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Funding threatens NWC's efforts to reduce losses

BY BALFORD HENRY Observer senior staff reporter balfordh@jamaicaobserver.com

Sunday, August 24, 2014    

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THE National Water Commission (NWC) says that it is determined to significantly reduce losses from non-revenue water, but it will be hampered by restrictions on its capital spending imposed under the current Extended Fund Facility (EFF) agreement with the International Monetary Fund (IMF).

"We are under severe budgetary constraints. We are under an IMF programme which really puts severe (budgetary) restrictions on what the NWC can do, in terms of improving supplies, in terms of reducing leaks and reducing worn-out wells and pumps," NWC President Kingsley Thomas confirmed at a Jamaica Observer Press Club forum on Thursday.

He pointed out that last year the NWC spent approximately $10 billion on capital works, which was approximately the same as the capital budget for the previous year, 2012/13. However, this year the fiscal cap applied under the EFF will restrict capital spending to $6.2 billion.

This is in the context where recent changes in public bodies management and accountability by the Government include steps to ensure that investments by public bodies take place within the framework of a public investment management and accountability Act which seeks to strengthen the rules governing investment activities by public bodies.

"So, we are caught between a rock, in terms of our current position, and a hard place, in terms of the absence of resources to do what we have to do in order to move," Thomas told journalists.

"But all is not lost," he insisted. "We have plans to reduce the non- revenue water by half over the next three to five years."

He said that with a significant reduction in non-revenue water, the NWC could turn around its losses and make as much as $10 billion annually in profits.

"That is what the model shows. So it is a no-brainer for us. We cannot continue turning a blind eye to this non-revenue water problem," he said.

The NWC president said that an announcement will be made shortly about the NWC's plan to reduce non-revenue water. He added that the project has the full support of Minister of Water, Land, Environment and Climate Change (MLWECC) Robert Pickersgill.

"We will be reducing our expenses, and we will be rationalising our operations in a number of areas (to meet the cost)," he explained.

Thomas said that in his first seven months at the helm of the NWC, it has become obvious to him that the situation needs immediate attention.

"The situation is not pretty. It is a crisis," he told the Press Club, in reference to the current drought environment.

The NWC is going through one of its worst drought crises, a significant challenge for an agency already plagued by serious operational and financial difficulties over the years, including multibillion-dollar annual losses.

In 2012, the NWC informed Parliament's Public Administration and Appropriations Committee (PAAC) that not only was it losing up to $2.1 billion up to October that year, but that with the prevalence of non-revenue water, which is water produced and distributed by the commission but for which it receives no revenue, the situation was unlikely to change until that problem is addressed.

On Thursday, Thomas confirmed that 68 per cent of the water produced by the NWC daily earns the commission no revenue; a situation which dates back to, at least, the 1990s.

"That is water we produce daily, but for which we collect no revenue," Thomas emphasised.

He pointed out that, in addition, of the water for which customers are billed, one-third of the total amount billed is not paid, which means that only about 25 per cent of the NWC's customers are actually paying for the sustenance of the service.

"That is something that we are planning to address seriously," Thomas said.

According to the Jamaica Public Bodies book, which is tabled annually in Parliament, the NWC had revenues of approximately $25 billion in 2013/14, against its expenditure of $31 billion, resulting in a loss of $6 billion, despite the 13 per cent increase in rates granted by the Office of Utilities Regulation (OUR) in October.

The projection this year is for $28.5 billion in revenues, including $15 billion from water rates, $4.5 billion from sewerage, $3.2 billion from service charges and $5.6 billion from miscellaneous sources. However, it is expected to spend $32 billion, including nearly $9 billion in salaries/compensation, over $2 billion in pension payments and $2.5 billion in the rental of offices and equipment, creating a projected loss of $3.5 billion.

The commission's $6.2 billion in capital expenditure this year, according to the Public Bodies book, will be spent primarily on the Jamaica Water Supply Improvement Project (JWSIP), which is aimed at non-revenue water relief stations, as well as pipeline and installation of residential and commercial meters; and, the Rural Water Supply Project which involves pipe-laying works, development of water resources and building of pumping stations for over 15 water supply projects islandwide. The two projects will utilise $1.8 billion each.

The other two projects which will be addressed under the commission's capital head this year are the Portmore Sewerage Project ($800 million) and the Tanks and Pumps programme ($1 billion).

Thomas said that because of the fiscal limitations, the NWC will have to approach the private sector for its involvement in a number of projects, in which they would have to assume some of the risks that the commission cannot take under the current IMF arrangements.

He explained that private investors would have to put up the money, and there could be no government guarantees and no NWC debt increases under this PPP (Public Private Partnership) arrangement.

"We have to try to get some very important, very urgent, almost compulsory activities undertaken over the next 18 months," he stated.

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