Issue 1 2012 VOLUME 2

MANILA DAM POLICIES AND DAVID PORTER , TEXAS RAILROAD COMMISIONER…………….2

MARKET WATCH AND WHERE Y’AT AQEX?:

JAPAN’S “FIT” ACT………3

DOW JONES U.S. WATER INDEX AND MANILA DAM POLICY CONT…..………...4 Water

Tracker ADDRESSI NG THE NEEDS OF I NVESTORS

IN THE NATURAL RESOURCE MARKET

AQEX LLC is determined to provide informational services and products to

financiers, governmental entities, and investors interested in the emerging

commoditization of water, waste, biofuels, and other natural capital.

Water Security

MARKET WATCH

In March, the Mississippi River Collaborative filed a suit to try and

force the EPA to set limits on nitrogen and phosphorous levels in the Missis-

sippi River. This is an example of potential legislation that could lead to inno-

vation and investment opportunities. The issue at hand is …cont. on page 3

Water security is defined as “the

availability of an acceptable quan-

tity and quality of water for health,

livelihoods, ecosystems and pro-

duction, coupled with an accepta-

ble level of water-related risks to

people, environments and econo-

mies.” (Grey and Sadoff, 2007) The aver-

age cost per person per year for

having 10 L/day of safe drinking

water is just $2 per day. Water is a

$400 billion global industry, the 3rd

largest next to electricity and oil.

The CEO Water Mandate group and

World Economic Forum’s

Water Initiative are seeking ways in

which the private sector can con-

tribute to sustainable water man-

agement systems by creating inno-

vative technologies to increase

conservation and reuse.

A water secure world provides

enough water for daily human use

while utilizing its productive power

via hydroelectricity and shipping,

and protecting against its destruc-

tive forces. In recent years, global

water security has been greatly

reduced due to global economic

hardships, world population

growth, rapid shifts from rural to

urban areas, global dietary chang-

es, increasing pollution of water

resources, the over-abstraction of

groundwater, and global warming

(more frequent and severe floods

and droughts, shifting rainfall and

river-flow patterns, increasing wa-

ter-borne diseases). The United

Nations has declared 2013 The

International Year of Water Coop-

eration, highlighting water security

and management planning with a

global approach to better inte-

grate water into socio-economic

development planning.

d Reference: Dr. Abdelghani, Tulane Univ. and GWP

David Porter,

Texas Railroad Commission-

David Porter, a successful busi-

ness owner from Midland Texas,

was elected on November 2, 2010

as the Texas Railroad Commission-

er with 60% of the vote. Since

then, he has been appointed as an

Associate Representative of the

Interstate Oil and Gas Compact

Commission and Governor Rick

Perry’s official representative on

the Interstate Mining Commission.

Before moving to Midland, Com-

missioner Porter graduated Magna

Cum Laude from Harding Universi-

ty in 1977 with a Bachelor’s De-

gree in Accounting, where he met

his wife Cheryl. Subsequently, Por-

ter had built a CPA firm providing

accounting and tax services to oil

and gas companies. Presently,

Railroad Commissioner Porter cre-

ated the Eagle Ford Shale Task

Force, an organization designed to

bring landowners, community lead-

ers, industrial representatives, and

environmental groups together to

establish environmentally safe

drilling developments while bene-

fiting economically in the Eagle

Ford Shale. As the state’s senior

energy regulator, Porter has begun

initiatives all over the state to re-

duce flaring and venting associat-

ed with oil and gas production by

enforcing current regulations, part-

nering with Texas electric compa-

nies on a pilot program with natu-

ral gas, and introducing air emis-

sion and shale production policies

similar to water recycling pro-

grams. At last year’s Texas Forest

Country Partnership’s East Texas

Economic Development Summit,

Commissioner Porter stated “…

There’s nothing more important

than oil and gas to the future of

Texas — except for water.”

Reference: Texas Railroad Commission

Manila needs a new

Dam Policy

According to a new report

released by the Asian

Development Bank, the

Philippines' capital city,

Manila, is in desperate

need of new policy initia-

tives in order to ensure

the sustainability of water

sources serving the cities.

The report, which high-

lights best practices in

urban water resource

management, warns of

the risks of having only

one source of water, in

this case Angat Dam,

serving a disaster-prone

megacity, and that these

risks are likely to severely

affect Manila and the

surrounding metropolitan

area in the near or long

term if policymakers are

not proactive. The Philip-

pines are prone to earth-

quakes, and droughts

have become more fre-

quent and pronounced as

a result of El Nino weath-

er events. Both of these

factors threaten the

water security of Metro

Manila, which had a pop-

ulation of nearly 12

million in 2010 and

which exists in a contigu-

ous zone with a popula-

tion of more than 25.5

million. Groundwater ex-

traction threatens to de-

plete aquifers, necessitat-

ing the development of

new water sources. The

Angat Dam currently sup-

plies an overwhelming

98% of the water needed

by Metro Manila. The

Metropolitan Water-

works and Sewerage

System (MWSS) and

San Miguel Bulk Water

Co., Inc. (SMBWCI)

have been embroiled

in controversy over a

second capital project,

the Laiban Dam. The

controversy has sur-

rounded an arrange-

ment between the two

groups know as “take or

pay,” in which one party

agrees to buy a specific

amount of another

party’s goods or services,

or to pay the equivalent

cost even if the goods or

services are not needed.

In other words, even if

the capacity of the

Laiban Dam were to ex-

ceed daily demand in

Metro Manila, the full ca-

pacity would still need to

be paid for. Two water

concessionaries, Manila

Water Company, Inc.

(MWCI) … cont. on page 4

MARKET WATCH continued...

… the excess nutrients

from Midwest farmland

flowing down the river

and entering the Gulf of

Mexico. Nitrogen in par-

ticular is of interest in

salt water environments.

The excess nitrogen

causes algal blooms

which in turn suck the

oxygen out of surround-

ing waters resulting in

widespread fish kills.

The Mississippi River Col-

laborative is an environ-

mental group that hopes

to force action on the

issue of nutrient pollu-

tion through their law-

suit. According to a

recent economist article,

some groups are op-

posed to the notion of

federal limits on nutri-

ents in waterways stating

the concept as too

“simplistic”. But the arti-

cle continues to give ex-

amples of pilot projects

in states that have volun-

tarily begun to operate

with nutrient limits in

waters, thus spurring

innovations such as the

processing of farm

wastes such as cow ma-

nures with bio digesters.

A beneficial byproduct of

these bio digesters of

course would be steady

methane production.

Agricultural sources are

believed to be the main

culprit for nutrient pollu-

tion in this case large

animal operations or fer-

tilizer runoff from large

swaths of farmlands in

Illinois, Iowa, and Indiana

according to the

article. Investment into

technologies for reduc-

tion of nutrients such as

these bio digesters

would prove to be a boon

should strict limitations

eventually become a re-

ality nationwide. Other

approaches include the

possibility of financial

instruments being creat-

ed for the management

of the nutrients in vari-

ous watersheds. Work on

that has been ongoing

and several pilot projects

will begin near the end of

this year.

This July, the Japanese

Diet passed the Feed-in-

Tariff or “FIT” Act, a poli-

cy put in place to en-

courage investment in

renewable energy and

their associated genera-

tion facilities. Under the

FIT Act, electric utility

operators must pur-

chase solar, wind, hydro,

geothermal and biomass

generated electricity for

contractual terms at

fixed prices set by the

Japanese Minister of

Economy, Trade and In-

dustry or “METI”. The

price is determined by

the general cost of re-

newable energy, the an-

nual supply, and the

profit margin necessary

for efficiency and sus-

tainability. The purchase

price for this initial year

is fixed at ¥40/kWh

($0.50/kWh excluding

tax) for solar power and

¥22/kWh ($0.28/kWh

excluding tax) for wind

power, both of which

come with a purchase

period of 20 years. Addi-

tionally, the Act does not

restrict foreign invest-

ments in renewable en-

ergy power businesses

in Japan. Globally, these

prices are highest and

therefore will be ex-

tremely attractive to

power companies and

investment projects.

Where y’at AQEX?

Japan is turning to green investments

Memphis, Tennessee is performing a “color study” to determine the

source of the abnormal color contrast in the Mississippi River.

-The Mississippi River Collaborative

Reference: The Mississippi River Collaborative

Getting the most from our

research analysis

AQEX delivers standardized pricing mechanisms and related ser-

vices to the natural resources and commodities markets. The water and

waste space has been developed first, including:

Indices tracking “commodity” prices for water and waste as real assets

Natural Capital Accounting including externalities into traditional term

sheets

Specialized financial products aimed towards developing futures

Consulting to regional and municipal governments seeking to deploy

investment-friendly policy

AQEX LLC

Information Services

for Natural Capital:

Waste, Water, Energy

2200 Pennsylvania Ave.

NW 4th Floor East

Washington, DC 20037

Tel +1.202.507.5710

cchandra@aqexllc.com

SMARTER INVESTING: Experience

vs. Discipline

Dow Jones U.S.

Water Index 894.34 5.46 (0.61%)

At 11:28 AM EDT,

July 6th, 2012

…and Maynilad Water Services Inc. (MWSI),

have opposed the project, preferring it to be

scalable over time rather than result in the

construction of a single complete unit. In

addition to the city’s geological and climatic

vulnerability, Metro Manila also faces rising

water prices, due in part to rising costs need-

ed to address sewage and sanitation needs.

For those used to 24-hour water service, the

report finds that water costs will be exces-

sive if not prohibitive. In order to guide policy

decisions, the report cites Singapore as a

model city for water resource management

in Asia, and offers best practices relating to

accountability, collaborative engagement,

and addressing the needs of the urban poor,

among others.

Manila Dam Policy Continued...

The full report, entitled “Good Practices in Urban

Water Management: Decoding Good Practices for a Successful Future”,

is available from the Asian Development Bank.