The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Water & Sewerage Corporation’s operating losses jumped by almost 54 percent to $34.648m during the four years to 2023, it has been revealed, with monies due to third parties now more than half its revenue.

The full extent of the state-owned utility’s financial plight is exposed by Inter-American Development Bank (IDB) reports that reveal Bahamian taxpayers pumped a collective $181.5m in subsidies into the Corporation between 2020 and 2023 to cover its debts and ensure it remained solvent.

Amid challenges with ensuring customers paid in full and on time, one IDB document reveals that accounts receivable - representing monies owed to the Water & Sewerage Corporation by those receiving its supply - rose from $14.306m or 29 percent of net operating revenues in 2020 when COVID-19 struck to 39 percent or $21.321m come end-2023.

And, while accounts payables had reduced over the same period, they still represented $29.407m - a sum equivalent to 52 percent of the Water & Sewerage Corporation’s $56.552m annual revenues - as recently as last year. The size of accounts payables and receivables, as well as the fact the latter exceeds the former by more than $8m, gives a further insight into the water supplier’s cash flow challenges.

The IDB reports, prepared as part of a $100m loan facility intended to finance the Water & Sewerage Corporation’s transformation, confirm its inability to make timely and full payments to key water producers such as Consolidated Water and Aqua Design (Bahamas) as well as the build-up of debts owed to fellow state-owned enterprise (SOE), Bahamas Power & Light (BPL).

Besides further slashing non-revenue water (NRW), representing water lost from its network due to leaks before it reaches the end-consumer and can be billed for, the funds being made available by the IDB are also targeted at the installation of 65,000 total advanced customer meters and improvements to New Providence’s sewerage network. These upgrades are also intended to increase both water and sewerage customers.

Projections by the IDB, which have been seen by Tribune Business, reveal that if all goes to plan - meaning these infrastructure upgrades are completed in full and on time - then the Water & Sewerage will start to enjoy a positive net annual cash flow boost from 2027 onwards. This will steadily grow to $10.237m in 2033, and further expand to $11.616m by 2044 in 20 years’ time.

However, as previously reported by this newspaper, it is unclear when or whether these goals will be achieved given that Prime Minister Philip Davis KC earlier this year emphatically ruled out any increase in the Water & Sewerage Corporation’s household and business tariff rates that form the centrepiece of the turnaround set out in its 2023-2028 corporate business plan.

The IDB’s analysis of the Water & Sewerage Corporation’s status quo financial performance reveal that, over the period 2020-2023, operating expenses were growing at almost twice the rate of revenues. This has resulted in operating losses growing by more than $12m in four years, rising from $22.507m to $34.648m, and an ever-growing reliance on Bahamian taxpayers to plug the financial holes.

“Revenue grew at a lower rate (4.8 percent per annum) than the growth in operating expenses (8.3 per cent), causing earnings before interest, taxes, depreciation and amortization (EBITDA) to become increasingly negative. Due to the negative EBITDA each year, the operating subsidy passed on by the Government also increased,” an IDB analysis revealed.

And, with the Water & Sewerage Corporation’s tariffs having remained unchanged since 1999, some 25 years or a quarter-of-century ago, revenues have further been outpaced by inflation and ever-growing operating expenses. Purchases of water from the Corporation’s reverse osmosis suppliers, such as Consolidated Water, now stand at $44.343m or 77 percent of its total revenues by themselves.

“Spending on staffing accounted for almost half of 2023’s operating revenue. This value reflects the fact that the water sales tariff has not been readjusted since 1999, and staffing expenses are periodically readjusted,” the IDB said, with labour costs standing at $31.181m in 2023.

Seeking to measure staff productivity, the IDB report noted that this had been going in the opposite direction with the Water & Sewerage Corporation’s workforce having been expanded by almost 100 persons - from 387 to 486 - between 2020 and 2023.

“We observe that $127,000 was generated by each employee in 2020. This amount dropped to $116,000 in 2023. The total operating cost divided by the number of employees reached $188,000 in 2023, resulting in a negative EBITDA per employee of $71,000,” the IDB added.

With the Water & Sewerage Corporation’s debt having increased by almost 20 percent between 2020 and 2023, rising from $77.676m to $93.1m largely due to a new $30m facility from the Caribbean Development Bank (CDB), the report added: “In recent years, 2021 to 2023, the accounts receivable balance represented 39 percent of net revenue and an average turnover of 139 days.

“It is important to highlight that in this period the revenue was quarterly..... The balance of accounts payable was reduced to 52 percent of operating revenue, falling from 334 days of revenue to 190 days. According to Water & Sewerage Corporation’s management, there are overdue accounts payable with Miya Bahamas, Waterfields Company, Bahamas Power & Light and Aqua Design Bahamas.”

Highlighting how important the now-rejected tariff increases are to the turnaround plan, the IDB said: “The financial assessment of Water & Sewerage Corporation indicates that Water & Sewerage Corporation has relied on subsidies to cover its operating costs and all its capital investments.

“In 2023, Water & Sewerage presented a negative EBITDA of $34m. The 15-year financial projections model, until 2039, shows that based on the assumptions of the Water & Sewerage Corporation’s corporate business plan of transitional tariffs implementation as of 2024, and on the reduction curve of non-revenue water, Water & Sewerage Corporation will reduce its dependency on subsidies, and consequently reach financial sustainability, by 2030, presenting a positive $3.5m EBITDA no longer depending on operating subsidies.

“Water & Sewerage Corporation will improve its commercial and operational efficiency, supported by the institutional strengthening plan that has already started its implementation, by reducing non-revenue water in New Providence and the Family Islands through contracts with specialised firms from 5.9 million imperial gallons per day in 2023 to three million in 2028.”

This will involve “procuring and installing Advanced Metering Infrastructure, moving from quarterly to monthly billing - reducing its net accounts receivable from 148 days in 2023 to 87 days in 2028 - developing and implementing a human capital strategy, and improving water supply contracts.”

The IDB continued: “The implementation of the corporate business plan will allow the increase in the coverage of homes served with a water supply system, reducing the use of [their] own wells, as well as reducing the volume of non-billed water. That results in a reduction in the need to purchase desalinated water. Therefore, it results in increased revenue and reduced operating expenses.

“In addition, better training and the development of other activities to improve the staff will allow productivity gains through better performance of the staff and, consequently, reduction of the indicator related to the number of personnel per active water connection. This increase in productivity results in a reduction in operating expenses.

“Finally, the premise of cash flow management through monthly billing and delinquency reduction measures will provide a better financial balance, in view of the estimated reduction in the turnover of the accounts receivable balance. The successful implementation of the corporate business plan results in the reduction of subsidies that Water & Sewerage Corporation receives from the state, ensuring the sustainability of the business.”