By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
A paper co-authored by the Water & Sewerage Corporation’s (WSC) general manager has called for a three-category licence structure to oversee the Bahamian water industry, arguing that “ineffective regulation” had created unacceptable results for both consumers and producers.
Calling for economic regulation of the Bahamian water industry to be placed in the hands of the Utilities Regulation and Competition Authority (URCA), Glen Laville and co-authors, Castalia executives Nils Janson and Traci Kuratoni, suggested that only network providers - such as the Corporation - be supervised via “differentiated licences”.
In the paper, presented at this week’s Organisation of Caribbean Utility Regulators (OCCUR) conference in Grand Bahama, they said that while economic regulation was part of the solution, it would not solve the Water & Sewerage Corporation’s problems by itself.
Mr Laville and his co-authors suggested privatisation, with private capital and management, would be required for the Corporation - getting the Government out of being an owner and operator in the sector, thus removing a potential conflict of interest.
Meanwhile, the paper called for three different network provider licence categories - individual, class and registration.
Explaining how the structure would work, the trio said using a three-tier system would allow URCA to focus on water providers with the largest number of customers, or those that were in financial difficulties and having issues with service standards.
“Individual licenses will require the most oversight by URCA, and registration licenses will require the least,” Mr Laville and his fellow authors said. “Initially, Water & Sewerage Corporation should be the only network provider subject to regulation through an individual license.
“Other water utilities and independent network providers should have class licenses, which will initially have no oversight of the tariffs and service standards. For class licenses, URCA’s oversight of tariffs and service standards would only be triggered if 30 per cent of a utility’s customers petition for URCA review.
“Finally, condominium associations operating as network providers should be required to register with URCA under registration licenses, which require no active oversight by URCA. URCA will only review the performance of providers with registration licenses if a court determination requests URCA’s expert opinion, or if it receives a petition by 75 per cent of the condominium association’s members.”
Going forward, Mr Laville and his co-authors urged that URCA initially focus on the Water & Sewerage Corporation via a “comprehensive rate review of its tariffs and standards at three-five year intervals.
They also recommended that the Corporation’s tariffs be set at levels to recover service costs, and focus the Government subsidies it received on targeted areas - rather than the whole network.
“The WSC’s rates should gradually transition to a cost recovery level in a process managed by URCA, which would allow the WSC to improve its quality of service and justify the rate increases,”the paper said.
“During the transition, the Government should agree to pay a subsidy to the WSC that is equal to the difference between the WSC’s regulated rate and the cost recovery rate determined by URCA.
“Secondly, URCA must regulate the WSC’s service standards. Regulating service standards benefits both consumers and utilities, but URCA must carefully consider the cost-benefit trade-off when deciding the level at which to set service standards,” the authors added.
“Thirdly, URCA should use output-based aid to provide targeted subsidies. The WSC’s geographical subsidies should be replaced with a targeted subsidy that provides tariff relief directly to low-income customers. This subsidy would cover the price of a clearly defined amount of water (for instance, the amount of the minimum consumption block) for targeted poor customers.”
The paper added that Bahamian water industry regulation be limited to just network providers such as the Water & Sewerage Corporation and New Providence Development Company.
Providers of bottled water, potable water, self-suppliers and reverse osmosis producers (Consolidated Water) would not be included, on the grounds that network providers had “natural monopolies” requiring economic regulation.
Laying out the problems with the current regulatory system, or lack of it, Mr Laville and his fellow authors said “inconsistent performance” in the Bahamian water/sanitation industry had resulted.
While some network providers were performing well, consumers in some instances were receiving poor service, while the Water & Sewerage Corporation was “operating unsustainably”.
“The ineffective regulation of the water and sanitation sector in the Bahamas has led to results, in particular for the WSC, that are not satisfactory to customers or to owners of the providers (for example, the Government in the case of the WSC),” the paper said.
“Poor results occur when the regulatory framework does not provide adequate incentives for proper performance or behaviour. This uneven sector performance is closely related to an ineffective regulatory framework.”
Focusing on the Water & Sewerage Corporation’s problems, the authors added: “Indeed, Mr Laville and his fellow authors said the Bahamian water market had “no functioning regulator”. The WSC had several regulatory functions, but did not perform these, the authors adding that it was “inappropriate” for the Corporation to act as both operator and regulator.
In contrast, the three private water network providers - New Providence Development Company, Grand Bahama Utility Company (GBUC) and Paradise Utilities (PU) - were able to charge consumer tariffs sufficient to cover their costs.
Two key issues impacting private operators, the authors said, included the “poor quality, highly saline water” sometimes produced by the New Providence Development Company.
In addition, it was unclear who regulated GBUC, as the Government and Grand Bahama Port Authority (GBPA) were in court on the issue.
Finally, to finance URCA’s regulatory costs, the authors suggested that a levy based on each licensee’s revenues be used. The levy would, in turn, be passed on to Bahamian consumers.
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