In the absence of a cure or vaccine for COVID-19, governments and institutions such as the World Health Organization have turned to globally-endorsed COVID-19 prevention guidelines, primarily, regular hand-washing and other hygiene practices, to slow the spread of the virus. Provision of safe and uninterrupted water services, so no one is left behind, is a key objective of governments and utilities at this time.
Many water utilities use ‘disconnection for non-payment’ as a key tool to ensure collections on bill payments. However, collections will be increasingly difficult for many utilities as their customers lose their livelihoods because of the pandemic. Additionally, Governments are issuing freezes and soft payment schedules on utility payments to reduce the financial strain of people affected by the pandemic. Governments and utilities are faced with the crucial task of balancing reliable service provision when it’s getting harder to recover their operating expenses and the return on investments.
Castalia is tracking progress and response to this challenge in some countries/states we work in. The table below summarizes the response in each selected country:
Table 1. Response on Tariffs, Disconnections and Bill Payment
We believe that Governments need to take urgent measures to define financial support mechanisms for water service providers. So far, in the developed countries we have looked into, governments have done little to require forbearance from the utilities, or to support them financially, with a few exceptions. In USA, the Payroll Protection Program loans provide small and medium enterprises with 100% government guaranteed loans to cover not just payroll and rent, but also estimated utility bills. In New South Wales, the Government announced grants up to $10,000 for small businesses struggling to meet utility costs. Both regions, have taken measures to reschedule utilities bills payment for customers. In Washington D.C., the water utility has restored water service for disconnected residents. However, neither New Zealand nor Australia has taken measures for reconnections.
Colombia was quick in its response to protect consumers with a rational and comprehensive plan. However, the Government has not provided a complementary mechanism to support utilities financially. The Government’s National Decree allows for reconnections (more than 200,000 households have been reconnected), stops tariff increases during the State of Emergency, and allows local governments to use alternate means of supply to provide water services when necessary. The National Decree did not specify any mechanisms to support utilities. In the past few days, the National Regulator clarified that water services cannot be free of charge. The regulator insisted that cost recovery and tariff payments should be guaranteed to utilities, and suggested mayors to subsidize water services to relieve low-income households from water costs, as defined in the current laws.
Other developing countries have not yet enacted measures on tariffs, disconnections and bill payments. In Vietnam, the Government has not announced any measures to support utilities or customers in this pandemic. Utilities are running business as usual and customers are expected to pay the bills on time, despite the financial strain of the pandemic. The South African Government has taken some measures to ensure water supply to communities through communal water storage with water collection points and interim containerized sanitation systems. However, the Government hasn’t made public announcements about supporting utilities during these times. In Mozambique, the agency in charge of small-town water supply just asked for an emergency fund for small private operators in some towns, worried that the operators are likely run out of money and stop providing water services.
While it remains important to specify the legal accommodations utilities must offer their customers during this period, we believe that governments will benefit from providing mechanisms to ensure that utilities remain financially viable during a period of low cash receipts due to the pandemic.
As the pandemic extends and continues affecting the global economy, we foresee governments taking measures to finance cashflow shortages of utilities. Access to international funds could be a viable option to finance water utilities. Although these can be considered risky loans, they can be secured against revenue escrows and government guarantees.
We are keen to track updates and changes in policies in countries we work in and hope to share new developments on this blog.
Author: David Hernandez