Citing a clause relating to performance, the board of the Guyana Water Inc (GWI) has decided to terminate the five-year UK-funded contract with Severn Trent for the management of the water sector which was to come to an end in December this year.
Sources say the decision was taken several days ago following a series of meetings over the board’s plan to terminate the 3.2M Pounds Sterling contract which was funded by a grant from the UK’s Department for International Development. The formal termination is to occur sometime next week but it is unclear what will become of the unused portion of the contract sum.
The board and the UK managers of the water utility have clashed several times since 2002 over performance, efficiency and other matters. The government has also at times been critical of aspects of GWI’s operations.
Sources say that over the last few weeks, Severn Trent has been discussing with the board an amendment of the contract which would allow a more amicable parting of ways but the board was disinclined to move in this direction.
At a board meeting on January 25, 2007 representatives of the board and Severn Trent had discussed the board’s plan for a termination of the contract. The board indicated that a letter of January 16, 2007 had indicated that the notice of termination was issued under Clause 2:10:1 of the contract which says at a) “Failure to meet a Composite Performance Factor of 3.5 shall be automatic ground for the Employer to terminate this contract”.
Sources told Stabroek News that Severn Trent had been contending that another clause related to disputes about events of termination should have been utilized for an amicable agreement as Severn Trent was interested in continuing as the manager of GWI. The board maintained however that it was proceeding with termination and in the end no agreement was reached on the amending of the contract.
The sources said that Severn Trent had drawn up a plan for a transition which would allow it to stay in place up to April 30, 2007 but that GWI would now have to make alternative arrangements.
The Severn Trent contract was signed in November 2002 and at the signing, then Minister of Water, Shaik Baksh had pointed out that the contract contained stiff penalties for poor performance. One of the major targets had been non-revenue water. Severn Trent had been expected to reduce this figure from 75% to 25% at the end of the five-year period. Sources say this figure has not been met and an assessment is likely to be provided of the company’s performance during the debate on the budget. Collections were to be increased from 65% to 90% and many communities which were only getting water for 6 to 10 hours per day were to get all day. Further, Severn Trent was to have provided water to 85% of the hinterland within five years. This was also a bone of contention.
In February of last year Minister Baksh – his portfolio is now held by Minister Harrinarine Nawbatt – had said that though key benchmarks had not been achieved by GWI there was no intention on the part of the ministry to terminate the UK-funded contract of Severn Trent.
He had said the ministry had a five-year strategic plan to ensure GWI achieves financial sustainability. The utility was supposed to reach financial sustainability in two years if the plan was successfully implemented. The issue came up in Parliament during consideration of the budget estimates last year after the opposition questioned the sharp increase in the allocation for GWI’s management contract from $107M in 2005 to $400M last year.
Baksh said the reason for the increase was because the management contract was variable year to year.
Earlier last year, government moved to undertake a “bail out” of GWI with a payment of more than $700M to the Guyana Power and Light Company (GPL) in partial settlement of the water company’s huge and continually mounting electricity generation debts.
At that time, Stabroek Business was told that the collection rate continues to be below the company’s expectations. A GWI source had said that the existing billing system was “grossly inefficient”.
GWI was also faced with the problem of water tariffs that are among the lowest in the region and well below the cost of providing the service. Stabroek Business was told that water rates proposed by the company were subject to scrutiny by government before being forwarded to the Public Utilities Commission for approval. The GWI source told Stabroek Business that “the impractical official policy of low water rates means that the GWI is condemned to operating at a loss. Additionally, the source said that in the absence of proper management systems it was doubtful whether GWI could say “with any precision” what it costs to provide water to a consumer. “If you do not have that kind of insight into the cost of operations you cannot propose realistic rates,” the source said.
Other GWI sources had told Stabroek Business that the day-to-day administration of the company continued to be hobbled by board and political interventions in routine management decisions. In January last year, Cabinet approved the sum of $238.9 million for the procurement of a customer management and billing system for GWI.
