EDITORIAL - Water: the case for privatisation

Published: Thursday | January 24, 2013 Comments 0

THIS WEEK'S formal announcement that Jamaica is in drought conditions will, hopefully, lead to a serious debate about water management and the future of the state-owned water company, the National Water Commission (NWC).

This newspaper has previously proposed the divestment of the NWC. We continue to hold that position, of whose obvious logic we are optimistic the Government will eventually be convinced.

The simple fact is that, as it now stands, the Jamaican Government cannot afford the NWC.

Some context is useful.

The Jamaican Government is currently negotiating with the International Monetary Fund (IMF) for an economic-support agreement which, if it materialises, should up low-interest loans from multilateral financial institutions.

We need that agreement because Jamaica has amassed a Greek-style debt, the servicing of which consumes over half the Government's Budget and most of what it collects in taxes and grants. The debt is unsustainable. So, even if the IMF's imprimatur encourage some lenders, our ability to borrow will be limited and closely monitored.

Then there is the NWC itself. By its last published accounts, that company has a debt of more than J$10 billion, which is a contingent liability of the Government. It has accumulated a deficit of J$17 billion, to which another J$3 billion will be added this fiscal year.

That, of itself, is bad enough. But the situation is likely to get worse. Nearly 70 per cent, or approximately 50 billion gallons a year, of the water produced by the NWC is not paid for. Most of it leaks away in old, rotted pipes.

Further, the agency's water, at a base price of J$0.27 a gallon, is uneconomic and incapable of generating the income required for the NWC to do the required major upgrading of its infrastructure. The company has been borrowing to do some of that but, as we already noted, this debt is a contingent liability of the Government. There will be pressures for the NWC to contain its borrowings.

It would make sense, therefore, to transfer the responsibility for the overhaul of the NWC infrastructure, and the cost of doing so, to the private sector, as the Government is being forced to do with other state companies.

subsidies for consumers

There is the legitimate concern that privatisation will mean consumers having to pay the economic price of this crucial commodity and the implications of this, especially for the poor. This is a matter that can be handled by way of subsidies to the most vulnerable, based on means testing.

In the meantime, there are few other issues relative to water pricing and management that we wish to again place on the agenda for discussion.

This newspaper previously questioned the economic sense, or fairness, of a flat-rate pricing for the water, notwithstanding where it is delivered or the cost of getting it there. The upshot is that those who decide to live closer to where it is cheaper to deliver water help to subsidise those who live in, say, elevated areas far from processing facilities. Nor do we understand the economic rationale of pricing the product the same during periods of scarcity - droughts - as at other periods. There is no economic incentive for consumers to conserve with the only real lever being lock-offs by the commission.

The opinions on this page, except for the above, do not necessarily reflect the views of The Gleaner. To respond to a Gleaner editorial, email us: editor@gleanerjm.com or fax: 922-6223. Responses should be no longer than 400 words. Not all responses will be published.

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