The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Water & Sewerage Corporation’s (WSC) tariffs cover just 30 percent of its Family Island costs, with key government-owned utilities overstaffed and in need of downsizing.

The Inter-American Development Bank’s (IDB) newly-released 2018-2022 country strategy with The Bahamas suggests that both the WSC and Bahamas Power & Light (BPL) are overstaffed compared to regional peers, with their inefficiencies acting as a drag on economic growth.

While the $81 million-IDB financed project to upgrade the WSC’s systems has slashed water losses from its network by 60 per cent, the country strategy report warned that the resulting benefits will be squandered unless customer tariffs are increased in line with its costs.

“In the absence of tariff adjustments, and as a result of the increased costs associated with reverse osmosis water, the financial performance of the Water and Sewerage Corporation (WSC) has yet to improve,” the IDB said.

“Water purchase amounts to more than 40 per cent of WSC operational costs. Tariffs presently represent only 60 per cent of the cost of service in New Providence, and only 30 per cent in the Family Islands.”

Virtually no business can exist with customer prices that cover between just 30-60 per cent of its costs, with the last WSC tariff rise having occurred in 1999. However, in the Corporation’s case, it has been able to rely on annual multi-million dollar subsidies from the Bahamian taxpayer.

Drawing on Central Bank data, the IDB said these subsidies totalled $25 million in 2015 and $40 million in 2014, illustrating just why the Minnis administration wants all state-owned enterprises (SOEs) to become self-sufficient and reduce a collective $420 million-plus drain on the Treasury.

“WSC staff costs are on the order of one-third of its operational expenses, and its employee per 1,000 connections is high with respect to its peers (regional average of 6.2 employees per 1,000 connections),” the Bahamas country strategy report said.

“The Water and Sewerage Corporation estimates that it currently supplies 50 per cent of overall potable water demand in the Bahamas. Despite significant achievements in recent years in reducing volumes of non-revenue water, WSC services are still not financially and operationally viable, thereby requiring large governmental transfers and limiting available funds to aid other areas of public sector governance.

“Continued implementation of operational efficiency measures to provide sustainable services, as well as revenue-generating measures to reduce the fiscal burden – as outlined in the WSC Action Plan and the New Providence Wastewater Master Plan – are imperative to improving service provision in the sector during the period. Wastewater facilities (sewer drains, pipes and disposal facilities) are insufficient to service the country. The sewerage system only covers 14 per cent of the population of New Providence and, according to the Wastewater Master Plan 2014, requires ‘emergency’ rehabilitation.”

As for BPL, which is currently undergoing a voluntary separation exercise as it ‘rightsizes’ its 1,050-strong workforce, the IDB report said: “The electricity utility company has 93 customers per employee compared to 175 in Grenada, 224 in Barbados and 415 in Jamaica.”

BPL’s unions, in particular, will likely argue that such comparisons are meaningless as the utility is being matched with rivals that service just one island. BPL, on the other hand, has to replicate its infrastructure and maintenance across multiple islands, thus requiring extra labour.

Still, the IDB report said the Bahamas ranks ‘rock bottom’ in the Caribbean when it comes to renewable energy penetration despite being blessed with natural assets it is ideally positioned to exploit.

“Despite possessing ample renewable energy resources, and having in place an ambitious National Energy Policy to increase renewable energy generation to 30 per cent by 2030, the Bahamas ranks lowest in the region for renewable energy penetration,” the document said.

“Furthermore, as a consequence of old power generation infrastructure, the Bahamas suffers from a high fuel import bill (4 per cent of GDP), high and volatile electricity prices, and a large and financially challenged utility (BPL) that experiences frequent power outages and elevated system losses. Such power generation shortcomings have been associated with a reduction in the likelihood of introducing innovation in Caribbean countries, particularly those that resort to self-generation as a coping mechanism by suggesting that firms allocate resources to self-generation that would otherwise be allocated to innovation. Nonetheless, energy conservation and efficiency options remain underutilised in the public, commercial, and residential sectors.”

The IDB report said Bahamian firms experienced an average of 2.2 power outages per month, less than Jamaica’s 2.5 but higher than for Barbados, Suriname and Trinidad & Tobago.

“Limited productivity and volatile oil prices have contributed to making Bahamian electricity tariffs among the highest among Caribbean economies,” it added. “In 2012, due to high oil prices, the electricity tariffs were US$0.40/kWh for residential customers and US$0.44/kWh for hotel customers.

“Today tariffs are lower (US$0.27/kWh for retail and US$0.25/kWh for residential), mainly due to the reduction in oil prices (a more than 50 per cent reduction).”