Balford Henry "I REALLY do not have much to say about the NWC at this time. We just continue to have concerns about the Commission. We have noted, though, that there is now a real effort being made by the Commission to provide us with the information that it is bound to provide.
"The Government has signalled its intent to see the NWC performing off budget. Clearly this has implications for NWC tariffs. As we speak the NWC is undertaking a tariff/cost of service study and we anticipate that they will be filing for a tariff review later this year."
Those were the words of J. Paul Morgan, director general of the Office of Utilities Regulation(OUR), as he spoke during a news briefing to announce the new 3.1% increase awarded the Jamaica Public Service Company(JPSCo) on April fourth.
The OUR has been concerned about some of the developments at the NWC for sometime and has been delaying granting an increase in water rates for over a year now, but it seems inevitable that in another few months consumers will have to accept an increase in their water rates which will not be easily absorbed.
The OUR is aware of the need for increased water rates. In November 2001 Mr. Morgan, himself a former executive at the NWC, warned that the Commission's profitability had been steadily declining and that this would have to be carefully monitored, "so as not to return to the unprofitable situation of the past."
Speaking on the contents of the OUR's annual performance
report of the NWC, he noted that profitability impacted on the company's level of efficiency. The bottom line of the company could also improve, if the Government settled its debt on a timely basis, but that the situation was beyond the NWC's and the OUR's control, as legally the Government owned the NWC.
OUR VS. NWC
As at the end of March 2001, unaudited financial statements showed operating surplus of the company was $50.6 million dollars compared to the previous year end figure of $474.8 million dollars. The OUR noted that this represented a 90 per cent reduction in the operating profits of the company and this implied that the turnaround the Commission had experienced two years prior in its financial position was short-lived.
The OUR has resisted attempts by the NWC to have its rates increased, telling the NWC that this would happen, "only after a comprehensive assessment of the operations of the NWC and a determination regarding the appropriateness of the existing tariff."
Responding to those charges, NWC president, E.G. Hunter, said that the additional funds would not necessarily come from increased water rates.
According to him one of the ways in which the Commission was hoping to address the problem, was by looking at a new tariff structure, which would address the issue of financing the cost of extending service to new communities, or improving the service in some communities.
The NWC is only allowed to recoup the cost of operation and maintenance of its service, but the fact that Government support for extending or improving the service has been drastically reduced and the costs now being borne by the Commission, means that a way has to be found to structure this into a new tariff arrangement.
REPORTS BACK OUR
A new KPMG Peat Marwick audit report, which has not been officially released by the Commission, but has been accessed by the media, seems to be agreeing with the position of the OUR.
According to the KPMG report, "In order for the NWC to operate efficiently within its existing resource base it is evident that the Commission needs to go through a period of consolidation."
The report states that, in order to achieve this, attention must be paid to: (i) Righting the financial situation through cost savings, technical efficiency gains and reviews of rates; enhancing and modernising the technical capabilities and technologies employed; and improving the NWC's administrative facilities.
The report says that the NWC's rate of expansion, which includes its quest to achieve the Government's goal of potable water to all communities by 2005, would diminish as the Commission re-engineered its operations to adequately meet the demands of the water supply and waste water treatment system as they presently stand.
"Only after this consolidation and performance improvement process has taken place could NWC be in a position to reassume its role of implementing agency," KPMG says.
It is obvious from the above that the two bodies are convinced that the NWC is being burdened beyond its capacity, without the necessary funding, to meet the targets set by the politicians.
Some of these burdensome items of expenditure are in relation to the cost incurred as a result of a Cabinet decision, in the late 1980s, to make all workers pensionable, the implementation of a contributor pension scheme, as well as the impact of loans incurred in relation to activities involving road works and other infrastructural developments, which have not increased the immediate revenue earning capacity of the Commission. In fact, as soon as the NWC started showing a welcomed profitable turnaround a few years ago, instead of this being nurtured more ambitious targets were tacked on, including meeting government's water targets.
The result is that the Commission is again in an unprofitable position. The question is should taxpayers bear the burden of those bad, ambitious projections? It will be up to the OUR to decide in the near future.
Balford Henry is the News Editor at the Gleaner.
