The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Cabinet minister last night said “no formal decision” has been taken on Water & Sewerage Corporation proposals to increase consumer prices or impose taxes on homeowners with private wells.

Leon Lundy, minister of state in the Prime Minister’s Office with responsibility for the Corporation, in a messaged reply to Tribune Business inquiries said these recommendations - contained in its 2023-2028 Corporate Business Plan - as well as associated proposals from the Inter-American Development Bank (IDB) are “in the early phases” of being considered by the Government.

He confirmed the proposals are accurate, and genuine, after this newspaper obtained an IDB document, dated May 24, 2024, and released earlier this month on September 6, which revealed that an increase in consumer water rates as well as new and/or increased taxes for homes with private wells are included within the Corporation’s plan.

The report, outlining steps to modernise and overhaul the legal and regulatory regime that governs the Bahamian water industry, also discloses that among the Corporate Business Plan’s recommendations are to impose taxes on reverse osmosis plants that companies use for self-supply; increase Customs duties on equipment for private wells; and to mandate that all businesses have “an active water connection”.

Noting that draft legislation to reform water industry regulation was readied in 2016, but never moved forward after the Minnis administration was elected to office, the IDB report said: “With the passage of time, adoption of and changes in government objectives, some of the recommended language in the draft legislation prepared in 2016 needs to be updated and modified to meet the current requirements.”

This, it added, involved “the following items identified in Water & Sewerage Corporation’s corporate business plan for 2023-2028”. Among these are proposals to “set Water & Sewerage Corporation’s tariffs to reflect the cost of providing service”, which clearly means an increase in rates and prices charged to Bahamian households and businesses given that they are currently charged below the cost of supply.

“Because of its poor operating efficiency and tariffs that are not sufficient to cover costs, the Water & Sewerage Corporation relies heavily on increasingly greater subsidies from the Government to cover some of its operating expenses and nearly all its capital investments,” the IDB report said.

“Increasing the efficiency of collections could improve its cash flow and lessen its reliance on subsidies from the Government. Operating subsidies were $55m in 2022.”

The state-owned utility is also aiming to persuade the Government to “set taxes on desalination plants used by private companies for self-supply”, and to “set property taxes on homes that use private wells”. It also wants the Government to “‘increase import duties on equipment used for private wells” and “mandate, as per the Business License Act, that all businesses have an active water connection”.

The IDB report gave no figures, range or the extent to which the Water & Sewerage Corporation may seek to increase consumer tariffs which have remained unchanged since 1999 or a quarter-of-a-century despite ever-increasing operating costs and inflation. Selling water below production cost is what has driven it into increasingly heavy losses and reliance on taxpayer subsidies that hit $55m in 2022.

Similarly, no details were included on the type and rate of taxes proposed for private well owners and companies with their own reverse osmosis plants. It is unclear whether the Corporation is pushing for new taxes or an increase in existing taxation, say real property tax, but the approach appears to be to drive private well owners back to using its own supply via the imposition of financial penalties.

Private well homeowners, according to a separate IDB report, account for a significant water market share of 39 percent on New Providence and 30 percent in the Family Islands. Any move that mandates they are required to pay extra for the privilege of having a well is likely to receive push back, and be viewed as anti-competitive, anti-freedom of choice and trying to create a government monopoly.

Cabinet approval, though, will be required to implement any of those measures and Mr Lundy last night sought to reassure that this was some way off if it ever happens at all. “We acknowledge the recommendations from the IDB regarding potential changes to the Bahamas’ water regulatory regime and are taking them into consideration,” he told Tribune Business.

“However, it is important to note that these suggestions are still in the preliminary stages, and no formal decisions or reviews have been finalised at this time. As with many of the IDB’s reports for various countries, these proposals are advisory in nature and are not mandates. We are currently in the early phases of assessing their potential impact, and discussions have yet to move forward on any specific measures.

“At this stage, there are no details available on tariff adjustments, taxes or implementation timelines. Should these recommendations progress further, they will require extensive review and consultation, including approval from the Cabinet, to ensure alignment with national policies and priorities.”

Detailing the extent of private well provision in The Bahamas, the IDB said: “The Water & Sewerage Corporation’s potable water and wastewater collection and treatment coverages are low compared to other utilities in the Caribbean.

“According to the Water & Sewerage Corporation’s corporate business plan 2023-2028, in 2022 the overall estimated level of potable water supply coverage was 63 percent. The water supply coverage for New Providence was 61 percent, which is lower than the 70 percent estimate for the Family Islands.

“Wastewater coverage was estimated to be around 13.5 percent for New Providence and 0.7 percent for the Family Islands, resulting in an overall coverage of 10.8 percent. The reason for the lower coverage in New Providence is that many households draw water from private wells.”

Tribune Business understands that the private well homeowner tax proposal has been motivated, at least in part, by concerns that such water sources may be unsafe and represent potential health hazards as a result of groundwater contamination. Hence the proposal to incentivise consumers to move back to Water & Sewerage Corporation supply via economic means.

The IDB, in its paper on reforming the water industry regulatory framework, said: “The Water and Sewerage Corporation and the Government of the Bahamas have identified the urgent need to update the legal and regulatory framework that governs the Water & Sewerage Corporation and the water and sanitation sector in The Bahamas.

“There are ten separate Acts that govern the water and sanitation sector in The Bahamas. The Acts in place are not consistent with a modern water and sanitation sector. For example, the legal and regulatory framework in New Providence is different from that which applies to the Family Islands. Further, there is not an independent economic regulator, nor an effective environmental regulator, in the sector.”

To overhaul the regulatory regime, some $3.5m out of a proposed $50m IDB loan is being earmarked for the institutional strengthening of the Utilities Regulation and Competition Authority (URCA) and the Department of Environmental Planning and Protection (DEPP). The former will take over as the sector’s economic regulator, while the DEPP will be responsible for the environmental side.

“The existing governance framework for the water and sanitation sector lacks provisions for adequate accountability and autonomy of the Water & Sewerage Corporation,” the IDB said. “This is a result of multiple factors, including the lack of sector policies and objectives; clear governance for the Water & Sewerage Corporation and, most notably, low tariffs which do not cover the cost of providing the services.

“The Bahamas does not have a water and sewerage sector policy that clearly states objectives and plans for the sector and the financial means to achieve them. The lack of an independent economic regulatory authority for the sector implies that there is no mechanism for regularly adjusting tariffs. There is no independent environmental regulator.

“Water & Sewerage Corporation is a service provider and holds regulatory functions, a clear conflict of interest. Further, Water & Sewerage Corporation has limited resources and expertise to sufficiently carry out any regulatory functions,” the IDB added. 

“Water & Sewerage Corporation’s governance practices limit autonomy to make the decisions needed to improve the service, making it essential to clarify and strengthen Water & Sewerage Corporation’s governance to improve the utility’s operational and financial performance.

“Lastly, the regulatory framework on extraction and use of water from private wells and the discharge of wastewater is outdated, contributing to over-abstractions and improper sewerage discharges which contributes to sea water intrusion and pollution of the freshwater aquifer, reducing water availability and posing an urgent public health risk to the people of The Bahamas.”