By: L.N. Reklai
July 27, 2017 (Koror, Palau) A letter to Olbiil Era Kelulau from Palau Public Utilities Corporation reported that the financial health of PPUC Water and Wastewater Operations (WWO) has been failing and that it is expected to get worse when the first scheduled loan payment for the Water & Sewer Loan comes on line in 2018.
PPUC Board of Directors and Management requested to meet with OEK members to discuss solutions to this issue. [restrict]
PPUC WWO operational expense in 2018 is projected to reach $7.2 million. Two million dollar payment for the Water and Sewer Loan (KASP) is also due in 2018, bringing the total expense to estimated $9.2 million.
Meanwhile PPUC WWO is expected to earn only $5.2 million in 2018 based on current rate resulting in a shortfall of $3.2 million. Given the current projections, PPUC will not be able to meet its first scheduled loan payment for the Water & Sewer Loan.
According to the letter, PPUC Water and Waste Operation to meet its operational expenses and pay the loan, it will need to raise rates by 77% by October 1st of this year.
“The final step increase to achieve full cost recovery is anticipated to cause extreme financial hardship to all residential customers in the Koror-Airai service areas including businesses and institutions that are providing essential services..,” advised PPUC Board Chairman Sam Masang.
“Due to far reaching social and economic impact of the final effort to achieve self-sufficiency and sustainability of PPUC, the Board and Management are obliged to discuss the impacts of upcoming tariff increase with the leadership,” stated the letter.
Under the loan agreement approved between ADB and the Republic of Palau for the Koror-Airai Sanitation Project, rates were supposed to be raised gradually starting 2014 and reaching full cost recovery by 2018.
According to the letter from PPUC, due to natural disasters such as Typhoon Bopha and Typhoon Haiyan and the discovery of major waterline leak under KB Bridge in 2013 to 2014, the implementation of tariff was delayed until June 2016.
Meanwhile, the national subsidies and grants have not been enough to offset the operating expenses or make improvements to outlying States systems. According to the letter, the financial health of PPUC WWO has been further affected by diverting revenues from Koror-Airai service areas to support outlying states systems that are not self-sustaining.
President Remengesau recognized this financial challenge and proposed $1.8 million for PPUC Water and Wastewater subsidy. This would still fall short of the expected deficit of $3.2 million.
PPUC Board of Directors letter states, “it is crucially important for PPUC and the leadership to jointly determine and explore all viable options to address the financial sustainability of the corporation while making sure rates to be implemented are affordable to the customers.” [/restrict]