Impact of Water Rate Cut to MWC

Yesterday, MWC disclosed that an official statement on MWSS tariff determination. [1] The disclosure contains   MWSS reducing MWC’s basic water rate of P24.57 by 29.47% or P7.24 in the next five years or P1.45/year so that by the end of the fifth year MWC water rate will be at P17.32.

The impact of the water rate cut will be compounding in the next five years as shown below:

MWC1

The above calculation is based on the following assumptions:

  1. No growth in water sold in the next 5 years.
  2. Costs remain the same as 2012 level.
  3. Revenue from other sources will be the same as 2012 level.

MWC is to challenge the rate set by Metropolitan Waterworks and Sewerage System (MWSS). According to MWC, MWSS arrived at the rate without considering significant programs for building and maintenance of water and wastewater system in the MWC’s area (East Zone). Should MWC’s basic water charges be reduced, MWC is bound to recognize decline in earnings in the next five years unless the Company can generate substantial water sales in other areas. MWC’s East Zone business is 75% of the Company’s revenues.

 

Source:

  1. Official Statement on MWSS Tariff Determination, http://www.pse.com.ph/resource/disclosures/2013/pdf/dc2013-7141_MWC.pdf

 

 

Disclaimer: I do not claim to be an expert and nothing I say should be taken as a recommendation to buy or sell. Read more in the ABOUT page.

Disclosure: See Portfolio page for my holdings.

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