Re­think wa­ter di­vest­ment plan

Jamaica Gleaner - - OPINION & COMMENTARY -

HO­RACE CHANG, who has re­spon­si­bil­ity for wa­ter in Prime Min­is­ter An­drew Hol­ness’ su­per min­istry for eco­nomic growth, re­cently put a smidgen of flesh on how the Gov­ern­ment plans to di­vest it­self of seg­ments of a busi­ness that costs tax­pay­ers bil­lions of dol­lars in losses and has proven to be an un­af­ford­able bur­den on the na­tional Bud­get.

But Dr Chang has much work to do to con­vince this news­pa­per, and, we be­lieve, dili­gent an­a­lysts of the eco­nom­ics of wa­ter, that what the ad­min­is­tra­tion pro­poses, or what he has so far laid out, rep­re­sents a vi­able so­lu­tion to the prob­lems of the state-owned Na­tional Wa­ter Com­mis­sion (NWC), the ac­ces­si­bil­ity of wa­ter to Ja­maicans, and, ul­ti­mately, to the bur­den on tax­pay­ers.

The lat­est avail­able ac­counts for the NWC are for the fi­nan­cial year up to the end of March 2014, when it lost a net J$7 bil­lion on its on­go­ing op­er­a­tions, ex­clud­ing pen­sion obli­ga­tions. Fur­ther, the com­pany’s ac­cu­mu­lated deficit at the end of the 2013-14 fi­nan­cial year had in­creased by J$10 bil­lion, to J$26 bil­lion.

A large part of the NWC’s prob­lem is that it earns noth­ing from the bulk of the com­mod­ity that it pro­duces. Or, put an­other way, for ev­ery 10 gal­lons of wa­ter pro­duced by the NWC, be­tween six and seven are ei­ther lost in old, cor­roded de­liv­ery pipes, stolen, or given away free by the Gov­ern­ment to con­sumers. That amounts to be­tween 11.4 mil­lion and 13.3 mil­lion gal­lons of non-rev­enue wa­ter per day. No pri­vate firm could ei­ther give away or lose any­thing re­sem­bling that pro­por­tion of its out­put and hope to stay in busi­ness.

As dis­closed thus far by Dr Chang, the Gov­ern­ment’s pri­mary so­lu­tion to the NWC’s cri­sis is to hive off and en­ter part­ner­ships with pri­vate-sec­tor in­ter­ests for the pro­duc­tion of wa­ter. “We will ask in­vestors to pro­duce wa­ter for us, then we will dis­trib­ute it,” he told The Gleaner this week.

STRONG SUP­PORT­ERS

We are strong sup­port­ers of pri­vati­sa­tion, in­clud­ing, in the ap­pro­pri­ate con­text, pub­licpri­vate part­ner­ships (PPP). We are not san­guine that this is the right cir­cum­stance for a PPP.

There are two is­sues, though, wor­thy of con­sid­er­a­tion.

In Ja­maica’s case, set­ting up treat­ment plants for the pro­duc­tion of potable wa­ter, in­clud­ing putting in the trans­mis­sion pipes to take raw wa­ter to such fa­cil­i­ties, is the easy part of the busi­ness. The eco­nom­i­cally and op­er­a­tionally dif­fi­cult bit is fix­ing the old, leaky dis­tri­bu­tion in­fras­truc­ture, and, there­after, main­tain­ing it. In­deed, sev­eral years ago, it was es­ti­mated that the NWC needed to in­vest around J$50 bil­lion to over­haul this part of its wa­ter in­fras­truc­ture.

Yet, it is this dif­fi­cult-to-man­age and ex­pen­sive-to-fix – though po­ten­tially lu­cra­tive – el­e­ment of the busi­ness that the ad­min­is­tra­tion is propos­ing to re­tain. Given the Gov­ern­ment’s fis­cal con­straints and its lim­its on bor­row­ing, the ad­min­is­tra­tion will most likely find it dif­fi­cult to raise the cap­i­tal, even with a par­tial flota­tion on the do­mes­tic eq­ui­ties mar­ket.

Bundling the busi­ness for di­vest­ment, forc­ing the buyer to in­vest in all its seg­ments, is likely to be a bet­ter bet. It can’t be be­yond the ad­min­is­tra­tion to de­sign a model to pre­vent a buyer from cherry-pick­ing the most lu­cra­tive bits and ig­nor­ing the rest, as well as en­sur­ing the so­ci­ety’s most vul­ner­a­ble have af­ford­able ac­cess to wa­ter.

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