That water hike (and Donor Pressure)

Ceylon Today Editorial

With State-owned National Water Supply and Drainage Board (NWS & DB) suspending the alleged 30% hike in water bills which was to have been effective from next month (‘Ceylon Today’ of 13 November, 2016) due to Presidential intervention yesterday, public relief in this connection may be but short lived.

There are at least two reasons why public relief may be short lived: Primarily, donor pressure and secondly, the appointment of a ministerial committee to seemingly go into the ‘nitty gritty of such a hike.’ This means that a hike per se hasn’t been entirely ruled out.

Therefore, it may be a mere postponement of the hike, though, there may be a possibility that when the price increase finally does take place, it may not be that ‘exact’ percentage, by some of the exempt being also netted in and the so-called ‘rich’ being made to pay a higher rate, thereby seeing a spurious reduction in the ultimate average rate, when it actually does take place.

Nonetheless, ‘Ceylon FT,’ more than five months ago, predicted of such a hike in the lead story of its edition of 6 June, 2016.  That article was based on a press release issued by the IMF on 3 June, 2016 with reference to granting the Government of Sri Lanka (GoSL) an extended fund facility of US$ 1.5 billion.

Relevant excerpts of that article which had a top strap-line: ‘Water rates to rise’, the heading: ‘Market to determine ‘spot” and a bottom strap-line, ‘To satisfy some IMF conditions,’ said, ‘…mediumterm growth prospects also need to be supported through a greater role for market forces and a decisive shift toward an outward orientation.’…. ‘…And, making State-owned enterprises viable may well mean that the administered price regime may well be history. In this score, Water Supply Minister Rauff Hakeem fired the first salvo. The State controlled ‘Daily News’ quoting Hakeem on its Saturday (4 June, 2016)’s edition said, ‘It’s hoped to revise water rates in the near future since no revision has been made for the last four years….’

‘So, consumers brace yourself to at least a water rate hike, so that GoSL would at least be able to satisfy IMF of one of their conditionalities! Well did President J.R. Jayewardene, describe the Washington twins, the IMF and the World Bank by quoting Dante, ‘Abandon all hope, ye who enter here.”

And, the IMF is expected to release its second tranche of US$ 168.1 million, previously withheld, tomorrow. (‘Ceylon Today’ of 5 November, 2016).

But, it may not be only the Washington twins that tie a millstone round the neck of Sri Lanka. The other seeming ‘horror’ may be the third and the last multilateral donor, the Asian Development Bank (ADB), which has committed itself to water supply projects here. And such aid, like the IMF’s and the World Bank’s, do come with strings.

To quote the relevant excerpts of ‘Ceylon Today’s’ editorial of 4 November, 2016 which carried the heading ‘2.4B from ADB’, it said, ‘…Planned projects for 2019 include a $ 150 million solar electricity project, $ 193 million transportation project covering the Northern, Eastern and Uva Provinces and $ 180 million Greater Colombo Waste Water Treatment Project.”

With respect to the financial state of the NWS & DB, Central Bank of Sri Lanka’s 2015 Annual Report said, ‘…Financial position of the NWS & DB deteriorated during the year 2015. As per unaudited provisional financial statements, it recorded a marginal operational loss of Rs 100 million compared to a Rs 2.5 billion operational profit in 2014. Its total revenue increased by 5.4% to Rs 2.3 billion, while operational and maintenance cost increased by 21% to Rs 21.4 billion. Capital expenditure by the NWS & DB decreased by 22.8% to Rs 27.5 billion during the year….’

While the Board made a Rs 100 million operational loss last year, it also has to service loans taken, the most recent of which will be the aforesaid $ 180 million ADB loan.

Loans from multilateral donor agencies are cheap. For example, those from the ADB range from an interest cost of 2% with payment spread over 25 years with a five-year grace period, while the other is priced at London Inter-Bank Offered Rate (LIBOR) plus 60 basis points. The payback period for these types of loans is 20 years.

(‘Ceylon Today’s’ editorial of 4 November, 2016)

According to bankrate.com, the current six months’ LIBOR rate is 1.25%. Nonetheless, if the alleged water tariff hike is merely to satisfy donors, it may not be justifiable, when two thirds of the country’s 25 districts are mired in poverty. (‘Ceylon Today’ of 9 October, 2016)

Considering that Sri Lanka’s population is 21 million; that means that 14 million of the island’s population may be living in poverty, simplistically put. (‘Ceylon Today’ of 28 October 2016)

Will they also be liable to pay the increased water tariff along with the so-called well to do households in the country if and when this hike ultimately materializes?

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