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Wrong tariffs for water and electricity

Feb 16,2014 - Last updated at Feb 16,2014

Problems and difficulties facing the Jordanian economic decision makers are plenty. Two of them come to the fore. They could not be ignored any longer. One is electricity, which sustains a deficit close to JD4 billion, the other is water, with a deficit in the hundreds of millions of dinars.

The reason in both cases is that the tariffs do not cover the actual cost.

The National Electric Power Company is owned 100 per cent by the government. It ended up with an accumulated deficit of JD2.3 billion at the end of 2012. In 2013, JD1.4 billion was added, making the total deficit JD3.7 billion, financed by bonds guaranteed by the government, of JD2 billion, over and above some JD1.7 billion transferred from the Treasury to enable the company to pay commitments due, but not paid.

The government is definitely aware of this problem. It has a plan to gradually reduce losses in electricity, with a final target of full cost recovery in four years.

This objective requires increasing the tariff once every year, an act which will be met with complaints and popular protests, even though those who oppose it have no viable alternative measure to tackle the unsustainable situation.

There are some partial solutions and recommendations in circulation, such as more investment in renewable energy, using oil shale to generate electricity, building Aqaba Port facilities to receive gas shipments, and imposing certain measures to ration consumption.

The other black hole that swallows public funds and accumulates losses, deficits and debts is the Water Authority.

In his budget speech, the minister of finance told members of Parliament that during 2013 the Treasury paid JD170 million in cash to creditors and suppliers on behalf of the Water Authority, and JD35 million as an advance to enable the authority to pay amounts due.

This is an advance that everyone knows it will never be recovered by the Treasury. By the end of 2013, JD90 million more are needed, bringing the total to JD300 million.

The Water Authority currently owes JD400 million in the form of bonds guaranteed by the government, of which JD250 million will mature during 2014.

Obviously this bad state of affairs is not sustainable. It is imperative, therefore, to apply the necessary medicine, bitter and painful as it may be.

It is true that several measures will have to be taken, but increasing the water tariff is the most effective and cannot be postponed any longer.

Higher prices will not only reduce losses, they will also ration consumption.

It makes sense to inform the citizens and consumers that they have to pay the actual cost of electricity and water, either directly through the monthly bill proportional with the volume of consumption, which is fair, or indirectly through more taxes and higher inflation, where the burden will be borne by all, with no distinction between rich and poor, as the tariffs do, which is unfair.

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