Editorial | Talk frankly about NWC
Prime Minister Andrew Holness is probably right in his depiction of the J$15-billion bond offer by the National Water Commission (NWC) as a big deal that will begin to put the agency on sound financial footing and prepare for listing on the Jamaica Stock Exchange.
According to Mr Holness, with this development, institutional investors, such as pension funds, have somewhere else where they can park their cash at a presumably competitive return. "That sets the stage for possibly placing the NWC on the stock market, where Jamaicans can own [a] piece of the NWC, in terms of shares," he said.
Divesting public companies, including via initial public offerings, is an idea which has not only been supported, but actively encouraged by this newspaper. Indeed, we have suggested that it may be one way for the Government to meet public -sector demands for higher wages, by offering stocks in lieu of cash. These equities can be sold, held for capital gains or dividends. That's a generality.
However, with regard to the NWC specifically, we believe that either Mr Holness himself, an assigned minister or the management of the water company ought to engage the public in a fulsome discussion not only about this bond, but of its strategic importance and, ultimately, the viability of the commission as a going concern. There are two issues to be addressed: the immediate matter of the bond, and the company's accumulated losses.
As we understand it, this bond, to be managed by NCB Capital Markets, is being raised in two tranches J$12.5 billion now, to be used to write down foreign exchange debt; and another J$2.5 billion later on, for capital projects. Rates of between 10.5 per cent and 13.325 per cent have been floated, which, on the face of it, are high. However, we will perhaps be told that seen against the backdrop of a near 10 per cent rate on existing foreign currency debt, that the new Jamaican dollar bond will extend for up to 40 years and that the market is likely to demand a premium from the commission because of the state of its finances. The latter point is significant and should command the attention of taxpayers, as it did of the company's auditors, KPMG.
The latest audited report published by the NWC, and posted on its website, is for the year ended March 31, 2017, when the group reported a net loss of J$1.56 billion, albeit an improvement of the loss of J$4.1 billion in the previous year. The NWC had an accumulated deficit of J$33.2 billion and negative equity of approximately J$14 billion. Effectively, the National Water Commission is bankrupt, except that it has the insulation of taxpayers.
FACTS NEED TO BE KNOWN
The auditors felt compelled to highlight these facts, and the uncertainty they create.
Said KPMG: "The ability of the group and the commission to regain and sustain profitability and to generate the incremental cash flows to meet its significant debt service obligations and other operational costs is, therefore, dependent on its ability to successfully minimise operational costs and reduce non-revenue- generating water supplied. These conditions indicate the existence of a material uncertainty that may cast doubt about the group's and the commission's ability to continue as a going concern."
The NWC's management believes its plans are feasible and provide, according to KPMG, "a reasonable expectation that the group will generate cash flows and profitability which would allow it to continue in operational existence for the foreseeable future".
Obviously, the Government can't allow the NWC, the country's major provider of potable water, to collapse. But there is need for greater transparency in the company and more frank talking about its future.