Tue | Dec 6, 2016

EDITORIAL - Holness right on NWC

Published:Friday | February 13, 2015 | 12:00 AM

Andrew Holness has quite sensibly embraced the long-standing recommendation of this newspaper for the privatisation of the National Water Commission (NWC). Further, Mr Holness says the idea is now the settled policy of his Jamaica Labour Party (JLP).

"A JLP government will be looking for ways to leverage many government assets that have significant stores of value and can provide income, but are tied up in public bodies," he says. The NWC is on the party's priority list.

The current administration is not, at this time, similar minded. It would be in the country's interest if it was.

First, the stark reality is that the NWC is insolvent. Its liabilities exceed its assets by more than a billion and a half dollars. Having lost an estimated J$6 billion for the financial year that ended March 2014, its accumulated deficit is around J$25 billion, upon which a further J$10 billion is likely to be piled for the financial year that will begin in a month and a half's time. Moreover, it has debts of nearly $22 billion - and rising.

A large part of the NWC's problem is its mostly too-old and crumbling infrastructure, which it can ill-afford to repair. For instance, the company earns nothing from more than two-thirds of the estimated 47 billion gallons of water it produces per year, a substantial portion of which is lost in leaky pipes or stolen by consumers. Some is free in the 'social water' that goes to people who can ill-afford to pay.

Of course, the NWC has been investing in recent years to upgrade its systems, but at the pace of the US$1.2 billion "over the next few years", its then president, Albert Gordon, estimated was required to bring the water infrastructure to acceptable levels, as well as to have near-universal coverage of piped water.

Mr Gordon at the time said that a similar investment was needed to rehabilitate and expand the sewerage system. Or put another way, the NWC needs more than J$270 billion for its medium- to long-term capital spending.

Too Little Income

With revenue of only J$20 billion a year, the NWC doesn't produce enough cash to fund its operations, pay its debt, and for substantial infrastructure upgrades. For the latter, it has to borrow. But its debt is a contingent liability of the government and, therefore, has to be tightly managed so as to not disrupt the administration's debt-to-GDP ratio under its programme with the International Monetary Fund (IMF). Further, social and political considerations mean that the economic pricing of water is not the fundamental issue when rates are determined.

It is against this broad background that this newspaper believes Mr Holness is right in his proposal for the privatisation of the company, and its suggestion that it be publicly listed. Private owners can bring to the table the capital that is not now available to the State and without the political constraints that fetter governments.

Mr Holness' idea of a listing is attractive for two other reasons: one is its potential for widening public share ownership; the other is that it opens the creative option of the government offering shares to its employees in lieu of wage increases, thus helping it manage its fiscal obligations under the IMF agreement.