List NWC on the stock market - Holness
On a visit to the Jamaica Stock Exchange earlier this month, Opposition Leader Andrew Holness, who has affirmed his support for the market, also threw out the suggestion that public utility National Water Commission (NWC) should be listed.
Later, Holness told the Financial Gleaner that it was not a one-off suggestion but a firm policy of the Jamaica Labour Party that extends to other public bodies and would be put into play were his party to reclaim Jamaica House.
"A JLP government will be looking for ways to leverage many government assets that have significant store of value and can provide income, but are tied up in public bodies," said Holness.
"Success would relieve some of the Government's need to borrow," he said via his media liaison Sharon Hay-Webster.
NWC, said Holness, would be "on top of the priority list", but the former prime minister and head of the JLP said he was not proposing to dispose of the water utility, which is a provider of a social good. Rather, a portion of the company would be floated on the stock market to open it up to broad ownership.
"We do not believe that there is a need for an intermediate step. Going directly to a stock market listing would allow the widest cross-section of Jamaican retail investors, pension funds and other institutions to own a percentage of NWC and participate in its governance," said Holness. He did not say the size ownership the state would retain.
The capital raised, he said, will help to pay off debts that are now burdening the water supplier and preventing it from upgrading infrastructure.
As outlined in last year's Office of Utilities Regulation rate determination notice for the utility provider for the five-year period to fiscal 2018, the NWC projects a capital investment programme of $87 billion.
The utility is a persistent loss-maker which was projected to lose about $6 billion at year ending March 2014, but well-placed sources say the commission will report a $10-billion loss for the year. It was projected to lose another $3.5 billion in fiscal 2015, pushing its accumulated deficits to $25 billion, according to Ministry of Finance data on public bodies, figures that are subject to audit verification.
Losses to year ending March 2015 may range as high as $6 billion, our source said.
NWC, which has always been a politically sensitive agency because of the product it deals in, collects no revenue on about 70-75 per cent of
its supplies - some of which is lost through theft and leakage, while some is distributed as 'social water'. The other 25-30 per cent and other charges now brings in about $20 billion of revenue yearly on average, nearly all of which flows into its operating expenses.
The utility needs billions more for its capital programmes - it spent some $9 billion in fiscal 2013 - and also has $21.8 billion of loans, and rising, to service.
Holness said listing the NWC offers access to equity capital to upgrade and expand its infrastructure and pay down debt. It would add a new layer of financing for an agency that has relied on loans for its projects.
"NWC has only been able to utilise debt financing. At March 31, 2013, it had $21 billion of long-term debt, of which a high percentage is guaranteed by GOJ. Given the IMF strictures with regard to GOJ's debt, the Government is hardly in a position to continue providing guarantee for new debt," said Holness.
"NWC needs to act with urgency to utilise the equity market to recapitalise its balance sheet and get capital to expand and upgrade its infrastructure," he said.
NWC itself opted not to comment for this story. However, connected sources had little enthusiasm for the idea, saying that for NWC to be an attractive listing prospect it first has to rectify its water losses through an
"aggressive non-revenue water reduction programme", starting with Kingston and St Andrew.
The water commission produces 5.3 billion gallons of water each month on average, but bills for only 1.2 billion gallons and collects about $1 billion for the supplies, which is about a quarter of potential revenue, the person said.
About three-quarters of the agency's 10,000 kilometres of pipelines is said to be more than 50 years old, leading to water losses of about two billion gallons per month and accounts for about half of non-revenue water.
It's understood that forecasts have been done showing that were non-revenue water to be reduced by 50 per cent across Jamaica, NWC could turn annual profit of $10 billion per year, even while maintaining its role as supplier of social water.
Holness said case studies for listing of public utilities exist, citing initiatives in Senegal, Bolivia, Manila, and CÙte d'Ivoire.
"The JLP believes a vibrant stock exchange is a critical catalyst for economic growth. It provides access to equity capital and it allows ordinary Jamaicans access to equity investments that get aggregated for the broader economic and social good. The stock market provides a store of value and is an income producer. It is also a source of wealth creation," he said.
"The JLP is committed to changing the governance structure of the government companies."
A listed company with a broad ownership base would be answerable to its investors, would be subject to disclosures and was likely to be a more transparent operation, the opposition leader said.
Holness does not contemplate disruption of the utility's social water function, but says upgrades to NWC water storage and delivery infrastructure would curtail water losses, which, in turn, would lead to improved revenues to better finance the non-revenue side of the business.
He adds that investment in alternative energy sources would cut back on the utility's $280-million per month electricity bill, and that those savings could also be used to pay for social water.
At last available audited results, for year ending March 2013, NWC had an estimated book value of $15 billion, and an asset base of $65 billion.
Alongside its 10,000km of pipeline, the water agency operates a network of more than 160 underground wells, 1,000 water supply and over 100 sewerage facilities serving Jamaica's 2.7 million population.
Hay-Webster says other potential listing prospects are under review by the JLP but that those positions are still being formulated.