12% WATER HIKE APPROVED DESPITE EWSC’S E354.6M PROFITS

MBABANE – Despite making substantial profits, the Eswatini Water Services Corporation (EWSC) has decided to raise water tariffs, which Parliament has approved.

Investigations by the Times SUNDAY reveal that this government-owned company has accumulated net profits of E354.63 million over the past five years. Investigations revealed that it earned net profits of E52 863 759 in 2020, E61 867 654 in 2021, E104.1 million in 2022, E65.8 million in 2023, and E70 million in 2024. It ought to be said that these figures are recorded in the corporation’s statement of comprehensive income, a financial statement that encompasses a company’s income, expenses and profits over a specific timeframe.

It includes net income and other comprehensive income (OCI), referring to unrealised gains and losses that do not appear on the income statement. Conversely, net profit represents a company’s total earnings after all expenses have been deducted. It should not be confused with gross profit, which signifies the profit remaining after production costs have been subtracted from revenue.

Profit

Gross profit aids investors in understanding the profit a company makes from producing and selling goods and services. However, accountants from Deloitte, a leading audit, consulting and financial advisory firm, note that net profit reflects the earnings remaining after all expenses, including taxes, have been deducted from revenue. Investors may use net profit to assess a company’s overall profitability. Despite the Corporation’s net profits, Parliament approved a 12 per cent increase in water tariffs on Wednesday.  This increase will be phased in over the next three years at a rate of four per cent each year. On the same day, a report from the House of Assembly’s Portfolio Committee on the Ministry of Natural Resources and Energy advocating for the increases was adopted.

The Members of Parliament (MPs) who supported the hike were reportedly swayed by the argument that it would fund EWSC’s initiative to extend services to rural areas. MP Madala Mhlanga, the Chairman of the Portfolio Committee, said the tariff should have been implemented in April this year.

Operating

MP Mhlanga, who also serves as the Deputy Speaker, asserted that the corporation is operating at a loss, with Parliament informed that EWSC currently makes a loss of E0.2 million. In light of the most recent five years’ Comprehensive Income Statement, the government company has consistently generated net profits. It was revealed that the EWSC is currently managing projects, including the refurbishment and extension of its Emtfonjeni headquarters building. This government-owned company is expanding its head office building at a cost of E85.59 million.

Despite the existence of a relatively old building currently used by executive management, Board and staff, the new building under construction will feature a suite of facilities including ablution areas, a secretary’s space for the managing director’s office, a nursing station with ablution facilities and refrigerators for storage, additional kitchenette, breakaway rooms accommodating eight people, with remote (video) conferencing facilities, couches and two commercial archiving/filing rooms. The new office will also include a sickbay. The library and training room will provide desk-style seating and shelving for reference materials, with space for 20 people practising social distancing, equipped with remote video conferencing for online learning.

The development will include:

•   Freshening of existing offices via deodorisation or other methods .
•  Air conditioning in offices.
• Solar-heated geyser for warm tap water.
•  Daytime visitor and staff parking.
•  Paved area in front of the office.
•  Boundary fencing or walling (preferably palisade fencing or equivalent).
•  Provision for data cable inclusion.
•  Uninterruptible power supply and electrical cables.
•  Backup power generator.

When considering the water tariff hike, the House of Assembly’s Portfolio Committee on the Ministry of Natural Resources and Energy was informed that EWSC incurred operational losses over the past two years but achieved profits after accounting for interest (non-operating income) and tax deductions. The report adopted in Parliament clearly indicated that for the period ended March 2023, the corporation reported a E3.9 million operating loss and an after-tax net profit of E65.8 million.

For the period ended March 31, 2024, the report states that the corporation recorded a E10 million operating loss, but achieved a net profit of E70.5 million. It is projected that this trend will persist in the initial two years of the proposed 2025-2027 multi-year tariff. The report cited delays in multi-year tariff approvals as causing the corporation to incur six-month revenue losses of E11 million. Parliament approved the water tariff increase due to several identified reasons:

•  High infrastructural maintenance costs at EWSC.
•  Significant costs associated with extending water services to rural areas.
•  Misalignment of Rural Water Development and Eswatini Water Services Corporation expectations.

According to the ministry’s justification, the corporation should strive to generate profits from its core operations to reinvest and build reserves for infrastructure maintenance and service provision, thereby expanding access to clean water in non-mandated areas. The EWSC states that the proposed prepaid metering project also requires substantial funding for nationwide implementation, with costs estimated at E600 million.

Clarification

During the debate, MP Raymond Dlamini sought clarification on the profits. He requested an outline of the three types of profits referred to and how they differ. The ministry responded, explaining three categories of profitability: Gross profit, operating profit and net profit after tax. The MP was informed that gross profit involves net sales minus the cost of goods sold, while operating profit accounts for operating and maintenance expenses, including selling and administrative costs. Net profit combines operating profit with non-operating income minus income taxes.

In his preamble, the Minister of Natural Resources and Energy, Prince Lonkhokhela, mentioned that government has announced a new mandate to extend water services to rural areas.
This mandate emerged while management was piloting a rural water model within EWSC service areas, aiming for long-term sustainability. Pilot regions include Ezindwendweni and Lubuli.

Major projects slated for completion in the next three years include:

• The Manzini Region Water Supply and Sanitation Project, potentially supplying water to 110 000 beneficiaries.
• Lomahasha/Namaacha Water Supply, benefitting 18 000 beneficiaries in Lomahasha.
• The Eswatini Water Supply and Sanitation Access Project (Shiselweni Region), supplying around 18 500 beneficiaries with improved water access and 38 000 beneficiaries with enhanced sanitation.

The minister indicated that the Manzini Region Water Supply and Sanitation Project and Lomahasha/Namaacha Water Supply are expected to conclude next year, with the Eswatini Water Supply and Sanitation Access Project set for completion in 2026.Providing a financial overview, Jabulile Mashwama, the Managing Director (MD), noted in the annual report that despite economic volatility, operating revenue grew by 5.2 per cent to E513.5 million last year, from E488 million in 2022. Nonetheless, this was outpaced by a higher rise in operating expenses of E517.4 million. She reported a E3.8 million operating loss before other income. Mashwama mentioned that the company’s financial statements show net profits due to additional non-operating income considerations. She disclosed that theoutstanding debt book reflected a sum of E235.9 million, posing a significant burden on working capital. Despite fulfilling its mandate to provide sustainable water and sanitation services, the corporation encounters challenges, which form the core of its strategic focus.

Expertise

Thembinkosi Dube, a seasoned Economist, remarked that the issue is complex and requires input from auditors and accountants. Thembinkosi Dlamini, another experienced Economist and Executive Director of the Coordinating Assembly of Non-Governmental Organisations (CANGO), agreed with Dube, noting the need for accounting expertise. However, Dlamini stated his focus would be on net income/net profit. He suggested that EWSC could consider having several departments operate as separate business units with diverse income streams.
He emphasised examining water as a business unit, evaluating its costs versus income for long-term sustainability, as opposed to relying on profits from divisions like bottled water, laboratory services or government-allocated funds for specific projects.

He added that project income is unreliable as it will not always be present. An experienced auditor, speaking anonymously, explained that net profit summarises a company’s operations over a 12-month period, with the Statement of Comprehensive Income detailing income versus expenses incurred by the company. When asked if it is safe for the publication to conclude that net profit summarises the business’s profitability, he responded: “Of course, the net profit is just like the net salary after tax and loan deductions.” He affirmed: “You are, therefore, safe to say that EWSC makes a profit.”

Since the matter is before Parliament, it was not procedurally appropriate to contact EWSC. However, efforts were made to reach out to them. A questionnaire was sent on Thursday, but the Communication Specialist, Hlobile Jele, indicated that they were not in a position to comment but could respond later. The questions posed were:

• Is the water tariff increase approved by Parliament a consequence of the renovation and extension of the EWSC Head Office Building?
• Is this ongoing project necessary, as the old building appears spacious enough to accommodate staff?

In the past two years, ESWC has seemingly operated with a healthy profit. In 2022, the profit was E104.1 million, and it decreased to E65.8 million in 2023. Parliament was led to believe that EWSC operates at a loss.

Implementing

Therefore, over two years, the public enterprise has made a profit of E170 million. Is this profit not sufficient to sustain the organisation without implementing water tariff hikes? What prompted the increase? Madala Mhlanga, the Chairman of the Portfolio Committee on the Ministry of Natural Resources and Energy, said it was incorrect that EWSC had been making an operating profit of about E355 million. This newspaper, however, referred to a net profit. Mhlanga said the reported incomes are net profits. He said the committee is convinced that EWSC has been making operating losses in 2023 and 2024 of E14.7 million, totalling E78 million over a period of five years.

He said the reported net profit of around E355 million includes other non-cash or non-operating income from the amortised grant income, which relates to capital projects funded by the Government of Eswatini. He said the generated profits and reserves are reinvested into the corporation. He said the corporation has reinvested E745.9 million in internally-funded projects in the past five years.

Post your comment

Your name:

Your e-mail address:

Add your comments:

Please enter the code you see in the image:

Image:

Code: