There is a notable takeaway from the auditor-general’s (AuG) review of capital projects by the National Water Commission (NWC), which has thus far received little attention. Because it is unstated.
The problems highlighted by the AuG were not ones of constraints in the government’s public procurement system, which has increasingly become the catch-all, or go-to excuse, for the failures of, or delays in, public projects. It is the basis for calls for the almost wholesale abandonment of the regime.
When stripped to the core, what Pamela Monroe Ellis’ investigators found were weaknesses in project planning and project management and deficiencies in financial analysis. NWC is poor at collecting what is owed to it and also weak at market projections. It is persistently over-optimistic about expected income and cash flow, leaving it with insufficient capital to fund its projects.
A statutory company, the NWC is Jamaica’s main supplier of water and sewage services. It provides potable water to an estimated 75 per cent of the island’s population and sewage services to approximately 30 per cent.
With over 1,000 treatment and water pumping facilities and 11,000 kilometres of pipes, it supplies an estimated 190 million gallons of water daily to its customers. It is however estimated that between 40 per cent and 60 per cent the NWC is classified as non-revenue water, meaning it is not paid for, mainly because it leaks from old and broken pipes, stolen by consumers or delivered free to people as ‘social’ water.
REGULARLY MAKES LOSSES
Not surprisingly, the company regularly makes losses and depends heavily on subventions and indirect taxpayers’ subsidies to stay afloat.
According to the government’s projection, at the end of the current fiscal year, when it will post an operating loss of half a billion Jamaican dollars and its accumulated deficit will be just shy of J$38 billion. Its operating loss in 2025/26 was J$6.3 billion, following a deficit of J$5.54 billion in the previous fiscal year. However, these losses reached the bottom line significantly slimmer because of the application of tax credits and subventions.
This was part of the backdrop against which the auditor general evaluated “the efficiency and effectiveness of NWC’s management of capital projects… (to) assess alignment with the organisation’s strategic objectives” over the five-year period 2019/20-2023/24.
The review focused primarily on projects aimed at expanding water coverage, replacing old infrastructure and improving operational efficiency. They would be funded largely from internal resources, including the so-called K-factor; the 20 per cent regulators allow the company to tack onto the bills of customers to help pay for capital projects. Over the period the NWC budgeted J$44.92 million for the projects.
DEEPLY CONCERNING
What the auditor unearthed is deeply concerning. The report ought to be a catalyst for a wider and deeper conversation, beyond the focus on the State’s supposedly tortuous procurement system, on the impediments to the efficient execution and timely delivery of projects. Greater attention must be paid to capacity within the system, after decades of hollowing out of the State.
First, the auditor general discovered, the NWC projected spending J$394.1 billion over 15 years- from 2015 to 2030 – on 17 major projects. Thirty-five per cent (J$138.9 billion) of the Capital Investment Plan’s (CIP) money was to be spent over the programme’s first five years, guided by a master development plans for water and sewerage.
Shockingly, the auditor general reported: “The plans were intended to inform the strategic direction and key capital investment projects to be implemented through 2030. However, the master and development plans were not provided for review. In their absence, NWC indicated that it relied on preliminary engineering reports, including those developed for eight parishes, to assess the feasibility of capital projects and to guide implementation.”
That’s no way to run a serious business, or to be good stewards of taxpayers’ money!
Further, the auditor general concluded that the water and sewerage company didn’t have documented rationale or “consistent application of scoring” with which to prioritise projects, “thereby undermining objectivity and transparency in project selection”.
Ditto to the protection of taxpayers’ resources and interests.
While the K-factor collected 13 per cent more than the J$20 million earmarked from it to pay for the internally-funded projects (2019/20-2023/24), the company generated insufficient cash from internal operations to meet its undertakings.
“In short, NWC budgeted to spend money from its own revenues that it was not, in practice, generating,” the auditor general noted. The upshot: some capital works were delayed, and often, those done were not completed on time for issues not having specifically to do with procurement.
Meanwhile, with total payables of J$33.2 billion at the end of March this year, NWC had cash to cover only half of that obligation. That is a potential liquidity crisis.
On paper, the company had J$20.9 billion in receivables, most of it over three months overdue. In any event, two-thirds of that (J$18.3 billion) was provided for a bad debt -clearly aimed at cleaning up the balance sheet.
If the NWC audit provides any lesson, it is the fallacy of the new default argument that strong governance and transparent oversight of new government institutions have to be forfeited to surmount the difficulties of procurement rules. It’s capacity stupid!
