The Fiscal Review Committee has offered Government some pointers on how this can be done.
To begin with, WAF must be given the necessary funding to ensure that urgent capital expenditure is not delayed while WAF progresses to financial sustainability.
WAF has identified that it needs about $800 million over the next five years for this purpose.
Any further delay has the potential to adversely affect the infrastructure needed for private sector investment, business confidence and long-term economic growth, states the committee.
WAF needs more income from the water it produces – Government has been told that it must request the FCCC to review and ratesetting for tariff restructuring and rates for water and wastewater.
It should be possible to begin the progressive increase in tariff rates from January 1, 2024, to commercially sustainable levels.
Tariffsetting should also consider minimum connection charges, incentives for water conservation (because at 15 cents per 1000 litres there are currently none), continuation of support (free water or discounted rates) funded by Government subvention payments so that these social subsidies are Government’s responsibility, not WAF’s.
The committee says it will be for Government to monitor and determine ongoing eligibility of subsidised water recipients.
It would seem obvious, as part of any such restructuring, that WAF would be allowed to retain all the revenue that it earned given that it will take some years to progress towards financial sustainability and will continue to need Government support for operations and capital expenditure, states the committee.
Water Sector Strategy 2050
The committee was told WAF has prepared a Water Sector Strategy 2050 Concept Paper, March 2023.
That strategic plan aims to enable WAF to transform its service delivery, be financially sustainable and meet the significant demands of climate change on its assets and operations.
The necessary $800 million in capital expenditure over the next five years that WAF has identified would appear to be the bare minimum and immediately subject to change in the event that its infrastructure suffered major damage in a natural disaster, states the committee.
WAF believes significant action is necessary to mitigate risks of infrastructure damage, service disruption, and environmental or health hazards during extreme climate events or as described elsewhere, external and unplanned “shocks”.
For example, there will need to be full protection of water intakes, treatment plants, and pumping stations to respond to floods of greater magnitude that are now more frequent, and which will lead to supply disruptions.
Protecting water infrastructure against a “50-year flood” would be feasible, but would likely require the relocation of more than 25 of those facilities.
The alternative for WAF is simply to manage this risk as best it can, the committee said.
Investment in water and sanitation
Investment in the water and sanitation sector in Fiji has been seriously compromised, said the committee. WAF was initially set up to be a commercial statutory body in 2010.
In stark contrast to the Fiji Electricity Authority (now fully corporatised and part privatised as Energy Fiji Ltd, fully economically sustaining and with a strong balance sheet), WAF has not progressed since that time.
It remains reliant on Government funding both for operational and capital expenditure, said the committee.
Its current revenue is able to fund less than 50 per cent of its projected operational costs.
As Fiji’s economy grows in the coming years, key sectors such as tourism, agriculture, construction and manufacturing and real estate will grow accordingly.
The water sector needs to be ready to cater for this growth.
If “business as usual” continues, this will not be sufficient to meet sectoral and economic growth and will be a constraint on economic growth, noted the committee. Without tariff revisions, WAF cannot fund any of the $1.4 billion in capital investment required in the next decade.
WAF and FCCC
“The FCCC was asked, in its engagement with the committee, about the reasons for inaction on WAF’s proposal to increase its tariff to allow WAF to become more financially sustainable.
FCCC’s answer was that WAF was not yet in a position to submit detailed information which would allow FCCC to go through the necessary economic exercise to set the required tariff structure.
The committee was unimpressed by this response. It would surely be evident to FCCC, an economic regulator with a statutory responsibility to suppliers as well as consumers, that a retail rate of 15 cents per 1000 litres was not economic and that an increase of this rate would not be unfair on consumers.” – Fiscal Review Committee.
The committee states it would have been possible for an interim increase to have been granted (albeit with only limited detailed economic information) to allow WAF to move onto a path of financial sustainability while more information was obtained on the economic case for tariff increases and a more detailed cost recovery plan agreed.
Instead, WAF has had to continue, grossly underfunded, for four years because the regulator says “first give us all of the details”.
An unimaginative regulatory response from FCCC has accordingly been another factor in the current poor state of WAF’s finances and operations, said the committee.
Water for the poor
The Fiscal Review Committee said water was a critical social service, essential for health and productive daily living.
Many of Fiji’s poorest people receive it at no or low cost and for the foreseeable future (at least for people in the lowest income groups) this support may need to continue, said the committee.
However, it is obvious, both from the presentations made to the committee and from the daily experiences of thousands of Fiji citizens, that water and sanitation assets are already at a critical point.
WAF needs to move away, as quickly as possible, from grant funding and to be re-organised to be self-funding with realistic tariffs paid by those who can afford to pay and sufficient capital expenditure from Government to ensure that this essential service – described in the Constitution of Fiji as a human right – is able to be provided to everyone.
The committee said it believed that for an essential service, the poorest should pay the least.
“However most people in Fiji can and should pay more and it is necessary that they pay more to put Fiji’s water and sanitation services on an economically sound and sustainable footing,” said the committee.
