The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Water & Sewerage Corporation’s revenues cover just two-thirds of its operating expenses because its prices have not been increased for 18 years, costing Bahamian taxpayers $159 million over a five-year period.

The Corporation’s 2015 annual report, tabled in the House of Assembly yesterday, reiterated that taxpayer subsidies averaging almost $32 million per year between 2011-2015 were necessary because the Corporation continues to sell water at prices below production costs.

The report showed the gap between prices and costs narrowed in 2015, but with tariffs of $13.06 per 1,000 imperial gallons dwarfed by production costs of $20.05 per gallon, the Corporation was still losing $6.99 per 1,000 imperial gallons produced.

This meant that its costs still exceeded prices by almost 35 per cent in the year to end-December 2015. The gap was slightly reduced from the $8.56 per 1,000 gallons sold in 2014 - a year in which tariffs were almost 40 per cent below cost.

“Operating losses have been incurred for well over 10 years, due mainly to a tariff that is below cost recovery levels,” the Water & Sewerage Corporation’s annual report said.

“This low tariff, in addition to other operational challenges, has led Water & Sewerage to rely heavily in subsidies, which only partially cover losses. The last tariff increase was in 1999.”

The Water & Sewerage Corporation’s practice of selling water ‘below cost’ has effectively resulted in a ‘wealth transfer’ from the taxpayer to its customers, draining $159 million from the Public Treasury at a time when such a sum would represent a substantial saving.

Leslie Miller, the Corporation’s chairman, summed the situation up thus: “This drain on the Government and taxpayers has to be stopped, and while there has been progress, urgent and significant action is required to improve revenues and to continue the reduction in expenses.”

Writing in the annual report, the Tall Pines MP added: “It is unfortunate that despite reducing its expenses by about $3 million through its water loss programme and other efficiency improvements, Water & Sewerage Corporation continues to rely heavily on central government to support its operations.

“The Government provided nearly $25 million in subsidies in 2015 and, despite this, the Corporation’s comprehensive losses were over $12 million.”

Mr Miller then turned to one of his favourite targets, the trade unions, warning the two representing Water & Sewerage Corporation staff that they “must be cognisant of these financial realities as they seek to improve the salaries and benefits of their members”.

The Corporation currently operates two staff pension plans, an ongoing defined contribution scheme and a defined benefit plan to which it “suspended funding contributions in 1989”.

That closed ‘defined benefit’ scheme has just $20.129 million in assets to meet obligations that totalled $100.815 million at end-December 2015, creating an $80 million ‘void’ that will eventually have to be filled.

With the defined benefit plan representing another ticking ‘pension timebomb’ in the public sector, the Corporation’s 2015 financials said: “Current retirement benefits are funded through direct payments, a portion of which may be reimbursed on a quarterly basis from the pension fund, subject to periodic review.”

In other words, the Corporation is financing pension fund contributions directly from its operations, with this costing it a net $4.748 million for the year to end-December 2015. It expected to contribute a further $4.57 million to the defined benefit pension fund in 2016.

The Water & Sewerage Corporation’s financials, audited by Baker Tilly Gomez, contained the now almost-customary qualified auditor opinion, and warning, when it comes to public corporations.

Baker Tilly Gomez noted that the Corporation’s current assets of $11.614 million were exceeded by current liabilities that were more than three times’ higher at $38.039 million.

The accounting firm noted that the $26.425 million ‘gap’ between the two had more than doubled from the $12.261 million current ‘solvency deficiency’ that existed the year before.

And, in the meantime, the Corporation’s accumulated deficit had increased to $147.049 million at year-end 2015, meaning there was “significant doubt” about its “ability to continue as a going concern” without continued subsidies from the Government and Bahamian taxpayers.

Despite the still-gloomy financial picture, the Corporation managed to make some progress in 2015, thanks largely to the $81 million Inter-American Development Bank (IDB) loan financing its public-private partnership (PPP) with Miya to reduce non-revenue water (NRW) losses.

The Corporation’s annual report said NRW, which is water supplied but not delivered and billed to customers because it is lost due to system leaks, fell by four million imperial gallons per day in 2015 compared to the prior year.

“NRW decreased from 9.1 million imperial gallons per day in 2012 (56 per cent of water supplied) to five million imperial gallons per day (37 per cent of water supplied) in 2015,” the Corporation’s annual report said.

The Corporation’s operating cost recovery also improved in 2015, up to 68 per cent of total expenses in 2015 from 64 per cent the year before, with both a major improvement on the 58 per cent ‘low point’ achieved in 2013.

“Tariffs are well below cost recovery levels and, as a result, the reform of the regulatory framework for the water and sewerage sector remains very important,” its annual report said.

“An effective regulatory framework will ensure that tariffs are set at a levels that allows recovery of reasonable operating costs while ensuring efficient operations and good customer service.”

Moves to transfer the water industry’s regulation to the Utilities Regulation and Competition Authority (URCA) have been in the works for some time.