The Ministry of Finance replacing the 57 municipal water companies with 15 regional companies. The proposal is included in the 2013 economic arrangements bill. The proposal is based on two studies, commissioned by the Water Authority, which found that reducing the number of municipal water companies would save NIS 500 million a year, and result in a 5% cut in water rates.
The main savings would come from eliminating the large number of jobs at the 57 current municipal water companies. The water companies reform, which began in 2009, has boosted the price of water for consumers by one third, a large part of which is because the Ministry of Finance now levies VAT on water, something it did not do before because water was not sold to consumers by limited companies.
Local authorities fiercely oppose reducing the number of water companies, which are an important source of jobs. The Ministry of Finance estimates that the proposal will cause local authorities to again call for the annulment of the municipal water companies reform, and revert to the previous system in which water budgets were an integral part of municipal budgets. The ministry says that the establishment of independent water companies and the higher water rates is because of the huge increase in investment in water infrastructures, after years of neglect.
The report breaks down the financial savings from reducing the number of water companies into three categories. At the administrative level, the reduction in the number of companies will eliminate scores of jobs, including CEOs, chief engineers, internal auditors, and spokespersons at each and every water company. Secondly, there will be savings in customer services and bill collections through the installation of uniform computer systems. The third kind of savings will come from the reduction in service and maintenance vendors to the water companies.
"The cumulative savings in the short and medium term (1-3 years) form the operation of 13 companies is estimated at NIS 450-500 million," states the report. "Instead of NIS 1.25 billion in annual operating costs, it is now possible to reach NIS 700-800 million in operating costs."
The report says that the consolidation of water companies will make it possible to determine the normative cost of operating a water company, as reflected in the water tariff, at NIS 1.50-1.60 per cubic meter, 5% less than the current tariff of NIS 1.87 per cubic meter. It should be noted that the actual operating costs are NIS 2.40 per cubic meter, forcing the government to make up the difference through grants to the water companies.
Published by Globes [online], Israel business news - www.globes-online.com - on April 22, 2013
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