Tue | Jul 27, 2021

Editorial | Divested NWC will need robust oversight

Published:Thursday | July 22, 2021 | 12:05 AM

IT IS surprising that it appears to have required foreign consultants to rally the administration to the fact that the National Water Commission (NWC) is really bankrupt, that the Government does not have the cash to continue to prop it up, and is in urgent need of a new business model.

Aubyn Hill, a minister in the Ministry of Economic Growth and Job Creation, last week suggested that privatisation is now fully on the cards.

However, any divestment must be done within a robust regulatory framework which ensures that water remains available and affordable to all Jamaicans, including the poorest ones, and that the new owners of the NWC are attuned to the fact that water is a strategic commodity/asset in the context of global warming and climate change that threatens the availability of the resource. In other words, while the owners of the business must be allowed a reasonable return on their investment, their control of the bulk of the country’s water infrastructure will place a burden of national partnership on the enterprises that few other private businesses are required to bear.

The financial crisis facing the water company is neither new nor secret. For years, this newspaper and others have highlighted the technical insolvency of the NWC. But in their 2016-17 report, the company’s auditors placed the dangers starkly on the table. Pointing to the NWC’s perennial losses, the erosion of its equity, its cash flow problem and difficulty servicing its debt, the auditors said: “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 growing concern.”

At the time, with an accumulated deficit of over J$32 billion, the company’s equity was minus J$13.92 billion. Since then the situation has only worsened, based on the data Mr Hill disclosed in the Senate last Friday. But for a single year when a series of book transactions provided the NWC with paper profit of J$1.15 billion, the commission has lost money for 15 years. By the bucketful – J$4.5 billion in 2019 and J$5.66 million in 2020, according to Mr Hill. The commission’s financial statements for those years are not publicly available.

Mr Hill further reported that by the end of the 2020-21 financial year, the accumulated deficit had reached J$42.9 million. In the face of the perennial losses, he said, the company equity “is completely wiped out”. NWC, therefore, has to be financed by the Government annually. “The hard truth is that NWC does not have anything near the amount of money it needs to deliver the water and services Jamaicans need and expect,” the minister said.

That is the backdrop against which the Holness administration went to the infrastructure and natural resources consulting firm, Castalia, for help on how to fix the NWC’s problems. They apparently recommended its privatisation, but after the NWC has been “corporatised’’ and new legislation is passed for the management and regulation of the water sector.

The Government, according to Mr Hill, is establishing an enterprise team to get these things done, presumably including inviting bids for the company. We expect that to make the NWC attractive to buyers, the Government will assume its deficit and most, or perhaps all, of its debt.

In that circumstance, the bidder must be required to commit to appropriate levels of investment, within a specific time, to modernise and upgrade the water and sewage infrastructure and improve service, without any significant increase in cost to consumers. Expressed differently, the new owners must come with capital and with the expectation of generating the bulk of their profit from improved efficiencies. That, with appropriate investment in infrastructure, should not be too difficult, given that the NWC earns nothing from nearly half of the water it produces. Some is stolen, but the great bulk is lost in its old, leaky pipes.

Additionally, given the portent of climate change – uncertainty over the availability of water because of longer, unseasonal droughts and extreme weather events – efficient management of the resource will be crucial. This ranges from how water is harvested, stored and treated, to how it is delivered to consumers and how sewage plants treat and dispose of waste. That will demand new levels of scrutiny.

That calls for news standards of robustness from the regulator. The question, then, is whether the current one, the Office of Utilities Regulation, is fit for the job or has to be repurposed or bypassed.