Biting the Bullet

Utility Emergency – The Case of WASA

When we hear the words ‘public utilities,’ it is natural for many of us to immediately think about the Water and Sewerage Authority (WASA) and the Trinidad and Tobago Electricity Commission (T&TEC). This is understandable given the importance of these two organisations to our everyday lives and the continual, well-ventilated challenges they face. While T&TEC’s performance has improved appreciably over the last 10 years or so, the plight of WASA continues to be a cause of major worry and a source of pain to many, many citizens. From the onset, it must be acknowledged that it will not be a simple task to address the issues confronting WASA. There are several hard decisions that will have to be made, including the prospect of increasing rates to consumers. Consequently, it may be very difficult to gain widespread buy-in for such an initiative. However, given the importance of this utility to society and government’s tight fiscal resources, on which it and other utilities have become heavily reliant, urgent action is required.

The plight of WASA is beyond a doubt, the most desperate among the country’s utilities. To begin with, the authority is encumbered by an ageing network of pipelines, with numerous leaks hindering its ability to provide a regular water supply throughout the country. Additionally, WASA has not been able to complete its long-promised metering programme, with only 3 percent of residential customers and 80 percent of commercial customers metered thus far. Put another way, the authority cannot, at this point identify the volume of water used by 97 percent of households and 20 percent of businesses. This inability to allow charges to more accurately reflect usage, negatively affects WASA’s revenue streams and partly explains why it encounters considerable challenges in getting consumers to conserve water. The Minister of Public Utilities estimates that it will cost around $13 billion to address the major issues besetting WASA, of which $10 billion will be required to replace ageing pipelines. According to the Minister, $1.5 billion is needed to complete the installation of meters, another $1 billion to fix interconnectivity issues and $500 million to improve water storage capacity.

In the face of this great need for funding, the sad reality is that WASA’s operations, as currently configured will never be able to generate the required revenue streams to fund even the smaller projects. In 2018, Parliament’s Public Accounts Committee (PAC) reported that in the previous fiscal year, the utility collected only $709 million in revenue, while its expenditure was $2.9 billion. Government provided a $1.9 billion subvention to fund the shortfall. The report also indicated that WASA was overstaffed by some 2000 employees. In a May 2019 Trinidad and Tobago Guardian newspaper article, the Public Utilities Minister highlighted that government provides an annual subvention of $1.8 billion to the utility. In addition to huge cost drivers, WASA’s heavy reliance on government financing can be partly explained by the low rates it charges. The Minister revealed that WASA’s residential customers are charged $1.75 for 220 gallons of water, the lowest in the world. The utility also has a weak collection apparatus, resulting in customer arrears of several hundred million dollars.

This is clearly not sustainable, given government’s tight finances, especially since the burden ultimately falls on the average taxpayer. Besides, the opportunity costs of this type of expenditure can be quite significant. For instance, consider that the projected cost of the Churchill Roosevelt Highway (CRH)/Southern Main Road Curepe interchange is $221 million. As such, just a single year’s subvention to WASA is enough to pay for the Curepe interchange eight times. Imagine if the state was able to make this utility an independent, viable entity. The use of the $1.8 billion elsewhere can take us closer to major objectives such as replacing all traffic lights on the CRH with interchanges or enhancing the performance of the health sector. Alternatively, this amount could simply be saved and as such, ease some of government’s fiscal pressures. Afterall, the subvention is just shy of 50 percent of the 2018/2019 fiscal deficit of $3.9 billion.

For sure, the Public Utilities Minister and the leadership of WASA sit in an unenviable position. Given the myriad of issues facing the utility, nothing short of a multi-faceted approach is needed to restructure the organization and place it on a path to becoming an efficient and viable institution. These adjustments are sure to cause some pain, but we must be mindful that it is for the greater good. The country’s experiences over the last five years should have taught us two very valuable lessons. The first is that it is never a good idea to separate sound management and financial principles from the operations of institutions like WASA. In other words, a business should be built on sound commercial principles, else it tends to be more troublesome than beneficial. The second lesson is that it is better to create targeted programmes to look after the vulnerable in society than to roll out broad initiatives with no means testing or other sifting mechanisms. Otherwise, they cost much more than they should and will be very difficult to remove. Did someone say fuel subsidy?