By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE Water & Sewerage Corporation’s chairman would support increasing prices paid by Bahamian consumers “within reason”, but warned its product and service must improve first.

Adrian Gibson, speaking after an Inter-American Development Bank (IDB) report reaffirmed that the Corporation’s long-term sustainability depends on increasing water prices/tariffs, gave cautious backing to this call so long as any rises were “palatable” for Bahamians.

“As chairman, I would support a tariff increase,” he told Tribune Business. “However, there are some issues that must be addressed with respect to leakages, employee efficiency, quality control and collections. “We can have a tariff increase, but if we don’t have an efficient collection process the same issues will persist. There are other issues that ought to complement a reasonable tariff increase; other things should happen to complement it.”

The Government will likely be reluctant to increase water prices for Bahamian households, given the likely political fall-out and fact that many are already struggling to meet their existing bills. However, the economic case for an increase seems compelling, given that the call for such an increase is nothing new - having been made repeatedly over the years.

The IDB, in assessing the impact of the $83 million non-revenue water (NRW) reduction project it is financing for the Corporation, warned that the gains and financial savings generated could be thrown away if there is no increase in consumer prices.

The report, pointing out that the last Water & Sewerage Corporation price increase was almost two decades ago, emphasised that by continuing to sell water ‘below cost’ it will be unable to cover its operating expenses from revenue/cash flow. This will leave the Corporation unable to finance capital projects and repairs, and leave it dependent on annual multi-million dollar subsidies from the Bahamian taxpayer.

The IDB analysis, accounting for inflation, said the Corporation’s tariff had decreased at an average annual rate of almost 12 per cent between 2000 and 2016, while its water production costs increased by an average annual rate rate of 2.5 per cent - a situation that is financially unsustainable.

“A tariff increase will be needed to make the Water & Sewerage Corporation (WSC) a financially viable utility,” the IDB report said. “A core issue relating to the WSC financial condition is the comparative level of the unit tariff to the unit cost.

“The effective average tariff has been close to stable since the year 2000, while costs for water production have risen considerably. These trends can be attributed to two factors: No tariff increase since 1999, and rising water production costs due to increased use of desalination (reverse osmosis plants).

“In summary, the tariff has fallen about 12 per cent per year, while the unit cost of water produced, with increased use of desalination, has risen just 2.5 per cent.... Operating costs have declined about 1.3 per cent per year,” the document added.

“Overall, these results underline the importance of the declining tariff to the financial condition of WSC, and its ability to sustain low levels of NRW. While it is always worthwhile to find ways to reduce costs - through more NRW reduction or other means - a tariff declining at a rate of about 12 per cent per year is the main cause of WSCs financial difficulties – now and in the future. While modest, a Consumer Price Index (CPI) based tariff indexation/increase would seem a reasonable first step.”

The IDB is thus prodding the Government to tie any Water & Sewerage Corporation tariff increases to inflation, a suggestion likely to find favour with K P Turnquest, deputy prime minister and minister of finance, who has repeatedly said state-owned enterprises (SOEs) must recover their costs as he seeks to reduce their annual $429 million subsidy bill.

“I think the increase in the tariff has to be reasonable and palatable to the Bahamian public,” Mr Gibson told Tribune Business. “The reality is that the Corporation is still incurring high operating losses.

“While I would support a tariff increase, I realise the operating performance of the Corporation; the quality of the service and the quality of the product, has to be improved. I would pursue a tariff increase within reason, but also improve the operational and financial performance, and reduce the Government subsidy so the Corporation can operate on its own merit with its own monies and collections.”

The IDB, though, is in no doubt about the need for swift and decisive action when it comes to increasing the price paid by Bahamian consumers for their water. “In the early years of the history of WSC, revenues generally exceeded costs. Since about 2003, costs have generally exceeded revenues,” it added.

“Over the history of WSC, there have been only three tariff adjustments – in 1982, in 1993 and in 1999. The tariff increase in 1993 clearly boosted revenue in relation to cost, ensuring a modest surplus for about eight years. The tariff increase in 1999 is not noticeable, however, and since then, costs have climbed considerably.”

The report concluded: “A tariff increase is long overdue. WSC and the Government of the Bahamas could avoid an ongoing culture of subsidy and political interference given reasonable tariff adjustments.

“If the Government of the Bahamas will not allow tariff increases, they run a great danger that the WSC operational budget will be insufficient to conduct the proper operations and maintenance needed to maintain the low NRW levels. NRW will rise again, repeating a dreadful pattern seen all over the world.”