AGUAS ANDINAS A successful experience in a regulated market - PowerPoint PPT Presentation

AGUAS ANDINAS A successful experience in a regulated market February 2016

01 CHILEAN SANITATION SECTOR

WATER & SEWERAGE INDUSTRY IN CHILE XV y I Region / Iquique Aguas Del Altiplano An example of a successful public-private alliance II Region / Antofagasta Aguas De Antofagasta III Region / Copiapó Aguas De Chañar IV Region / La Serena Aguas Del Valle TWO CONCESSION MODELS 1998 BEGINNING V Region / Valparaíso Indefinite concession Esval R.M. / Santiago OF THE Aguas Andinas VI Region / Rancagua PRIVATIZATION Essel Concession for 30 years VII Region / Talca PROCESS Aguas Nuevo Sur VIII Region / Concepción Essbio IX Region / Temuco Clients breakdown by Economic Group Aguas Araucania Los Ríos / Valdivia X Region de Los Lagos y XIV Region Aguas Décima AGBAR SUEZ 43.0% de Los Ríos / Pto.Montt Essal ONTARIO TEACHERS PP 31.1% Private companies: 6 MARUBENI 9.2% Xi Region / Coyhaique INV. AGUAS RIO CLARO 5.1% 30 years Concessions: 8 Aguas Patagonia SMAPA 3.9% EPM 3.3% 96% OF CLIENTS served by a HIDROSAN-ICAFAL-VECTA 2.6% privately-held operator Xii Region / Pta.Arenas OTHERS 1.9% Aguas Magallanes 3 Source: SISS' 2014 Management Report

EVOLUTION OF WATER & SEWERAGE INDUSTRY Rising levels of investment to increase coverage and quality TODAY 100% drinking water coverage 1999 97% sewerage coverage 99% drinking water coverage 100% waste water treatment coverage 92% sewerage coverage 23% waste water treatment coverage USD 4,200 MM Investment in drinking water, sewerage, and waste water treatment (2002-2013) 4

CHILE IN COMPARISON TO THE WORLD The first Latin-American country with 100% waste water treatment …at the highest international standards 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Source: OECD, Environmental Statistics, Treatment of Waste Water. 5

CHILE IN COMPARISON TO THE WORLD Efficient tariffs, one of the lowest in the OECD TARIFFS (Drinking Water, sewerage, and Waste Water Treatment US$/m3) 7,09 OSLO 6,6 BERLIN 5,93 SYDNEY EFFICIENT TARIFFS 5,33 COPENHAGEN The lowest of the 5,12 OTTOWA capitals of countries 3,88 PARIS member of the 3,65 LONDON Including 100% OECD 3,23 MEXICO CITY COVERAGE OF 2,74 WASHINGTON DRINKING WATER & 2,56 MADRID WASTE WATER 2,33 STOCKHOLM TREATMENT 1,62 ATHENS 1,39 SANTIAGO And with SELF-FINANCED 1,36 ROME companies 1,24 SEOUL 6

FOCUS: CHILEAN SANITATION REGULATORY FRAMEWORK

HIGHLY REGULATED SANITATION INDUSTRY Proven, Stable, and Transparent Framework Regulatory framework in place for more than 25 years MODEL COMPANY vs. REAL COMPANY Superintendence of Sanitation Services (SISS) acts as the regulator counterpart in MODEL COMPANY AGUAS ANDINAS the tariff setting process, which lasts for 1 year approximately Greenfield operation Existing infrastructure Tariffs are reset every five years, based on an unbiased and technical model: Combination of new and Latest technology – Based on the long term total cost of a model company existing technologies – Discrepancies are solved by an independent experts committee Cost efficiency Real costs – Minimum real return on assets of 7% after taxes – Automatic interim adjustments linked to polynomials based on CPI and WPI 100% coverage in all services Real coverage indexes Self-financing of investments Self-financing of investments through tariffs through tariffs Government subsidies for low-income clients Ability to use debt to finance Minimum Capex and enhance return on The regulatory framework of the Chilean water industry has been fundamental to Return on Assets equity the development of the sector 8

PRINCIPLES OF THE TARIFF MODEL Ensuring the self-financing of an efficient company Regulatory framework is established by The tariff model aims to simulate a law and applies to all companies in the competitive market. industry. Public negotiation process. TRANSPARENCY EFFICIENCY SELF-FINANCING EQUALITY Revenues cover the costs of the The same tariff is applied to all efficient Model Company. customers (regardless whether they are industrial or residential, etc.). Direct subsidies provided to low-income customers. 9

STAGES OF THE TARIFF NEGOTIATION PROCESS From general parameters to the negotiation of the size of the model company SISS OFFER Publication of the Tariff Setting Process Parameters and Methodology Aguas Andinas provides information about the Real Company to the SISS SISS analyses the Aguas Andinas analyses the Model Company Model Company Aguas Andinas highlights discrepancies Negotiation Agreement? No Yes Expert Committee Committee Decision Tariff Decree 10

ESSAL TARIFF-SETTING PROCESS Technical and Negotiation Process For One Year Agreed list of Definitive candidates Bases for the Expert Committee Parameters and SISS Committee Comments on SISS answers SISS calls Background Exchange of Methodology The company gives sets new Tariffs the to the Comments delivery of the Committee the Tariff Publication highlights Expiration its Tariff parameters of Experts Tariff Study Studies Discrepancies answer Formulas are made Process JUNE AUGUST SEPTEMBER MARCH APRIL APRIL JUNE AUGUST SEPTEMBER OCTOBER 12 2015 11 2015 8 2016 7 2016 26 2016 5 2016 12 2016 11 2016 25 2015 29 2015 30 days 16 days 30 days 30 days 11

AGUAS ANDINAS’ EXPERIENCE IN CHILE

AGUAS ANDINAS Chile’s Largest Sanitation Company TARIFFS (Potable Water, Sewerage, and Sewage Treatment US$/m3) Coyhaique 3,17 Antofagasta 2,94 Copiapó 2,69 2.145.122 clients Iquique 2,38 Representing 43% 100% coverage in Punta Arenas 2,30 of the clients in the potable water and sewage Puerto Montt 2,26 industry treatment Arica 2,05 Valparaíso 2,02 Temuco 1,95 Valdivia 1,95 Talca 1,92 La Serena 1,90 50.5 % of potable One of the lowest tariffs in Rancagua 1,64 water billed in the Chile Concepción 1,55 industry Gran Santiago 1,34 Maipú 1,06 Tariffs as of December 2014 considering US $1= $607.38 13 Source: SISS' 2014 Management Report

INTEGRAL WATER CYCLE MANAGEMENT 100% Coverage of Potable Water, Sewerage, and Sewage Treatment Ground and Surface Network of 15,218 Returning 100% sources kilometers Network of 12,348 100% of coverage 100% Sewage Treatment kilometers 14 14 Source: SISS' 2014 Management Report and Aguas Andinas

AGUAS ANDINAS’ INVESTMENTS Long-term commitment with the integrated Total investment water cycle in Chile since acquisition Beginning of MM USD 2,400 operation of the Aguas Andinas acquires Beginning of Aguas Cordillera & Aguas Curacaví and operation of the Manquehue. Talagante Farfana Treatment Treatment Plants. Plant. “Clean Urban Mapocho” Aguas Quinta Collector is inaugurated. (1996-2000) POPUL. ACCESS 180,000 5,500,000 7,100,000 TO IMPROVED POBLACIÓN SANITATION SANEADA 1999 2008 2013 1994 1995 2000 2001 2003 2004 2005 2012 2010 SANITATION 87% 100% 3% 23% 69% COVERAGE Aguas Beginning of operation Acquisition of the 53.5% Acquisiton of Aguas Décima Beginning of of the Mapocho Waste Beginning of operation of Empresa de Servicios Andinas. Water Treatment Plant. (1994-2006) operation of the of the El Trebal Sanitarios de Los Lagos Valdivia de Paine Treament Plant. The 100% sanitation of and El Monte construction of the the Metropolitan Treatment Plants. Farfana plant begins. Region 15

EFICIENCIA Y GARANTÍA DEL SERVICIO Trabajo constante para continuar mejorando los estándares Company’s world class positioning in Health and REDUCTION by Implementation of Safety standards ~35% of the arsenic abatement INCREASE IN AUTONOMY of “10 Rules that Save annual treatments the potable water distribution Lives” ruptures/km rates system for 9 hours for when in 6 years there is an emergency that does not allow for the RUPTURE RATES (RUP./KM.YEAR) production of water 0,200 0,185 0,190 0,180 0,20 0,162 0,148 VALUATION OF RESIDUES IN 0,131 WASTEWATER TREATMENT PLANTS: • Water suitable for all types of 0,10 irrigation • Bio-methane at the Farfana Plant • Bio-solids 0,00 • Biodiesel (R&D 2008 2009 2010 2011 2012 2013 2014 16

AGUAS ANDINAS’ SUSTAINABILITY Sustainability efforts linked with the Company’s stakeholders Human Shareholders Clients Capital Profitability; investment stability; risk Quality and continuity of supply; customer Career development and training; equal management; transparent management service, service channels and complaints opportunities; good labor conditions and management; transparency and accuracy in communication; health and safety billing Neighboring Suppliers & Authorities Communities contractors Impact management; dialogue and Legal Compliance; collaborative Transparent and equal conditions; timely relationships; local development relationships; contribution to local payments; development opportunities opportunities development 17 17

CHALLENGES

VOCATION FOR SERVICE & CLIENT FIRST ATTITUDE Nearby, visible, and exceeding expectations Honour the trust of ENSURING CONTINUITY BY MANAGING NEW VARIABLES our consumers Geographic and demographic growth of the city Sustained annual increase over 2% in the number of clients in recent years Effects of climate change Investing in SAFETY & Longer periods of drought, the QUALITY OF SERVICE occurrence of convective rainfall & the extreme turbidity of the Maipo River 19