Change needed in WSC financial model

Infrastructure Minister Austin Gatt said in Parliament yesterday that all Water Services Corporation costs, including water production, distribution, sewage treatment, recurrent expenditure and investment would henceforth have to be built into the tariffs. This did not mean that the government could not give subsidies under the public service obligation, but it certainly would mean a change in the financial model.

The WSC gets 70 per cent of its income from tariffs and 30 per cent from the government subvention. As far as sewage treatment was concerned, the consumer did not pay anything; 100 per cent of the cost was borne by the government. The government was committed to continuing to directly help those in need.

Dr Gatt was winding up the debate on the estimates of the WSC.

Moving the estimates, he said he was satisfied with the financial results for 2007. During the last 10 years the corporation had made great progress. It had received a lower government subsidy, curbed its operating expenses, integrated within it the sewage department, reduced the workforce and altogether worked more efficiently. But, the minister said, there are more challenges ahead.

Dr Gatt paid tribute to the outgoing chairman Michael Falzon who, he said, had been instrumental in changing and building an administrative machine that was second to none. He also acknowledged the good work of the last two CEOs - Ing. Anthony Rizzo and Ing. Marc Muscat. The three-man group was crucial to give the corporation its vision.

The minister was confident that the new chairman, Ing. Louis Giordmaina, together with Mr Muscat and the good team of higher and middle management, would continue to lead the WSC on the same lines.

Turning to the financial results for 2007, Dr Gatt said the corporation had achieved them not by increasing its tariffs but through efficiency. It had increased its turnover by €1.5 million and decreased its expenses by €2.1 million.

The government subvention had continued to decrease, first by €4.6 million in 2005/6 and then by €3.6 million in 2006/2007, for a total of €8.2 million.

In 2006/2007 the corporation's recurrent expenditure remained at the same level because three years ago it had started out to control the electricity consumption in its reverse osmosis plants. The corporation had, at the same time, invested in an IT system which controlled the whole infrastructure. Dr Gatt said historical data also proved how cost-effective the corporation was in its investment. Since 2003 it had invested €38 million in the water section and €18 million in the sewage system, a total of €56 million in five years. Tariffs were not increased and bank loans decreased by €10 million.

The corporation had 1,557 employees in 2003/2004 and these had decreased by 300 through natural wastage to 1,350. It had identified 125 other workers as surplus to requirements and felt that these government employees could be better utilised if they went back to the public service.

The collective agreement would soon be signed and the corporation would then be in a better position to give better service and implement the reorganisation down the line, not only in regions. The minister hoped this would also result in better control of the workers.

Dr Gatt said 20,000 new services and 50 km of new mains were installed during the year. Another 277 km of existing mains were changed.

Turning to unaccounted-for water production, Dr Gatt said that Gozo had been in line since 2003 with the acceptable ratio of 1.5. Malta, however, was 6.5 three years ago and fell to 3.5 last year, and this year it was at 2.5. It was expected that this level would reach 1.5 by 2010. Quality tests were carried out on 2,700 samples in WSC laboratories and also in others, with good result.

Looking ahead, Minister Gatt said that on the production level, the main challenge was whether more water should be extracted from the aquifer without damaging it. This depended on many factors which were beyond the corporation's control.

New systems for making reverse osmosis plants more efficient must be looked into. Water produced but lost in the distribution system must be curbed and investment in computerised systems were on the board. The corporation aimed at having a good quality product at less cost.

Not the same could be said for the sewage system. Parts of the infrastructure that the corporation had inherited were good, but others needed renovation. As a first step, by 2009 a full audit of the system would be carried out. The corporation also aimed at having a sewage masterplan.

Referring to Baħrija, the minister said the engineers had proposed the building of a small, stand-alone, waste treatment plant which would be adequate and cost-effective.

The sewage masterplan provides for one plant in Gozo and two in Malta, one in the north which would take 20 per cent of the outflow and another in the south, taking the other 80 per cent. The Gozo and the Malta south plants would be built through EU funds while funds from the Italian protocol would be used for the north plant. The tenders provided for the management of the three plants for a number of years.

Dr Gatt said the Gozo plant had taken an extra month to complete and overshot the estimated cost of €6.5 million by €650,000, which was normal and acceptable. The plant was functioning well and producing second-class water. The issue now was how to distribute this second-class water to the agricultural community: Were farmers ready to pay for it, or would the government have to absorb everything through subsidies?

As regards the Malta north plant, the government was prepared to dissolve the €9 million contract because €3 million were in dispute as certain cables had not been laid properly. There were also €1 million in variations. But the contractors were not easy to substitute because there were only three of their kind in Malta and foreign contractors were not interested. A decision would be taken in a fortnight's time.

The south plant is close to Xgħajra and Marsascala. It will be the largest in the country and solve the problem of the Ricasoli outflow at an overall cost of €71 million. Dr Gatt said that one could not have such an investment in SmartCity and then continue to have untreated sewage pumped into the area.

He said that the two kilometres out of the three-kilometre tunnel between Marsa and Ricasoli had been dug, and a small tunnel was at tender evaluation stage. EU funds would be available for the project.

By the end of 2009 the three projects would bring Malta's sewage treatment in line with all EU directives, but the corporation would be increasing the recurrent cost of sewage which was already at €4.5 million. This was expected to increase because of higher oil prices. If the people wanted better standards, they must be willing to pay for them. If one was ready to invest in certain high-calibre projects, one must be ready to cover their running expenses.

Minister Gatt pointed out that another reality was the implementation of the water framework directive, which imposed that by 2010 all EU member states must pass all the bills for production and distribution of water and sewage costs to the consumer, on polluter-pays basis.

All WSC costs, including water production, distribution, sewage treatment, recurrent expenditure and investment would have to be built into the tariffs. This did not mean that the government could not give subsidies under the public service obligation. It would mean a change in the financial model. The WSC gets 70 per cent of its income from tariffs and 30 per cent from the government subvention. As far as sewage treatment was concerned, the consumer did not pay anything; 100 per cent of the cost was borne by the government.

The WSC faces three pressure points: the electricity consumption, which is now 20 per cent of its costs, would increase because of the three sewage plants; there would be increased costs of running the plants, and direct subsidies of €23 million would have to be given indirectly.

Concluding, Dr Gatt said that production of water and electricity cost money and these resources had to be used diligently. The tariffs would have to reflect present-day costs. However, the minister reiterated, the government was committed to directly helping those in need.

Other speakers will be reported tomorrow.