IDB: Water and Sewerage Corp. needs a tariff increaseIf hike is not approved, govt may face danger that WSC’s operational budget will be insufficient
An Inter-American Development Bank (IDB) report warns that the government runs a “great danger” of the Water & Sewerage Corporation’s (WSC) operational budget being “insufficient” without a tariff increase.
In a report titled, “Case Study: Performance-based Contract for NRW Reduction and Control – New Providence, Bahamas”, the IDB points out that New Providence is one of the “most overstressed” jurisdictions in the Caribbean in terms of water availability.
According to the study, the performance-based, non-revenue water (NRW) reduction contract signed in 2012 by WSC, water efficiency solutions company Miya and the government was able to achieve “huge” NRW reductions since its implementation, “which could not have been achieved by WSC alone”.
But it stresses that the organization still needs a tariff increase to avoid losing any of the progress made as a result of the project.
“The NRW reductions in the period from mid-2013 to mid-2015 were very high. This rapid reduction had huge beneficial impacts on the use of expensive desalinated water and increased revenues,” the report states.
“Operating cost recovery rose from 0.65 to 0.82, the EBITDA (earnings before interest, taxes, depreciation, and amortization) fell from a loss of $19 million to a loss of $8.8 million and the government subsidy fell from $25 million to $9.2 million. These are impressive improvements in a short period of time.
“Such an achievement can be attributed to the strong skills and previous Bahamas experience of the Miya field team and strong collaboration with WSC.”
The report further notes that WSC’s financial condition is better off with NRW reduced, but points out that a tariff increase is still “long overdue”.
“WSC and the government of The Bahamas (GOB) could avoid an ongoing culture of subsidy and political interference, given reasonable tariff adjustments,” the report asserts.
“If the GOB will not allow tariff increases, they run a great danger that the WSC operational budget will be insufficient to conduct the proper operations and maintenance needed to maintain the low NRW levels.
“NRW will rise again, repeating a dreadful pattern seen all over the world.”
The report also cites a 2014 study by Castalia Advisors for WSC that looked at New Providence and the Family Islands. The analysis in the report compared a “business as usual” scenario (with the WSC-Miya contract continuing, but no tariff increases), to an action plan with the WSC-Miya contract continuing along with three tariff increases in 2016, 2018 and 2020, each at a 20 percent increase and some cost reduction measures.
“The results for New Providence showed the EBITDA turning positive in 2016, the operating subsidy going to zero in 2018, and net earnings rising above zero in 2020,” the report explains.
“However, under the ‘business as usual’ scenario, EBITDA would still be a large negative number and operating subsidies would remain large until 2024. In fact, the total operating subsidy from 2014 to 2024 was projected to reach $351 million under the ‘business as usual’ scenario and only $120 million under the action plan.
“While the analysis would benefit from an update, based on WSC-Miya results since mid-2014, it shows the huge financial impact of the stagnant government tariff policy.
“If these issues are not dealt with directly and objectively, WSC will not be able to provide high-quality services for its customers on a sustainable basis,” the IDB contends.