Manila Water, Inc.

Established in 1997
Sector: Utilities
The publicly traded Manila Water Company, Inc. has a wealth of knowledge in the Philippine
water industry, from water treatment and distribution to wastewater management and
sanitation services. For the East Zone concession in Metro Manila and the province of Rizal,
which serves more than 7.3 million people, The Company is the concessionaire of the
government-run Metropolitan Waterworks and Sewerage System. The Philippine
government gave the Company a 25-year operating franchise in 2021.

Top Risks:
Water Supply
Failure to ensure the adequacy, quality, and reliability of water supply across service areas. Covers
raw water availability, water quality and distribution.

Demand, Billed Volume and Revenue

Failure to meet growth in demand and revenue, and collect payments in a timely manner.

CAPEX Delivery
Failure to execute projects consistent with the approved Service Improvement Plan in a timely
manner, in line with cost estimates, and at desired quality, thus avoiding disallowances, penalties or
tariff clawback.

Effluent (BNR) Compliance

Failure to comply, consistently and in a timely manner, with the provisions of the revised effluent
standards, particularly on the removal of nutrients from wastewater.
Political and Regulatory
Failure to manage regulatory and socio-political uncertainties which may create business challenges,
delay project completion, restrict market opportunity, hamper investment, hinder rate approval on
proposed rates and negatively impact returns on existing assets.
Covers failure to adhere to the provisions of the Revised CA, and failure to submit an updated RR18
Plan with reasonable and attainable commitments, which may lead to potential penalties and
disallowances.
Legal
Failure to manage and close major legal disputes that will impact reputation and incur significant
financial penalties.

Talent
Failure to ensure availability of competent talents for critical roles and keep them engaged and
motivated to deliver results. Covers risks on Talent Capacity, Capability and Connection.

Natural Calamities
Failure to effectively ensure business continuity and immediate recovery in response to disruptive
natural calamities such as earthquake and weather extremes.
Pandemic
Failure to sustain business operations, and maintain employee health and safety due to public health
crises (COVID-19, Delta variant, etc.)
Cybersecurity
Failure to protect critical company data, information and systems from internal and external threats.
Foreign Exchange
Failure to manage or mitigate the effects of foreign exchange volatility to Profit and Loss
Fund Sourcing & Capital Availability
Failure to source and provide timely and cost-efficient funding to cover operating requirements,
capital expenditure commitments, capital requirements of new businesses, and funding of debt
obligations in both Philippine Peso and Foreign Currency.

How often does the company refresh its assessment of the top risk?
The Board has overall responsibility for Manila Water's response to climate change and general
oversight of the Company's approach to identifying, assessing, and managing both the risks and
opportunities associated with climate change. The Company's top threats are reported to the Board
Risk Oversight Committee (BROC) every quarter. The BROC provides oversight to management
functions relating to strategic, financial, operational, compliance, legal, environmental, social, and
other risks of the Company including periodic disclosure of significant risk exposures and related risk
management activities.

Who own the top risks, is accountable for results, and to whom do they report?

Risk Management Three Lines of Defense (3LoD) Model

Manila Water’s oversight structure was established in reference with the industry standards’ Three
Lines of Defense (3LoD) model. The model defines how each role within the company is critical in
management of risks.
The first line (functions that own and manage risks) serve as the front-line being group that are
primary responsible and accountable for identifying and managing risk as part of their accountability
for achieving their objectives.
The second line (functions that oversee management of risk) the group that provides the policies,
frameworks, tools, techniques and support to enable risk to be managed by the first line, conducts
monitoring to judge how effectively they are doing it and helps ensure consistency of definitions and
measurement of risk.
And lastly, the third line (functions that provides independent assurance) sitting outside the risk
management processes of the first two lines of defense, its main roles are to ensure that the first two
lines are operating efficiently and effectively and advise how they could be improved. It provides an
evaluation, through a risk-based approach, on the effectiveness of governance, risk management, and
internal control to the organization’s governing body and senior management.

How effective the company manage the top risks:

Management of Top Enterprise Risks
The Enterprise Risk Management Executive Committee (ERMEC), composed of Manila Water
Company's Senior Leadership Team (SLT) consisting of the Manila Water President/CEO, Chief
Administrative Officer, Chief Regulatory Officer, East Zone Business Chief Operating Officer, Non-East
Zone Business Chief Operating Officer, and the Chief Finance Officer determines the most significant
risks facing the Company.
For both Manila Water East Zone and Non-East Zone business, the Risk Management Executive
Committee (RMEC) is composed of the President/Chief Operating Officer and their Leadership Team
and has been established to oversee the effective risk management in each respective business unit
within the strategic business units (SBU).
Management of top enterprise risks has been mapped up to the department level and was delegated
to the appropriate Risk Owners.
Risk Owners formulate and commit to a risk management plan, monitored by the ERM Department,
which defines specific action points, accountability, milestones and timeline. The status of the Top
Enterprise Risks is regularly discussed at the ERMEC and RMEC and is reported to the Board Risk
Oversight Committee.

Are they any organizational “blind spots” warranting attention?

Lack of critical talent – Manila Water is suffering from lack of critical talent especially in the field of
technology & digital transformation. Manila Water is struggling to restructure processes in light of
developments in the field of Artificial Intelligence (AI) and machine learning.
Manila Water business model can be easily replicated even with the number of patents and
copyrights the company possess. The intellectual property rights are very difficult to implement in the
industry that Manila Water operates in. According to V. Kasturi Rangan , Intellectual Property Rights
are effective in thwarting same size competition but it is difficult to stop start ups disrupting markets
at various other levels.
Customer Dissatisfaction – Even though the demand for products have not gone down but there is a
simmering sense of dissatisfaction among the customers of Manila Water . It is reflected on the
reviews on various on-line platforms. Manila Water should focus on areas where it can improve the
customer purchase and post purchase experience.

Does the company understand key assumptions underlying its strategy and align its competitive
intelligence process to monitor external factors for changes that could alter those assumptions?
Sustainability has long been in Manila Water’s DNA, integrated in our business and embedded in our
day to day work, it is a dynamic approach beyond brand reputation and beyond profits. The company
treats sustainability as a paradigm to ensure continuity and enhance growth as it creates shared value
for and with our stakeholders

Does the company articulate its risk appetite and define risk tolerances?
In pursuit of enhancing the ERM culture in Manila Water, the following will be undertaken in the near
future:
Mandatory ERM trainings for process owners across the enterprise to communicate the revisions in
the revised policy, framework, risk governance structure, inter-group protocols, calendars, and
assessment and reporting tools.
Integration of risk management practice with certain business processes such as CAPEX execution and
further alignment of risk management with strategic planning and performance management.
Preparation of the Company’s Risk Appetite statements, and calibration of operational risk thresholds
as enhancements in key risk indicators monitoring.
Giving special focus on climate-driven risks, with capacity building work to ensure readiness for
disclosures using the recommendations of the Task Force for Climate-related Financial Disclosures
(TCFD) for the reporting year 2022.

Does the company’s risk reporting provide management and the board information they need
about the top risks and how they are managed?
Risk reporting is a crucial part of the overall process relating to the assessment and management of
risk within the organization and involves both formal and informal communication of information in a
two-way process.
• Continuous risk monitoring shall be ensured by including risk management as a periodic agenda
item at the Board, Audit Com, RMEC, mini-ManCom and quarterback meetings.
• A risk dashboard that contains the best available data will be used as the main tool to monitor and
report matters related to risk management.
The CRO, supported by the ERMD, shall ensure that all initiatives pertaining to risk management are
continuously monitored and regularly reported to the appropriate members of the organization.
Monitoring of the risk management process must be applied on existing priority risks; new emerging
risks; risk management performance, and; specific measures, policies and procedures.
• Internal Audit shall be responsible for the annual review of the adequacy and effectiveness of the
ERM framework.
• Internal Audit department is responsible on the verification of the effectiveness of the action items
that has been committed by the individual business units during the risk assessment.
• Management and employees shall operate within the framework of policies and procedures set out
in the organization.
• Risk Owners and Risk Managers shall be appointed for each critical risk and milestones shall be set
towards the achievement of an acceptable level of risk.
• Any significant control weaknesses shall be discussed in the reports together with the actions being
taken to manage the risks.
• Exception reports shall be prepared immediately at the appropriate level of management in respect
material control failures and breaches in the acceptable risk level.

Is the company prepared to respond to extreme events?

Manila Water recognizes that its ability to provide reliable water services requires the company’s
readiness in case of disasters and other extreme events. In the face of climate change (such as the
phenomenon of longer rainy and dry seasons), the company implements mitigation strategies to
minimize the potential impacts of adverse events on the business and its customers.
Manila Water has a comprehensive Business Continuity Plan that involves all employees, supply chain
partners, critical utility allies, and local and national government agencies. Emergency preparedness
procedures are set out to address critical incidents such as pipe breakages, massive power outages,
typhoons bringing strong winds and floods, and earthquakes.
Manila Water also maintains a culture of disaster preparedness and response in the company’s head
office and key facilities. In 2018, 1,600 emergency bags were distributed to employees in the Manila
Concession business. Each “Go Bag” contains basic survival items in case of an earthquake or other
natural calamity which would necessitate transfer to an evacuation center for a prolonged period.

Does the board have the requisite skill sets to provide effective risk oversight?
Manila Water prides itself with its Board of Directors (the “Board”), composed of highly competent
individuals who are well-recognized in their respective fields and in the business community. The
Board provides a clear vision towards the formulation of sound corporate strategies, and oversees the
systemization, improvement and upholding of transparency in governance. The Board provides
guidance in achieving fairness and accountability in all major dealings of the Company, with the
objective of protecting the interests of all stakeholders.
In the exercise of their duties, the members of the Board must exercise their best and unbiased
judgment in the utmost interests of the Company. The Board is the guardian of fairness, transparency,
and accountability in all of the major financial and business dealings of the Company, protecting the
interests of investors and stakeholders.