Water Company thirsts for funds

Tap Water

Fri, 18 Jan 2013 Source: B&FT

Consumers should pay realistic tariffs that reflect the cost of production and supply of potable drinking water, if the Ghana Water Company Limited (GWCL) is to have adequate funds to undertake major infrastructure investment, a senior official of the utility has told the Business & Financial Times.

More than a third of the population is reckoned to be without access to treated water, and those that have battle the daily discomfort from halted supplies, sometimes caused by rationing.

Government’s suppression of the price of water, seen as an essential commodity for living, and inefficiencies in the internal operations of GWCL are key challenges facing the regular production and supply of the commodity.

With revenues not enough to cover its investment needs, the water utility relies heavily on the government to finance production, maintenance and expansion projects, putting a strain on the state’s limited budget.

Between 2009 and 2012, the government secured US$1.4 billion in loans and grants, together with GH¢6.4million from the national purse, to ensure the water-supply gap is “effectively managed within a planning horizon [extending to] 2025.” But the remaining funding gap is even bigger.

“The challenges are deep-seated and thrive on the disconnect between the economic reality and the politics,” the senior official said. “It therefore requires bold decisions by government to overhaul the sector.”

The price of water is massively subsidised by the government, and previous attempts to deregulate pricing hit it a snag when confronted with the political consequences.

Last year, the government announced GH?179.7 million of subsidies for electricity and water, a move that effectively suspended a quarterly rate-adjustment formula that had been introduced in 2011 – itself the result of pressure on the government from the International Monetary Fund.

Higher tariffs not a panacea

Consumers are generally not averse to paying realistic tariffs for water so long as it leads to regular, improved supply.

“My tap flows once a week. I will pay extra for treated water to avoid the inconvenience of having to carry gallons to fetch water,” said Kofi Brobbey, a resident of Labadi in Accra.

Obaapa, who sells provisions in Osu, agreed: “I am prepared to pay extra if only the water company will ensure that my tap flows regularly.”

But higher tariffs alone will not do the trick, they said. “Illegal water connection is the bane of the water company. They should check it. I know of people who use water free of charge. They even sell it to other consumers at a higher price,” said Mr. Brobbey.

SEC offers to help

In view of the huge investment needed in the sector, the Securities and Exchange Commission (SEC) has urged GWCL to consider the option of selling corporate bonds to investors on the capital market.

But the official told the B&FT that in order for the water company to consider that option, there needs to be certainty with regard to cash flow, “adequacy of resources”, and an “established quality of trust” between the company and investors.

“There is the need to review the pricing model to capture some part of our capital investment, and there should be an improvement in the internal operations of GWCL,” the official said. The Public Utilities Regulatory Commission (PURC) is currently working on a new pricing model, the source added.

“We need to address these concerns before thinking about issuing bonds. If we rush into it, the bonds will mature and there will be no money to pay back.”

Water is a right, but...

This year, under the Industrial Water Projects, the GWCL will undertake the Kpong-Tema expansion project at a cost of €70 million. It is also engaged in a public-private partnership (PPP) for the execution of the Asutsuare-Tema-Accra water project at a cost of €340.6 million.

These projects will expand coverage to some of the 37 percent of the population who don’t have access, the source said, adding: “Water is a right but it is a right when it is available.”

Source: B&FT