By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Water & Sewerage Corporation (WSC) is “pursuing” its first price hike in nearly 20 years in a bid to narrow a profitability gap where it covers barely two-thirds of its operating costs.

Adrian Gibson, the state-owned utility’s executive chairman, yesterday told Tribune Business it was developing a proposal on the planned increase in consumer tariffs that will be submitted to the Minnis Cabinet for its approval.

The Long Island MP did not comment on the timing, or likely magnitude, of the price increase for WSC customers, other than to say the Corporation is “definitely” moving to reduce the annual burden it imposes on Bahamian taxpayers to finance its multi-million dollar losses through Budget subsidies.

Mr Gibson described a tariff hike as “long overdue”, the last increase permitted by government having occurred in 1999, and critical to preserving the gains delivered by WSC’s contractor in beating targets to reduce water losses from the Corporation’s distribution system.

He added that the WSC would seek to soften the blow for consumers by improving its service and operational efficiencies, thereby minimising the extent of any price increase.

“We are definitely pursuing the tariff increase. What’s going to happen is we are advancing to Government a request, or outline, speaking to the need for a tariff increase,” Mr Gibson told Tribune Business, “and what we will do to better service and operational efficiencies.

“Certainly that tariff increase is needed; it’s long overdue. We’ve not had a tariff increase since 1999. It will cause our operations to reach an optimal position, while at the same time we will streamline and make our operations more efficient. These will work in tandem to foster and create a business-like atmosphere at the Corporation.”

Mr Gibson said the tariff increase was part of a broader strategy to bring WSC in line with international best practices and “first world” water utilities, which all priced water supply at a level that ensured profitability.

The planned hike is another example highlighting how the ‘good times’ long enjoyed by many Bahamians, where they obtained cut-price government services below the actual cost of provision, are ending as a result of the Government’s fiscal crisis.

The Public Treasury can no longer afford to underwrite ‘below cost’ services given the Bahamas’ mounting $8 billion national debt, and the Government has already charged state-owned enterprises (SOEs) - including the WSC - with developing a three-year plan to align fees with costs.

In effect, the WSC’s selling of water ‘below cost’ has resulted in a wealth transfer from Bahamian taxpayers to the Corporation’s customers as a result of the annual $20 million-plus subsidies required to keep it afloat.

And the Inter-American Development Bank (IDB), in an evaluation of its $81 million loan to upgrade New Providence’s water supply system, warned that the benefits of reducing losses from WSC’s system - known as non-revenue water (NRW) - could be squandered without imposing a price increase on Bahamian consumers.

“With roughly one year remaining to disburse [loan funds], the decrease of NRW has exceeded its expected targets,” the IDB report said. “However, the WSC’s operating cost recovery and Government subsidy targets have not been achieved as expected, even though WSC operational costs have improved in recent years.

“WSC’s operating cost recovery, which is currently around 68 percent, was expected to improve from 64 percent in 2008 to 84 percent at the end of the project. At the same time, annual Government transfers to the WSC, which were expected to decrease from $24 million to zero, remained at $24 million in 2015 (despite a reduction compared to 2012-2014 levels of more than $40 million).”

The WSC is still due to receive a $25 million subsidy this fiscal year, down from $30 million in 2017-2018, for what are described in the Budget as ‘development projects’. The IDB’s report suggested a price rise is essential to eliminating such taxpayer support.

“The long-term sustainability of the results is threatened by financial, operational and institutional risks,” the multilateral lender added. Despite a considerable reduction of NRW, WSC’s financial sustainability is still limited because of its low capacity to generate sufficient revenues to cover its operational and maintenance expenses. This situation is not likely to change until an adjusted tariff policy is adopted and new legislation approved to regulate the sector.

“Without a regulatory framework for the sector, people will not have incentives to stop using private wells and join WSC as their water supply company. Likewise, the improvement of WSC’s financial position will require that a new tariff structure be put in place, and possible downsizing measures adopted to increase WSC’s efficiency.”

The IDB said NRW, representing water lost from the WSC’s distribution network before it reaches the end-customer, had dropped from 55 percent of total supply in 2008 to 37 percent in 2015, beating the “expected target” of 45 percent.

The bank’s report credited this to the performance-based contract signed with the WSC’s contractor, Miya, which tied pay to results. “Performance-based contracts seem to have been instrumental to achieve this objective,” the IDB said. “WSC signed a 10-year performance-based contract to reduce NRW in New Providence, which included a $24 million fee to be paid only for actual NRW reduction achieved.

“Given the results-oriented nature of the contract, the incentives to reach objectives and minimise delays during implementation were correctly placed. The reduction of NRW component was the only component that did not experience major delays during project execution; in fact, its targets were exceeded.”