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Evan Duggan and Din Duggan | Regulation: In the abundance of water, the fool is thirsty

Published:Thursday | September 29, 2016 | 9:08 AM
Professor Evan Duggan

The following is a commentary on regulation ahead of the Organization of Caribbean Utility Regulators (OOCUR) 14th annual conference set for Montego Bay, St James, between October 26 and 28 at the Secrets Resorts and Spa.

It was not by mere chance that the world's first great civilisations emerged in river valleys - the Mesopotamians betwixt the Tigris and Euphrates rivers; the mighty Pharaohs of ancient Egypt along the banks of the river Nile; the Harappans along the Indus river; and the early Chinese across the Yellow river plains. Indeed, the connection between water and human development is incontrovertible. But like any other resource wealth, the abundance of water does not guarantee a society will thrive. Ultimately, it is the manner in which resources are employed and managed that determines their contribution to socio-economic development.

From October 26-28 in Montego Bay, the OOCUR will host its 14th annual conference under the theme 'Regulation: Creating a Spectrum of Opportunities in the Caribbean'. The occasion provides a forum for regulators and utility experts to address issues related to water and sewage; electricity; and telecoms services with the goal of pinpointing emergent challenges and identifying solutions to the problems afflicting these sectors. Against this backdrop, it is appropriate that we spend the next few weeks examining some of the most pressing difficulties associated with utility regulation in Jamaica and the Caribbean. This week, we focus on the water sector.

Among the most troublesome public-utility challenges Jamaica faces is the National Water Commission's (NWC) increasing inability to provide acceptable piped water supply and sewage services to the country. Judging from their actions - or lack thereof - it does not appear the utility's regulators - among them the Water Resources Authority (WRA), the Office of Utilities Regulation (OUR), and the National Environment and Planning Agency (NEPA) - have viewed this burgeoning crisis with due concern. The regulation of public utilities involves a 'sustained focus on activities' that are valuable to the society as a whole. By definition, the appropriate oversight of public utilities is fundamentally catalytic to economic development. Consequently, the regulator must fiercely and unrelentingly embrace the principles of efficiency, equity and environmental sustainability if living standards and quality of life are to be expanded.

UPDATE AND IMPLEMENT

In recent times, Jamaica has experienced declining levels of rainfall, ostensibly due to the effects of climate change. If expert predictions are to be believed, this trend will not abate but indeed accelerate - bringing longer dry seasons and shorter wet seasons (see Figure1). 

The NWC has responded by increasing the frequency and duration of water lock-offs - a practice no longer confined to the dry season of November to April but also extending to the traditional wet season (see Figure 2).

Given the existing resource constraints of the NWC, this course of action might be a pragmatic short-run response but is woefully inadequate in the long term. To address this mushrooming crisis, three urgent steps are necessary.

First, there is a need for serious long-term strategic planning. In the electricity sector, long-term demand forecasting and planning is given significant attention by the government and regulator. Unfortunately, the same is not true for the water sector. The NWC is not required to produce, update and implement a 30-year plan consistent with national demand and key stakeholder expectations. If we are to eliminate perennial water lock-offs and facilitate mean-ingful economic growth, the NWC's water production of roughly 300,000 megalitres each year must be significantly increased.

It is often stated, anecdotally, that there is no shortage of water in Jamaica. The statement is also empirically true, given the extent of ground and surface water resources that exist in the country's 10 hydrological basins. The challenge is to abstract water from regions where surpluses exist and transport it to locations experiencing excess demand.

The greatest concentration of water demand exists in hubs of industrial and commercial activities, high-population-density residential zones, and regions with heavy agricultural irrigation needs. Successfully supplying these demand centres is an expensive undertaking requiring considerable infrastructural investment. Additionally, the electricity required to pump groundwater from its sources though the distribution system comes at considerable expense. None-theless, given the incalculable potential returns, the costs should not be a deterrent to developing the necessary infrastructure. As the World Bank has noted, "the role of infrastructure in growth is substantial, significant, and frequently greater than that of investment in other forms of capital."

The second critical step is for the NWC to act decisively to minimise non-revenue water inefficiencies. Non-revenue water refers to loss in revenues to the water company due to distribution leaks, theft and inaccurate metering. The NWC presently registers non-revenue water losses of two-thirds of all the water it produces - one and a half times the level of Trinidad and Tobago and almost twice the levels seen in developing countries (see Table 1).

 

Should the NWC reduce non-revenue water to the global average, it would realise massive improvements in its financial condition, unlocking resources desperately needed to expand infrastructure and create a world-class water and sewage service while lowering water prices.

LESS THAN STELLAR

The third step is to improve the company's operating efficiencies. This would require increasing the company's labour productivity, revamping its third-party contracting practices, and reducing its $6 billion annual electricity bill. Admittedly, improving operating efficiency would not directly put more water in reservoirs or distribution mains. It would, however, free up valuable financial resources that would allow the company to more effectively serve its customers.

If something akin to a silver lining exists in this tale of regulatory neglect, it is the concerted efforts of the primary regulator with respect to non-revenue losses and operating inefficacies. The OUR has endeavoured ad nauseam to prod the NWC to operate more purposefully and efficiently. Unfortunately, the inertia within the NWC, the less than stellar responsiveness of its management (pardon the euphemism), and the propensity for political interference in its operations have proved insurmountable.

After all, how often can an organisation legitimately promise and fail to desilt reservoirs? How many stalled plans to reduce electricity expenditures by creating 30MW power plants are acceptable? How many K-factor customer charges for unfulfilled capital expansions can be tolerated? There must be a radical rethinking of the regulatory approach with respect to strategic planning and implementation within the NWC. Furthermore, policy-makers must exact measures to ensure the political independence and accountability of the company.

Water is not just a precursor to life, it is elemental to the existence of a thriving civilisation. Notwithstanding the impact of climate change, the Tainos who inhabited our island before Columbus' arrival were not unwise in naming her Xaymaca - 'land of wood and water.' But without visionary regulatory intervention, the challenge we will no doubt face in this generation and the next is one that Bob Marley chants tersely in his musical masterpiece, Rat Race - "In abundance of water, the fool is thirsty".

- Evan Duggan, PhD, is visiting professor, University of Alabama at Birmingham, and former Professor of MIS and Dean, Faculty of Social Sciences, UWI, Mona.

- Din Duggan, managing director of a global legal services firm, and former Gleaner columnist.