Still chewing, still choking
Mbongeni Mguni | Friday December 15, 2017 18:04
By comparison, Mmetla Masire is more diplomatic than his predecessors when he describes the state of the Water Utilities Corporation (WUC)’s finances. In the Annual Report released this week and containing a P137.6 million loss, the CEO treads lightly when broaching the topic.
“The Corporation’s financial position has not improved significantly when compared to the last reporting periods,” he writes in his commentary.
“It continues to remain in a compromised liquidity position operating with a deficit budget.”
Masire goes on to explain that this position is due to “non-cost reflective tariffs, high customer debt, delays by government to release funds for government-funded projects and the absence of a cash injection by government”.
The road from profitability to perennial losses was a short one for the WUC. In 2009, the WUC began an ambitious Water Sector Reforms Programme (WSRP) under which it would take over the supply of water to all urban centres and villages. The programme was informed by a study suggesting that Botswana needed to rationalise its water sector and ensure uniform service levels for all.
The move resulted in the WUC taking over from the Department of Water Affairs, which had previously managed supply for villages.
Prior to the programme, the corporation’s mandate was limited to urban centres and it regularly posted profits/surpluses, indicating that it was able to meet its operational needs from its own revenues.
Under the WSRP, the WUC found itself with an expanded mandate, more households to supply, tariffs ranging from just below cost-reflective to giveaway, more employees to pay, a higher maintenance bill. Government support towards operating expenses was inadequate and no cash injection was forthcoming.
One of Masire’s predecessors did not mince his words in describing the situation at WUC.
“Staff morale hit an all-time low as staff got burnt out from the long hours, increased workloads and extended areas of jurisdiction that came with the reforms,” wrote former CEO, Godfrey Mudanga in the 2014 Annual Report.
“High customer expectations in the newly taken over areas also increased the pressure under which the corporation operated.”
At that time, the WUC posted a 2013/14 loss of P346.6 million, which widened to P370.3 million in 2014/15. There were reports of workers’ salaries being delayed, the rising murmurs of aggrieved suppliers and the dreaded sightings of corporate panga-men in the corridors who carried out a “rationalisation” exercise.
In 2014, Matome Malema was reporting on his first year as WUC chairman and was bracingly frank about the carnage he saw around him.
“During the year, it became apparent that the WSRP had taken its toll on the various aspects of the Corporation’s operations, financially and even service levels that WUC was once famed for,” he wrote.
“The main objective of the WSRP was to level service for all water users in the country through the provision of quality water and wastewater services as has been for years in towns and urban centres.
“However, the water authorities that WUC took over (had) established tariffs independently hence the various tariffs that WUC inherited from area to area.
“Due to these varying tariffs, some customers pay up to 300% more than other customers for the same amount of consumption and quality of water.”
In those years, various government departments cheerfully provided updates on the numbers of villages that had been taken over under the WSRP, announcements that hid the toll the WUC was suffering under.
By 2010, the first full year after the WSRP concluded, the WUC’s surpluses dropped to P21.8 million from P161.4 million, while operating expenses jumped 55% to P495.5 million. Essentially, the WUC had more consumers to supply without the increase in revenue that would be expected from more billing.
The WUC was trapped in the classic anecdote concerning Biblical Jonah and the whale.
As told traditionally, a forgetful pastor tells his congregation that Jonah swallowed a whale, to which a watchful congregant points out that, actually, the whale swallowed Jonah. The pastor, in turn, mumbles that all he remembers is that ‘something swallowed something else’.
In 2011, the WUC hit record rock bottom. In that year, the Corporation reported losses of P541.6 million driven by operating expenses of P947 million.
’Something had swallowed something else’ going by the classic anecdote.
The Corporation’s board and management were clear on the solutions, which included government increasing its support, finding a balance in the tariffs, as well as greater operational efficiencies to reduce system losses.
It would take a deepening of the crisis due to the El Nino period of 2014 to 2016, for a change to occur.
The drought, the harshest in 34 years, dried up Gaborone Dam for the first time and had the effect of reducing the product available for the WUC to sell. Ordinarily, low supply versus high demand pushes prices up, but the WUC was and is limited by tariffs and these were only adjusted in April 2017, being the first time since 2013.
As bad as the drought was, it prompted strong government intervention in the WUC’s capital and operating expenses, with support provided for emergency drought infrastructure and maintenance, as well as a debut subsidy of P388 million in the 2015/16 financial year.
Cyclone Dineo would then revive water reservoirs countrywide, pushing Gaborone Dam to 100% for the first time in 17 years in February 2017. This had the effect of easing the WUC’s costs of supplying the capital city, the Corporation’s money-spinning region where water tariffs are highest.
Even staring at a P137.6 million loss for the 2016/17 financial year, it is evident why both Masire and Malema - now the outgoing chair - can afford to strike more hopeful tones than in years past. The WUC has secured a P1.5 billion loan from the World Bank to improve access to piped water particularly for rural households and to plug water losses in the country’s water distribution network.
Plugging water losses means generating up to P530 million more in revenues, while boosting supply for households. From the bleak WSRP years, Masire is noticeably upbeat. “Cost containment measures have been put in place to reduce operational costs and expenditure is prioritised in favour of more critical projects,” he says.
“The Corporation’s dams are in a healthy state improving security of supply for the foreseeable future…alternative funding options will be explored to finance implementation of water supply projects.” The pioneering subsidy and support for the World Bank loan, suggest government is more willing to move in and help the WUC.
After years of chewing and choking, it appears the WUC might finally swallow.