It is in the nature of politicians not to grasp the logic of things. So, we are not surprised that they rounded on the National Water Commission (NWC) last week over its supposed inefficiency, when its executives appeared before Parliament's Public Administration and Appropriations Committee (PAAC) to discuss the NWC's finances.
The J$3.5 billion reportedly lost by the NWC for the first six months of its current financial year, up to September, is, of course, staggering. It is, for instance, 43 per cent more than the J$2-billion loss for all of 2011-2012 when the company's accumulated deficit was more than J$17 billion. Ultimately, taxpayers bear the burden.
But what PAAC members Mikael Phillips, Fitz Jackson and the others who attacked the NWC failed to appreciate, or deliberately ignored, is that it is they, and their peers, the political class, who are primarily responsible for the state of affairs at company. Their meddling hinders economically sound decisions by, or for, state enterprises.
Additionally, the pressure on state companies to operate almost as welfare agencies is often exacerbated by policy weaknesses against which private firms may find pricing, or other forms of insulation.
In the NWC's case, it is estimated that more than two-thirds of the potable water it produces annually goes to waste because of old, corroded delivery systems. It would take scores of billions of dollars to replace or repair their transmission pipes.
The problem for the NWC is that it doesn't have the resources to do its job; and because it is not a private firm, it has never been allowed to price its commodity to generate the surpluses to get ahead of the curve. That is among the reasons for the inadequacy of service, about which many communities complain.
Take the case of the 13-18 per cent increase the Office of Utilities Regulation recently allowed the NWC to place on water to domestic consumers. That will push the cost of the commodity to J$0.39 per gallon, up to 3,000 gallons. Even with an addition of 14 per cent of the value of the bill (the K-factor), which goes to a special fund for development projects, the price will still be well below the real cost of producing water, which cannot be fully compensated for with enhanced management efficiencies.
Further, there is this pretence that it costs the NWC the same to deliver water to all its customers, when the greater portion of its nearly J$6-billion electricity bill - or 31 per cent of its operating costs - is for pumping water to higher elevations. The NWC does not acknowledge the seasonal/scarcity cost of its product. Thus, water is priced the same when it is plentiful as in droughts. Not only does this impact the company's bottom line, it offers consumers no incentive to conserve.
The issue is that water is a social and political issue, whose economic realities policymakers are afraid to address. It is easier to fudge on tariffs and hide behind esoteric formulations like the K-factor rather than have consumers face the truth.
Given this policy cowardice, the solution, as we have suggested before, is to privatise the business, which does not mean ignoring the society's most vulnerable. Indeed, there is a model for this in electricity, with its so-called lifeline pricing for marginal consumers.
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