The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Water & Sewerage Corporation had wanted to raise rates for thousands of households via annual increases of up to 10 percent for three successive years before being blocked by the Prime Minister.

An economic analysis of the state-owned water provider, conducted by the Inter-American Development Bank (IDB) to support a $100m loan that will finance overhauling its infrastructure, revealed that its 2023-2028 business plan called for 10 percent tariff increases in both 2024 and 2025 to be imposed on residential users consuming greater volumes than “the minimum charge”.

These consecutive increases would then have been followed by a 5 percent rate hike in 2026, although not all of Water & Sewerage Corporation’s 55,000 household clients would have been impacted. Non-residential customers, meaning businesses, would have suffered even greater rate hikes of between 25 percent and 50 percent, with sewerage clients also facing a proposed 25 percent rate increase this year.

However, the IDB report reveals that even with such hikes the Water & Sewerage Corporation would not become profitable as operating costs would still exceed the utility’s top-line revenues in 2028. But, as percentage of income, they would be much-reduced from an astronomical 161 percent in 2023 to 104 percent by 2028, this sharply lowering the annual burden it imposes on Bahamian taxpayers via subsidies.

The justification for the proposed rate hikes was based on the fact the Water & Sewerage Corporation has not been granted a tariff increase for 25 years since the last century. The last rise came in 1999 and, as a result, its revenues have been dramatically outpaced by ever-increasing operating expenses and inflation, resulting in Bahamian taxpayers having to shoulder a growing annual burden to plug the gap.

The Davis administration, though, appears to have shelved these plans based on the Prime Minister’s reaction to Tribune Business’s revelations of the proposed tariff rate increases earlier this year. Philip Davis KC, mindful of the political implications from imposing further price increases on Bahamians amid the current cost of living crisis, and with a general election less than two years away, ruled out any rises.

“There’s no intention of government to raise water rates at any time, nor will we be taxing wells. In fact, the recommendations have been made many, many years for the taxing of wells dating back to the Pindling administration and increasing of water rates dating back to the Pindling administration. We do not intend to do either, tax wells or raise water rates,” he said.

Yet, by ruling out rate increases, the Prime Minister appears to have squelched the Water & Sewerage Corporation’s hopes of effecting a financial revival since the tariff hikes appear to be central to the strategy laid out in the utility’s corporate business plan. The Government is thus signalling that it is happy for the subsidy-laden status quo to remain.

The extent of the proposed tariff increases, which has never been revealed before, was laid out in the IDB’s review of the state-owned water supplier’s perilous financial condition. It added that central to the Water & Sewerage Corporation’s financial projections through 2028 is an “increase in the water supply tariff from 2024 to 2026, the transition period”.

These rises were to be “initially only by an increase of 10 percent in 2024 and 2025, and 5 percent in 2026 for all residential tariffs, except for the minimum charge,” the IDB analysis added. “For non-residential consumers, the adjustment will be 25 percent for the first and second block, and 50 percent for the third block. From 2025 onwards, an automatic annual adjustment according to a table based on weights and inflation.”

The Water & Sewerage Corporation segments both its residential and non-residential consumers into four segments - a “minimum charge” and then three so-called “blocks” that are determined by the volume of water consumption. Its plan also called for a “linear increase in the sewage tariff of 25 percent in 2024, and from 2025 onwards the same methodology used for the supply of water with weights and inflation”.

The IDB added that, “from 2027 onwards, tariffs are adjusted based on the cost of the service based on the proposed regulatory model” that would see the Utilities Regulation and Competition Authority (URCA) assume responsibility for regulating its rates from 2028. The Department of Environmental Planning and Protection (DEPP) would be responsible for environmental regulation.

To soften the blow from increased tariffs, the Water & Sewerage Corporation promised “increased productivity” plus further cost savings via a reduction in non-revenue water (NRW). That is water which, though piped around Water & Sewerage Corporation’s network, fails to reach the end-consumer because it is lost due to leaks or theft. A monthly billing switch is also planned.

“The implementation of the proposed corporate business plan will be reflected in the reduction of the volume of non-revenue water and, consequently, in the volume of water produced, making the system more efficient, according to expectations of Water & Sewerage Corporation’s management,” the IDB analysis said.

“For New Providence, the volume of non-revenue water is expected to be reduced at an average rate of 11.5 percent per annum from 32 percent of the water produced in 2023 to 18 percent in 2028.

“For the Family Islands, this reduction is 8.2 percent per annum from 47 percent of the water produced in 2023 to 32 percent in 2028. On average, NRW volume is reduced by 10.2 percent from 36 percent in 2023 to 23 percent in 2028.” 

Slashing non-revenue water losses is forecast to have a major knock-on impact on the Water & Sewerage Corporation’s operating costs and efficiency. The IDB analysis said: “With the reduction of non-revenue water and other measures described in the corporate business plan, the cost of acquiring water goes from the historical average of 77 percent of operating revenue to 48 percent in 2028.

“The same occurs with the other costs in such a way that, if the corporate business plan is implemented, in 2028 total expenses will reach 104 percent of operating revenue compared to 161 percent in 2023.” Should this occur, the IDB report projected that the Water & Sewerage Corporation’s New Providence operations would start generating positive operating income from 2025 onwards.

This was forecast to start at $2.204m in earnings before interest, taxation, depreciation and amortisastion (EBITDA) next year - a figure that is projected to increase more than six-fold to $14.295m by 2028. Family Island operating losses, though, were projected to remain relatively flat over the next four years to stand ay $17.877m in 2028.

The end result, though, is that the Water & Sewerage Corporation’s total operating losses were projected to fall more than seven-fold, declining by 85.6 percent from $24.915m this year to just $3.582m by 2028 at the end of the five-year period.

However, well-placed sources speaking on condition of anonymity are challenging whether the IDB loan facility will actually proceed. It is described as a “conditional credit line”, which contacts said means the Government must agree to and comply with certain policy reforms before the financing is released.

They added that one of these conditions is likely to have been an increase in the Water & Sewerage Corporation’s tariff rates - the very thing the Prime Minister has now rejected - thus raising doubts as to whether the $100m, from which the initial tranche is $50m, will be unlocked. Sources suggested that the project was a candidate to be pushed back until after the upcoming general election.