EDITORIAL - Management's case for NWC's sale

We don't know what prompted Albert Gordon, president of the National Water Commission (NWC), to issue the statement, except to advance the case for the privatisation of the loss-making, state-owned water and sewerage company.

Mr Gordon told Jamaicans that the NWC needs US$1.2 billion "over the next few years" to finance the implementation of drought-resistant systems, reduce the company's near 70 per cent of non-revenue water, and to lift delivery to at least 85 per cent of Jamaican households. These are all laudable goals.

But a few things are immediately apparent from Mr Gordon's declaration. The first is that, in Jamaican dollars, his proposed bill for improving the national water system is nearly J$120 billion.

However, that is not all. For Mr Gordon also said that "about the same amount is needed for investment in sewerage". That is, another J$120 billion.

Put another way, the NWC's investment programme, on the face of it, calls for the spending of nearly J$240 billion "over the next few years".

Mr Gordon said that "much of the funding has already been identified", which we presume he means the 25 per cent surcharge that NWC customers pay on their bills - the so-called K-Factor.

This, however, raises a number of other questions/observations. The first is the recent announcement by the water minister, Robert Pickersgill, of a projected $50 billion in K-Factor spending over the next eight years when the system is to come to an end. That is about a fifth of Mr Gordon's projected spending "over the next few years".

It could be that Mr Pickersgill got his sums wrong. But then, at the current trajectory, the K-Factor will 'earn' the NWC somewhere between J$6 billion and J$10 billion annually by the time it ends in 2021. That is a substantial amount of money, but not in the same ballpark as Mr Gordon's J$240 billion.

BALLOONING DEBT STOCK

It is reasonable to assume that some of the required capital could come from borrowing. Indeed, the NWC has, in the recent past, acquired soft loans from national and multilateral development banks for its projects

However, loans taken on by the water company are contingent liabilities of the Jamaican Government. And Mr Gordon's requirement coincides with the project of the Portia Simpson Miller administration to lower the country's debt-to-GDP ratio, which stands at an astonishing 140 per cent. Peter Phillips, the finance minister, would probably have something to say if the NWC wanted to add around J$180 billion (our estimate of the water company's shortfall) of liabilities to his debt stock.

It seems to us that the sensible way for Jamaica to achieve substantial improvement in its water harvesting and distribution systems, without being a burden to taxpayers, is to privatise the operation, with clear investment targets for the new owners, who would gain their returns from enhanced operational efficiency.

At the same time, however, the commodity would have to be appropriately, rather than politically, priced, as is now the case. Pricing, in this regard, would take into account cost differences, based, for example, on geography, for the delivery of water.

This does not mean that the society's most vulnerable would be without water. A template exists in the pricing of electricity that can be adapted for this commodity.

The opinions on this page, except for the above, do not necessarily reflect the views of The Gleaner. To respond to a Gleaner editorial, email us: editor@gleanerjm.com or fax: 922-6223. Responses should be no longer than 400 words. Not all responses will be published.