in the Philippines.
Lauded as one of the most
comprehensive in the world by the
Australian Agency for International
Development and the World Bank, the
Maynilad WSP details our programs
and procedures in ensuring the safety
of water supplied to our customers
and corrective actions in case of water
contamination.
The Maynilad WSP also contains
hazard analysis, risk assessment,
and control measures in containing
or removing water contamination
brought by landslides, clogging of
tunnels, El Niño, chemical forest fire,
illegal logging, and security threats
such as terrorist sabotage.
20
MAYNILAD
More Than Expected
We monitor and regularly
draw samples from 878
sampling points from North
Caloocan to Cavite City.
This is 186 or 27% more
than the required sampling
points of the Philippine
Department of Health.
From January to December 2009,
we maintained a 100% satisfactory
compliance rating from the Metro
Manila Drinking Water Quality
Monitoring Committee. The committee
conducts monthly water sampling
in over 800 points in Maynilad’s
concession area. The samples undergo
strict bacteriological, physical and
chemical examination to ensure that
the water meets the Philippine National
Standards for Drinking Water of the
Department of Health (DOH).
Based on the survey conducted by
the Public Assessment of Water
Services (PAWS) in 2009, nearly
99% of the respondents rated the
quality of Maynilad’s water as Very
Good. PAWS was created to assist
the MWSS-RO in the performance
monitoring and evaluation of the East
and West Zone concessionaires.
MAP OF MAYNILAD
WATER SAMPLING
POINTS
2009 ANNUAL REPORT
21
In the Pipeline
For the past three years under new
management, we have been laying the
groundwork for a new Maynilad where
customer focus, operational efficiency
and modernized systems form part of our
service delivery.
Service Delivery Improvements
In the coming year, we plan to reconfigure our network into
water districts and realign our Business Areas to enhance
our water delivery capabilities. We will also source and
apply the latest technology for our leak detection operations
so we can recover more water for distribution to our
customers.
The year 2010 will also see the completion and full
operation of our Villamor and Pagcor Pumping Stations and
Reservoirs in Pasay and state-of-the-art water treatment
plant in Putatan, Muntinlupa. These new facilities will
provide surface water to more customers in the southern
part of our concession.
We will also continue delighting our customers by initiating
projects that will facilitate quicker response to complaints,
reduction in billing errors, and better management of
water supply in the pipe network. Among these projects
is Maynilad Text Tubig (INFOBOARD), a joint project
with Smart Telecommunications, Inc., that will allow us to
provide real-time information to our customers. By using
Maynilad Text Tubig SIM cards, customers can receive
messages, advisories and other information directly from
Maynilad. They can also send suggestions, queries and
complaints through text messaging.
Also among our long-term environmental conservation
efforts are moves to measure the company’s carbon
footprint. A core team will be formed to do an inventory
of the company’s carbon dioxide emissions in order to
establish our greenhouse gases baseline, identify measures
to reduce emissions, and come up with a project proposal
for carbon credits. The end in mind is the continuous
reduction of emissions not only by Maynilad but also our
suppliers, contractors, and other stakeholders.
Another customer service improvement project that we will
be launching is the Read and Bill system, where Statements
of Account can be printed immediately after meter reading.
With this innovation, late receipt of Maynilad billings may
be prevented.
Pro-poor initiatives
Maynilad continues to extend social services to the
marginalized sector through our Samahang Tubig Maynilad
program, which was developed to address the problems of
water inaccessibility in informal settler communities in the
West Zone. Under the project, residents are organized and
trained to manage the water supply and delivery system we
establish in their communities.
Sustaining the Environment and our Operations
We are committed to accelerate our sewerage and sanitation
targets and implement pioneer projects such as the San
Juan River Basin to showcase real improvements in the
environment.
After piloting the program in Tondo, Manila in 2009, we
have been able to form six other STM communities in Pasay,
Quezon City, and Caloocan. We hope to serve more urban
poor communities in our concession area through this
innovative CSR program.
New wastewater treatment plants will also be developed in
key areas of our concession to boost multi-sectoral efforts to
revive Pasig River and Manila Bay. The benefits to be gained
from these new facilities will be complemented by continued
enhancements in the treatment capability of our Central
Manila Sewerage System, as well as the rehabilitation of
the newly acquired Alabang Sewerage Treatment Plant and
installation of additional sewer service connections in order
to maximize the use of our existing network.
By striving for excellence in all aspects of our business
and operations, we hope to make our organization a more
effective and responsive service provider, corporate citizen
and growth partner.
22
MAYNILAD
Because we provide more than just water.
Maynilad’s State-of-the-Art
Water Treatment Plant
The Putatan plant uses microfiltration
and reverse osmosis to treat raw water
from Laguna Lake. It has 14 units of
microfiltration assemblies and six reverse
osmosis assemblies.
The plant can produce 50 million liters
of water per day (MLD) and another 50
MLD by the end of 2010. Communities
in Muntinlupa, Las Piñas and portions of
Cavite are expected to benefit from the
additional water supply.
The treatment plant in Putatan is in line
with Maynilad’s plan to develop alternative
sources of water to ensure long-term water
security for its customers.
2009 ANNUAL REPORT
23
Board of Directors
Manuel V. Pangilinan
Chairman
Isidro A. Consunji
Vice Chairman
Maynilad chairman since January 2007, Mr.
Pangilinan founded the First Pacific in 1981 and
served as Managing Director until 1999. He was
appointed as Executive Chairman until June 2003,
when he was named as CEO and Managing
Director. Within the First Pacific Group, he holds the
position of president commissioner of P.T. Indofood
Sukses Makmur Tbk, the largest food company in
Indonesia.
Vice Chairman of the Maynilad Board since January
2007, Mr. Consunji is the Chairman of the Board of
DMCI Project Developers Inc. and DMCI-Homes. He
is President of DMCI Holdings, Inc., Dacon Corp.,
and Beta Electric Corp. He is a member of the Board
of Directors of D.M. Consunji, Inc. (DMCI), Semirara
Mining Corp., and Crown Equities, Inc.
In the Philippines, he was named Chairman of PLDT
after serving as its President and CEO until February
2004. He also serves as Chairman of Smart
Communications Inc., Pilipino Telephone Corp.,
Metro Pacific Investments Corp., Landco Pacific
Corp., Manila North Harbor Port Inc., Medical
Doctors Inc., Colinas Verdes Corp., Davao Doctors
Inc., Mediaquest Inc., Associated Broadcasting
Corp., Philex Mining Corp., and Manila North
Tollways Corp. He became a member of the Board
of Directors of the Manila Electric Company in May
2009.
Mr. Pangilinan graduated cum laude from the
Ateneo de Manila University with a Bachelor of Arts
degree in Economics. He received his MBA from
the Wharton School of Finance and Commerce,
University of Pennsylvania, where he was a Procter
and Gamble Fellow.
24
MAYNILAD
Mr. Consunji served as President of the Philippine
Constructors Association from 1999 to 2000, and
the Philippine Chamber of Coal Mines, Inc. from May
1999 to January 2002. He is currently a Member of
the Philippine Overseas Construction Board (POCB),
and an active Member of the U.P. Beta Epsilon
Fraternity, Asian Institute of Management Alumni
Association, U. P. Alumni Engineers and U.P. Aces
Alumni Association.
Mr. Consunji graduated from the University of
the Philippines in Diliman with a Bachelor of
Science degree in Engineering. He obtained his
Master of Business Economics from the Center
for Research and Communication and Master of
Business Management from the Asian Institute of
Management. At present, he is taking up Advanced
Management Program at IESE School in Barcelona,
Spain.
Rogelio L. Singson
Member
Herbert M. Consunji
Member
Randolph T. Estrellado
Member
Concurrently the President and CEO of
Maynilad, Mr. Singson was former Chairman
and President of the Bases Conversion
Development Authority (BCDA) of the
Philippines, Senior VP of Citadel Holdings
Inc., and Board Chairman of John Hay
Poro Point Development Corp., BCDA
Management Holdings Inc., and North
Luzon Railways Corp. He was likewise a
Board Member of Clark Development Corp.,
Clark International Airport Corp. and Fort
Bonifacio Development Corp.
Concurrently the Chief Operating Officer
and Director of Maynilad, Mr. Consunji is a
Director of DMCI Project Developers, Inc.
and DMCI Power Corp. He is Chairman and
Director of Subic Water & Sewerage Corp.;
VP, CFO and Director of DMCI Holdings,
Inc.; and Director of Semirara Mining Corp.
and DMCI Mining Corp.
Concurrently the Chief Finance Officer of
Maynilad, Mr. Estrellado was Director and
CFO of Metro Pacific Investments Corp.
He served in various positions of senior
responsibility with the Lopez Group of
Companies including that of Vice President
and CFO of ABS-CBN Broadcasting
Corp. He also served in financial positions
at Phinma and P.T. Dwi Satrya Utama in
Indonesia.
Jorge A. Consunji
Member
Jose Ma. K. Lim
Member
Edward A. Tortorici
Member
Mr. Consunji is a Board Member of DMCI
Holdings Inc., DMCI Power Corp., DMCI
Mining Corp., DMCI-PDI, Dacon Corp.,
M&S Company Inc., Semirara-Calaca Power
Corp., Manila Herbal & Essential Oils Co.,
Bachy Soletanche Phils., and Beta Electric
Corp. He also serves as Board Chairman of
Wire Rope Corp., President and COO of DM
Consunji Inc., and VP of Sirawai Plywood &
Lumber Corp.
Mr. Lim is currently President and CEO of
MPIC; Director of Landco Inc., Medical
Doctors Inc. (Makati Medical Center),
Davao Doctors Hospital, Davao Doctors
College, Manila North Tollways Corp.,
Metro Pacific Tollways Corp., Tollways
Management Corp., and Bonifacio Land
Corp.; and President of the Metro Strategic
Infrastructure Holdings, Inc., which holds a
minority ownership in the Citra Metro Manila
Tollways Corp. where he serves as Director.
Mr. Tortorici is Director of Metro Pacific
Investments Corp. and Landco Pacific
Corp.; Commissioner of PT Indofood Sukses
Makmur Tbk, which is based in Indonesia;
and Executive Advisor of MPIC companies
located in the Philippines. He also serves
as a Trustee of the Asia Society and the
Metropolitan Museum of Manila.
2009 ANNUAL REPORT
25
Management Team
Rogelio L. Singson
President and CEO
Herbert M. Consunji
Chief Operating Officer
Randolph T. Estrellado
Chief Finance Officer
Roy Agustin K. Evalle
Head, Corporate Human Capital
and Organization Development
Eric H. Dumancas
Head, Corporate Logistics
Manuel R. Galang
Head, Information Technology Services
Atty. Lourdes Marivic P. Espiritu
Head, Legal and Regulatory Affairs
26
MAYNILAD
Antonio F. Garcia
Head, Sewerage and Sanitation
Irineo M. Gonzales
Head, Technical Operations and
Program Management
Christopher J. Lichauco
Head, Business Area Operations
Irineo L. Dimaano
Head, Central Non-Revenue Water
2009 ANNUAL REPORT
27
Independent Auditors’ Report
The Stockholders and the Board of Directors
Maynilad Water Services, Inc.
MWSS Compound, Katipunan Road
Balara, Quezon City
We have audited the accompanying financial statements of Maynilad Water Services, Inc., (a subsidiary of DMCI-MPIC Water Company,
Inc.) which comprise the statements of financial position as at December 31, 2009 and 2008, and the statements of income, statements of
comprehensive income, statements of changes in equity and statements of cash flows for each of the three years in the period ended
December 31, 2009, and a summary of significant accounting policies and other explanatory notes.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with Philippine Financial
Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair
presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate
accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with
Philippine Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the
overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements present fairly, in all material respects, the financial position of Maynilad Water Services, Inc. as of
December 31, 2009 and 2008, and its financial performance and its cash flows for each of the three years in the period ended December 31,
2009 in accordance with Philippine Financial Reporting Standards.
Without qualifying our opinion, we draw attention to Note 12 of the financial statements. The Company has disputed claims of Metropolitan
Waterworks and Sewerage System (MWSS) substantially pertaining to additional Tranche B Concession Fees and interest penalties amounting to
P3.8 billion as of December 31, 2009 and P3.5 billion as of December 31, 2008. The Company has entered into a Transitional and Clarificatory
Agreement with MWSS which prescribes the procedures for the resolution of these disputes. The ultimate outcome of the matter cannot be
presently determined, and no provision for any liability that may result has been made in the financial statements.
SYCIP GORRES VELAYO & CO.
Maria Vivian C. Ruiz
Partner
CPA Certificate No. 83687
SEC Accreditation No. 0073-AR-2
Tax Identification No. 102-084-744
PTR No. 2087567, January 4, 2010, Makati City
February 22, 2010
28
MAYNILAD
(A Subsidiary of DMCI-MPIC Water Company, Inc.)
STATEMENTS OF FINANCIAL POSITION
(Amounts in Thousands)
December 31
2009
2008
ASSETS
Current Assets
Cash and cash equivalents (Notes 4, 24 and 25)
P1,886,923
P1,363,240
Short-term investments (Notes 4, 24 and 25)
2,433,418
5,575,108
Trade and other receivables - net (Notes 5, 24 and 25)
1,536,093
1,449,576
Other current assets (Notes 6, 22, 24 and 25)
1,442,077
732,637
7,298,511
9,120,561
29,062,512
22,236,673
1,426,630
2,995,663
333,824
330,268
Total Current Assets
Noncurrent Assets
Service concession assets - net (Notes 8, 12, 14 and 22)
Deferred tax assets - net (Notes 15 and 20)
Property and equipment - net (Note 7)
Other noncurrent assets - net (Notes 9, 24 and 25)
Total Noncurrent Assets
57,934
68,527
30,880,900
25,631,131
P38,179,411
P34,751,692
P5,575,612
P5,655,616
2,116,063
2,742,680
LIABILITIES AND EQUITY
Current Liabilities
Trade and other payables (Notes 1, 10, 11, 14, 22, 23, 24 and 25)
Current portion of service concession obligation
payable to MWSS (Notes 8, 12, 24 and 25)
Payables arising from rate rebasing (Note 1)
Total Current Liabilities
942,279
–
8,633,954
8,398,296
16,305,076
16,455,834
8,576,461
5,741,796
238,065
330,870
Noncurrent Liabilities
Interest-bearing loans (Notes 10, 24 and 25)
Service concession obligation payable to MWSS - net
of current portion (Notes 8, 12, 24 and 25)
Pension liability (Note 16)
Deferred credits and other noncurrent liabilities
(Notes 1, 24 and 25)
Total Noncurrent Liabilities
664,161
2,887,828
25,783,763
25,416,328
4,010,893
4,010,893
Equity
Capital stock (Notes 1 and 13)
Additional paid-in capital (Note 1)
775,796
775,796
Equity from redemption of preferred shares (Note 13)
(351,014)
(351,014)
Deficit
(673,981)
(3,498,607)
Net Equity
3,761,694
937,068
P38,179,411
P34,751,692
See accompanying Notes to Financial Statements.
2009 ANNUAL REPORT
29
STATEMENTS OF INCOME
Years Ended December 31
2009
2008
2007
Water services
P8,575,507
P6,419,678
P5,613,361
Sewer services
1,623,595
1,386,955
1,297,705
419,442
438,227
465,976
10,618,544
8,244,860
7,377,042
Salaries, wages and benefits (Notes 14 and 16)
1,350,749
1,233,934
1,224,844
Amortization of service concession assets (Note 8)
1,322,615
1,283,455
1,123,748
Contracted services
461,793
488,589
289,839
Utilities
417,089
373,117
328,499
Materials and supplies
247,084
173,669
194,845
Provision for doubtful accounts (Note 5)
226,266
102,410
170,687
Repairs and maintenance
220,725
175,161
146,586
Depreciation and amortization (Notes 7 and 9)
OPERATING REVENUE
Others
COSTS AND EXPENSES
119,078
112,028
57,409
Regulatory costs
97,676
81,022
76,263
Collection charges
96,143
87,431
80,177
Taxes and licenses
90,318
85,262
46,281
Rental (Note 22)
77,215
66,721
90,113
Business meetings and representations
63,805
66,805
31,046
Transportation and travel
59,061
106,366
73,669
Insurance
23,000
18,146
22,597
Advertising and promotion
21,456
11,754
8,289
Others
INCOME BEFORE OTHER INCOME (EXPENSES)
79,620
66,413
23,447
4,973,693
4,532,283
3,988,339
5,644,851
3,712,577
3,388,703
OTHER INCOME (EXPENSES)
Revenue from rehabilitation works (Note 8)
4,376,346
6,375,495
2,948,238
Cost of rehabilitation works
(4,268,315)
(6,236,962)
(2,948,238)
Interest expense (Note 17)
(2,370,067)
(1,544,410)
(1,917,334)
153,443
123,324
117,587
Interest income (Note 17)
(1,326,146)
(878,495)
2,536,399
Foreign currency differential adjustments (FCDA) (Note 1)
1,243,286
549,186
(2,529,657)
Other income from rate rebasing resolutions (Note 1)
1,404,059
–
–
(463,798)
(125,066)
(496,975)
(1,251,192)
(1,736,928)
(2,289,980)
4,393,659
1,975,649
1,098,723
Foreign exchange gains (losses) - net (Note 1)
Others - net
INCOME BEFORE INCOME TAX
PROVISION FOR (BENEFIT FROM) DEFERRED
INCOME TAX (Notes 15 and 20)
NET INCOME
EARNINGS PER SHARE (Note 18)
30
MAYNILAD
1,569,033
(18,491)
(567,628)
P2,824,626
P1,994,140
P1,666,351
P704.24
P1,112.81
P1,129.73
STATEMENTS OF COMPREHENSIVE INCOME
Net income for the year
Other comprehensive income
Total comprehensive income for the year
2009
2008
2007
P2,824,626
P1,994,140
P1,666,351
–
–
–
P2,824,626
P1,994,140
P1,666,351
2009 ANNUAL REPORT
31
32
MAYNILAD
–
Total comprehensive income for
the year
P1,475,000
–
At December 31, 2007
–
1,463,996
Subscription by new
shareholders (Note 1)
Application of APIC against
deficit (Note 1)
(5,228,996)
Surrender of shares (Note 1)
Conversion of advances to
APIC (Note 1)
P4,010,893
P5,240,000
–
Total comprehensive income for
the year
–
Redemption of preferred shares
(Note 13)
2,535,893
P1,475,000
Issuances during the year
P4,010,893
–
P4,010,893
Common
Stock
(Notes 1 and
13)
Total comprehensive income
for the year
–
P775,796
–
(6,543,094)
2,089,894
–
P–
–
–
–
5,228,996
P–
–
P775,796
P–
–
(14,348,106)
14,348,106
P775,796
P775,796
–
P775,796
P–
–
(1,867,885)
1,867,885
P–
P–
–
P–
P–
–
–
–
–
–
P–
(P351,014)
–
(351,014)
–
P–
–
–
(2,089,894)
–
–
P2,089,894
P–
–
–
–
P–
P–
(P351,014)
P–
–
P–
Advances
from a
Shareholder
Intended for
Conversion
into APIC
(Notes 1, 11
and 13)
–
(P351,014)
Equity from
Preferred
Additional Redemption of
Stock
Paid-in
Preferred
(Notes 1 and Capital (APIC)
Shares
13)
(Note 1)
(Note 13)
STATEMENTS OF CHANGES IN EQUITY
P–
–
–
–
(1,238,476)
–
P1,238,476
P–
–
–
–
P–
P–
–
P–
P–
–
–
–
(225,520)
–
P225,520
P–
–
–
–
P–
P–
–
P–
Advances
Payable to
from
MWSS a Shareholder
Intended for Intended for
Assignment
Capital
and Capital Restructuring
Restructuring
(Notes 1, 11
(Notes 1 and 13)
and 13)
(P5,492,747)
1,666,351
6,543,094
–
–
–
(P13,702,192)
(P3,498,607)
1,994,140
–
–
(P5,492,747)
(P673,981)
2,824,626
(P3,498,607)
Deficit
(P3,241,951)
1,666,351
–
–
–
–
(P4,908,302)
P937,068
1,994,140
(16,567,005)
18,751,884
(P3,241,951)
P3,761,694
2,824,626
P937,068
Total
STATEMENTS OF CASH FLOWS
2009
2008
2007
P4,393,659
P1,975,649
P1,098,723
1,917,334
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax
Adjustments for:
Interest expense (Note 17)
Other income from rate rebasing resolutions (Note 1)
Amortization of service concession assets (Note 8)
Foreign exchange losses (gains)
Interest income (Note 17)
2,370,067
1,544,410
(1,404,059)
–
–
1,322,615
1,283,455
1,123,748
167,122
107,514
(10,818)
(153,443)
(123,324)
(117,587)
Depreciation and amortization (Notes 7 and 9)
119,078
112,028
57,409
Pension cost (income) (Note 16)
102,899
111,075
(81,751)
Gain on sale of property and equipment
Operating income before working capital changes
(2,805)
(1,533)
–
6,915,133
5,009,274
3,987,058
Decrease (increase) in:
Short-term investments
2,974,568
(4,508,150)
(348,535)
Trade and other receivables
(979,663)
(421,823)
320,544
Other current assets
(709,440)
(187,917)
379,190
Increase (decrease) in trade and other payables
(340,096)
(125,357)
162,063
Cash generated from (used for) operations
Interest received
7,860,502
163,156
(233,973)
89,148
4,500,320
78,672
Net cash provided by (used in) operating activities
8,023,658
(144,825)
4,578,992
Acquisitions of property and equipment (Note 7)
(127,331)
(253,195)
(136,986)
Proceeds from sale of property and equipment
10,502
16,589
–
(4,376,346)
(6,375,495)
(2,948,238)
18,580
13,816
442,400
(195,704)
–
–
(4,670,299)
(6,598,285)
(2,642,824)
(1,346,983)
(3,744,386)
(2,585,733)
–
(6,409,711)
(657,025)
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease (increase) in:
Service concession assets
Other noncurrent assets
Net contributions to pension fund (Note 16)
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of:
Service concession obligation payable to MWSS
Increase (decrease) in:
Deferred credits and other noncurrent liabilities
Payable to a shareholder
Interest paid
60,099
102,949
39,305
–
(1,284,537)
1,614,412
(1,542,792)
(643,578)
(957,727)
Proceeds from:
–
16,556,135
–
Issuance of common and preferred shares
–
18,751,884
–
–
(16,567,005)
–
(2,829,676)
6,761,751
(2,546,768)
523,683
18,641
(610,600)
1,363,240
1,344,599
1,955,199
P1,886,923
P1,363,240
P1,344,599
Redemption of preferred shares
Net cash provided by (used in) financing activities
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS
AT END OF YEAR (Note 4)
2009 ANNUAL REPORT
33
NOTES TO FINANCIAL STATEMENTS
(Amounts in Thousands, Except Number of Shares, Earnings Per Share Value and Unless Otherwise Specified)
1. Corporate Information and Status of Operations
General
Maynilad Water Services, Inc. (the Company) was incorporated on January 22, 1997 in the Philippines primarily to bid for the operation
of the privatized system of waterworks and sewerage services of the Metropolitan Waterworks and Sewerage System (MWSS) for
Metropolitan Manila. The Company is a 94.11% owned subsidiary of DMCI-MPIC Water Company, Inc. (DMCI-MPIC or Parent Company),
a company incorporated in the Philippines. DMCI-MPIC is a subsidiary of Metro Pacific Investments Corporation (MPIC). In addition, MPIC
directly owns 5.88% of the Company. As of December 31, 2009, MPIC effectively owns 58.03% of the Company.
MPIC is owned by Metro Pacific Holdings, Inc. (MPHI) (64.47% in 2009 and 97.26% in 2008). MPHI is a Philippine corporation whose
stockholders are Enterprise Investments Holdings, Inc. (EIH) (60.0%), Intalink B.V. (26.7%) and First Pacific International Limited (13.3%).
First Pacific Company Limited (“FPC”), a company incorporated in Bermuda and listed in Hong Kong, through its subsidiaries, hold a direct
40% equity interest in EIH and investment financing, and which under Hong Kong Generally Accepted Accounting Principles require FPC to
account for the results and assets and liabilities of EIH and its subsidiaries as FPC group companies in Hong Kong. On such basis, FPC is
referred as the ultimate parent company of EIH and the MPIC.
The registered office address of the Company is MWSS Compound, Katipunan Road, Balara, Quezon City.
The accompanying financial statements were approved and authorized for issue by the Board of Directors (BOD) on February 22, 2010.
Extension of the Concession Agreement
On September 10, 2009, the MWSS Board of Trustees (BoT) approved the extension of the expiry of its Concession Agreement with the
Company by an additional fifteen (15) years or from May 7, 2022 to May 6, 2037. Subsequently, on September 16, 2009, the MWSS
Administrator wrote the Department of Finance (DoF) to inform them of the MWSS BoT’s decision and seek the DoF’s written consent to the
extension, as well its extension of the Letter of Undertaking covering the government’s obligation under the Concession Agreement. The DoF is
presently reviewing the extension but the Company expects to receive the DoF’s Letter of Consent and Undertaking within seven months from the
MWSS BoT approval. The significant commitments under the extension follows:
a.
b.
c.
to mitigate tariff increases;
to increase the share in the current operating budget support to MWSS by 100% as part of the concession fees starting 2010
(see Notes 8 and 22); and
to increase total investments.
MWSS-Regulatory Office (RO or Regulatory Office) Resolution No. 209-069 Dated April 16, 2009
The Company’s second Rebasing Adjustment was supposed to have taken effect and implemented beginning January 1, 2009 pursuant to the
Concession Agreement and the Transitional and Clarificatory Agreement (TCA) dated August 9, 2007. In a letter to MWSS and the Regulatory Office
dated March 20, 2009, the Company submitted a tariff scheme proposal pending the full implementation of the rate rebasing adjustment or “R”.
On April 16, 2009, after a careful evaluation of such proposal, the Regulatory Office issued MWSS-RO Resolution No. 209-069, which
recommended that the Company be authorized to implement, on a staggered basis, the “P” equivalent to 22.60% of the current basic
charge or P5.02 per cubic meter in addition to the inflationary increase (“C”) equivalent to P2.42 per cubic meter, which was implemented
effective February 20, 2009. The said recommendations of the Regulatory Office were approved and confirmed by the MWSS BoT. After
completion of the required publication pursuant to Section 12 of the MWSS Charter, such approved tariff scheme was implemented by
the Company pursuant to and in accordance with the said resolution. The new “R” took effect on May 4, 2009. In addition, the new base
foreign exchange rate was changed from P51.86 to P48.04 effective May 4, 2009. As a result of the change in the base foreign exchange
rate, deferred credits pertaining to remaining unrealized foreign exchange gains were derecognized.
Under this resolution, the MWSS resolved, among others, two pending issues that had an impact on the new “R” that took effect on
May 4, 2009. These issues pertain to the excess collection of Accelerated Extraordinary Price Adjustment (AEPA) and realized foreign
exchange gains arising from the prepayment of Standby Letters of Credit (SBLC) and Tranche B Concession fees, which are presented as
part of “Deferred Credits” account in the 2008 statement of financial position. These were treated as part of the opening cash position,
thus, were taken into consideration when the new “R” was set. Consequently, these deferred credits will no longer be subject to the foreign
currency differential adjustments (FCDA) mechanism that will be reflected in future billings.
In addition, to further mitigate the impact of the rate increase, the Regulatory Office further required the simultaneous implementation of the
following: (1) the Prepayment Adjustment (PA), and (2) the Payment Incentive Adjustment (PIA) within an accelerated period of two (2) years,
resulting in a downward adjustment of 8.15% or -P2.22 per cubic meter and 5.73% or -P1.56, respectively, based on the 2009 average
basic charge which already includes the staggered “R” and the “C”. Payables arising from rate rebasing, which are recorded at present
value, consist of PA amounting to P1.0 billion and PIA amounting to P709.7 million. As of December 31, 2009, these payables arising from
34
MAYNILAD
rate rebasing amounted to P942.3 million, and are expected to be applied against future billings within next year (shown as current liabilities
in the 2009 statement of financial position).
The above MWSS resolutions resulted to a derecognition of deferred credits of about P2.0 billion and a recognition of a provision for PIA
of about P709.7 million, with a net effect of about P1.4 billion recognized as “Other income from rate rebasing resolutions” in the 2009
statement of income.
As of December 31, 2009, deferred credits representing net effect of unrealized foreign exchange losses on service concession obligation
payable to MWSS above the new base foreign exchange rate of P48.04 and unrealized foreign exchange gains arising from restatement
of foreign currency denominated interest bearing loans and related interest amounted to P226.7 million. These were presented as part of
“Deferred credits and other noncurrent liabilities” account in the statements of financial position.
Concession Agreement
On February 21, 1997, the Company entered into a Concession Agreement with the MWSS, a government-owned and controlled
corporation organized and existing pursuant to Republic Act (RA) No. 6234 (the Charter), as clarified and amended, with respect to the
MWSS West Service Area. The Concession Agreement sets forth the rights and obligations of the Company throughout the concession
period. The MWSS Regulatory Office acts as the regulatory body of the Concessionaires [the Company and the East Concessionaire Manila Water Company, Inc. (Manila Water)].
Under the Concession Agreement, MWSS grants the Company (as contractor to perform certain functions and as agent for the exercise of
certain rights and powers under the Charter), the sole right to manage, operate, repair, decommission and refurbish all fixed and movable assets
required (except certain retained assets of MWSS) to provide water and sewerage services in the West Service Area for 25 years commencing
on August 1, 1997 (the Commencement Date) to May 6, 2022 (the Expiration Date) or the early termination date as the case may be.
The Company is also tasked to manage, operate, repair, decommission and refurbish certain specified MWSS facilities in the West Service
Area. Legal title to these assets remains with MWSS. The legal title to all property, plant and equipment contributed to the existing MWSS
system by the Company during the concession period remains with the Company until the Expiration Date (or on early termination date) at
which time, all rights, titles and interest in such assets will automatically vest to MWSS.
Under the Concession Agreement, the Company is entitled to the following rate adjustments:
a.
annual standard rate adjustment to compensate for increases in the Consumer Price Index (CPI) subject to rate adjustment limit;
b.
Extraordinary Price Adjustment (EPA) to account for the financial consequences of the occurrence of certain unforeseen events
subject to grounds stipulated in the Concession Agreement; and
c.
rate rebasing (Rate Rebasing) mechanism to allow rates to be adjusted every five (5) years to enable the Company to recover
expenditures efficiently and prudently incurred, Philippine business taxes and payments corresponding to debt service on concession
fees, and Company loans incurred to finance such expenditures.
Amendment No. 1
Between July 2001 and September 2001, the Company’s representatives engaged in negotiations with MWSS and Government officials
regarding the changes to the economic and commercial terms of the Concession Agreement that were needed to make the concession
financially viable. Amendment No. 1 to the Concession Agreement (Amendment No. 1) was entered into by the Company and MWSS and
was acknowledged by the Government on October 5, 2001.
Significantly, Amendment No. 1 provided the Company with certain reliefs including, without limitation, the implementation of effective
foreign exchange recovery mechanisms, which are as follows:
a.
a rate adjustment of P4.21 per cubic meter (AEPA) beginning October 15, 2001 (although actual implementation commenced only
on October 20, 2001 after publication of rates) to December 31, 2002 to enable the Company to recover foreign exchange losses
incurred for the period August 1, 1997 to December 31, 2000;
b.
a Special Transitory Mechanism (STM) beginning July 2002 to enable the Company to recover foreign exchange losses for the period
January 1, 2001 to December 31, 2001 and such losses arising from the repayment of the Company’s US$100.0 million bridge loan
and short-term loans and other payments relating thereto, the payment of concession fees suspended, and past foreign exchange
losses unrecovered through the adjustment in (a) above as of December 31, 2002; and
2009 ANNUAL REPORT
35
c.
the Foreign Currency Differential Adjustments (FCDA) to enable the Company to recover/account for present and future foreign exchange
losses/gains including all accruals and carrying costs thereof for the period beginning January 1, 2002 until the Expiration Date on a
quarterly basis, excluding such losses or gains required to be recovered or accounted for through STM described in (b) above.
Amendment No. 1 further provided for rate rebasing on January 1, 2003 which requires, among others, an agreement between the
Company and MWSS covering the action plan relating to water and sewerage service targets.
The Company was allowed by MWSS to implement the AEPA (P4.21 per cubic meter) in October 2001 and the FCDA (P4.07 per cubic
meter) beginning on January 1, 2002 pursuant to Amendment No. 1. However, the Company was not able to implement the STM as well
as to conclude the Rate Rebasing process in accordance with the terms of Amendment No. 1. The implementation of the STM took place
only beginning on January 1, 2005, as part of the all-in tariff approved by the MWSS on November 24, 2004.
On December 9, 2002, the Company served on MWSS a “Notice of Early Termination of the Concession.” MWSS commenced the
arbitration proceedings on January 7, 2003, when it filed a “Dispute Notice” to question the Company’s “Notice of Early Termination of
the Concession.” After the submission of pleadings and conduct of hearings in August 2003 and September 2003, the Appeals Panel
for Major Disputes (the Major Panel) issued on November 7, 2003 an order declaring that there was neither a Concessionaire Event
of Termination nor a MWSS Event of Termination under the Concession Agreement and that the parties shall perform their respective
obligations under the Concession Agreement, as amended, until the termination of the Concession. The order further declared that (i) the
Concession Fees which should have been paid by the Company to MWSS were due; (ii) such Concession Fees (together with interest
payable pursuant to Section 6.9 of the Concession Agreement) were payable 15 days after the receipt by the parties of the order; and
(iii) MWSS may draw on the Company’s US$120.0 million performance bond in accordance with the conditions thereof and Section 6.9 of
the Concession Agreement.
Cease and Desist Order (CDO) Dispute
On May 5, 2003, the Company received written notice of MWSS’ CDO that purported, among others, to order the Company to cease and
desist from assessing and collecting the amounts of P4.21 per cubic meter as AEPA and P4.07 per cubic meter as FCDA. The Company
disputed the validity of the CDO through arbitration and filed a dispute notice with the Appeals Panel. In the meantime, while the issue
relating to the validity of the CDO remained unresolved, the Company continued to bill its customers the tariff rate of P19.92 per cubic
meter (inclusive of the AEPA of P4.21 per cubic meter and FCDA of P4.07 per cubic meter) until December 31, 2004 but did not accept
and implement the rebased tariff approved by MWSS in October 2002. The Appeals Panel for Minor Disputes (the Minor Panel) assumed
jurisdiction over the dispute.
On February 18, 2005, the parties to the CDO dispute jointly requested the Minor Panel to terminate the arbitration proceedings in view
of the settlement of their dispute. The Minor Panel issued an “Arbitral Award on Agreed Terms” on March 4, 2005 and terminated the
arbitration proceedings subject to, among others, the condition that the issues with respect to (1) the alleged under recovery of revenues
the Company failed to collect between the period January 1, 2003 up to December 31, 2004 (for not implementing the rebased tariff during
such period) and (2) the over recovery of foreign exchange losses by the Company due to continued collection of AEPA and FCDA in 2003
and 2004, shall be resolved through mutual consultation and negotiation, as mandated by Clause 12.1 of the Concession Agreement, and
through such other means available in the Concession Agreement and existing laws. As of December 31, 2008, these excess collections
of AEPA and FCDA, shown as part of “Deferred credits and other noncurrent liabilities” account in the 2008 statement of financial position
amounted to P2.0 billion. Pursuant to and in accordance with the TCA (as defined below), these issues are among the matters that were
addressed and resolved by the Company and the MWSS-RO during the Rate Rebasing exercise in 2008.
Capital Restructuring
On January 19, 2007, the Securities and Exchange Commission (SEC) approved all corporate actions of the Company required by
Clause 2 of the Debt and Capital Restructuring Agreement (DCRA), as more specifically described in the succeeding paragraphs, for the full
implementation thereof. These corporate actions approved by the SEC in relation to the Capital Restructuring are as follows:
36
a.
decrease in the authorized capital stock of the Company through a reduction in the par value of its shares from P100 to P1 per share
and the surrender of the shares of Benpres Holdings Corporation (BHC) and Suez Environnement (Suez Env);
b.
increase in the authorized capital stock of the Company to P1.48 billion comprising of 1,475,000,000 shares with a par value of P1
per share, with DMCI-MPIC (Sponsor) subscribing to 1,238,476,000 Class A common shares [inclusive of 88,500,000 Employees’
Stock Option Plan (ESOP) shares representing 6% of the outstanding capital stock of the Company upon the effective date of the
increase in capital of the Company], and Lyonnaise Asia Water (Holdings) Pte Ltd (LAWL) subscribing to an additional 225,520,000
Class B common shares (plus an additional paid-in capital of P56.0 million), paid for by way of conversion of debt to equity, in
compliance with paragraphs a, b, c, d, e and f of Clause 2.6 of the DCRA;
c.
confirmation of valuation under Section 62 of the Corporation Code for the issuance by the Company of 7,600,000 shares out of the unsubscribed
portion of its authorized capital stock, paid for by way of conversion of debt to equity in relation to the subscriptions of DMCI-MPIC and LAWL;
MAYNILAD
d.
creation of additional paid-in capital (APIC) aggregating P2.0 billion resulting from the write-off by BHC of its advances amounting
to P658.0 million (or equivalent to approximately US$12 million) and from the write-off by the Suez Group [Suez Env and LAWL,
excluding Ondeo Services Philippines, Inc. (OSPI)] of its loans and advances amounting to P1.4 billion (or equivalent to approximately
US$25.0 million), which write-offs have been confirmed in writing by BHC and the Suez Group on December 22, 2006 and January 4,
2007, respectively, in compliance with paragraphs a, b and c of Clause 2.4 of the DCRA;
e.
equity restructuring to wipe out the previously reported deficit of the Company as of December 31, 2005 against the APIC amounting
to P2.1 billion and reduction surplus amounting to P5.2 billion resulting from the decrease in capital, in compliance with Clause 2.5 of
the DCRA, subject to the condition that the remaining APIC as of that date of P342.0 million shall not be used to wipe out losses that
may be incurred in the future without prior SEC approval; and
f.
corresponding amendments to the Articles of Incorporation of the Company to reflect the decrease and increase in capital stock of the
Company, in compliance with paragraphs a and b of Clause 19.2 of the DCRA.
In full implementation and completion of the Capital Restructuring in accordance with the directive of the Rehabilitation Court, the
corresponding certificates of stock evidencing the subscription of DMCI-MPIC and the additional subscription of LAWL have been duly
issued by the Company and recorded in the stock and transfer book of the Company on January 19, 2007.
Upon the completion of the Capital Restructuring on January 19, 2007, all the nominees of the MWSS (pursuant to the Proxy) as well as
two (2) directors of Suez Env have also effectively resigned.
Instead of exercising its right under the DCRA to subscribe to 83.97% of the shares of the Company in consideration for the conversion of
its receivables to equity as part of the Capital Restructuring, the MWSS opted to assign such subscription right to a private investor. After
a process of competitive public bidding conducted by the MWSS from June 2006 to January 2007, DMCI-MPIC was designated by the
MWSS as its assignee. Such assignment was effected by MWSS (MWSS Assignment) through an Assignment & Assumption Agreement
executed by MWSS and DMCI-MPIC on December 27, 2006, which was acknowledged by the Company on the same date. Also on
the same date, the Company, DMCI-MPIC and LAWL executed the Debt Conversion & Subscription Agreement which governed the
agreement of the parties on the conversion of debt to equity required in connection with the Capital Restructuring. The MWSS Assignment
became effective on January 10, 2007 (Closing Date).
As of December 31, 2007, the capital structure of the Company after the completion of the Capital Restructuring is as follows:
Shareholder
Class
DMCI-MPIC*
Class A Common
DMCI-MPIC
ESOP
Metrobank
Class A Common
LAWL*
Class B Common
All classes
Total
Subscription
(No. of Shares)
%
1,149,976,000
77.96
88,500,000
6.00
524,000
.04
236,000,000
16.00
1,475,000,000
100.00
*including directors’ qualifying shares
In 2008, the Company increased its subscribed capital stock with a par value of P1,000 per share and issued new shares (see Note 13).
As a result, as of December 31, 2008, the capital structure is as follows:
Shareholder
Class
Total
Subscription
(No. of Shares)
%
3,685,869
91.90
88,500
2.21
DMCI-MPIC*
Class A Common
DMCI-MPIC
ESOP
Metrobank
Class A Common
524
.01
LAWL*
Class B Common
236,000
5.88
4,010,893
100.00
All classes
*including directors’ qualifying shares
On December 19, 2008, a Memorandum of Agreement (MOA) was executed among MPIC, Metro Pacific Holdings, Inc. and LAWL,
where LAWL shall subscribe to acquire 791,110,491 new common shares of MPIC at approximately P2.6 per share or P2,029.2 million
2009 ANNUAL REPORT
37
(subscription price) through execution of a Subscription Agreement and MPIC shall purchase and acquire from LAWL 236,000 Class B
shares of the Company at P8,598.4 per share or P2,029.2 million (purchase price) thru execution of a Deed of Sale.
The above transaction shall result to MPIC’s acquisition of a 5.88% interest held by LAWL in the Company in exchange for 7.75% interest in MPIC.
Based on the terms of the MOA, risks and rewards have been transferred to the parties even before the closing conditions were met and
therefore, MPIC treated the transaction as a direct acquisition of interest, specifically as an acquisition of minority interest in the Company.
As of December 31, 2008, MPIC and LAWL have not issued to each other the aforementioned shares. As provided in the MOA, the parties
agree to set off the subscriptions receivable and payable in as much as both the subscription price are of the same amounts and are due
and payable on the Closing date. On July 10, 2009, the related shares have been issued.
Petition for Rehabilitation with Prayer for Suspension of Actions and Proceedings
On November 13, 2003, the Company filed with the Regional Trial Court of Quezon City, Branch 90 (the Rehabilitation Court), a “Petition
for Rehabilitation with Prayer for Suspension of Actions and Proceedings.” On November 17, 2003, the Rehabilitation Court issued a
Stay Order (i) staying enforcement of all claims against the Company; (ii) prohibiting the Company from selling, encumbering, transferring,
or disposing in any manner any of its properties, except in the ordinary course of business; (iii) prohibiting the Company from making any
payment of its liabilities outstanding as at the date of filing of the petition; (iv) prohibiting the suppliers of the Company from withholding
supply of goods and services in the ordinary course of business for as long as the Company makes payments for the services and goods
supplied after the issuance of the Stay Order; and (v) directing the Company to pay in full all administrative expenses incurred after the
issuance of the Stay Order. The Rehabilitation Court also appointed a rehabilitation receiver (Receiver).
DCRA
On April 29, 2005, the Company, the Lenders under the DCRA (consisting of the Bridge Banks, SBLC Banks and Peso Loan Lenders),
BHC, the MWSS, and the Suez Group [consisting of Suez S.A. (Suez), Suez Env, LAWL and OSPI] executed the DCRA to set out the terms
and conditions of their understanding and to govern their respective rights and obligations in connection with the restructuring of the debt
and capital of the Company. The DCRA, the terms of which were intended by the parties to be incorporated into the 2005 Rehabilitation
Plan (as discussed below) provides, among others, the following:
a.
b.
c.
d.
e.
Capital Restructuring (as described above)
Restructuring of Debt (see Note 10)
Restructuring of Suez Loan (see Note 10)
Restructuring of Concession Fees (see Note 12)
Repayment of Suppliers (see Note 11)
The effective date of the DCRA took place on July 20, 2005. The capital and debt restructuring were successfully completed on January
19, 2007 (as discussed above) and January 18, 2008
(see Notes 8, 10, 11 and 12), respectively.
Rehabilitation Plan
On November 24, 2004, the MWSS approved the rebased tariff of P30.19 per cubic meter (average all-in tariff, including STM) which was
equivalent to the approved rebased tariff for 2003, adjusted to 2005 prices. The said rebased tariff was published on December 17, 2004
and became effective starting January 1, 2005. On January 14, 2005, MWSS sent its written certification for the full drawing of the US$120.0
million performance bond to the issuing banks’ agent and received the entire proceeds of the performance bond on January 20, 2005.
After previously submitting several rehabilitation plans to the Rehabilitation Court, the Company finally submitted the 2005 Revised
Rehabilitation Plan (2005 Rehabilitation Plan) and the DCRA (which was incorporated into the plan) on April 29, 2005, within the nonextendible deadline imposed by the Rehabilitation Court. The 2005 Rehabilitation Plan assumed the full implementation by the Company
of the rebased tariff of P30.19 per cubic meter beginning January 1, 2005. On June 1, 2005, the Rehabilitation Court approved the 2005
Rehabilitation Plan and the DCRA described above, for immediate implementation.
Rehabilitation Exit Plan
On August 9, 2007, the Company entered into the Prepayment and Settlement Agreement (PSA) with the Sponsor, the Lenders under
the DCRA, Suez, Suez Env and the MWSS. The PSA prescribed the procedure for the full prepayment of the US dollar Tranche, SBLC
Tranche, Peso Tranche (collectively referred to as the Facility), Suez Loan and payable to MWSS (with respect to Tranche A2 Concession
Fees and Recognized Tranche B Concession Fees), to be funded from cash contribution to be provided by the Sponsor to the Company
(see Note 14), for the purpose of enabling the Company to successfully effect an early exit from corporate rehabilitation. The PSA further
sets out the procedure for the settlement of approved claims of contractors and suppliers and the resolution of the disputed claims of
MWSS and Suez Env (see Notes 8, 10, 11, 12 and 19).
38
MAYNILAD
As mentioned, the PSA was executed to enable the Company to effect an early exit from corporate rehabilitation. As this rehabilitation exit
will result in the termination of the 2005 Rehabilitation Plan and the DCRA, certain transitional arrangements, including those relating to
the second Rate Rebasing, the Service Obligations of the Company as well as the recovery or compensation of foreign exchange losses
or gains relating to the full prepayment of the Company’s US dollar Concessionaire Loans, the Tranche A2 Concession Fees and the
Recognized Tranche B Concession Fees were deemed necessary. Thus, contemporaneously with the signing of the PSA, the Company
entered into the TCA with MWSS for the purpose of providing for these transitional arrangements which will apply from and after the
termination of the DCRA and the 2005 Rehabilitation Plan.
The TCA also prescribes the procedure for the resolution of the dispute between MWSS and the Company on MWSS’ pending claims
for additional Tranche B Concession Fees and for the 364-day Treasury Bill rate penalty interest under Section 6.9 of the Concession
Agreement (see Notes 12 and 19).
The terms and conditions of the TCA were thereafter acknowledged by the Republic of the Philippines, acting through Finance Secretary
Margarito B. Teves in an acknowledgment letter dated January 7, 2008.
On August 16, 2007, the Company, together with the Lenders, Suez, Suez Env, OSPI and MWSS filed the Joint Omnibus Motion dated
August 14, 2007 (Joint Omnibus Motion) praying for the Rehabilitation Court’s approval of the PSA and seeking further the termination of
the rehabilitation proceedings on account of the successful implementation of the 2005 Rehabilitation Plan following the implementation
of the requirements of the PSA, citing that upon such implementation, the Company shall have already completed both the Capital
Restructuring and the Debt Restructuring which are the key elements mandated by the 2005 Rehabilitation Plan for the rehabilitation of the
Company and the restoration of its financial viability.
On December 19, 2007, the Rehabilitation Court issued an Order approving the PSA and declaring that the Company has successfully
implemented the 2005 Rehabilitation Plan on the date it has implemented the “Full Prepayment” and the “Settlement” as set forth in the
PSA and has satisfied all other payment requirements under Clause 5 of the PSA, all in accordance with the terms of the PSA, and that
accordingly, the rehabilitation proceedings are terminated, effective on such date, pursuant to the last sentence of Section 27 of Rule 4 of
the Interim Rules of Procedure on Corporate Rehabilitation upon issuance by the Rehabilitation Court of a subsequent Order confirming
the termination of the rehabilitation proceedings after submission by the Company and the Rehabilitation Receiver of separate sworn
certifications on the said implementation of the PSA and submission of proof of payment of the proper filing/docket fees. The Rehabilitation
Court further resolved the disputed claims of the Suez Group and MWSS in favor of the Company, ruling that no amount is due to the said
claimants for their respective disputed claims, upholding the recommendations of the Receiver.
After receiving the Monetary Board approval of the proposed prepayment under the PSA, the Company implemented the full prepayment
of the Facility, Suez Loan, Tranche A2 Concession Fees and the Recognized Tranche B Concession Fees pursuant to the PSA on January
16, 2008 (see Notes 10 and 12). Further, on January 17, 2008, the Company implemented the full settlement of the discounted amount
of approved claims of contractors/suppliers who have granted the Company a 10% discount prior to the effective date of the PSA and
satisfied all other payment requirements under Clause 5 of the PSA (see Note 11). Through a Manifestation with Motion (for Issuance
of Order Confirming Termination of Corporate Rehabilitation Proceedings) dated January 18, 2008, the Company submitted to the
Rehabilitation Court the required sworn certification on the implementation of the PSA. The Receiver also submitted on such date to the
Rehabilitation Court the required sworn certification on the Company’s implementation of the PSA.
On February 6, 2008, the Rehabilitation Court finally issued the Order confirming the termination of the Company’s corporate rehabilitation
proceedings on account of its successful implementation of the 2005 Rehabilitation Plan, in accordance with Section 27 of Rule 4 of the
Interim Rules of Procedure on Corporate Rehabilitation. In view of the immediately executory nature of orders issued by the Rehabilitation
Court, the Company is considered officially out of corporate rehabilitation on the date of such confirmation order, which is February 6, 2008.
Resolution of Cases on the Company’s Corporate Rehabilitation Proceedings
A case involving two consolidated petitions previously filed by certain so called public interest groups and other persons claiming to be
interested parties questioning the Rehabilitation Court’s approval of the Company’s 2005 Rehabilitation Plan and issuance of order barring
such petitioners from participating in the rehabilitation proceedings, has already been dismissed by the Supreme Court in its resolution
dated October 15, 2008. No motion for reconsideration was filed by the petitioners. On December 8, 2008, the Supreme Court issued an
Entry of Judgment declaring the resolution dated October 15, 2008 final and executory.
2. Summary of Significant Accounting and Financial Reporting Policies
Basis of Preparation
The financial statements of the Company have been prepared on a historical cost basis, except for available-for-sale (AFS) investments,
which are measured at fair value. The financial statements are presented in Philippine peso, which is the Company’s functional and
presentation currency, and all amounts are rounded to the nearest thousand (P000), except when otherwise indicated.
2009 ANNUAL REPORT
39
Statement of Compliance
The financial statements of the Company have been prepared in compliance with Philippine Financial Reporting Standards (PFRS). PFRS includes
standards named PFRS and Philippine Accounting Standards (PAS), including Interpretations, issued by the Financial Reporting Standards Council.
Changes in Accounting Policies and Disclosures
The accounting policies adopted are consistent with those of the previous financial year, except for the following new and amended PFRS
and Philippine Interpretations which were adopted as of January 1, 2009.
New Standards and Interpretations

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
PAS 1, Presentation of Financial Statements
PAS 23, Borrowing Costs (Revised)
PFRS 8, Operating Segments
Philippine Interpretation IFRIC 13, Customer Loyalty Programmes
Philippine Interpretation IFRIC 16, Hedges of a Net Investment in a Foreign Operation
Philippine Interpretation IFRIC 18, Transfers of Assets from Customers
Amendments to Standards






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PAS 32, Financial Instruments: Presentation, and PAS 1, Presentation of Financial Statements (Revised) - Puttable Financial Instruments and Obligations Arising on Liquidation
PFRS 1 and PAS 27 Amendments, Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate
PFRS 2 Amendment, Share-based Payment - Vesting Condition and Cancellations
PFRS 7 Amendments, Improving Disclosures about Financial Instruments
Philippine Interpretation IFRIC 9 and PAS 39 Amendments, Embedded Derivatives
Improvements to PFRS (2008)
Improvements to PFRS (2009), with respect to the amendment to the Appendix to PAS 18, Revenue
Standards or interpretations that have been adopted and that have an impact on the financial statements or performance of the Company are described below:
 Revised PAS 1, Presentation of Financial Statements
The revised standard separates owner and non-owner changes in equity. The statement of changes in equity includes only details of
transactions with owners, with non-owner changes in equity presented in a reconciliation of each component of equity. In addition,
the standard introduces the statement of comprehensive income: it presents all items of recognized income and expense, either in a
single statement, or in two linked statements. The Company has elected to present two linked statements. Adoption of this standard
also resulted in the change in the title from balance sheets to statements of financial position.
 Amendment to PAS 18, Revenue
The amendment adds guidance (which accompanies the standard) to determine whether an entity is acting as a principal or as an agent.
The features to consider are whether the entity (a) has primary responsibility for providing the goods or service; (b) has inventory risk; (c) has
discretion in establishing prices; and (d) bears the credit risk. The Company has assessed its revenue arrangements against these criteria and
has concluded that it is acting as principal in all arrangements. The revenue recognition policy has been updated accordingly.
 Revised PAS 23, Borrowing Costs
The revised PAS 23 requires capitalization of borrowing costs that are directly attributable to the acquisition, construction or
production of a qualifying asset. The Company’s previous policy was to expense borrowing costs as they were incurred. In
accordance with the transitional provisions of the amended PAS 23, the Company has adopted the standard on a prospective basis.
The Company has no qualifying assets in 2009 and 2008.
 Amendments to PFRS 7, Financial Instruments: Disclosures – Improving Disclosures about Financial Instruments
40
The amended standard requires additional disclosures about fair value measurement and liquidity risk. Fair value measurements
related to items recorded at fair value are to be disclosed by source of inputs using a three-level fair value hierarchy, by class, for all
financial instruments recognized at fair value. In addition, a reconciliation between the beginning and ending balance for level 3 fair
value measurements is now required, as well as significant transfers between levels in the fair value hierarchy. The amendments also
clarify the requirements for liquidity risk disclosures with respect to derivative transactions and assets used for liquidity management.
The fair value measurement disclosures are presented in Note 25. The liquidity risk disclosures are not significantly impacted by the
amendments and are presented in Note 24.
MAYNILAD
Standards, Interpretations and Amendments to Existing Standards Not Yet Effective
The Company did not early adopt the following amendments to existing standards and interpretations that have been approved but are not
yet effective as of December 31, 2009. Except as otherwise indicated, the Company does not expect the adopting of these amendments
and interpretations to have an impact on its financial statements.
 Amendment to PAS 39, Financial Instruments: Recognition and Measurement – Eligible Hedged Items
The amendment to PAS 39, effective for annual periods beginning on or after July 1, 2009, clarifies that an entity is permitted to
designate a portion of the fair value changes or cash flow variability of a financial instrument as a hedged item. This also covers the
designation of inflation as a hedged risk or portion in particular situations.
 Amendments to PFRS 2, Share-based Payment – Group Cash-settled Share-based Payment Transactions
The amendments to PFRS 2, effective for annual periods beginning on or after January 1, 2010, clarify the scope and the accounting
for group cash-settled share-based payment transactions.
 Revised PFRS 3, Business Combinations and Amendment to PAS 27, Consolidated and Separate Financial Statements
The revised standards are effective for annual periods beginning on or after July 1, 2009. PFRS 3 (Revised) introduces significant
changes in the accounting for business combinations occurring after this date. Changes affect the valuation of non-controlling
interest, the accounting for transaction costs, the initial recognition and subsequent measurement of a contingent consideration and
business combinations achieved in stages. These changes will impact the amount of goodwill recognized, the reported results in
the period that an acquisition occurs and future reported results. PAS 27 (Amended) requires that a change in the ownership interest
of a subsidiary (without loss of control) is accounted for as a transaction with owners in their capacity as owners. Therefore, such
transactions will no longer give rise to goodwill, nor will it give rise to a gain or loss. Furthermore, the amended standard changes
the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. The changes by PFRS 3 (Revised)
and PAS 27 (Amended) will affect future acquisitions or loss of control of subsidiaries and transactions with non-controlling interests.
PFRS 3 (Revised) will be applied prospectively while PAS 27 (Amended) will be applied retrospectively with a few exceptions.
 Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate
This interpretation, effective for annual periods beginning on or after January 1, 2012, covers accounting for revenue and associated
expenses by entities that undertake the construction of real estate directly or through subcontractors. The Interpretation requires that
revenue on construction of real estate be recognized only upon completion, except when such contract qualifies as a construction
contract to be accounted for under PAS 11, Construction Contracts, or involves rendering of services in which case revenue is
recognized based on stage of completion. Contracts involving provision of services with the construction materials and where the risks
and reward of ownership are transferred to the buyer on a continuous basis will also be accounted for based on stage of completion.
 Philippine Interpretation IFRIC 17, Distributions of Noncash Assets to Owners
This interpretation is effective for annual periods beginning on or after July 1, 2009 with early application permitted. It provides
guidance on how to account for non-cash distributions to owners. The interpretation clarifies when to recognize a liability, how to
measure it and the associated assets, and when to derecognize the asset and liability.
Improvements to PFRS
The omnibus amendments to PFRS issued in 2009 were issued primarily with a view to removing inconsistencies and clarifying wording.
The amendments are effective for annual periods financial years January 1, 2010 except otherwise stated. The Company has not yet
adopted the following amendments and anticipates that these changes will have no material effect on the financial statements.
 PFRS 2, Share-based Payment: clarifies that the contribution of a business on formation of a joint venture and combinations under
common control are not within the scope of PFRS 2 even though they are out of scope of PFRS 3, Business Combinations (Revised).
The amendment is effective for financial years on or after July 1, 2009.
 PFRS 5, Noncurrent Assets Held for Sale and Discontinued Operations: clarifies that the disclosures required in respect of noncurrent
assets and disposal groups classified as held for sale or discontinued operations are only those set out in PFRS 5. The disclosure
requirements of other PFRS only apply if specifically required for such noncurrent assets or discontinued operations.
 PFRS 8, Operating Segment Information: clarifies that segment assets and liabilities need only be reported when those assets and
liabilities are included in measures that are used by the chief operating decision maker.
2009 ANNUAL REPORT
41
 PAS 1, Presentation of Financial Statements: clarifies that the terms of a liability that could result, at anytime, in its settlement by the
issuance of equity instruments at the option of the counterparty do not affect its classification.
 PAS 7, Statement of Cash Flows: explicitly states that only expenditure that results in a recognized asset can be classified as a cash
flow from investing activities.
 PAS 17, Leases: removes the specific guidance on classifying land as a lease. Prior to the amendment, leases of land were classified
as operating leases. The amendment now requires that leases of land are classified as either ‘finance’ or ‘operating’ in accordance
with the general principles of PAS 17. The amendments will be applied retrospectively.
 PAS 36, Impairment of Assets: clarifies that the largest unit permitted for allocating goodwill, acquired in a business combination, is
the operating segment as defined in PFRS 8 before aggregation for reporting purposes.
 PAS 38, Intangible Assets: clarifies that if an intangible asset acquired in a business combination is identifiable only with another
intangible asset, the acquirer may recognize the group of intangible assets as a single asset provided the individual assets have similar
useful lives. Also clarifies that the valuation techniques presented for determining the fair value of intangible assets acquired in a
business combination that are not traded in active markets are only examples and are not restrictive on the methods that can be used.
 PAS 39, Financial Instruments: Recognition and Measurement: clarifies the following:
-
that a prepayment option is considered closely related to the host contract when the exercise price of a prepayment option
reimburses the lender up to the approximate present value of lost interest for the remaining term of the host contract.
-
that the scope exemption for contracts between an acquirer and a vendor in a business combination to buy or sell an acquiree at
a future date applies only to binding forward contracts, and not derivative contracts where further actions by either party are still
to be taken.
-
that gains or losses on cash flow hedges of a forecast transaction that subsequently results in the recognition of a financial
instrument or on cash flow hedges of recognized financial instruments should be reclassified in the period that the hedged
forecast cash flows affect profit or loss.
 Philippine Interpretation IFRIC 9, Reassessment of Embedded Derivatives: clarifies that it does not apply to possible reassessment
at the date of acquisition, to embedded derivatives in contracts acquired in a business combination between entities or businesses
under common control or the formation of joint venture.
 Philippine Interpretation IFRIC 16, Hedge of a Net Investment in a Foreign Operation: states that, in a hedge of a net investment in a foreign
operation, qualifying hedging instruments may be held by any entity or entities within the group, including the foreign operation itself, as long
as the designation, documentation and effectiveness requirements of PAS 39 that relate to a net investment hedge are satisfied.
Cash and Cash Equivalents
Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known
amounts of cash with original maturities of three months or less and that are subject to an insignificant risk of change in value.
Short-term Investments
Short-term investments are investments with maturities of more than three months to one year.
Financial Assets and Liabilities
Date of Recognition. The Company recognizes a financial asset or a financial liability in the statement of financial position when it becomes
a party to the contractual provisions of the instrument. In the case of a regular way purchase or sale of financial assets, recognition and
derecognition, as applicable, is done using settlement date accounting.
Initial Recognition. Financial assets and financial liabilities are recognized initially at fair value. Transaction costs are included in the initial
measurement of all financial assets and liabilities, except for financial instruments measured at fair value through profit or loss (FVPL).
Financial instruments are classified as liability or equity in accordance with the substance of the contractual arrangement. Interest,
dividends, gains and losses relating to a financial instrument or a component that is a financial liability, are reported as expense or income.
Distributions to holders of financial instruments classified as equity are charged directly to equity, net of any related income tax benefits.
Financial assets are further classified into the following categories: financial assets at FVPL, loans and receivables, held-to-maturity (HTM)
investments, and AFS investments. Financial liabilities are classified as financial liabilities at FVPL or other financial liabilities. The Company
determines the classification at initial recognition and re-evaluates this designation at every reporting date.
42
MAYNILAD
Financial Assets and Financial Liabilities at FVPL. A financial asset or financial liability is classified in this category if acquired principally for
the purpose of selling or repurchasing in the near term or upon initial recognition, it is designated by the management as FVPL. Financial
assets or financial liability at FVPL are designated by management on initial recognition when any of the following criteria are met:
 The designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or
liabilities or recognizing gains or losses on them on a different basis or;
 The assets and liabilities are part of a group of financial assets, financial liabilities or both which are managed and their performance
evaluated on a fair value basis, in accordance with a documented risk management or investment strategy; or
 The financial instrument contains an embedded derivative, unless the embedded derivative does not significantly modify the cash
flows or it is clear, with little or no analysis, that it would not be separately recorded.
Derivatives are also categorized as held at FVPL, except those derivatives designated and considered as effective hedging instruments.
Financial assets and financial liabilities at FVPL are recorded in the statement of financial position at fair value and are classified as current
assets. Changes in fair value of such assets are accounted for in the statement of income. Interest earned is recorded in interest income,
while dividend income is recorded in other operating income according to the terms of the contract, or when the right of the payment has
been established.
The Company has no financial assets or liabilities at FVPL as of December 31, 2009 and 2008.
Loans and Receivables. Loans and receivables are nonderivative financial assets with fixed or determinable payments that are not quoted
in an active market. Loans and receivables are carried at cost or amortized cost in the statement of financial position. Amortization
is determined using the effective interest method and is included under the interest income in the statement of income. Loans and
receivables are included in current assets if maturity is within twelve months from the statement of financial position date. Otherwise, these
are classified as noncurrent assets.
This category includes the Company’s cash and cash equivalents, short-term investments, trade and other receivables, deposits, sinking
fund and miscellaneous deposits (see Notes 4, 5, 6 and 9).
HTM Investments. HTM investments are nonderivative financial assets with fixed or determinable payments and fixed maturities wherein
the Company has the positive intention and ability to hold to maturity. HTM assets are carried at cost or amortized cost in the statement
of financial position. Amortization is determined by using the effective interest method. Assets under this category are classified as current
assets if maturity is within twelve months from statement of financial position date and as noncurrent assets if maturity date is more than a
year from statement of financial position date.
The Company has no HTM investments as of December 31, 2009 and 2008.
AFS Investments. AFS investments are nonderivatives that are either designated in this category or not classified in any of the other
categories. AFS investments are carried at fair value in the statement of financial position. Changes in the fair value of such assets are
accounted for in the statement of comprehensive income. These financial assets are classified as noncurrent assets unless the intention is
to dispose such assets within twelve months from statement of financial position date.
The Company has an unquoted AFS investment as of December 31, 2009 and 2008 (see Note 9).
Other Financial Liabilities at Amortized Cost. This classification includes loans and borrowings which are initially recognized at fair value of
the consideration received less directly attributable transaction costs (i.e. debt issuance costs).
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the effective interest
method.
Gains or losses are recognized in statement of income when the liabilities are derecognized as well as through the amortization process.
Debt issuance costs are amortized using the effective interest method. The unamortized debt issuance costs are netted against the related
carrying value of the debt instrument.
This category includes interest-bearing loans, trade and other payables, service concession obligation payable to MWSS, payables arising
from rate rebasing and customers’ deposits (see Notes 1, 10, 11 and 12).
2009 ANNUAL REPORT
43
Determination of Fair Value. The fair value of financial instruments that are actively traded in organized financial markets is determined by
reference to quoted market bid prices at the close of business at the statement of financial position date. When current bid and asking
prices are not available, the price of the most recent transaction provides evidence of the current fair value as long as there has not been a
significant change in economic circumstances since the time of the transaction. For financial instruments where there is no active market,
fair value is determined using valuation techniques. Such techniques include using reference to a similar instrument for which market
observable prices exist, discounted cash flow analysis and other relevant valuation models.
Day 1 profit. Where the transaction price in a non-active market is different from the fair value of other observable current market transactions
in the same instrument or based on a valuation technique whose variables include only data from observable market, the Company
recognizes the difference between the transaction price and fair value (a Day 1 profit) in the statement of income unless it qualifies
for recognition as some other type of asset. In cases where use is made of data which is not observable, the difference between the
transaction price and model value is only recognized in the statement of income when the inputs become observable or when the
instrument is derecognized. For each transaction, the Company determines the appropriate method of recognizing the “Day 1” profit
amount. The Company has determined that the discounted cash flow analysis using the credit-adjusted PDEx interest rates is appropriate
in determining the fair value of miscellaneous deposits.
Impairment of Financial Assets
The Company assesses at each statement of financial position date whether a financial asset or group of financial assets is impaired.
Assets Carried at Amortized Cost. If there is objective evidence that an impairment loss on loans and receivables carried at amortized cost
has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of
estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective
interest rate (i.e., the effective interest rate computed at initial recognition). The carrying amount of the asset shall be reduced either directly
or through use of an allowance account. The amount of the loss shall be recognized in the statement of income.
The Company first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant,
and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of
impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets
with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually
assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of
impairment.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring
after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment
loss is recognized in the statement of income, to the extent that the carrying value of the asset does not exceed its amortized cost at the
reversal date.
Assets Carried at Cost. If there is objective evidence that an impairment loss on an unquoted equity instrument that is not carried at fair
value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an
unquoted equity instrument has been incurred, the amount of the loss is measured as the difference between the asset’s carrying
amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset.
AFS Investments. If an AFS investment is impaired, an amount comprising the difference between its cost (net of any principal payment
and amortization) and its current fair value, less any impairment loss previously recognized in the statement of comprehensive income,
is transferred from other comprehensive income to the statement of income. Reversals of impairment losses on AFS instruments are
reversed through statement of comprehensive income, if the increase in fair value of the instrument can be objectively related to an event
occurring after the impairment loss was recognized in the statement of comprehensive income.
Derecognition of Financial Assets and Liabilities
Financial Assets. A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is
derecognized when:
 the rights to receive cash flows from the asset have expired;
 the Company retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material
delay to a third party under a “pass-through” arrangement; or
 the Company has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and
rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred
control of the asset.
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MAYNILAD
When the Company has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all
the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Company’s continuing
involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of
original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay.
Financial Liabilities. A financial liability is derecognized when the obligation under the liability is discharged or cancelled or has expired.
When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing
liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition
of a new liability, and the difference in the respective carrying amounts is recognized in the statement of income.
Offsetting Financial Instruments
Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial position if, and only if, there is
a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset
and settle the liability simultaneously.
Materials and Supplies
Materials and supplies (shown as part of others under “Other current assets” account) are valued at the lower of cost or net realizable value.
Cost is determined using the weighted average method. Net realizable value is the current replacement cost.
The Company accounts for its concession arrangement with MWSS under the Intangible Asset model as it receives the right (license) to
charge users of public service. Under the Concession Agreement, the Company is granted the sole and exclusive right and discretion
during the concession period to manage, occupy, operate, repair, maintain, decommission and refurbish the identified facilities required to
provide water services. The legal title to these assets shall remain with MWSS at the end of the concession period.
The “Service Concession Assets” (SCA) pertain to the fair value of the service concession obligations at drawdown date and construction
costs related to the rehabilitation works performed by the Company. The SCA are amortized using the straight-line method over the life of
the concession.
In addition, the Company recognized and measures revenue from rehabilitation works in accordance with PAS 11 and PAS 18 for the
services it performs.
Property and equipment, except land, are stated at cost less accumulated depreciation and any impairment in value (see policy on
“Impairment of Nonfinancial Assets”). Land is stated at cost.
The initial cost of property and equipment comprises its purchase price, including import duties, taxes and any directly attributable costs
in bringing the asset to its working condition and location for its intended use. Expenditures incurred after the property and equipment
have been put into operation, such as repairs and maintenance, are normally charged to income in the period such costs are incurred. In
situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected
to be obtained from the use of an item of property and equipment beyond its originally assessed standard of performance, the expenditures
are capitalized as additional costs of property and equipment.
Depreciation is calculated for each significant item or part of an item of property and equipment on a straight-line basis over the following
estimated useful lives:
Land improvements
Instrumentation, tools and other equipment
Office furniture, fixtures and equipment
Transportation equipment
5 years
5 years
5 years
5 years
The Company computes for depreciation charges based on the significant component of the asset.
The useful lives and depreciation method are reviewed periodically to ensure that the periods and method of depreciation are consistent
with the expected pattern of economic benefits from items of property and equipment.
An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the
continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal
proceeds and the carrying amount of the items) is included in the statement of income in the year the item is derecognized.
2009 ANNUAL REPORT
45
Impairment of Nonfinancial Assets (Property and Equipment and Service Concession Assets)
An assessment is made at each statement of financial position date to determine whether there is any indication of impairment of any long-lived
assets, or whether there is any indication that an impairment loss previously recognized for an asset in prior years may no longer exist or may have
decreased. If any such indication exists, the asset’s recoverable amount is estimated. An asset’s recoverable amount is calculated as the higher of
the asset’s value in use or its net selling price. In assessing value in use, the estimated future cash flows are discounted to their present value using
a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
An impairment loss is recognized only if the carrying amount of an asset exceeds its recoverable amount. An impairment loss is charged to
operations in the year in which it arises.
A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the recoverable
amount of an asset, however, not to an amount higher than the carrying amount that would have been determined (net of any depreciation
and amortization) had no impairment loss been recognized for the asset in prior years. A reversal of an impairment loss is credited to
current operations.
Software Cost
Software cost (included as part of “Other noncurrent assets - net” account in the statements of financial position) includes the cost of
software purchased from a third party and other direct costs incurred in the software configuration and interface, coding and installation to
hardware, including parallel processing, and data conversion. This will be amortized on a straight-line basis over the estimated useful life of
five years. The carrying cost is reviewed for impairment on an annual basis.
Foreign Currency-Denominated Transactions
Foreign exchange differentials arising from foreign currency transactions are credited or charged to operations. As approved by the
MWSS Board of Trustees (BOT) under Amendment No. 1 of the Concession Agreement, the following will be recovered through billings to
customers:
 Restatement of foreign currency-denominated loans;
 Excess of actual Concession Fee payments over the amounts of Concession Fees translated using the base exchange rate assumed
in the business plan approved every rate rebasing exercise;
 Excess of actual interest payments translated at exchange spot rates on settlement dates over the amounts of interest translated at
drawdown date rates; and
 Excess of actual payments of other financing charges relating to foreign currency-denominated loans translated at exchange spot
rates on settlement dates over the amount of other financing charges translated at drawdown date rates.
In view of the automatic reimbursement mechanism, the Company recognized a deferred FCDA (included as part of “Other noncurrent
assets - net” or “Deferred credits and other noncurrent liabilities” account in the statements of financial position) with a corresponding credit
(debit) to FCDA revenues for the unrealized foreign exchange losses (net of foreign exchange gains) which have not been billed or which
will be refunded to the customers. The write-off of the deferred FCDA or reversal of deferred credits pertaining to concession fees will be
made upon determination of the new base foreign exchange rate, which is assumed in the business plan approved by the Regulatory Office
during the latest Rate Rebasing exercise, unless indication of impairment of the deferred FCDA would be evident at an earlier date.
Customers’ Deposits
Customers’ deposits, presented under “Deferred credits and other noncurrent liabilities” account in the statements of financial position,
are initially measured at fair value. After initial recognition, these deposits are subsequently measured at amortized cost using the effective
interest method. Amortization of customers’ deposits is included under “Interest expense” in the statements of income. The discount is
recognized as deferred credits and amortized over the remaining concession period using the effective interest method. Amortization of
deferred credits is included in “Other income” in the statements of income.
As of December 31, 2009 and 2008, the discount, shown as part of “Deferred credits and other noncurrent liabilities” account in the
statements of financial position, amounted to P294.3 million and P283.7 million, respectively.
Assets Held in Trust
Assets which are owned by MWSS but are used in the operations of the Company under the Concession Agreement are not reflected
in the statement of financial position but carried as Assets Held in Trust, except for certain assets transferred to the Company as
mentioned in Note 23.
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MAYNILAD
Revenue
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably
measured. Revenues from water and sewerage services are recognized upon supply of water to the customers and when the related
services are rendered. Billings to customers consist of the following:
a.
Water charges
 Basic charges represent the basic tariff charged to consumers for the provision of water services. The basic tariff is subject to
CPI, EPA and Rate Rebasing adjustments (see Note 1).
 CERA is one peso charged per cubic meter of water consumed.
 FCDA is the tariff mechanism that allows the Company to recover foreign exchange losses or to compensate foreign exchange
gains on a current basis beginning January 1, 2002 until the Expiration Date.
 Maintenance service charge represents a fixed monthly charge per connection. The charge varies depending on the meter size.
b.
Environmental charge (included as part of revenue from sewer/sanitation services) represents 10% of the water charges, except for
maintenance charge.
c.
Sewerage charge represents 50% of the water charges, except for maintenance charge, for all consumers connected to the
Company’s sewer lines.
Interest income is recognized as the interest accrues using the effective interest method.
When the Company provides construction or upgrade services, the consideration received or receivable is recognized at its fair value. The
Company accounts for revenue and costs relating to operation services in accordance with PAS 11 and PAS 18 (shown as “Revenue from
rehabilitation works” and “Cost of rehabilitation works”).
Leases
The determination of whether an arrangement is, or contains a lease, is based on the substance of the arrangement at inception date of
whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use
the asset. A reassessment is made after the inception of the lease only if one of the following applies:
(a)
(b)
(c)
(d)
There is a change in contractual terms, other than a renewal of or extension of the arrangement;
A renewal option is exercised or extension granted, unless the term of the renewal or extension was initially included in the lease term;
There is a change in the determination of whether fulfillment is dependent on a specified asset; or
There is a substantial change to the asset.
Where reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances gave rise to
the reassessment scenarios (a), (c) or (d) and at the date of renewal or extension period for scenario (b).
A lease where the lessor retains substantially all the risks and benefits of ownership of the asset is classified as an operating lease.
Operating lease payments are recognized as an expense in the statement of income on a straight-line basis over the lease term.
Borrowing Costs
Borrowing costs generally are expensed as incurred. Borrowing costs are capitalized if they are directly attributable to the acquisition or
construction of a qualifying asset. Capitalization of borrowing costs commences when the activities to prepare the asset are in progress
and expenditures and borrowing costs are being incurred. Borrowing costs are capitalized until the assets are substantially ready for their
intended use. If the carrying amount of the asset exceeds its recoverable amount, an impairment loss is recorded.
Income Taxes
Deferred income tax is provided, using the balance sheet liability method, on all temporary differences at the statement of financial position
date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets are recognized for all deductible temporary
differences to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be
utilized. Deferred income tax, however, is not recognized when the deductible and taxable temporary differences arise from the initial
recognition of asset or liability in a transaction that is not a business combination and, at the time of transaction, affects neither the
accounting profit nor taxable profit or loss.
2009 ANNUAL REPORT
47
The carrying amount of deferred tax assets is reviewed at each statement of financial position date and reduced to the extent that it is
no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to be utilized. Unrecognized
deferred tax assets are reassessed at each statement of financial position date and are recognized to the extent that it has become
probable that future taxable profit will allow all or part of the deferred tax assets to be recovered.
Deferred tax assets and liabilities are measured at the tax rate that is expected to apply to the period when the assets are realized or the liabilities are
settled, based on the tax rates (and tax laws) that have been enacted or substantively enacted as of the statement of financial position date.
Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to offset current tax assets against current
tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
Provisions
Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that
an outflow of resources embodying economic benefits will be required to settle the obligations and a reliable estimate can be made of the
amount of the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future
cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific
to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as an interest expense.
Pension Cost
The Company has a funded, noncontributory defined benefit plan. The cost of providing benefits under the defined benefit plan is
determined using the projected unit credit method. Actuarial gains and losses are recognized as income or expense when the net
cumulative unrecognized actuarial gains and losses for the plan at the end of the previous reporting year exceeded 10% of the higher of the
defined benefit obligation and the fair value of plan assets at that date. These gains or losses are recognized over the expected average
remaining working lives of the employees participating in the plan.
The past service cost is recognized as an expense on a straight-line basis over the average period until the benefits become vested. If
the benefits are already vested immediately following the introduction of, or changes to, a pension plan, past service cost is recognized
immediately.
The defined benefit liability is the aggregate of the present value of the defined benefit obligation and actuarial gains and losses not
recognized, reduced by past service cost not yet recognized and the fair value of plan assets out of which the obligations are to be settled
directly. If such aggregate is negative, the asset is measured at the lower of such aggregate or the aggregate of cumulative unrecognized
net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan or
reductions in the future contributions to the plan.
Contingencies
Contingent liabilities are not recognized in the financial statements. They are disclosed unless the possibility of an outflow of resources
embodying economic benefits is remote. Contingent assets are not recognized in the financial statements but are disclosed when an inflow
of economic benefits is probable. Contingent assets are not recognized unless virtually certain.
Events After the Balance Sheet Date
Subsequent events that provide additional information about the Company’s financial position at reporting date (adjusting events), if any,
are reflected in the financial statements. However, subsequent events that are not adjusting events, if any, are disclosed in the notes to
financial statements when material.
Earnings per share (EPS)
Basic EPS is computed based on the weighted average number of outstanding shares and adjusted to give retroactive effect to any
stock split during the year. There are no dilutive potential common shares outstanding that would require disclosure of diluted EPS in the
statements of income.
3. Significant Accounting Judgments, Estimates and Assumptions
The preparation of the financial statements in accordance with PFRS requires the Company to make estimates and assumptions that affect
the reported amounts of assets, liabilities, income and expenses and disclosure of contingent liabilities, at the reporting date. In preparing
the Company’s financial statements, management has made its best estimates and judgments of certain amounts, giving due consideration
to materiality. The estimates and assumptions used in the accompanying financial statements are based upon management’s evaluation
of relevant facts and circumstances as of the date of the financial statements. Future events may occur which will cause the assumptions
used in arriving at the estimates to change. The effects of any change in estimates are reflected in the financial statements as they become
reasonably determinable.
48
MAYNILAD
Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of
future events that are believed to be reasonable under the circumstances.
Judgments
In the process of applying the Company’s accounting policies, management has made the following judgments, apart from those involving
estimations, which have the most significant effect on the amounts recognized in the financial statements.
Service Concession Assets. The Company accounts for its concession arrangement with MWSS under the Intangible Asset model as
it receives the right (license) to charge users of public service. The Service Concession Asset (SCA) is amortized using the straight-line
method over the life of the concession.
Transitional and Clarificatory Agreement (TCA). On August 9, 2007, the Company entered into a TCA with MWSS to prescribe the
procedures for the resolution of their dispute (see Note 12). Pending resolution of the dispute, the disputed amount of P3.8 billion and P3.5
billion as of December 31, 2009 and 2008, respectively, is considered a contingent liability. In addition, the Company did not recognize
the reversal of accrued interest payable to MWSS, which resulted from the Receiver’s recommendation, pending final resolution of MWSS’
disputed claims pursuant to the procedures prescribed under the TCA.
Operating Lease Commitments - Company as Lessee. The Company has determined, based on the evaluation of the terms and
conditions of the arrangements, that the significant risks and rewards for properties leased from third parties are retained by the lessors and
accordingly, accounts for these lease contracts as operating leases.
Total rental expense amounted to P77.2 million, P66.7 million and P90.1 million in 2009, 2008 and 2007, respectively.
Contingencies. The Company is currently involved in legal and administrative proceedings. The Company’s estimate of the probable costs
for the resolution of these claims has been developed in consultation with outside legal counsel handling defense in these matters and is
based upon an analysis of potential results. The Company currently does not believe these proceedings will have a material adverse effect
on the Company’s financial position. It is possible, however, that future results of operations could be materially affected by changes in the
estimates or in the effectiveness of strategies relating to these proceedings (see Note 19).
Estimates and Assumptions
The key assumptions concerning the future and other key sources of estimation uncertainty at the statement of financial position date, that
have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are
discussed below.
Financial Assets and Liabilities. PFRS requires that certain financial assets and liabilities be carried at fair value, which requires the use of
accounting estimates and judgments. While significant components of fair value measurement are determined using verifiable objective
evidence (i.e., foreign exchange rates, interest rates, volatility rates), the timing and amount of changes in fair value would differ with the
valuation methodology used. Any change in the fair value of these financial assets and liabilities would directly affect income and equity.
The fair values of financial assets and liabilities are set out in Note 25.
Revenue and Cost Recognition. The Company’s revenue recognition policies require management to make use of estimate and
assumptions that may affect the reported amounts of revenue. The Company measures revenue from rehabilitation works at the fair
value of the consideration received or receivable. The Company’s revenue from rehabilitation works recognized based on the percentage
of completion are measured principally on the basis of the estimated completion of a physical proportion of the contract works, and by
reference to the actual costs incurred to date over the estimated total costs of the project. Given that the Company has subcontracted
the rehabilitation works to outside contractors (excluding the cost of some materials for some contractors), the recognized revenue from
rehabilitation works substantially approximates the related cost.
Allowance for Doubtful Accounts. The Company estimates the allowance for doubtful accounts related to the trade receivables based
on two methods. The amounts calculated using each of these methods are combined to determine the total amount of reserve. First,
the Company evaluates specific accounts that are considered individually significant for any objective evidence that certain customers
are unable to meet their financial obligations. In these cases, the Company uses judgment, based on the best available facts and
circumstances, including but not limited to, the length of its relationship with the customer and the customer’s current credit status based
on third party credit reports and known market factors. The reserve provided is based on the difference between the present value of
the receivables the Company expects to collect, discounted at the receivables’ original effective interest rate and the carrying amount of
the receivable. These specific reserves are re-evaluated and adjusted as additional information received affects the amounts estimated.
Second, if it is determined that no objective evidence of impairment exists for an individually assessed receivable, the receivable is included
in a group of receivables with similar credit risk characteristics and is collectively assessed for impairment. The provision under collective
assessment is based on historical collection, write-off, experience and change in customer payment terms. Impairment assessment is
performed on a continuous basis throughout the year.
2009 ANNUAL REPORT
49
The amount and timing of recorded expenses for any period would therefore differ based on the judgments or estimates made. Provision
for doubtful accounts amounted to P226.3 million, P102.4 million and P170.7 million in 2009, 2008 and 2007, respectively. An increase in
allowance for doubtful accounts would increase the Company’s recorded expenses and decrease trade and other receivables. Trade and
other receivables, net of allowance for doubtful accounts, amounted to P1.5 billion and P1.4 billion as of December 31, 2009 and 2008,
respectively (see Note 5).
Estimated Useful Lives of Service Concession Assets. In accordance with PAS 38, the useful life of the service concession agreement
was revised, to include the renewal period approved by the MWSS. Though the Company’s extension is still subject to a written consent
from the DoF as of December 31, 2009 (see Note 1), the Company revised the estimated useful life of the SCA effective September 10,
2009 (MWSS approval date) due to the following: (1) there is evidence, based on a precedent approval of the DoF, that the term of
the Concession Agreement will be extended. Management believes that a similar approval will be granted to them by the DoF as the
extension of both concessions is critical to the attainment of the objectives of the extension; and (2) the cost of renewal is not significant
when compared with the future economic benefits expected to flow to the Company from the renewal of the Concession Agreement. The
change in the estimated useful life of the SCA relating to the extension of the concession period resulted in a decrease in amortization of
service concession assets and increase in SCA amounting to P236.4 million for the year ended December 31, 2009.
Amortization of service concession assets amounted to P1.3 billion in 2009 and 2008, and P1.1 billion in 2007. Service concession assets,
net of accumulated amortization amounted to P29.1 billion and P22.2 billion as of December 31, 2009 and 2008, respectively (see Note 8).
Estimated Useful Lives of Property and Equipment. The useful life of each item of the Company’s property and equipment is estimated
based on the period over which the asset is expected to be available for use. Such estimation is based on a collective assessment of
practices of similar businesses, internal technical evaluation and experience with similar assets. The estimated useful life of each asset is
reviewed periodically and updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial
obsolescence and legal or other limits on the use of the asset. It is possible, however, that future results of operations could be materially
affected by changes in the amounts and timing of recorded expenses brought about by changes in the factors mentioned above. A reduction
in the estimated useful life of any item of property and equipment would increase the recorded depreciation expense and decrease property
and equipment.
Property and equipment, net of accumulated depreciation and amortization amounted to P333.8 million and P330.3 million as of
December 31, 2009 and 2008, respectively (see Note 7).
Deferred Tax Assets. The carrying amount of deferred tax assets is reviewed at each statement of financial position date and reduced to
the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to be utilized.
However, there is no assurance that sufficient taxable profit will be generated to allow all or part of the deferred tax assets to be utilized.
The Company recognized deferred taxes on deductible temporary differences expected to reverse after the income tax holiday until 2015.
The Company did not recognize deferred taxes on deductible temporary differences that are expected to reverse during the income tax
holiday period and to items where doubt exists as to the tax benefits they will bring in the future. Net deferred tax assets recognized
amounted to P1.4 billion and P3.0 billion as of December 31, 2009 and 2008, respectively. Net deferred tax assets derecognized resulting
from the extension of the income tax holiday amounted to P1.7 billion in 2009 (see Notes 15 and 20). Unrecognized deferred tax assets
amounted to P256.0 million and P188.1 million as of December 31, 2009 and 2008, respectively (see Note 15).
Deferred FCDA and Deferred Credits. Under Amendment No.1 of the Agreement, the Company is entitled to recover (refund) foreign
exchange losses (gains) arising from MWSS loans and any concessionaire loans. For the unrealized foreign exchange losses, the Company
recognized deferred FCDA as an asset since this is a resource controlled by the Company as a result of past events and from which future
economic benefits are expected to flow to the Company. Unrealized foreign exchange gains, however, which will be refunded to the
customers, are presented as deferred credits. As a result of the second rate rebasing, deferred credits that will no longer be subject to the
FCDA mechanism were derecognized and presented as “Other income from rate rebasing resolutions” in the 2009 statement of income
(see Note 1). Deferred credits pertaining to foreign exchange gains that are still refundable to the customers amounted to P0.2 billion and
P2.5 billion as of December 31, 2009 and 2008, respectively (see Note 1).
Asset Impairment. The Company assesses impairment on assets whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The factors that the Company considers important which could trigger an impairment review
include the following:
 significant underperformance relative to expected historical or projected future operating results;
 significant changes in the manner of use of the acquired assets or the strategy for overall business; and
 significant negative industry or economic trends.
50
MAYNILAD
The Company recognizes an impairment loss whenever the carrying amount of an asset exceeds its recoverable amount. The recoverable
amount is computed using the value in use approach. Recoverable amounts are estimated for individual assets or, if it is not possible, for
the cash-generating unit to which the asset belongs. Determining the recoverable amount of assets requires the estimation of cash flows
expected to be generated from the continued use and ultimate disposition of such assets. While it is believed that the assumptions used in
the estimation of fair values reflected in the financial statements are appropriate and reasonable, significant changes in these assumptions may
materially affect the assessment of recoverable amounts and any resulting impairment loss could have a material adverse impact on the results
of operations.
Noncurrent nonfinancial assets subject to impairment test when certain impairment indicators are present follow:
Service concession assets - net (see Note 8)
Property and equipment - net (see Note 7)
Total
2009
2008
P29,062,512
P22,236,673
333,824
330,268
P29,396,336
P22,566,941
As discussed in Note 1, the MWSS-RO issued MWSS-RO resolution No. 209-069, where certain issues were resolved that had an impact
on the new rate rebasing adjustment or “R”. Management noted that said resolution may have an impact on the expected cash flows from
the Company’s operations. Consequently, management performed an impairment calculation of the SCA as at December 31, 2009 using
the new “R” under said resolution. Based on the impairment analysis, management believes that the recoverable amount of the SCA is
higher than its carrying value.
No impairment loss was recognized in 2009 and 2008.
Pension Cost. The determination of the obligation and cost for pension are dependent on the selection of certain assumptions used
by actuaries in calculating such amounts. Those assumptions are described in Note 16 and include, among others, discount rate,
salary increase rate and expected rate of return on plan assets. In accordance with PFRS, actual results that differ from the Company’s
assumptions are accumulated and amortized over future periods and therefore, generally affect the recognized expense and recorded
obligation in such future periods. While it is believed that the Company’s assumptions are reasonable and appropriate, significant
differences in actual experience or significant changes in assumptions may materially affect the Company’s pension liability.
Pension liability amounted to P238.1 million and P330.9 million as of December 31, 2009 and 2008, respectively. Unrecognized actuarial
gain amounted to P265.1 million and P95.2 million as of December 31, 2009 and 2008, respectively (see Note 16).
4. Cash and Cash Equivalents
Cash on hand and in banks
Cash equivalents
2009
2008
P198,775
P229,080
1,688,148
1,134,160
P1,886,923
P1,363,240
Cash in banks earn interest at the respective bank deposit rates. Cash equivalents are made for varying periods of between one day and
three months depending on the immediate cash requirements of the Company and earn interest at the respective short-term investment
rates. Short-term investments with original maturities of more than three months to one year are shown separately in the statements of
financial position.
Interest income earned from cash in banks and short-term investments amounted to P142.5 million, P113.5 million and P82.9 million for
the years ended December 31, 2009, 2008 and 2007, respectively (see Note 17).
2009 ANNUAL REPORT
51
5. Trade and Other Receivables
This account consists of receivables from:
2009
2008
Customers:
Residential
P1,388,158
P1,090,216
Commercial
563,500
545,061
Semi-business
155,930
143,227
Industrial
152,306
165,018
2,259,894
1,943,522
Employees
Others
Less allowance for doubtful accounts
20,459
13,173
109,062
119,937
2,389,415
2,076,632
853,322
627,056
P1,536,093
P1,449,576
The classes of the Company’s receivables from customers are as follows:




Residential - pertains to receivables arising from water and sewer service use for domestic sanitary purposes only.
Commercial - pertains to receivables arising from water and sewer service use for commercial purposes.
Semi-business - pertains to receivables arising from water and sewer service use for small businesses.
Industrial - pertains to receivables arising from water and sewer service use for industrial purposes, including services for
manufacturing.
The movements in the Company’s allowance for doubtful accounts follow:
2009
Receivable from Customers
At January 1
Charge for the year
At December 31
Other
Residential
Semi-business
Commercial
Industrial
Receivables
Total
P267,970
P57,438
P222,146
P73,019
P6,483
P627,056
79,710
22,361
30,807
21,803
71,585
226,266
P347,680
P79,799
P252,953
P94,822
P78,068
P853,322
2008
Receivable from Customers
At January 1
Charge for the year
At December 31
Semi-business
Commercial
Industrial
Receivables
Total
P211,206
P49,776
P192,989
P64,192
P6,483
P524,646
56,764
7,662
29,157
8,827
–
102,410
P267,970
P57,438
P222,146
P73,019
P6,483
P627,056
There were no receivables that were individually impaired in 2009 and 2008.
52
MAYNILAD
Other
Residential
6. Other Current Assets
2009
2008
P554,400
P–
Sinking fund (see Note 10)
526,103
507,665
Advances to contractors
272,026
158,085
89,548
66,887
P1,442,077
P732,637
Deposits (see Note 22)
Others
In 2009, deposits represent short-term pledged deposits securing the US$12.0 million performance bond in compliance with the terms of
the Concession Agreement (see Note 22).
The sinking fund represents the amount set aside to cover semi-annual interest payment of loans (see Note 10).
7.
The rollforward analysis of this account follows:
December 31, 2009
At December 31, 2008, net of
accumulated depreciation
Additions
Disposals - net
Depreciation charge
for the year
Land
and Land
Improvements
Instrumentation,
Tools and
Other
Equipment
Office
Furniture,
Fixtures and
Equipment
Transportation
Equipment
Total
P32,733
P122,525
P70,099
P104,911
P330,268
71,790
16,256
39,285
–
127,331
–
–
–
(7,697)
(7,697)
(108)
(50,857)
(38,751)
(26,362)
(116,078)
P104,415
P87,924
P70,633
P70,852
P333,824
P33,075
P249,400
P343,071
P213,903
P839,449
(342)
(126,875)
(272,972)
(108,992)
(509,181)
P32,733
P122,525
P70,099
P104,911
P330,268
P104,865
P265,656
P382,356
P190,061
P942,938
(450)
(177,732)
(311,723)
(119,209)
(609,114)
P104,415
P87,924
P70,633
P70,852
P333,824
At December 31, 2008:
Cost
Accumulated depreciation
Net book value
Cost
Net book value
2009 ANNUAL REPORT
53
December 31, 2008
Land
Instrumentation,
Tools and
Other
Equipment
Office
Furniture,
Fixtures and
Equipment
Transportation
Equipment
Total
P26,409
P72,779
P9,081
P92,888
P201,157
6,468
76,313
129,750
40,664
253,195
–
(2,870)
(12,168)
(18)
(15,056)
(144)
(23,697)
(56,564)
(28,623)
(109,028)
P32,733
P122,525
P70,099
P104,911
P330,268
P26,607
P224,736
P284,606
P201,448
P737,397
(198)
(151,957)
(275,525)
(108,560)
(536,240)
P26,409
P72,779
P9,081
P92,888
P201,157
P33,075
P249,400
P343,071
P213,903
P839,449
(342)
(126,875)
(272,972)
(108,992)
(509,181)
P32,733
P122,525
P70,099
P104,911
P330,268
Additions
Disposals - net
Depreciation charge
for the year
Cost
Net book value
Cost
Net book value
8.
The movements in this account are as follows:
2009
2008
P29,931,882
P23,556,387
Cost:
Balance at beginning of year
Additions (see Note 1)
8,148,454
6,375,495
Balance at end of year
38,080,336
29,931,882
Accumulated amortization:
7,695,209
6,411,754
Amortization
1,322,615
1,283,455
9,017,824
7,695,209
P29,062,512
P22,236,673
Service concession assets consist of the present value of total estimated concession fee payments pursuant to the Concession Agreement
and the costs of rehabilitation works incurred.
The aggregate Concession fee pursuant to the Concession Agreement is equal to the sum of the following:
54
a.
90% of the aggregate peso equivalent due under any MWSS loan which has been disbursed prior to the Commencement Date,
including MWSS loans for existing projects and the raw water conveyance component of the Umiray-Angat Transbasin Project (UATP),
on the relevant payment date set forth on the pertinent schedule of the Concession Agreement;
b.
90% of the aggregate peso equivalent due under any MWSS loan designated for the UATP which has not been disbursed prior to the
Commencement Date on the relevant payment date set forth on the pertinent schedule of the Concession Agreement;
c.
90% of the local component costs and cost overruns related to the UATP in accordance with the pertinent schedule of the
Concession Agreement;
MAYNILAD
d.
100% of the aggregate peso equivalent due under any MWSS loan designated for existing projects, which have not been disbursed
prior to the Commencement Date and have been either awarded to third party bidders or been elected by the Company for
continuation in accordance with the pertinent sections of the Concession Agreement;
e.
100% of the local component costs and cost overruns related to the existing projects in accordance with relevant schedule of the
Concession Agreement; and
f.
Maintenance and operating expenditure (MOE) representing one-half of the annual budget for MWSS for that year, provided that such
annual budget shall not exceed P200 million (as of 1997), subject to annual CPI adjustment.
Tranche B Concession Fees are additional concession fees being charged by MWSS to the Company representing the costs of borrowing
by MWSS as of December 2004.
As of December 31, 2009 and 2008, the Company has recognized Tranche B Concession Fees of US$36.9 million (US$30.1 million
under the DCRA and additional US$6.8 million finally recommended by the Receiver). Of that amount, US$31.9 million, equivalent to P1.6
billion, is shown as part of “Service concession obligation payable to MWSS” account. On January 16, 2008, the recognized Tranche B
Concession Fees and related accrued interest thereon were fully settled by the Company pursuant to the PSA (see Note 12).
Pursuant to the recommendation of the Receiver, the disputed amount being claimed by MWSS of additional Tranche B Concession Fees
of US$18.1 million as indicated in the November 10, 2006 amended Consolidated Receiver’s Report is considered as contingent liability
of the Company, as discussed in Note 19. As discussed in Note 1, the Company and MWSS has entered into a TCA to provide, among
others, the procedures for the resolution of their dispute, including the dispute on Tranche B Concession Fees.
In 2009, the Company recognized additional concession fees pertaining to the following:
9.
a.
Incremental MOE resulting from the extension of the life of the Concession Agreement to 2037 (see Note 1), specifically the 100%
increase in regulatory fees to be paid to MWSS. The Company remeasured the concession liability related to MOE using the present
value of the revised cash flows starting 2010 until 2037. The increase in the concession liability resulting from the revised cash flows,
which amounted to P2.8 billion, was capitalized as part of the SCA.
b.
Acceptance of incremental concession fees pertaining to MWSS loans from ADB 2012 and BNP Paribas amounting to P1.0 billion
at present value. Although said loans were previously obtained by MWSS to fund common purpose facilities of the Company and
the East Concessionaire, the Company did not recognize these as concession fees as such were prohibited under the Company’s
Rehabilitation Plan. Upon exit from rehabilitation in 2008, the Company and MWSS began to negotiate payment terms for these
outstanding loans for incorporation into the Company’s rebasing business plans (see Note 1). The terms of payment of the additional
concession fees were only finalized in October 2009.
Other Noncurrent Assets
2009
2008
P15,000
P15,000
Less accumulated amortization
15,000
12,000
–
3,000
Miscellaneous deposits (see Note 17)
57,934
65,527
AFS investment
10,510
10,510
Less allowance for decline in value
10,510
10,510
Software cost
–
–
P57,934
P68,527
2009 ANNUAL REPORT
55
10. Interest-Bearing Loans
2009
2008
Peso-denominated loan (Series 1)
P10,954,638
P10,954,638
Dollar-denominated loan (Series 2)
5,775,000
5,940,000
16,729,638
16,894,638
424,562
438,804
P16,305,076
P16,455,834
Less unamortized debt issuance costs (see Note 17)
Corporate Notes
On June 30, 2008, the Company entered into an Omnibus Notes Facility and Security Agreement (the Omnibus Agreement) with Banco
de Oro Unibank, Inc. and Development Bank of the Philippines (Noteholders) for US$365.0 million notes (“the Notes”) for the purpose
of financing the capital expenditures and payment of advances from shareholders (see Note 14). The Notes comprise of Series 1
amounting to US$240.0 million and Series 2 amounting to US$125.0 million. Series 1 is a peso-denominated loan which consists of
peso equivalent of US$120.0 million fixed rate note and US$120.0 million floating rate note. Series 2 is a US$125.0 million floating rate
dollar-denominated note.
Series 1 Fixed and Floating Rate Note. Bears interest of fixed benchmark rate plus 2.0% spread per annum and is payable within ten years
to commence at the end of the 36th month after the initial issue date.
Series 2 Floating Rate Note. Bears interest of LIBOR and CDS rate plus 2.0% spread per annum and is payable within ten years to
commence at the end of the 36th month after the initial issue date.
The Company’s existing Noteholders are secured by a first ranking mortgage over all of the Company’s mortgageable assets and
an assignment of all rights, title and interest of the Company to its assigned accounts, accounts receivable, project documents and
performance guarantee with Banco De Oro Unibank, Inc. as collateral agent. The Noteholders are secured further by a third party
mortgage of the Company shares representing 40.9% of the outstanding shares of the Company and a voting trust over 31.0% of the
outstanding shares of the Company. The third party mortgage and voting trust over the Company shares shall cease, terminate, and
become void at such time that the Company’s nonrevenue water or NRW is reduced to 45%.
Debt Issuance Costs. All legal, professional and registration fees incurred in relation to the availment of the Notes, totaling P451.8 million,
were capitalized starting July 2008. Debt issuance costs are amortized using the effective interest method. Amortization of debt issuance
costs amounting to P14.2 million and P13.0 million in 2009 and 2008, respectively are presented as part of “Interest expense” in the
statements of income (see Note 17).
Covenants. The Omnibus Agreement contains provisions regarding the maintenance of certain financial ratios such as debt-to-equity ratio
and debt service coverage ratio, and maintenance of debt service reserve account (see Note 6). As of December 31, 2009 and 2008, the
Company has complied with these ratios.
The repayments of loans based on existing terms are scheduled as follows:
In Original Currency
Year
US Dollar-denominated
Peso Loans
Total Peso Equivalent*
(In Millions)
2011
$1.25
P438.2
P495.9
2012
2.50
876.4
991.9
2013
2.50
876.4
991.9
2014
2015 onwards
6.25
876.3
1,165.1
112.50
7,887.3
13,084.8
$125.00
P10,954.6
P16,729.6
* Translated using the December 31, 2009 exchange rate of P46.20:US$1.
56
MAYNILAD
11. Trade and Other Payables
2009
2008
P1,296,607
P1,189,094
Accrued construction cost (see Note 14)
1,726,337
2,092,418
Other accrued expenses
2,552,668
2,374,104
P5,575,612
P5,655,616
Trade payables (see Note 14)
Trade payables include liabilities relating to assets held in trust (see Note 23) used in the Company’s operations amounting to P97.3 million
as of December 31, 2009 and 2008.
Other accrued expenses mainly consist of salaries, wages and benefits, contracted services and interest payable to the banks.
12. Service Concession Obligation Payable to MWSS
This account consists of:
Concession fees payable (see Note 8)
Accrued interest
Less current portion
2009
2008
P9,707,232
P7,499,184
985,292
985,292
10,692,524
8,484,476
2,116,063
2,742,680
P8,576,461
P5,741,796
Disputes with MWSS
In prior years, the Company has been contesting certain charges billed by MWSS relating to: (a) the basis of the computation of interest;
(b) MWSS cost of borrowings; and (c) additional penalties. Consequently, the Company has not provided for these additional charges.
These disputed charges have been reflected by virtue of the DCRA discussed in Note 1 to the financial statements. Accordingly, the
Company has recognized these additional charges, referred to as Tranche B Concession Fees in the DCRA, amounting to US$30.1
million. As discussed in Note 8, the Receiver has determined an additional amount of Tranche B Concession Fees of US$6.8 million. As of
December 31, 2009 and 2008, the Company has recognized Tranche B Concession Fees of US$36.9 million (see Note 8).
The Company reconciled its liability to MWSS with the confirmation and billings of MWSS. The difference between the amount confirmed
by MWSS and the amount recognized by the Company amounted to P3.8 billion and P3.5 billion as of December 31, 2009 and 2008,
respectively. The difference mainly pertains to disputed claims of MWSS consisting of additional Tranche B Concession Fees (see Note 8)
and interest penalty under the Concession Agreement (prior to the DCRA). The Company’s position on these charges is consistent with the
Receiver’s recommendation which was upheld by the Rehabilitation Court (see Notes 8 and 19).
Following the issuance of the Rehabilitation Court’s Order on December 19, 2007 disallowing the MWSS’ disputed claims and the
termination of the Company’s rehabilitation proceedings, the Company and MWSS are seeking to resolve the matter in accordance with the
dispute resolution requirements of the TCA.
Prior to the DCRA, the Company has accrued interest on its payable to MWSS based on the terms of the Concession Agreement, which
was disputed by the Company before the Rehabilitation Court. These already amounted to P985.0 million as of December 31, 2009
and 2008 and have been charged to interest expense in prior years. The Company maintains that the accrued interest on its payable to
MWSS has been adequately replaced by the Tranche B Concession Fees discussed above. The Company’s position is consistent with the
Receiver’s recommendation which was upheld by the Rehabilitation Court. However, the Company did not reverse this accrued interest
pending final resolution of MWSS’ disputed claims pursuant to the procedures prescribed under the TCA.
PSA and TCA
In compliance with the PSA, the Company and MWSS sought the Rehabilitation Court’s ruling on MWSS’ disputed claims in the Joint
Omnibus Motion. In her report dated September 14, 2007 submitted to the Rehabilitation Court, the Receiver stated that she followed the
principle of “No Gain, No Loss” when she submitted to the Rehabilitation Court her recommendation on MWSS’ cost of borrowing. The
Rehabilitation Court upheld the recommendations of the Receiver on MWSS’ disputed claims and ruled in favor of the Company in its Order
dated December 19, 2007, denying or disallowing the said disputed claims of MWSS.
2009 ANNUAL REPORT
57
The Company and MWSS agreed in the PSA and the TCA that any remaining dispute on MWSS’ disputed claims after the issuance of the
Rehabilitation Court’s ruling on the same, shall be resolved by MWSS and the Company through mutual consultation and negotiation, as mandated
under Clause 12.1 of the Concession Agreement, taking into account of, and with due regard to, the application of the “No Gain, No Loss” principle.
On January 16, 2008, Tranche A2 and recognized Tranche B Concession Fees and the related accrued interest thereon have been paid
by virtue of the PSA. The remaining balance of P985.0 million, which pertains to the disputed interest penalty under the Concession
Agreement prior to DCRA, has remained in the books pending resolution of the remaining disputed claims of MWSS.
The schedule of undiscounted estimated future concession fee payments, based on the life of the Concession Agreement, is as follows:
In Original Currency
Year
Foreign
Currency Loans
(Translated to US$)
Peso Loans/
Project Local
Support
Total Peso
Equivalent*
(In Millions)
2010
$28.6
P3,664.9
P4,986.2
2011
35.3
397.9
2,028.8
2012
19.1
397.5
1,279.9
2013
16.1
397.1
1,140.9
2014-2037
74.8
9,496.3
12,952.1
$173.9
P14,353.7
P22,387.9
* Translated using the December 31, 2009 exchange rate of P46.20:US$1.
Estimated future concession fee payments, excluding MOE which is recognized as additional concession fee in 2009 (see Note 8), relating
to the extension of the Concession Agreement (see Note 1) is still not determinable. It is only determinable upon loan drawdown of MWSS
and their actual construction of the related concession projects.
13. Equity
Capital Stock (amounts in thousands, except par value per share and number of shares)
Number
of Shares
Amount
Authorized - P1,000 par value
Common:
Class A
3,686,393
P3,686,393
Class B
236,000
236,000
Convertible redeemable ESOP
Preferred
88,500
88,500
1,867,885
1,867,885
5,878,778
P5,878,778
Issued - P1,000 par value:
Class A
3,686,393
P3,686,393
Class B
236,000
236,000
Convertible redeemable ESOP
88,500
88,500
4,010,893
P4,010,893
Class A shares, comprising sixty percent (60%) of the authorized common shares, may only be subscribed by Filipino citizens or
corporations or associations organized under the laws of the Philippines with at least sixty percent (60%) of the capital owned by Filipino
citizens.
58
MAYNILAD
Class B shares, comprising forty percent (40%) of the authorized common shares, may be subscribed by, transferred to and owned by
either Filipino citizens or by aliens.
On November 25, 2008, the SEC approved the amendments to the Articles of Incorporation of the Company to: (1) create redeemable
preferred shares; and (2) increase the authorized capital stock of the Company from P1.5 billion divided into 1,475,000,000 shares of
common stock with par value of P1 per share to P5.9 billion divided into 4,010,893 shares of common stock with par value of P1,000 per
share and 1,867,885 shares of preferred stock with par value of P1,000 per share.
The following are the key features of the redeemable preferred shares: (1) the redeemable preferred shares shall be issued at par or at such
higher price as the BOD shall, at its discretion, determine; (2) the holders of redeemable preferred shares shall have no voting rights, except
in cases provided for by law; (3) each redeemable preferred share shall be redeemable at a price equivalent to the amount of its issue price,
at any time at the option of the Company, whether or not there exists unrestricted retained earnings in the books of the Company, and
when so redeemed, shall be retired and shall no longer be reissuable; and (4) the redeemable preferred shares may be converted into one
(1) common share of the Company at the option of the Company.
As of December 31, 2008, all preferred shares have been issued and redeemed.
Foreign exchange fluctuation from date of issuance of the preferred shares to the date of notice of redemption is issued, amounting to P351.0
million, is recognized as “Equity from redemption of preferred shares” account shown as part of equity in the 2008 statement of financial position.
The increase in authorized capital stock and par value was approved by the SEC on November 25, 2008.
On December 14, 2009, the BOD approved the decrease of the Company’s authorized capital stock from 5,878,778 shares to 4,010,893
shares. As of February 22, 2010, the Company has filed with the SEC the Amended Articles of Incorporation effecting the reduction in
authorized capital stock.
ESOP
The employees of the Company are allowed equity participation of up to six percent (6%) of the issued and outstanding capital stock of
the Company upon the effective date of the increase in authorized capital stock of the Company pursuant to and in accordance with the
provisions of Clause 2.6 of the DCRA. For this purpose, a series of 88,500,000 nonvoting convertible redeemable shares (ESOP Shares)
was created from common Class A shares as reflected in the Company’s amended Articles of Incorporation. In 2008, the ESOP shares
was effectively reduced to 88,500 shares due to change in par value from P1 to P1,000. The ESOP shares have no voting rights, except
for those provided under Section 6 of the Corporation Code and have no pre-emptive rights to purchase or subscribe to future or additional
issuances or disposition of shares of the Company.
Within thirty (30) days after the earlier of (i) the end of the fifth year from the creation of the ESOP Shares, and (ii) the listing date for common
shares in a recognized Philippine Stock Exchange, the Company may redeem the ESOP shares at a redemption ratio equal to one common share
for every ESOP share held and such common shares so exchanged shall have the same rights and privileges as all other common shares.
Each ESOP Share will be convertible, at the option of the holder thereof, at any time during the period commencing the earlier of (i) the end
of the fifth year from the creation of the ESOP Shares; or (ii) the listing date for common shares in a recognized Philippine Stock Exchange
into one fully-paid and nonassessable common share. Such common share shall have the same rights and privileges as all other common
shares. Conversion of the ESOP Share may be effected by surrendering the certificates representing such shares to be converted to the
Company at the Company’s principal office or at such other office or offices as the BOD may designate, and a duly signed and completed
notice of conversion in such form as may from time to time be specified by the Company (a “Conversion Notice”), together with such
evidence as the Company may reasonably require to prove the title of the person exercising such right. A Conversion Notice once given
may not be withdrawn without the consent in writing of the Company.
By virtue of the DCRA, the ESOP shares were fixed at 88,500 shares or P88.5 million and have vested. As of that date, the Company’s
accrued annual stock purchase bonus has exceeded P88.5 million and such excess has been fully settled in cash in 2008. As of
February 22, 2010, the Company still has to issue the 88,500 shares to the employees (see Note 1).
14. Related Party Transactions
Significant transactions with related parties consist of construction contracts with DM Consunji, Inc. (DMCI), a subsidiary of DMCI Holdings,
Inc. (shareholder of DMCI-MPIC), totaling P2.2 billion in 2009 and P981.8 million in 2008, and financial assistance from DMCI-MPIC
amounting to P1.4 billion in 2007. The financial assistance and the related interest expense thereon were fully settled in July 2008. Interest
expense amounted to P306.8 million in 2008 and P131.6 million in 2007 (see Note 17).
2009 ANNUAL REPORT
59
Unpaid construction costs due to DMCI amounted to P370.3 million and P179.6 million as of December 31, 2009 and 2008, respectively,
and are presented as part of “Trade and other payables” account (see Note 11).
For the purpose of funding the full prepayment under the PSA and capital expenditures necessary to enable the Company to carry out its
obligations under the Concession Agreement, the Company drew on January 14, 2008 the entire stated amount of the BSP-registered
US$240.0 million irrevocable standby letter of credit issued by JPMorgan Chase Bank, N.A., Singapore Branch, for the account of DMCIMPIC (JPMorgan SBLC). The JPMorgan SBLC was delivered by DMCI-MPIC to the Company and MWSS as beneficiaries there under
pursuant to the requirements of MWSS under its Assignment and Assumption Agreement dated December 27, 2006 with DMCI-MPIC.
The Company received the entire US$240.0 million proceeds of the JPMorgan SBLC on January 15, 2008 and utilized the same to fully
prepay the Facility, the Suez Loan, the Tranche A2 Concession Fees, the Recognized Tranche B Concession Fees, and to pay all accrued
interest thereon, as well as to fund capital expenditures of the Company. Such proceeds constitute equity contributions of DMCI-MPIC to
the Company as required by MWSS.
Terms and Conditions of Transactions with Related Parties
The outstanding transactions with related parties are made at normal market prices. Outstanding balances at year-end are unsecured,
interest free, except for the financial assistance, and settlement occurs in cash.
Total compensation and benefits of key management personnel of the Company consist of:
2009
2008
2007
Compensation
P69,529
P61,014
P32,291
Pension costs
4,529
4,099
4,000
Short-term benefits
3,014
1,589
848
P77,072
P66,702
P37,139
15. Income Taxes
The Company recognized deferred taxes on deductible temporary differences expected to reverse after the income tax holiday period
(see Note 20). The components of the net deferred tax assets of the Company as of December 31, 2009 and 2008 shown in the
statements of financial position are as follows:
Service concession assets - net
2009
2008
P1,375,346
P2,717,721
51,284
25,906
Accrued expenses
–
213,564
Accretion on noncurrent financial assets
and liabilities
–
1,085
Others
–
37,387
P1,426,630
P2,995,663
Pension liability
Allowance for doubtful accounts wherein no deferred tax asset was recognized amounted to P853.3 million and P627.1 million as of
December 31, 2009 and 2008, respectively.
On December 16, 2009, the BOI released the Certificate of Registration certifying 6-year income tax holiday incentive (see Note 20). As a
result, the Company derecognized deferred tax assets that will reverse during the new income tax holiday period amounting to P1.7 billion.
RA No. 9337
RA No. 9337 was enacted into law amending various provisions in the existing 1997 National Internal Revenue Code. Among the reforms
introduced by the said RA was the reduction in the regular corporate income tax rate from 35% to 30% beginning January 1, 2009.
60
MAYNILAD
16. Pension Plan
The Company has a funded, noncontributory and actuarially computed pension plan covering substantially all of its employees. The
benefits are based on years of service and compensation during the last year of employment.
The components of pension cost, included under “Salaries, wages and benefits” account in the statements of income are as follows:
Current service cost
Interest cost
Expected return on plan assets
Curtailment gain
Net actuarial loss (gain) recognized during
the year
Net pension cost (income)
2009
2008
2007
P54,959
P66,162
P103,372
61,016
59,492
59,902
(10,192)
(14,579)
–
–
–
(256,159)
(2,884)
–
11,134
P102,899
P111,075
(P81,751)
The funded status and amounts recognized in the statements of financial position for the pension plan as of December 31, 2009 and 2008
are as follows:
2009
2008
Present value of pension liability
P481,414
P490,485
Fair value of plan assets
(508,479)
(254,807)
Unrecognized actuarial gain
Pension liability
265,130
95,192
P238,065
P330,870
Changes in the present value of the defined benefit obligation as of December 31, 2009 and 2008 are as follows:
2009
2008
P490,485
P571,494
Current service cost
54,959
66,162
Interest cost
61,016
59,492
(113,922)
(201,332)
(11,124)
(5,331)
P481,414
P490,485
Defined benefit obligation at beginning of year
Actuarial gain on obligation
Benefits paid*
Defined benefit obligation at end of year
*Includes benefits paid out of Company’s operating fund amounting to P4.7 million in 2009.
Changes in the fair value of plan assets as of December 31, 2009 and 2008 are as follows:
Actuarial gain (loss) on plan assets
2009
2008
P254,807
P291,579
58,900
(51,351)
10,192
14,579
Contributions
191,000
–
Benefits paid
(6,420)
–
P508,479
P254,807
Expected return on plan assets
The Company expects to contribute P70.8 million to its defined benefit pension plan in 2010.
2009 ANNUAL REPORT
61
The allocation of the fair value of plan assets as of December 31, 2009 and 2008 is as follows:
2009
2008
Investments in:
Government securities
55.84%
61.0%
Unit trust funds
18.23%
22.6%
Investment in stocks
15.15%
5.7%
Bank deposits
9.76%
2.9%
Loans and notes receivables
1.02%
6.1%
Others
–
1.7%
100.00%
100.0%
The overall expected rate of return on assets is determined based on the market prices prevailing on that date, applicable to the period
over which the obligation is to be settled.
The principal assumptions used to determine pension benefit obligations for the Company’s plan as of December 31, 2009, 2008 and 2007
are as follows:
2009
2008
2007
Discount rate
9.61%
10.41%
7.00%
Salary increase rate
7.00%
11.00%
12.00%
Expected rate of return on plan assets
7.80%
4.00%
5.00%
Amounts for the current and the previous periods are as follows:
Defined benefit obligation
2009
2008
2007
P481,414
P490,485
P571,494
Fair value of plan assets
(508,479)
(254,807)
(291,579)
Deficiency (excess)
Experience adjustments on defined benefit obligation
(P27,065)
P53,597
P235,678
P10,350
P279,915
P183,428
2009
2008
2007
P142,456
P113,549
P82,879
10,987
9,775
34,708
P153,443
P123,324
P117,587
P1,494,840
P665,064
P610,190
553,675
1,014,555
90,955
17. Interest Income and Interest Expense
Interest income:
Cash in banks and short-term investments
(see Note 4)
Accretion on miscellaneous deposits
(see Note 9)
Interest expense:
62
Bank loans (see Note 10)
Accretion on service concession obligation
payable to MWSS (see Note 12)
752,826
Accretion on financial liabilities
108,159
5,895
Amortization of debt issuance costs (see Note 10)
14,242
12,967
70,066
Payable to a shareholder (see Note 14)
–
306,809
131,568
P2,370,067
P1,544,410
P1,917,334
MAYNILAD
18. Earnings Per Share
Net income (a)
Weighted average number of shares
at beginning of year
2009
2008
2007
P2,824,626
P1,994,140
P1,666,351
4,010,893
1,475,000
5,240,000
Surrender of shares (see Note 1)
–
–
(41,396,000)
Decrease in number of shares due to
change in par value
(see Note 13)
–
–
(1,426,365,000)
New subscriptions (see Note 1)
–
316,988*
1,463,996,000
Weighted average number of shares at end
of year (b)
Earnings per share (a/b)
4,010,893
1,791,988
1,475,000
P704.24
P1,112.81
P1,129.73
*Shares were issued in October and November 2008.
19. Contingent Liabilities
Following are the significant contingent liabilities of the Company as of December 31, 2009:
a.
Additional Tranche B Concession Fees and interest penalty are being claimed by MWSS in excess of the amount recommended by
the Receiver. Such additional charges being claimed by MWSS (in addition to other miscellaneous claims) amount to P3.8 billion as of
December 31, 2009 and P3.5 billion as of December 31, 2008. The Rehabilitation Court has resolved to deny and disallow the said
disputed claims of MWSS in its December 19, 2007 Order, upholding the recommendations of the Receiver on the matter. Following
the issuance of the Rehabilitation Court’s Order on December 19, 2007 disallowing the MWSS’ disputed claims and the termination of
the Company’s rehabilitation proceedings, the Company and MWSS are seeking to resolve this matter in accordance with the dispute
resolution requirements of the TCA.
b.
In a decision dated September 7, 2007, the National Labor Relations Commission (NLRC) dismissed the complaint filed by the
Maynilad Waters Supervisors Association (MWSA) for alleged nonpayment of cost of living allowance (COLA) in NLRC NCR
CN 00‑03‑03620-2003. In the said case, the Labor Arbiter had earlier issued a decision ordering the payment of COLA to the
supervisor-employees “retroactive to the date when they were hired by the respondent company in 1997, with legal interest from
the date of promulgation of [the] decision” until full payment of the award, which decision was reversed and set aside by the NLRC.
On December 10, 2007, in pursuance of its efforts to effect an early exit from corporate rehabilitation, the Company executed a
Compromise Agreement with the MWSA (Compromise Agreement) for the settlement of certain claims of the MWSA, wherein the
Company agreed to pay to MWSA residual benefits equivalent to its claim for COLA for 23 months from August 1997 to June 1999.
On January 15, 2008, the Company received a copy of the petition for certiorari filed by the MWSA with the Court of Appeals alleging
grave abuse of discretion on the part of the NLRC and praying that the Labor Arbiter’s decision dated November 10, 2006 be affirmed
in toto, but only in relation to the MWSA’s claim for COLA from July 1999 up to the present time. The Company filed its comment on
the said petition on March 6, 2008. The case remains pending with the Court of Appeals as of February 22, 2010.
c.
On October 13, 2005, the Company and Manila Water Company, Inc. (the East Concessionaire) were jointly assessed by the Municipality
of Norzagaray, Bulacan, for real property taxes on certain common purpose facilities purportedly due from 1998 to 2005 amounting
to P357.1 million. Accordingly, the Company and the East Concessionaire filed a joint appeal of the said assessment with the Local
Board of Assessment Appeals (LBAA). An appeal-in-intervention was also filed by MWSS with the LBAA. MWSS maintains the position
that these properties are owned by the Republic of the Philippines and that the same are exempt from taxation. On February 2, 2007,
the Company and the East Concessionaire received an updated assessment of real property tax from the Municipality of Norzagaray,
Bulacan, which included real property tax purportedly due for 2006 of P35.7 million and interest of 2% per month of P93.6 million.
On May 2, 2007, the LBAA denied the joint appeal of the Company and the East Concessionaire. The LBAA also denied the appealin-intervention filed by MWSS. Subsequently, the Company and the East Concessionaire elevated the case to the Central Board
of Assessment Appeals (CBAA) by filing separate appeals. The CBAA, through the board secretary, issued a “First Endorsement”
addressed to the Company stating that the LBAA order was “not in accordance with Sec. 227 of the Local Government Code of
1991” as it was signed only by the chairman “without the concurrence of at least one member to constitute a majority.” In an order
dated July 9, 2007, the LBAA explained the lack of signatures of the other members of the LBAA in the May 2, 2006 order and
2009 ANNUAL REPORT
63
reiterated the previous denial of the separate appeals filed by the Company and the East Concessionaire. Responding to a letter
from the Company, the municipal treasurer of Norzagaray, insisted on the concessionaires’ liability to pay the subject real property
tax. According to the letter dated July 17, 2007, the supposed joint liability of the Company and the East Concessionaire for real
property tax, including interest, as of June 30, 2007 amounts to P554.2 million. On August 21, 2007, the Company filed a second
appeal on the LBAA order dated July 9, 2007. During the hearing on November 27, 2007, the presiding commissioner encouraged
the parties to enter into an amicable settlement. At the subsequent hearing on February 12, 2008, the parties agreed to (i) set an
ocular inspection of the area where the subject common purpose facilities are situated; and (ii) continue exploring the possibility of an
amicable settlement. However, due to the parties’ failure to report any development regarding the amicable settlement suggested
by the commissioner, an order/notice of hearing dated June 27, 2008 was issued by the CBAA setting a hearing on July 30, 2008.
During such hearing, an agreement was arrived at on the holding of a meeting on August 20, 2008 to be attended by officials of the
Company and the East Concessionaire for the purpose of entering into a possible compromise agreement. It was also agreed that
a formal hearing will then be set on a date to be agreed upon during the meeting. Eventually, a hearing with the CBAA was held on
October 21, 2008. Pursuant to the Order dated October 23, 2008, the CBAA required the parties to file their respective Memoranda
on whether or not CBAA should hear and proceed with the case or remand the same to the LBAA of the Province of Bulacan to
be heard and proceeded on the merit. The Company filed its Memorandum dated November 5, 2008 stating that the CBAA has
the authority to hear, proceed and decide the appeal on the merits without the need of remanding the matter to the LBAA. In such
Memorandum, the Company likewise prayed that the LBAA Orders dated May 2, 2006 and July 9, 2007 be reversed and set aside
and that the subject properties be declared as part of public dominion and therefore, tax-exempt. In an order dated May 12, 2009,
the CBAA granted the Company’s prayer in its Memorandum, in so far as the CBAA decided to: (1) set aside the assailed LBAA
Resolutions dated May 2, 2006 and July 9, 2007; and (2) give due course to the Company’s appeal and hear the same on merit.
d.
A complaint with prayer for the issuance of a CDO against the Company, MWSS and the MWSS-RO was filed by certain civil society
groups before the National Water Resources Board (NWRB) contesting the approval by the MWSS Board of Trustees of the MWSSRO resolution approving the rebased tariff of P30.19 per cubic meter (average all-in tariff) effective January 1, 2005 for the Company.
The complaint alleges, among others, that the increase in the water tariff rate was without adequate public consultation and sufficient
basis and that the application filed by the Company for the said rate increase had no imprimatur from the Receiver. Claiming that
the NWRB had no jurisdiction to hear and decide the aforesaid complaint, the Company and MWSS filed separate motions to
dismiss, which were both denied. The NWRB has yet to rule on the said complaint. Following the denial of its motion to dismiss,
the Company filed a petition for certiorari with the Court of Appeals. Alleging grave abuse of discretion on the part of the NWRB,
the Company claims that there is no law conferring any power upon the NWRB to assume jurisdiction over disputes relating to water
tariff rates for MWSS’ concessionaires and that the powers of the Public Service Commission were not transferred to the NWRB. In
a decision dated May 28, 2007, the Court of Appeals dismissed the Company’s petition for certiorari and declared that the NWRB
is empowered to review the subject average all-in tariff rate of P30.19 per cubic meter. The Company has sought a reconsideration
of the said decision. In a subsequent development, MWSS filed a motion seeking to intervene in the certiorari proceedings. On
February 20, 2008, the Court of Appeals issued an Omnibus Resolution denying the Company’s motion for reconsideration and
MWSS’ motion for intervention. The Company has filed with the Supreme Court its petition for review on certiorari to assail the rulings
of the Court of Appeals that found, among others, that the NWRB is empowered to review the subject average all-in tariff rate of
P30.19 per cubic meter. Comments to the petition for review on certiorari were filed by the civil society groups concerned and the
Office of the Solicitor General (on behalf of the NWRB). The Company filed its Reply to the Comments on October 20, 2009. MWSS
also filed a motion for reconsideration of the denial of its motion for intervention before the Court of Appeals, which the appellate
court denied on March 9, 2009. In view of the denial, MWSS filed a petition for review on certiorari before the Supreme Court. In
its resolution dated July 1, 2009, the Supreme Court issued a resolution consolidating the cases filed by the Company and MWSS,
considering that both petitions assailed the same Omnibus Resolution of the Court of Appeals dated February 20, 2008, in relation to
CA-G. R. SP No. 92743. The consolidated case remains pending as of February 22, 2010.
e.
The Company is a party to various civil and labor cases relating to breach of contracts with damages, illegal dismissal of employees,
and nonpayment of backwages, benefits and performance bonus, among others.
20. Registration with the Board of Investments (BOI)
The Company is registered with the BOI under Executive Order No. 226, as amended, as a new operator of water supply and sewerage
system for the West Service Area on a pioneer status.
The registration entitles the Company to incentives which include, among others, an Income Tax Holiday (ITH) for a period of six years
beginning on Commencement Date or from actual start of commercial operations, whichever comes first.
On April 16, 2008, the BOI granted the request of the Company for the extension of the period for the ITH availment from August 2001 July 2007 to January 2003 - December 2008.
64
MAYNILAD
On October 20, 2008, the Company filed an application for an ITH bonus year. The application was for the extension of the availment
of the ITH incentive by the Company for one (1) year or for the period January 1, 2009 to December 31, 2009. The BOI approved the
Company’s application on December 22, 2008.
As one of the conditions of the BOI for the ITH bonus year, the Company has undertaken Corporate Social Responsibilities (CSR) activities
during the actual availment of the bonus year. CSR activities in year 2009 included among others PGMA Patubig Projects, Partnerships
with PDAM Tirtanadi Provinsi Sumatera Utara of Indonesia in coordination with USAid Environmental Cooperation Asia and the Streams of
Knowledge, Samahang Tubig Maynilad and Lingkod Eskwela. Total amount spent for these CSR activities was estimated at P348.0 million.
On December 16, 2009, the Company was issued with BOI Registration Certificate Nos. 2009-188 and 2009-189 as a new operator of
the 1500 million liters per day (MLD) and 900 MLD Bulk Water Supply and Distribution Projects pertaining to the La Mesa Treatment Plants
1 and 2, respectively. The registrations entitle the Company to incentives which include an ITH for six years from January 2010 or actual
start of commercial operations, whichever is earlier, but in no case earlier than the date of registration. Registration as new operator of 200
MLD Bulk Water Supply and Distribution Project (Putatan, Muntinlupa) was likewise approved by the BOI. The Certificates of Registration
were issued in December 2009. This also entitles the Project to a six year ITH commencing on January 2011 or actual start of commercial
operations. The ITH incentives shall be limited to the sales/revenue generated from the operation of the three plants which substantially
cover total capacity of the Company.
21. Significant Contracts with Manila Water (East Concessionaire)
In relation to the Concession Agreement, the Company entered into the following contracts with the East Concessionaire:
a.
Interconnection Agreement wherein the two Concessionaires shall form an unincorporated joint venture that will manage, operate,
and maintain interconnection facilities. The terms of the agreement provide, among others, the cost and the volume of water to be
transferred between zones; and
b.
Common Purpose Facilities Agreement that provides for the operation, maintenance, renewal, and, as appropriate, decommissioning
of the Common Purpose Facilities, and performance of other functions pursuant to and in accordance with the provisions of the
Concession Agreement and performance of such other functions relating to the Concession (and the Concession of the East
Concessionaire) as the Company and the East Concessionaire may choose to delegate to the Joint Venture, subject to the approval of
MWSS.
22. Commitments
Concession Agreement
Significant commitments under the Concession Agreement follow:
a.
Payment of Concession Fees (see Note 8)
b.
Posting of performance bond (see Note 6)
Under Section 6.9 of the Concession Agreement, the Company is required to post a performance bond to secure the performance of
its obligations under certain provisions of the Concession Agreement. The aggregate amount drawable in one or more installments
under such performance bond during the Rate Rebasing Period to which it relates is set out below.
Rate Rebasing Period
Aggregate Amount
Drawable Under
Performance Bond
(In Millions)
First (August 1, 1997–December 31, 2002)
Second (January 1, 2003–December 31, 2007)
US$120.0
120.0
Third (January 1, 2008–December 31, 2012)
90.0
Fourth (January 1, 2013–December 31, 2017)
80.0
Fifth (January 1, 2018–May 6, 2022)
60.0
2009 ANNUAL REPORT
65
Within 30 days from the commencement of each renewal date, the Company shall cause the performance bond to be reinstated to
the full amount set forth above applicable for the year.
In connection with the implementation of the Selection Process by MWSS, the Company and MWSS executed the Agreement on the
performance bond on December 15, 2006, incorporating the terms and conditions of MWSS BOT Resolution No. 2006-249 dated
November 17, 2006 which approved certain adjustments to the obligation of the Company to post the performance bond under
Section 6.9 of the Concession Agreement. These adjustments are summarized as follows:
i.
ii.
iii.
The aggregate amount drawable in one or more installments under each performance bond during the Rate Rebasing Period
to which it relates has been adjusted to US$30.0 million until the Expiration Date;
Based on the draft of the Letter of Consent and Undertaking to be signed by the DoF in connection with the extension of the
Concession Agreement, the extension of the undertaking letter from May 7, 2022 to May 6, 2032 shall only be effective upon
the increase in the present minimum level of the Performance Bond from the present level of US$30.0 million to
US$90.0 million for the Third Rate Rebasing Period. The Performance Bond will be required to be posted within six (6) months
from the date of the issuance of the letter. The amount of the Performance Bond for the period covering 2013 to 2037 shall be
mutually agreed upon in writing by the MWSS and the Company consistent with the provisions of the Concession Agreement.
Upon the completion of the Capital Restructuring, the Sponsor shall be required to post a performance bond of
US$30.0 million as part of the requirement under the Selection Process and to maintain the same until the Company is already
in a position to post the performance bond, subject to compliance by the Company with the DCRA and, as necessary, the
recommendation of the Receiver and the approval of the Rehabilitation Court;
While the Company is under corporate rehabilitation:
 any capital expenditure (CAPEX) commitment of the Sponsor not exceeding US$18.0 million to be infused into the
Company for a period of three (3) years shall be deemed to be in compliance with the obligation of the Sponsor or the
Company to deliver the equivalent amount of the performance bond, subject to the terms and conditions set out in the
relevant agreement between MWSS and the Sponsor; and
 since the Concession Fees due to MWSS are protected under the DCRA and existing Philippine rehabilitation rules,
the coverage of the performance bond shall exclude the obligation of the Company to pay Concession Fees under
Section 6.4 of the Concession Agreement; and
iv.
Once the Company exits from corporate rehabilitation:
 any CAPEX commitment of the Sponsor shall no longer be deemed to be in compliance with the Company’s obligation
to deliver the equivalent amount of the performance bond; and accordingly, the amount of the performance bond shall be
no less than US$30.0 million beginning on the first day of the Rate Rebasing Period immediately following the date the
Company exits from rehabilitation and until the Expiration Date;
 the performance bond shall again cover the Company’s obligation to pay Concession Fees under Section 6.4 of the
Concession Agreement; and
 the obligation to deliver the performance bond reverts to the Company.
66
Considering that the Agreement on the performance bond effectively amends Section 6.9 of the Concession Agreement,
the Republic of the Philippines (through the Secretary of Finance) acknowledged the terms and conditions of the said
agreement on January 4, 2007, as required under Section 16.2 of the Concession Agreement.
On January 24, 2007, DMCI-MPIC, as the Sponsor, delivered to MWSS an irrevocable standby letter of credit having a
stated amount of US$18.0 million covering its CAPEX commitment and another irrevocable standby letter of credit having
a stated amount of US$12.0 million as performance bond, in compliance with the above provisions.
Under the TCA, the Company is required to update the performance bond to US$30.0 million by January 1, 2009
(to coincide with the implementation of the new rebased rate) pursuant to the Agreement on the performance bond
dated December 15, 2006.
MAYNILAD
c.
Payment of half of MWSS and MWSS-RO’s budgeted expenditures for the subsequent years, provided the aggregate annual
budgeted expenditures do not exceed P200.0 million, subject to CPI adjustments. As a result of the extension of the life of the
Concession Agreement, the annual budgeted expenditures shall increase by 100%, subject to CPI adjustments, effective January
2010 (see Notes 1 and 8).
d.
To meet certain specific commitments in respect to the provision of water and sewerage services in the West Service Area, unless
modified by the MWSS-RO due to unforeseen circumstances.
e.
To operate, maintain, renew and, as appropriate, decommission facilities in a manner consistent with the National Building Standards
and best industrial practices so that, at all times, the water and sewerage system in the West Service Area is capable of meeting the
service obligations (as such obligations may be revised from time to time by the MWSS-RO following consultation with the Company).
f.
To repair and correct, on a priority basis, any defect in the facilities that could adversely affect public health or welfare, or cause
damage to persons or third-party property.
g.
To ensure that at all times the Company has sufficient financial, material and personnel resources available to meet its obligations
under the Concession Agreement.
h.
Non-incurrence of debt or liability that would mature beyond the term of the Concession Agreement, without the prior notice of MWSS.
Failure of the Company to perform any of its obligations under the Concession Agreement of a kind or to a degree which, in a
reasonable opinion of the MWSS-RO, amounts to an effective abandonment of the Concession Agreement and which failure
continues for at least 30 days after written notice from the MWSS-RO, may cause the Concession Agreement terminated.
Operating Lease Commitments
The Company leases the office space and branches, where service outlets are located for certain periods up to 2009, renewable under
certain terms and conditions to be agreed upon by the parties. Total rent expense for the above operating leases amounted to
P77.2 million in 2009, P66.7 million in 2008 and P90.1 million in 2007.
Future minimum operating lease payments are as follows:
Period Covered
Amount
(In Millions)
Not later than one year
P54.2
More than one year and not later than five years
129.87
More than 5 years
191.72
23. Assets Held in Trust
Materials and Supplies
The Company has the right to use any items of inventory owned by MWSS in carrying out its responsibility under the Concession
Agreement, subject to the obligation to return the same at the end of the concession period, in kind or in value at its current rate, subject to
CPI adjustments.
Facilities
The Company has been granted the right to operate, maintain in good working order, repair, decommission and refurbish the movable
property required to provide the water and sewerage services under the Concession Agreement. MWSS shall retain legal title to all
movable property in existence at the Commencement Date. However, upon expiration of the useful life of any such movable property
as may be determined by the Company, such movable property shall be returned to MWSS in its then-current condition at no charge to
MWSS or the Company (see Note 8).
The Concession Agreement also provides the Company and the East Concessionaire to have equal access to MWSS facilities involved
in the provision of water supply and sewerage services in both West and East Service Areas including, but not limited to, the MWSS
management information system, billing system, telemetry system, central control room and central records.
The net book value of the facilities transferred to the Company on Commencement Date based on MWSS’ closing audit report amounted
to P7.3 billion with a sound value of P13.8 billion.
2009 ANNUAL REPORT
67
MWSS’ corporate headquarters are made available to the Company and the East Concessionaire for a one-year period beginning on the
Commencement Date, subject to yearly renewal with the consent of the parties concerned. As of December 31, 2009, the lease has been
renewed for another year.
24. Financial Risk Management Objectives and Policies
The Company’s principal financial instruments are its debts to the local banks, per Omnibus Notes Facility and Security Agreement dated
June 30, 2008, as well as Concession Fees owing to MWSS per Concession Agreement. Other financial instruments of the Company are
purchase contracts, cash and cash equivalents and short-term investments.
The main risks arising from the Company’s principal financial instruments are interest rate risk, foreign currency risk, credit risk and liquidity risk.
The BOD reviews and approves the policies for managing the financial risks. The Company monitors market price risk arising from all
financial instruments and regularly reports financial management activities and the results of these activities to the BOD.
Interest Rate Risk. The Company’s exposure to market risk for changes in interest rates relate primarily to the Company’s interest-bearing loans.
The following table indicates the Company’s financial instruments that are exposed to interest rate risk:
Series 1 Floating Rate Notes Facility
Series 2 Corporate Notes Facility
P5.5 billion
Floating rate benchmark
+ 2% spread (6.60% July 10
to January 11, 2010)
US$125.0 million
LIBOR+CDS+2% spread
(3.65% November 10 to
May 11, 2010)
Interest on financial liabilities classified as floating rate is repriced semi-annually. Interest on financial liabilities classified as fixed rate is fixed
until the maturity of the instrument.
The Company maintains a mix of floating and fixed rate interest-bearing loans, currently at a ratio of 68% floating and 32% fixed per
abovementioned Omnibus Notes Facility and Security Agreement. The floating rate interest-bearing loans will increase to a higher portion
over time as a greater portion of the fixed rate interest-bearing loan will mature earlier than the floating portion.
The following tables show information about the Company’s financial instruments that are exposed to cash flow and fair value interest rate risks.
2009
Within 1 Year
Total
P1,867,888
P1,867,888
2,433,418
2,433,418
P4,301,306
P4,301,306
Short-term cash investments:
Cash and cash equivalents (1-90 days)*
Short-term investments (91-364 days)
* Excludes cash on hand amounting to P19,035.
68
MAYNILAD
2009
Within 1
Year
More than
5 Years
Total Gross
(In US$)
Total -Gross
(In P)
Liabilities:
Interest-bearing loans:
Interest rate
7.39%
Noncurrent - foreign
–
$121,829
$121,829
P5,628,500
Noncurrent - local
–
P10,676,576
–
10,676,576
16,305,076
Service concession obligation
payable to MWSS:
Interest rate
Current - foreign
Noncurrent - local
4.61%
$45,802
–
$45,802
P2,116,063
–
P8,576,461
–
8,576,461
10,692,524
P26,997,600
2008
Within 1 Year
Total
Short-term cash investments:
Cash and cash equivalents (1-90 days)*
Short-term investments (91-364 days)
P1,311,392
P1,311,392
5,575,108
5,575,108
P6,886,500
P6,886,500
* Excludes cash on hand amounting to P51,848.
2008
More than
5 Years
Total - Gross
(In US$)
Total -Gross
(In P)
9.21%
–
$121,753
$121,753
P5,785,721
–
P10,670,113
–
10,670,113
Within 1 Year
Liabilities:
Interest-bearing loans:
Interest rate
Noncurrent - foreign
Noncurrent - local
16,455,834
Service concession obligation payable
to MWSS:
Interest rate
Current - foreign
Noncurrent - local
5.0%
$57,716
–
$57,716
2,742,680
–
P5,741,796
–
5,741,796
8,484,476
P24,940,310
2009 ANNUAL REPORT
69
The following table demonstrates the sensitivity of the Company’s profit before tax to a reasonably possible change in interest rates for the
years ended December 31, 2009 and 2008, with all variables held constant (through the impact on floating rate borrowings). There is no
impact on the Company’s equity other than those already affecting income.
2009
Increase/
Decrease
in Basis Points
Floating rate borrowings
Effect on
Income
Before Tax
+50
P56,262
-50
(P56,262)
2008
Increase/
Decrease
in Basis Points
Floating rate borrowings
Effect on
Income
Before Tax
+50
P57,087
-50
(P57,087)
Foreign Currency Risk. The Company’s foreign currency risk results primarily from movements of the Philippine Peso against the United
States Dollar, European Euro and the Japanese Yen. The servicing of foreign currency denominated loans of MWSS is among the
requirements of the Concession Agreement. Majority of the revenues are generated in Philippine Peso. However, there is a mechanism in
place as part of the Concession Agreement wherein the Company (or the end consumers) can recover currency fluctuations through the
FCDA that is approved by the Regulatory Office.
Information on the Company’s foreign currency-denominated monetary assets and liabilities and the Philippine Peso equivalent of each as
of December 31, 2009 and 2008 is presented as follows:
2009
2008
Original
Currency
Peso
Equivalent
Original
Currency
Peso
Equivalent
US$76,120
P3,516,744
US$131,903
P6,268,031
121,829
5,628,500
121,753
5,785,721
45,802
2,116,063
57,716
2,742,664
US$167,631
P7,744,563
US$179,469
P8,528,385
Assets
Cash and cash equivalents and short-term
investments
Liabilities
Service concession obligation payable
to MWSS*
Net foreign currency denominated
liabilities
Includes concession fees denominated in European Euro and Japanese Yen.
The spot exchange rates used were P46.20 to US$1 and P47.52 to US$1 in 2009 and 2008, respectively.
70
MAYNILAD
The following table demonstrates the sensitivity to a reasonably possible change in foreign exchange rates, with all variables held constant, of the
Company’s profit before tax (due to changes in the fair value of monetary assets and liabilities) and equity on December 31, 2009 and 2008.
There is no impact on the Company’s equity other than those affecting earnings.
2009
Increase
(Decrease)
in Foreign
Exchange Rate
(in Basis Points)
Effect
on Income
Before Tax
P1.00
(P76.1 million)
(P1.00)
P76.1 million
Foreign currency-denominated financial assets and liabilities
2008
Increase
(Decrease)
in Foreign
Exchange Rate
(in Basis Points)
Effect
on Income
Before Tax
P1.00
(P131.0 million)
(P1.00)
P131.0 million
Foreign currency-denominated financial assets and liabilities
The Company recognized P1.3 billion and P878.5 million net foreign exchange loss in 2009 and 2008, respectively, mainly arising from the
translation of the Company’s cash and cash equivalents, short-term investments, interest-bearing loans and service concession obligation
payable to MWSS. However, the net foreign exchange loss on interest-bearing loans and service concession obligation payable to MWSS
is subject to foreign exchange recovery mechanisms under the Concession Agreement (see Note 1).
Credit Risk. The Company trades only with recognized, creditworthy third parties. It is the Company’s policy that except for connection
fees and other highly meritorious cases, it does not offer credit terms to its customers. Being a basic need service, historical collections
of the Company are relatively high. Credit exposure is widely dispersed. Receivable balances are monitored on an ongoing basis with the
result that the Company’s exposure to bad debts is not significant.
With respect to credit risk arising from the other financial assets of the Company, consisting of cash and cash equivalents and shortterm cash investments, the Company’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal
to the carrying amount of these instruments. The Company transacts only with institutions or banks which have demonstrated financial
soundness for the past 5 years.
The Company has no significant concentrations of credit risk.
The table below shows the maximum exposure to credit risk for the components of the statements of financial position as of December 31,
2009 and 2008:
Cash and cash equivalents* (see Note 4)
2009
2008
P1,867,888
P1,311,392
2,433,418
5,575,108
Trade and other receivables - net (see Note 5)
1,536,093
1,449,576
Deposits and sinking fund (see Note 6)
1,080,503
507,665
Miscellaneous deposits (see Note 9)
Total credit risk exposure
57,934
65,527
P6,975,836
P8,909,268
*Excludes cash on hand amounting to P19,035 and P51,848 as of December 31, 2009 and 2008, respectively.
2009 ANNUAL REPORT
71
As of December 31, 2009 and 2008, the credit quality per class of financial assets that were neither past due nor impaired are as follows:
2009
Cash and cash equivalents
High Grade
Standard
Sub-standard
Total
P1,867,888
P–
P–
P1,867,888
2,433,418
–
–
2,433,418
1,442,797
46,583
46,713
1,536,093
Deposits and sinking fund
1,080,503
–
–
1,080,503
57,934
–
–
57,934
P6,882,540
P46,583
P46,713
P6,975,836
High Grade
Standard
Sub-standard
Total
P1,311,392
Miscellaneous deposits
2008
P1,311,392
P–
P–
5,575,108
–
–
5,575,108
1,336,478
22,874
90,224
1,449,576
507,665
–
–
507,665
65,527
–
–
65,527
P8,796,170
P22,874
P90,224
P8,909,268
Miscellaneous deposits
As of December 31, 2009 and 2008, the aging analyses of the Company’s receivables presented per class are as follows:
2009
Neither
Past
Due nor
Past Due but not Impaired
31-60
61-90
Impaired
<30 Days
Days
Days
Impaired
90-120
Financial
Days >120 Days
Assets
Total
Customers:
Residential
P381,673
P82,978
P133,551
P91,664
P66,719
P262,308
P347,680
P1,366,573
Commercial
59,171
39,447
63,489
43,577
31,718
23,145
252,953
513,500
Semi-business
16,374
10,916
17,569
12,058
8,777
10,437
79,799
155,930
5,965
10,643
10,130
10,757
8,558
11,431
94,822
152,306
Interest receivable
from banks
10,723
–
–
–
–
–
–
10,723
Others
112,315
–
–
–
–
–
78,068
190,383
Industrial
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MAYNILAD
P586,221
P143,984
P224,739
P158,056
P115,772
P307,321
P853,322
P2,389,415
2008
Neither
Past
Due nor
Past Due but not Impaired
Impaired
31-60
61-90
Impaired
<30 Days
Days
Days
P154,851
20,901
P103,234
13,934
P121,693
16,425
P80,272
10,835
P54,018
7,291
Commercial
79,540
53,027
62,508
41,232
Industrial
24,081
16,054
18,925
12,483
Interest receivable
from banks
31,423
–
–
–
Customers:
Residential
Semi-business
Others
90-120
Financial
Days >120 Days
Assets
Total
P204,378
27,586
P267,970
57,438
P986,416
154,410
27,747
104,980
222,146
591,180
8,400
31,783
73,019
184,745
–
–
–
31,423
6,483
128,458
121,975
–
–
–
–
–
P432,771
P186,249
P219,551
P144,822
P97,456
P368,727
P627,056 P2,076,632
Liquidity Risk. The Company monitors its risk to a shortage of funds using a recurring liquidity planning. Cash planning considers the
maturity of both its financial investments and financial assets (e.g. trade and other receivables, other financial assets) and projected cash
flows from operations.
The Company’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank drafts, bank loans,
debentures, preference shares, finance leases and hire purchase contracts.
The tables below summarize the maturity profile of the Company’s financial liabilities as of December 31, 2009 and 2008 based on
contractual undiscounted payments.
On
Demand
Interest-bearing loans*
Trade and other payables**
Service concession obligation payable to
MWSS
Customers’ deposits
Due Within
3 Months
2009
Due
Between
3 and
12 Months
Due after
12 Months
Total
P–
P490,320
P29,888
P16,305,076
P16,825,284
760,509
1,556,706
1,491,955
1,703,469
5,512,639
–
–
2,116,063
8,576,461
10,692,524
–
–
–
161,816
161,816
P760,509
P2,047,026
P3,637,906
P26,746,822
P33,192,263
**Principal plus interest payment
**Excludes taxes payable
2009 ANNUAL REPORT
73
On Demand
Interest-bearing loans*
Trade and other payables**
Service concession obligation payable to
MWSS
Customers’ deposits
Due Within
3 Months
2008
Due Between
3 and
12 Months
Due after
12 Months
Total
P–
P533,495
P63,636
P16,894,638
P17,491,769
305,793
3,139,281
1,587,223
588,778
5,621,075
–
–
2,742,680
5,741,796
8,484,476
–
–
–
355,806
355,806
P305,793
P3,672,776
P4,393,539
P23,581,018
P31,953,126
*Principal plus interest payment
**Excludes taxes payable
Capital Management. The primary objective of the Company’s capital management strategy is to ensure that it maintains a healthy capital
structure in order to maintain a strong credit standing while it maximizes shareholder value.
The Company closely manages its capital structure vis-a-vis a certain target gearing ratio, which is net debt divided by total capital plus net
debt. The Company’s target gearing ratio is 75%. This target is to be achieved over the next 5 years by managing the Company’s level of
borrowings and dividend payments to shareholders.
For purposes of computing its net debt, the Company includes the outstanding balance of its long-term interest-bearing loans, service
concession obligation payable to MWSS and trade and other payables, less the outstanding cash and cash equivalents, short-term
investments, deposits and sinking fund. To compute its capital, the Company uses net equity.
2009
2008
P26,997,600
P24,940,310
5,575,612
5,655,616
Less cash and cash equivalents, short-term investments, deposits
and sinking fund
(see Notes 4 and 6)
(5,400,844)
(7,446,013)
Net debt (a)
27,172,368
23,149,913
Interest-bearing loans and service concession
obligation payable to MWSS
(see Notes 10 and 12)
Trade and other payables (see Note 11)
Net equity
Net equity and debt (b)
Gearing ratio (a/b)
74
MAYNILAD
3,761,694
937,068
P30,934,062
P24,086,981
88%
96%
25. Financial Assets and Liabilities
The following table summarizes the carrying value and fair values of the Company’s financial assets and liabilities as of December 31, 2009
and 2008:
2009
2008
Carrying
Value
Fair Value
Carrying Value
Fair Value
P1,886,923
P1,886,923
P1,363,240
P1,363,240
2,433,418
2,433,418
5,575,108
5,575,108
1,536,093
1,536,093
1,449,576
1,449,576
1,080,503
1,080,503
507,665
507,665
57,934
61,043
65,527
80,288
P6,994,871
P6,997,980
P8,961,116
P8,975,877
Financial assets:
Loans and receivables:
Trade and other receivables - net
(included under “Other current
assets” account)
Miscellaneous deposits (included under
“Other noncurrent assets” account)
Total financial assets
2009
2008
Carrying
Value
Fair Value
Carrying Value
Fair Value
P16,305,076
P18,436,314
P16,455,834
P19,720,701
5,512,639
5,512,639
5,621,075
5,621,075
10,692,524
11,375,026
8,484,476
9,011,528
161,818
408,110
72,130
98,612
P32,672,057
P35,732,089
P30,633,515
P34,451,916
Financial liabilities:
Other financial liabilities:
Trade and other payables*
Service concession obligation
payable to MWSS
Customers’ deposits (included
under “Other noncurrent liabilities”
account)
Total financial liabilities
*Trade and other payables exclude taxes payable to government agencies amounting to P62,973 and P34,541 as of December 31, 2009 and 2008, respectively.
The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable
to estimate such value:
Cash and Cash Equivalents, Short-term Investments, Trade and Other Receivables, Deposits and Sinking Fund and Trade and Other
Payables. Due to the short-term nature of these transactions, the carrying values approximate the fair values as of statement of financial
position date.
Interest-bearing Loans. For floating rate loans, the carrying value approximates the estimated fair value as of statement of financial position
date due to quarterly repricing of interest rates. For fixed rate loans, the estimated fair value is based on the discounted value of future
cash flows using the applicable rates for similar types of financial instruments.
Miscellaneous Deposits, Service Concession Obligation Payable to MWSS, and Customers’ Deposits. Estimated fair value is based on the
discounted value of future cash flows using the applicable rates for similar types of financial instruments.
2009 ANNUAL REPORT
75
Fair Value Hierarchy
The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities.
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly.
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable
market data.
As of December 31, 2009, the Company’s AFS investment is measured at fair value. There are no other financial assets and liabilities
recognized at fair value as of December 31, 2009.
76
MAYNILAD

MORE WATER THAN JUST - Maynilad Water Services Inc.

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