Privatization and Competition – We’re Being Driven Down The Wrong Road — PART FOUR

IN the first three parts of this discussion we looked at the planned introduction of competition to LUCELEC, the proposals for introducing new legislation and regulation, and questioned this approach in the absence of any indication of how consumers are to benefit.

The impact of a focus on financial modelling and a neglect of technical issues in the manufacture of cars was noted, and the discussion questioned whether such a focus had not been to WASCO’s detriment. It also questioned whether this was not the approach being adopted with the current proposals for introducing competition to LUCELEC.

We examined the development of the World Bank’s stratetgies for water utility privatization in the Caribbean, and the failures of these efforts, detailing the Bank’s approach with WASCO.

In this Part 4 conclusion of the discussion, we examine the impact of an 8 year intervention by the World Bank with WASCO, and question whether this has been of benefit to WASCO. In doing so, we also wonder if this is points to the future development of LUCELEC.

Did WASCO Benefit ?
What then is St. Lucia left with at the end of all of this? First, repayment of a World Bank loan in the amount of US$2.3m for technical assistance in the formulation of the proposal for the PPP, (of the actual loan amount of US$2.6m, $2.3m was disbursed), and a new Water & Sewerage Act which establishes the Water Resource Management Agency and the National Water and Sewerage Commission (NWSC). At Item C.1 of the Datasheet contained in the Bank’s Implementation Completion and Results Report of June 2009, the Bank assesses its performance in this exercise as “Moderately Satisfactory”, that of the Government as “Moderately Unsatisfactory”, while the overall outcome is judged “Unsatisfactory”.

At the same time that the PPP proposal was being developed, the World Bank Report indicates that a parallel loan in the amount of US$5.27m was provided by the Caribbean Development Bank to WASCO. This loan was needed to finance technical assistance in strengthening WASCO’s internal systems in the amount of US$0.5m, and urgently needed investment and asset rehabilitation in the amount of US$4.77m. The technical assistance component had been deemed necessary to make WASCO more attractive to investors, and to improve the skills of the staff.

In assessing the performance of the CDB loan at Project Component 1 of its Implementation Completion and Results Report, the Bank indicates that the technical assistance met with mixed results as, although the relevant tools were developed, training for WASCO staff was never completed. And just whom had been responsible for implementation of this training component of the loan? None other than Severn Trent Water International, the company already noted for its involvement in the failed privatization efforts in Trinidad & Tobago, Guyana, Nepal, and now St. Lucia.

And in assessing Project Component 2 of the CDB loan, the World Bank reports that while there were again mixed results with the physical works, the Leak Detection and Waste Reduction aspect was not implemented. The report makes reference to a supply contract, implying that the equipment for leak detection may have been purchased, but that the component failed because “It was anticipated that WASCO would have developed and implemented a leakage detection plan, however lack of capacity and staff turnover resulted in none being prepared.” Really?

This is a remarkable statement, as, particularly with a technical assistance programme intending to improve the skills available at WASCO being implemented at the same time that the leakage detection and waste reduction programme was being supported, the expectation would be that staffing and training of a leak detection department would have been a priority of the technical assistance programme. Unfortunately, it was not, and the technical assistance programme intending to provide staff training itself was a failure.

The result is that at the time of writing of the Completion Report in June 2009, the World Bank mildly congratulates itself on its performance in establishing a new legislative and regulatory regime, is mildly critical of the government for not seeing privatization through to completion, and WASCO receives some assistance for rehabilitating its infrastructure. There is no indication of technical training for WASCO staff during the 8 or so years of the duration of this intervention, and no meaningful attempt at leakage reduction. In its September 2013 quarterly report to the NWSC, WASCO reports a level of unaccounted for water of 56.2%, also indicating in that report however that it is now addressing the issue with the assistance of consultants.

No company, public or private, can survive the loss of 56% of its product on an annual basis, but in WASCO’s case, this seems to have received scant attention until recently. Meanwhile, attention was instead focused on the development of various models for privatization and regulation, and WASCO’s debt is now said to be EC$120m. Whatever the actual figures may be, the neglect of WASCO’S core functions over an extended period of time has to have been deeply damaging to the organization, and to its finances.

That is not all, because, while WASCO remains a publicly owned corporation, it now reports to the National Water and Sewerage Commission, which, through legislation, has an oversight role on WASCO’s performance. And to enable this, WASCO must now pay to the commission an annual fee of EC$200,000 plus an annual charge of EC$500,000 according to the Commission in its report on the 2012 tariff review. It should be noted that none of this goes to the Commissioners who are paid ridiculous stipends for the function which they are expected to perform. (These stipends are contained in the regulations of the Water & Sewerage Act 2008).

There is also the further complication that the NWSC, the regulator, is apparently reliant on WASCO, the body being regulated, for the financing of its operations. While this may be benign in the current circumstances, it would be inappropriate if the operator were a private sector operator, particularly where a single operator is responsible for the regulator’s finances. The issue of regulatory capture is well recognized, and the regulator should be protected from this.

With nothing having materially changed for WASCO, it now has to pay an annual charge of $700,000 to the NWSC in order that WASCO’s management can be held accountable for doing what they are supposed to do, and are paid to do. It would appear that the NWSC in effect now supplants the Board at WASCO, with the NWSC indicating at the end of the 2012 extraordinary tariff review that WASCO is to submit quarterly reports to the NWSC, and that a unit is also to be established by the NWSC which will monitor those areas that are necessary to cause improvement and increase the efficiency of WASCO. The NWSC website however, only currently provides one quarterly report from WASCO dated September 2013, for the period April to June 2013. Either WASCO, or the NWSC, is not functioning as expected. What though is the penalty?\

Section 89 1, a) of the Water and Sewerage Act of 2008 provides as follows:
“Subject to subsection (2), a service licensee who fails to comply with a direction given by the Commission under section 87 commits an offence and upon conviction, on indictment is liable to a fine not exceeding $100,000 or to imprisonment for a term not exceeding 15 years or to both and to a further fine not exceeding $500 for each day during which the offence continues.” Subsection 2 provides for a stay of prosecution during the period of an appeal.

Are we really going to jail the Board of WASCO, or is Management the intended target? And which sane individual is going to offer himself or herself for service on either body when this threat looms over his/her head? These issues are not an indictment of either the NWSC or WASCO, but simply the natural consequences of an unnatural thrust in a particular direction. We are being driven in the wrong direction, down the wrong road.

If we are truly interested in regulation, we need look no further than Barbados. While other regulatory bodies exist in Jamaica and in Trinidad, the Barbados experience is noteworthy. In Barbados, a Fair Trade Commission with regulatory responsibilities was established in 2001 to replace its Public Utilities Board. This Commission is now responsible, under the relevant legislative provisions, for ensuring fair trade, for consumer protection, and for electricity, telephone and water utility regulation. Its annual report of activities undertaken in 2014 is available on its website. To accommodate the recent addition of the regulation of the water utility, the Commission’s chairman is quoted in the press as indicating that the Commission intended to add one member of staff, a water utility analyst, for this purpose. As far as can be determined, the Commission discharges its responsibilities adequately.

Even if, as we have earlier seen, the World Bank policy actively promotes development of new legislation and regulation, first for the island, and ultimately for the region, why are we re-inventing the wheel?

One last thing. Section 90, 1 (a) of the Water and Sewerage Act 2008 makes it a criminal offence for you to willfully waste water within your home, by, for example, ignoring a leaking tap. The penalty? $3,000 and/or 6 months in jail for each offence, with a further $50 per day for each day it continues. This is water coming through your meter, for which you remain obligated to pay. And we’re probably still paying the World Bank for their assistance in the drafting of this law.

We have however seen similar outcomes before, notably in the US car industry, and seen the effect on industry when the focus has been on “financial engineering” at the expense of manufacturing. We are being driven down the wrong road, by the World Bank, and with WASCO continuing to need investment for infrastructure, it can only be a matter of time before we see the next incarnation of “private sector participation in public infrastructure”.

And as before, we will be told that this time, the outcome will be different. Nowhere, at any time, does anyone address the issue of how the consumer is expected to pay for these developments. Where is the money to come from? Will consumer income increase, or will his standard of living have to decline? Who benefits from this?

Competition for LUCELEC?

It is in the context of the above that we must view the current discussion of new legislation introducing competition to LUCELEC, and of proposals for its further regulation. Introduce renewable energy by all means, and we can all hope for lower prices. But Lucelec is not broken; please let’s not attempt to fix it.

Why, after having accepted the promotion of Private Sector Participation in public infrastructure over the last 20 years is the thrust now to be that of competition? How do we justify inviting competition for a company which we own practically half of? Something is not quite right.

But we’ve been down this road before – a focus on “higher order functions”. Brand new legislation, all encompassing new regulation, and promotion of the benefits which these will bring to the consumer. All of this without a shred of data to support the suppositions, and in the face of evidence to the contrary.

The efforts at privatization of WASCO may be in abeyance for the moment, but now it’s the turn of Lucelec. Except that this time around, the company being targeted, according to LUCELEC’s 2014 annual report, boasts of assets in excess of EC$500 million, and made a profit of over EC$26 million in 2014. A jewel in our crown, and an asset which every private sector operator would rather have in his or her crown.

Hopefully, civil society will again raise its voice and demand an explanation of this.

*All documents referenced are in the public domain and are available on the internet.