Drought levy impossible to implement in current form - officials

Industry czar warns proposed reforms could throw water companies into bankruptcy.

Kinneret  crisis 248.88 (photo credit: Courtesy)
Kinneret crisis 248.88
(photo credit: Courtesy)
The drought levy set to go into effect on July 1 will be impossible to implement as it stands now, according to David Kochmeister, chairman of the Forum of Water Corporations and CEO of the Hagihon Ltd. Jerusalem Water & Waste Water Works Corporation. Moreover, a proposed water price reform would cause massive losses to the water corporations and even drive some of them into collapse, he warned. The drought levy is a Water Authority mechanism to encourage the public to conserve water. Israel has experienced nearly five straight years of little rainfall, and natural sources like the aquifers and Lake Kinneret are getting dangerously close to contamination lines. The Water Authority is attempting to get the drought levy passed as part of the economic arrangements bill, which accompanies the state budget. While previous restrictions have primarily targeted agriculture, the drought levy is aimed at households, which consume the lion's share of fresh water here. The drought levy would impose a hefty fine for users who consume water above a certain level. It would not affect an average family with average consumption. "The corporations are not equipped to collect a tax or levy from the public, just payment for services rendered. To collect a tax, it would take three to six months just to organize the collection system [bills, collection and customer service], and the Water Authority wants us to do it in a month," Kochmeister said. To implement the levy, the government has developed a parallel pricing system the water companies believe is not necessary. Instead, the forum has suggested adding a NIS 20 levy to the third-level tariff of NIS 7 per cubic meter. That way, those who use more water would automatically have to pay a lot more for it - the goal of the levy in the first place. The Water Authority responded by saying, "We take everyone's concerns into account. According to our estimates, the goals can be met for the good of the water economy." The Water Authority is also in the process of drafting a comprehensive reform of water prices, to go into effect on January 1. However, Kochmeister warned that in its present format, the reform would drive most of the corporations into severe losses and some of them even into collapse within five years. "The reform is critical, but if it goes ahead as is, for example, Hagihon will lose NIS 90 million a year, according to our simulations," he warned. According to a simulation released at the conference, the Water Authority is actually proposing to reduce water prices (for average use) and reduce operation charges over the next five years; in this way the authority is hoping to force the water companies to become more efficient. However, the Forum of Water Corporations argues that the rate of reduction the authority is planning is too fast for the water corporations to absorb. Operations charges would drop 16% to 30%, while prices would drop 8% to 14% over the five years after the reform went into effect. As a result, according to their simulations, the corporations would go into debt. The Forum contended that even totally private financial bodies do not become more efficient at such a fast rate. Another major change the authority has proposed is to include the cost of development and expansion in the tariff for water charged to consumers, according to Kochmeister. Until now, Kochmeister said, developers have paid for their water infrastructure needs for their buildings ahead of time, which has enabled their construction. Passing on those costs to the consumer via a price hike would mean a serious drop in readily available funds the water corporations could access for infrastructure development. "The Water Authority would like to do away with development funds and just demand a steady price from consumers for installation and pipe replacement in the form of a price hike," Kochmeister said, "They're also willing to pressure the Treasury to set up a fund for development. We say, why change something that works? Leave it the way it is and add a bit to the price to cover replacement of pipes 30 years down the line." Kochmeister was not optimistic about the water corporations' abilities to raise private funds. "If the corporations can't raise private financing instead [to replace the developers' money], then they won't survive. It's hard to raise private funding if you are not financially solvent, especially in this economic climate," he said of the proposed changes. He told the conference that the reform would needlessly raise the public's water prices. Water Authority spokesman Uri Schor said that all options would be considered before finalizing the reform. During the conference, the issue of whether the corporations should be entirely privatized was also raised. "I was glad to see that the government also thinks the time is not yet right for total privatization," Kochmeister said.