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Editorial | Tread carefully on NWC share sale

Published:Tuesday | August 2, 2016 | 12:00 AM

The trade unions that have expressed unease at the Government's declared plan to divest itself of some of its ownership of the National Water Commission (NWC) have a point, but not because we agree with their position that the State should retain full ownership of the water and sewerage company.

Rather, Horace Chang's announcement of how the Holness administration intends to pursue this demands further and better particulars and, indeed, greater clarity. For, what was put forward is likely to leave the Government and the consumers with the worst of both worlds: the Government with diluted ownership and little capital to invest in the company; consumers with continued poor, and likely deteriorated, services.

Dr Chang is the minister responsible for water in the new super ministry overseeing growth that is headed by Prime Minister Andrew Holness. In the recent Sectoral Debate in Parliament, Dr Chang's declaration of the Government's policy is to retain majority/controlling ownership of the NWC but sell a portion of it via the Jamaica Stock Exchange (JSE).

"This Government is a firm believer that Jamaicans should have a real stake in their assets," he said of the proposed offer. And by maintaining control of the company, Dr Chang argued, the Government would provide "protection for consumers".

 

FACTS TO FACE

 

But there are a number of facts that are yet to be confronted by the Government and those who inveigh against privatisation of the water company by pointing to jurisdictions where the divestment of utilities has supposedly proved problematic. For instance, in its last published accounts, to March 2014, the NWC lost a net $7 billion, approximately, on its ongoing operations, against $1 billion the previous year. But after accounting for employee obligations (pension) of around $5 billion and the clawing back of some taxes, its comprehensive loss was $10 billion. Very significantly, too, the NWC has an accumulated deficit of $26 billion, up by more than $10 billion from the previous year, which meant that its equity declined nearly two-thirds, or $5 billion.

While the NWC delivers daily 190 million gallons of water to its 400,000 account holders, or nearly two million Jamaicans, perhaps 70 per cent of the commodity, despite the recent improvement, is lost in old, leaky pipes before it reaches the taps of consumers. By some estimates, the commission needs upwards of $50 billion in investment to fix this problem.

 

TWO PROBLEMS

 

There are two problems. Any borrowing by the NWC becomes a contingent liability of the Government, the centrepiece of whose fiscal programme is the aggressive lowering of the national debt from 124 per cent of GDP. Second, the NWC cannot charge the economic cost of water, which might otherwise offset the cost of huge infrastructure investment, because of the political risks to the Government, made starker by its ownership of the company.

These are not problems that will be fixed by merely placing some shares on the stock market for Jamaicans to purchase. A divested NWC demands owners with deep pockets and experience in water management.

With water being so crucial to life, there is a fear that private owners will not be socially responsible. These are not insurmountable concerns. The Government, even with private ownership, subsidises water to ensure lifeline supplies to vulnerable people. An outline model for this exists in electricity, with its baseline rate.