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Commission: Raise The Rates And Extend Water Contract One Year

Lack of government plan necessitates extension, committee wants Prasa to be self-sustaining


August 9, 2001
Copyright © 2001 CARIBBEAN BUSINESS. All Rights Reserved.

The Puerto Rico Aqueduct and Sewer Authority (Prasa) should raise its rates and end the artificially maintained low cost to consumers, the Engineers and Surveyors Association’s Ad Hoc Commission on Water Service has recommended.

In a 24-page report, the commission also suggested that Prasa extend the Water Co.’s contract for one more year while a strategy and a transition plan are developed to seek new management.

"Prasa’s economic independence should be reestablished by a rate revision and plans should be made so that Prasa can once again return to the bond markets," the report stated, adding that the public corporation should study the relationship between current water rates and the cost of producing water, including the leaks and water that is not billed.

Prasa’s dire economic situation prevents it from guaranteeing the bonds it issues to raise money, which are fully guaranteed by the Government Development Bank (GDB), or by the commonwealth government.

The commission’s report highlighted the fact that barely a month before the Water Co.’s five-year contract is scheduled to expire, the government does not have "or has not made public a clear plan of how it will proceed." Regardless of the management alternative eventually chosen for Prasa, its implementation must be achieved in an orderly and well-planned way because of the importance of the services offered and the agency’s precarious financial condition, the report stated.

The commission recommended three options for Prasa’s management. One is for it to be operated by the government, as it used to be before the management contract was granted to the Water Co. in the mid-1990s. The second is to open up bids for a long-term contract with a private water provider company. The third option is to offer the Water Co. a new long-term contract, correcting major flaws in the current contract.

The commission suggested an action plan which calls for the extension of the Water Co.’s contract, beginning Sept. 1. for a maximum one-year term. By Sept. 30, the government would appoint Prasa’s board, as well as its executive director or contract manager. By Nov. 1, it would decide what type of management Prasa would have. By March 31, 2002, bids would be completed or plans finalized for Prasa to be managed by the government. The period from April 1 to Aug. 31, 2002 would be for bids and negotiations to ensure that the new Prasa management is in place by Sept.1, 2002, when the one-year contract with the Water Co. would end.

The commission cautioned that simply awarding a long-term contract to a private company, or for the government to retake Prasa, would not solve the beleaguered agency’s structural and financial problems. "It should be clear that a new contract will improve but will not solve Prasa’s problems, unless at the same time, public policy decisions are made that will correct the problems that historically have afflicted Prasa, and which are responsible for the agency’s deteriorated state."

Prasa’s board is a key component in the agency’s renewed well being, the commission stressed repeatedly through its report. Strengthening Prasa’s board, including fashioning an executive body capable of implementing the board’s mandates, must be a top priority. The board must also develop a work plan, with clear-cut objectives, which will help whoever takes over Prasa to establish proper parameters, the report said.

The board must have authority to coordinate the contract or contracts, and offer effective solutions. Most importantly, the board must be responsible for all public interest matters, including planning the extension of water services, establishing the priorities for revamping Prasa’s infrastructure, as well as its policy on labor matters, and ultimately developing the fiscal policy so it can be a healthy public corporation.

Regardless of what form of management is chosen, the report said Prasa should return to its original concept of leadership by a strong board and executive director, or, in the case of a contract with a private company, a contract administrator. The report criticized what it called "the five-headed monster" which now makes the decisions that Prasa should make: the Water Co., the GDB, the Infrastructure Financing Authority and the Prasa contract administrator. The commission recommended that all five be subordinated to Prasa’s board.

The report said Prasa’s current regional structure could continue even if it needs to be altered. If Prasa were to be taken over by the government, one problem is that Water Co. officials now occupy all management positions. With the high salaries paid by the Water Co., "it would be difficult, though not impossible, to make the transition." According to the report, Prasa needs 150-plus experienced people to run it. The report called for an outreach effort with Prasa’s four labor unions "because without them, it will be very difficult to achieve the goals."

If the decision is to offer a long-term contract to a private operator or operators, certain basic concerns must be addressed. These include defining the private sector’s participation in managing Prasa—either full management or limited, with the government retaining major control.

The committee called for a public policy decision on whether Prasa should continue as a central organization or if it should be two separate islandwide authorities, one to provide water, the other to run sewage treatment.

Other considerations include whether specific contracts should be awarded, such as to mend leaks or read meters. The report underscored the importance of the decision whether the management is awarded to one operator or to several. The latter option, the report said, would mean competition, which would probably benefit service.

No matter what type of management is selected, the report made the following recommendations:

  • The contract should be awarded through a bidding process, and should ensure the transfer to locals of management and administrative technology.
  • Prasa’s size must be reduced through improvement of its supervisory level and through labor motivation and incentives.
  • The contract should be for as long a term as possible. If necessary, legislation should be approved to enable the contract to comply with the U.S. Internal Revenue Code.
  • The contract must be very specific as to what functions are delegated to the operator to avoid the current situation "where the operator is asked to meet requirements over which it has no authority or which, because it is unclear, the operator concludes to its advantage that it lacks authority."
  • The contract must specify who is responsible for the condition of infrastructure and who identifies what needs to be repaired, how, and when.
  • The contract must expand penalties and incentives for contract compliance.
  • The contract must include a mechanism to identify and quantify water leaks, how much of it is really lost, or how much is unbilled or stolen.

The report also posed other questions, such as the degree of municipal and public participation to be allowed. It recommended that municipal government participation be considered, adding that municipalities could voluntarily operate and maintain water distribution systems and the collection of runoff water. The property would remain in Prasa’s hands, in terms of ownership, and the agency would be responsible for capital improvements. It added that some municipalities could eventually take over some of Prasa’s functions in their region.

Finally, the commission suggested more public participation, especially of organized groups "because it is the right thing to do." It also demanded that the government pay attention "to the proposals of things that are vital to the socio-economic development of our country. We have reached the point where we must examine whether non-government organized groups should establish strategies together with the government or beyond government officials. Government’s role as manager should also be questioned as should the possibility of government acting instead as mediator."

The commission offered its services, as well as those of the association, to the government for assistance evaluating the alternatives. It added that the government must contract technical assistance to either prepare the bids or to revamp Prasa.

Members of the commission who participated in drafting the report included former Prasa Executive Directors Emilio Colon and Pedro Hernandez Vega, as well as water expert Antonio Santiago Vazquez. Others who contributed to the effort included Jordi Bofill, Jose Calderon, Alfredo Heres, Henry Marrero, Roberto Rexach Cintron, and Antonio Rodriguez .

This Caribbean Business article appears courtesy of Casiano Communications.
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