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Editorial | Rethink water divestment plan

Published:Wednesday | November 2, 2016 | 11:00 AM

Horace Chang, who has responsibility for water in Prime Minister Andrew Holness' super ministry for economic growth, recently put a smidgen of flesh on how the Government plans to divest itself of segments of a business that costs taxpayers billions of dollars in losses and has proven to be an unaffordable burden on the national Budget.

But Dr Chang has much work to do to convince this newspaper, and, we believe, diligent analysts of the economics of water, that what the administration proposes, or what he has so far laid out, represents a viable solution to the problems of the state-owned National Water Commission (NWC), the accessibility of water to Jamaicans, and, ultimately, to the burden on taxpayers.

The latest available accounts for the NWC are for the financial year up to the end of March 2014, when it lost a net J$7 billion on its ongoing operations, excluding pension obligations. Further, the company's accumulated deficit at the end of the 2013-14 financial year had increased by J$10 billion, to J$26 billion.

A large part of the NWC's problem is that it earns nothing from the bulk of the commodity that it produces. Or, put another way, for every 10 gallons of water produced by the NWC, between six and seven are either lost in old, corroded delivery pipes, stolen, or given away free by the Government to consumers. That amounts to between 11.4 million and 13.3 million gallons of non-revenue water per day. No private firm could either give away or lose anything resembling that proportion of its output and hope to stay in business.

As disclosed thus far by Dr Chang, the Government's primary solution to the NWC's crisis is to hive off and enter partnerships with private-sector interests for the production of water. "We will ask investors to produce water for us, then we will distribute it," he told The Gleaner this week.

 

STRONG SUPPORTERS

 

We are strong supporters of privatisation, including, in the appropriate context, public-private partnerships (PPP). We are not sanguine that this is the right circumstance for a PPP.

There are two issues, though, worthy of consideration.

In Jamaica's case, setting up treatment plants for the production of potable water, including putting in the transmission pipes to take raw water to such facilities, is the easy part of the business. The economically and operationally difficult bit is fixing the old, leaky distribution infrastructure, and, thereafter, maintaining it. Indeed, several years ago, it was estimated that the NWC needed to invest around J$50 billion to overhaul this part of its water infrastructure.

Yet, it is this difficult-to-manage and expensive-to-fix - though potentially lucrative - element of the business that the administration is proposing to retain. Given the Government's fiscal constraints and its limits on borrowing, the administration will most likely find it difficult to raise the capital, even with a partial flotation on the domestic equities market.

Bundling the business for divestment, forcing the buyer to invest in all its segments, is likely to be a better bet. It can't be beyond the administration to design a model to prevent a buyer from cherry-picking the most lucrative bits and ignoring the rest, as well as ensuring the society's most vulnerable have affordable access to water.