Risk Factors

Operational Risks

Our business is seasonal and operating results can vary from one quarter to another. The highest levels of demand and revenue are the summer months (December to March) and the lowest are the winter months (June to September). In general, demand for water is greatest in the warmest months mainly due to the additional needs for water for irrigation and other external uses of the resource.

Adverse weather conditions can possibly affect the optimum delivery of sanitation services, because the catchment and production of water largely depend on the weather in the hydrographic basins. Factors like precipitation (snow, sleet, rain, fog), temperature, humidity, dragging of sediment, river flows and cloudiness, determine not only the volume, quality and continuity of raw water available in each water intake but also the possibility of its being properly treated in the production plants.

In the event of drought, we have large water reserves in the El Yeso, Laguna Negra and Lo Encañado reservoirs, plus contingency plans that we have developed, which enable us to reduce the negative impacts caused by adverse weather conditions. The drought experienced since 2010 persists in the current period, which means the application of contingency plans like the purchase of raw water, the intensive use of wells, the leasing or purchase of water rights, etc. All this in order to reduce the impact of the drought and provide our services normally, both in terms of quality and continuity.

To meet these risks, IAM’s sanitation companies have abundant water reserves and contingency plans. The company’s subsidiaries have to meet the development plans agreed with the Superintendency of Sanitation Services (SISS), which involve significant economic, administrative and technical resources. However, the tariffs incorporate these new investments to ensure a minimum return. In addition, the experience of the controller group assures the necessary know-how for successfully carrying out these investment plans.

The sanitation services industry is tightly regulated by the Chilean state due to its monopoly nature, which exposes it to eventual changes in the established regulations. The current legal framework regulates the exploitation of the concessions and the tariffs charged to customers; these are determined every 5 years. The tariff-setting mechanism is based on technical criteria which can sometimes produce differences between the Company’s studies and those of the SISS. If no agreement is reached, the differences are resolved by a commission of experts formed by representatives of both parties.

In 2014, the sixth tariff fixation process was completed. In this manner, on November 14 2014, Aguas Andinas, Aguas Cordillera and Aguas Manquehue along with the SISS reached an agreement on the tariffs for 2015-2020 with the following terms:

• Maintain the current rates for Aguas Andinas and Aguas Cordillera as of December 31, 2013. The new tariff decrees applied beginning March 1 and June 30, 2015, respectively.
• Reduce tariffs by 5% for Aguas Manquehue as of December 31, 2013. The new tariff decree applied starting May 19, 2015.
• Additional tariffs when construction investments enter into operation, like security projects in situations of extreme turbidity (+1.1% in 2019), and nitrogen return treatment plants La Farfana and Trebal – Mapocho (+1.4% in 2018).
• Discounts on tariffs for unregulated services when the Alto Maipo Project enters into operation (-1.2%)..

Financial Risks

The Company’s revenues are highly correlated to inflation, so its debt is mainly denominated in Unidades de Fomento.

As of December 31, 2022, the Company’s interest rate profile consisted of 90.2% fixed rate and 9.7% variable rate. The fixed rate debt includes short-term and long-term bonds (62.1%) and promissory notes (16.0%), while the variable rate debt includes bank debt with local financial institutions (21.5%).

Emerging Risks

Risk 1: Reduced availability of water from glaciers
Risk 2: Potential increase in the value of the green (carbon) tax that affects emissions from sanitation companies and other industries.
For more information, see the document of Emerging Risks.