Balford Henry, senior staff reporterThe National Water Commission (NWC) made nearly $500 million in profits in 1999/2000, so what has happened since for it to need a rate adjustment so urgently now?
According to the NWC, its existing tariffs cannot pay for the cost of service and a reintroduction of the "K" Factor was seen as the quickest and most effective method of adjusting that situation right now.
The "K" Factor was an interim measure which allowed the commission to collect an additional four per cent on customers' bills, to recover the cost of the installation of meters and the replacement of pumps for two years up to March, 2001.
The NWC made a profit in 1998/99 of $177.49 million and, with the help of the "K" Factor followed up in 1999/2000 with a huge profit of $474.8 million.
This latter profit was the highlight of now disgraced former Minister Dr. Karl Blythe's sectoral/budget presentation last year.
But, less than a year after his speech, the commission was in serious financial problems and seeking a hidden increase to beef up revenues!
Inside sources claim that the 2000/2001 report, expected to be tabled in Parliament next week by new Minister, Donald Buchanan, will also show a profit.
But the NWC has declined commenting on whether this was anywhere close to the $474.8 million or is a drastic reduction, until the new Minister has seen the report.
With the "K" Factor still in effect at that time, it is quite possible that the NWC was making a profit up to then.
But, whatever the financial statement says about 2000/2001, the fact is that the Commission has fallen on very desperate times since it lost the "K" factor last year and needs help, urgently.
The OUR has admitted that the NWC is in a bad financial state.
OUR's deputy director general, J. Paul Morgan, told the media from late 2001 that he was wrorried about the situation.
So, why has the OUR not allowed the utility to reintroduce the mechanism to renergise its revenues?
The NWC met the OUR's representatives in March, outlined its financial difficulties to them and renewed its request for the reimposition of the "K" factor, as an interim measure pending a fullscale review of its tariff structure.
The OUR responded that there had been items of expenditure which had their origins external to the NWC and which were not addressed at the last rate review.
The office invited the NWC to submit details of those expenditures, "so that the impact on its financial viability could be assessed."
The OUR gave as the reason for rejecting the application, that the items of expenditure which triggered the current financial bind, include the introduction of a pension scheme and the impact of loans incurred in relation to activities involving road works and other infrastructural developments, which do not increased the immediate revenue earning capacity of the commission and, therefore, do not qualify under the "K" Factor.
The OUR has since demanded that the commission submit its actuarial report on the impact of the pension scheme, the details of the debt it has assumed since 1999, statistics on water production and sales for the last three years, the 2002/2003 Operation Budget, as well as specifics of efficiency improvement measures taken by the commission over the last three years, in order for it to consider a tariff review.
The OUR said that, while it appreciated that the NWC may be under some financial pressure, "these problems should not be addressed on an ad hoc basis, but only after a comprehensive assessment of the operations of the NWC and a determination regarding the appropriateness of the existing tariff."
It is clear therefore that the OUR is saying to the NWC that it does not believe that a resumption of the "K" Factor is the answer to its financial problems.
It is saying that what the NWC needs is a comprehensive review of its records since 1999 and its budget for this year, as the basis for discussing an increase in water rates.
Unfairly treated
But, what does the NWC feels about this?
The Commission thinks that it is being treated unfairly by the OUR. The NWC seems to think that it has a right to keep the "K" Factor as long as there is no adjustment in its current rates.
The NWC has pointed out that a "K" Factor is also built into the tariff of other utilities' to cover the cost of capital investments, including that of the Jamaica Public Service Company Limited(JPSCo).
In other words, everybody else is getting it, so why not us?
It said that based on its performance with the previous "K" Factor, as well as the fact that the OUR is aware of its financial situation, it should not have had any difficulty in granting the request to renew the "K" Factor.
In a letter to Mr. Morgan on April 16, responding to the decision not to reintroduce the "K" Factor, the NWC's president, E. Hunter, said that he noted with regret and consternation the office's response.
"In the first instance, for the OUR to determine that the imposition of a 'K' Factor is inappropriate and then request further information, suggest that the determination may have been premature. It goes without saying that we cannot see how the OUR can objectively acknowledge that there are items of expenditure not covered by the existing tariff, yet deny the request for a remedy," the response said.
However, the NWC said that, notwithstanding its disappointment and dissatisfaction, it would continue to make out what it believes is "an eminently reasonable" case, "in the hope that appropriate mechanisms will be found to enable the commission to be viable by recovering the true cost of operations."
But, there are two points here which need to be explained to the public, before anything else is done.
One is that the response of the OUR to the request for the renewing of the "K" Factor, suggests that the OUR is not satisfied with how the NWC has been handling its funds.
Obviously, the OUR feels that there is more to the current financial problems at the NWC than meets the eye.
Is it that the OUR suspects, as the NWC workers have suggested, that the Commission is either being mismanaged or that much of its funds are going into areas in which it ought not to be going?
Or, even that the Ministry has been pressuring the Commission to meet political obligations to the electorate in an election year, without providing the financial basis to fund these programmes?
The other is that the NWC seems to think that all that is necessary for the OUR to grant it a tariff increase or a new "K" Factor is to prove that it needs money.
There is this feeling among the utilities, that with the Government having given up its rate setting role to the OUR, they no longer have an obligation to factor the response of the public into any decision to increase rates, or approve these hidden mechanisms that are used to increase people's utility bills so unfairly.
The fact is that the OUR also has as much of an obligation to the NWC's customers, who will have to pay the increase, as the politicians would have had to the electorate.
The OUR should satisfy itself fully that a "K" Factor or a tariff increase is inescapable, before bowing to the wishes of the commission, or any utility for that matter.
But, in order to be fair to the NWC and to the public, the OUR should also explain publicly what is the "K" Factor mechanism being enjoyed by the JPSCo?
The public should know how it works, on what basis the JPSCO is still enjoying the benefits of that mechanism and why they need it more than the NWC?
