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Mission To contribute positively to national development by providing high quality potable water and sewerage services to residents and businesses through a competent and motivated team in a cost effective and sustainable manner.

Vision 2020

In 2020 NWC is the #1 water services utility in the Caribbean and Latin America in terms of coverage, customer satisfaction, reliability, efficiency, compliance and viability.

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National Water Commission Annual Report 2013/2014


TABLE OF CONTENTS NWC Mission & Vision 2020

Page 1

Table Of Contents

Page 2

NWC Value Propositions

Page 3

Message from the Minister of Water, Land, Environment and Climate Change – Hon. Robert D. Pickersgill, M. P.

Page 4-5

Message from the Chairman of the Board of Commissioners – Mr. Prakash Vaswani

Page 6-7

Board of Commissioners

Page 8-9

Message from the Acting President Mr. Mark Barnett

Executive Management Team Performance Report

Page 10

Page 11

Page 12-25

Salaries and Emoluments for Senior Management

Page 26

Audited Financial Statements

Page 27-81

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National Water Commission Annual Report 2013/2014


NWC Value Propositions We promise our valued CUSTOMERS easy access to high quality potable water and wastewater services while being responsive to their needs. We promise to work with our REGULATORS in being compliant, accountable and transparent in all we do as we provide value for money.

NWC Core Values

HI-TAPS

1. Honesty

2. Integrity 3. Transparency

4. Accountability

5. Professionalism

6. Self-Sufficiency

National Commission Annual Report 2013/2014 WaterWater Commission Annual Report 2013/2014 3 3National


Honourable Robert Pickersgill, M.P., Minister of Water, Land, Environment and Climate Change

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National Water Commission Annual Report 2013/2014


Message from the Honourable Minister of Water, Land, Environment and Climate Change Hon. Robert D. Pickersgill, M. P.

Message

Very few agencies, if any, are as critical to the national development of Jamaica, as well as the attainment and maintenance of health and quality of life targets or the convenience and well-being of its citizens as the National Water Commission. Every day, more than 2 million Jamaicans depend on the NWC for essential potable water services and more than 500,000 are provided with sewerage services. I am therefore pleased to be associated with this official presentation of the financial statements and Annual Report for the National Water Commission for the financial year 2013/2014. This presentation provides information on how the Commission has performed in the discharge of its mandate to provide potable water and centralized wastewater services to Jamaicans during the particular year. It also shows the initiatives being undertaken to meet and overcome its many challenges as the organization continues to work on the arduous challenge of better serving its valued customers across Jamaica, even in the face of climate change impacts and financial constraints. For the National Water Commission, 2013/2014 was a year of many different issues. The organization was involved - at different times and with different degrees of intensity and focus - in an organizational transformation process with many structural changes impacting the operation of employees across the country. During the latter part of the financial year a new President, Mr. Kingsley Thomas, joined the organization shortly after the previous President, Mr. Albert Gordon, had demitted office. The Commission’s operations were also impacted by drought conditions at both the beginning and the end of the financial year. During the year, approximately $10 billion was expended by the National Water Commission on the implementation of a record number of over 120

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capital projects to benefit thousands of Jamaicans and to improve and, or expand the water and wastewater infrastructure islandwide. The capital expenditures during the year were broadly aimed at improving overall operational efficiencies and optimizing production by developing, expanding and rehabilitating water supply and sewerage facilities. These many projects had to be carefully managed not only to provide the maximum positive benefits in the shortest time, but also to fit within the serious fiscal constraints that have been placed on the enterprise, in keeping with the Government’s International Monetary Fund (IMF) agreement. 2013/2014 was also a tariff review year for the National Water Commission, as the 5-year tariff granted in 2008 by the Office of Utilities Regulation (OUR) came to an end. A determination notice was issued by the OUR in October and took effect on October 1, 2013. While the NWC’s economic and service quality regulator granted an increase in the rates, both the quantum of the changes as well as several other changes in the tariff left the NWC dis-satisfied with the ability of the new rates to cover the cost of providing adequate water service as well as a basis for funding the desired improvements. As this Annual Report outlines, the National Water Commission has achieved some significant and measurable successes during the year despite several persisting challenges. …………………………………….. Honourable Robert D. Pickersgill, M.P. Minister of Water, Land, Environment and Climate Change

National Water Commission Annual Report 2013/2014


Chairman, Prakash Vaswani

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National Water Commission Annual Report 2013/2014


Message from the Chairman of the Board of Commissioners – Mr. Prakash Vaswani The National Water Commission (NWC) has the critical task of providing essential water services to the people of Jamaica in an environment that is often very difficult not only because of the unequal distribution of raw water resources, the aged and inadequate infrastructure, and the limited financial resources, but also because of an unsupportive yet very demanding socio-cultural environment.

Message

The Board of Commissioners of the National Water Commission which I have the privilege of leading was assigned responsibilities effective April 14, 2014. Therefore, while the activities being reported on for the 2013-2014 financial year occurred under the stewardship of the previous Board of Commissioners, we have the responsibility of presenting this report. The 2013-2014 Annual Report highlights the Commission’s performance during that year and gives an indication of the current state of affairs at the enterprise. It is clear from the attached financial statements and notes that the Commission’s financial performance was good with the auditors expressing an adverse opinion due to non-compliance with International Financial Reporting Standards (IFRS). Notwithstanding the poor overall financial performance, the NWC performed creditably in respect of its operations with another year of record-breaking number of capital projects at various stages of the conceptualisation, design, procurement and implementation process. Through these and other significant initiatives we expect to deliver to Jamaica a constantly improving water service until we achieve our vision of being recognized as the #1 water services utility in the Caribbean and Latin America in terms of coverage, customer satisfaction, reliability, efficiency, compliance and viability.   My own previous experience as Chairman of the Board of Commissioners and that of several other members of the Board puts us in a good position to hit the ground running as we seek to tackle long-standing issues especially in regard to the Commission’s financial and operational perfor-

mance. If we are to achieve our objectives, it cannot be business as usual and we have clearly indicated this to the management and staff. We look forward to continue working with the Ministry of Water, Land, Environment & Climate Change and other critical stakeholders to correct the short-comings at the enterprise and build on the positive past achievements in support of national development through the provision of potable water and sewerage services to Jamaican residents, businesses and visitors alike.     ……………..…………. Mr. Prakash Vaswani Chairman of the Board of Commissioners

National Commission Annual Report 2013/2014 WaterWater Commission Annual Report 2013/2014 7 7National


Mr. Junior Levine

Board of Commissioners During 2013-2014

Dr. Leary Myers, Chairman

Dr. Judith Robinson, Deputy Chairman

Mr. Hugh Scott

Mr. Gavin Goffe

Paul Williams

Councillor Hugh Graham

Councillor Eugene Kelly

Senator Wensworth Skeffery

Rev. Dr. Devon Dick

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National Water Commission Annual Report 2013/2014


New Board of Commissioners

Mr. Prakash Vaswani, Chairman

Mrs. Marjorie Fyffe-Campbell Deputy Chairman Councillor Hugh Graham

Mr. Gavin Goffe Mr. Paul Williams Mr. Garlield Knight

Rev. Naggie Sterling Councillor Eugene Kelly

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National Water Commission Annual Report 2013/2014

Senator Wensworth Skeffery


Message from the (Acting) President of the National Water Commission, Mr. Mark Barnett

The responsibility falls to me to submit the National

Water Commission’s Annual Report for the 2013/2014. The financial year under review, 2013/2014, was another interesting, mixed and challenging year for the National Water Commission (NWC) in a number of ways.

Message

Throughout the year, the NWC continued the difficult balancing act of providing a most essential and highly visible service (with wide economic, public health, social and political implications) to more than 2 million persons daily, and at the same time operating as a commercially viable business despite the regulatory constraints of being a Government owned enterprise. The NWC also encountered significant operational and service delivery challenges caused by both drought and flooding incidents at various times during the year. All of this was being done by the Commission during a period of significant personnel and other changes at the helm of the organization. During the 12 month period, 3 different persons occupied the position of President of the enterprise. Other changes were also taking place or pending at the level of the Board of Commissioners and the Senior Executive. Undoubtedly, this situation impacted the operations of the enterprise. The attached audited financial statement shows that, during the 2013-2014 financial year, the National Water Commission suffered a financial loss of $6,984,105,000 and had an accumulated deficit of $26,497,190,000. As is pointed out by the independent auditors, while the Government of Jamaica has provided financial guarantees in respect of a significant portion of the Commission’s debt it is the expectation that the Commission will itself repay those loans. This is the case as the Government has indicated through various policy directives that the Commission must become financially viable and self-sustaining. It is clear that the ability of the Commission to become profitable and to meet its heavy debt service obligations and high operational costs is very dependent on its success in reducing energy costs, reducing nonrevenue water (including both commercial and technical losses), and increasing collection among other significant changes.

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As the current Acting President of the National Water Commission, I am well aware of the many challenges facing the organization. I also know the significant contribution that the NWC makes to national development and how the efficient delivery of water and wastewater services can transform the lives of individual Jamaicans. I therefore commit, on behalf of the entire team of dedicated staff, that the unrelenting efforts to turn the organization around will be continued - despite the enormity of the critical challenges that must be faced - as we increase our contribution to Jamaica’s growth and development.

……………..…………........... Mr. Mark Barnett, (Acting) President of the National Water Commission

National Water Commission Annual Report 2013/2014


Executive Management Team

Mr. Mark Blair, Vice President for Non Revenue Water/Energy Cost Reduction

Ms. Marjorie Segree, Vice President, Planning and Special Projects

Mr. Harold Minott, Vice President for Human Resource and Administration

Mr. Michael Dunn, Vice President for Customer Service Delivery

Mr. Kevin Williams, Vice President for Legal Affairs

Mrs. Geneva Locke, Vice President, Finance & Procurement

Mr. Devon Gayle, Vice President, ICT

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Mr. Garth Jackson, Vice President for Engineering and Project Delivery

Mr. David Geddes, K-Factor Programme Director

Ms. Patrice Mitchell, Assistant Vice President for Internal Audit

National Water Commission Annual Report 2013/2014

Mr. Mark Barnett, Vice President for Technical Operations


Performance Report

Performance Report

The 2013/2014 financial year was another challenging and eventful year for the National Water Commission (NWC) in many ways. This brief performance report presents a synopsis of some activities undertaken in some critical areas of the Commission’s operations. Particular areas looked at are capital projects, wastewater operations, billing and collections, revenue recovery, information communications technology (ICT), internal audit and public and community relations.

NWC CAPITAL PROJECTS During the year, the NWC was engaged in a series of activities under its five-year capital programme which proposes to pursue strategic endeavours consistent with Jamaica’s Vision 2030 and the Government’s policy objective aimed at making potable water available to all Jamaicans and ensuring that sewage generated in major urban centres is treated to meet tertiary quality standards in order to protect the natural environment. Broadly, these efforts were aimed at improving, restoring or extending water and sewerage services islandwide and are to be achieved through: • Improved operational efficiencies and reliability; • Expansion of service to areas currently underserved; • Improved processes and technologies at the various facilities and systems to enable them to consistently meet regulatory and other standards; • Infrastructure support for national & local development projects; • Mitigation of the impact of drought conditions.

Design Procurement Pre-Constuction Construction Maintenance Total

WATER 31 29 10 11 10 91

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Beneficiaries of these projects are spread across commercial, residential, resort and industrial interest groups in all parishes and involve developers, construction contractors, industry professional, artisans and general labourers. During 2013 / 2014, the NWC’s Engineering, Projects and Quality Services Department had approximately one hundred and twenty-two (122) projects or contracts of various types - water, wastewater, hydrogeological - at different stages - design, procurement, construction, and maintenance - of the project implementation cycle. This record number of projects is categorized as follows:-

WASTEWATER 4 5 6 5 5 25

HYDROGEOLOGICAL 6 6

National Water Commission Annual Report 2013/2014

TOTAL 35 35 34 33 16 15 22 24 15 15 122 122


4. Old Harbour Bay Pipeline, St. Catherine - Work commenced in February 2013 for construction of 2.7 kilometers of water transmission pipeline from the New Harbour Village Housing Development to the Old Harbour Bay Square and also along Terminal Road from its intersection with the Old Harbour Bay main road to the entrance of the Bourkesfield Housing Scheme and was completed in August 2013. The project was done at a cost of $80M and is benefiting more than 20,000 persons. 5. Hope Road (Side Roads) Sanitary Sewers, St. AndrewWork commenced in April 2013 for construction of 1.7 km of 200 mm secondary sewers to connect all side roads between Kings House and Matilda’s Corner to the central sewerage system, which drains to the Soapberry Treatment Plant. This was completed in August 2013 at a cost of $90M and benefiting 3,000 persons.

Of the 122 projects, several were completed during the financial year. These completed projects include: 1. Swallowfield Road Sewer Project, St. Andrew Work had commenced in March 2013 for the construction of 400m of 200mm sanitary sewers along North Avenue, and was effectively completed by June. The project resulted in an additional 33 households of approximately 150 persons in Eastern St. Andrew being able to connect to the central sewerage system. Capital cost was $25 Million. 2. Rehabilitation of the Mona and Hope Water Treatment Plants in St. Andrew to restore the reliable production outputs to 16 and 6 IMGD respectively as part of the IDB funded Kingston Water and Sanitation Project. At a cost of $1.8B, this project has benefitted approximately 293,000 persons in the south eastern quadrant of the Kingston and St. Andrew Metropolitan Area. 3. Marlborough to Berry Hill, Manchester Construction of approximately 3.2 kilometres of 250mm (10”) transmission pipelines to replace the existing encrusted PVC pipeline and restore supply volumes to areas south of Mandeville including Knockpatrick. The project was done at a capital cost of $20M and has impacted more than 23,000 persons.

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6. Christiana/Spaulding Water Supply, Manchester Christiana-Sedburgh Pipeline. This project involved construction of 2km of 250mm diameter pipelines from the Christiana Town Centre to the Sedburgh Storage Tanks. It was completed in October 2013 at a cost of $30M to the benefit of 25,000 persons. 7. Palisadoes Pipeline - Work commenced in June 2013 and was completed in November in collaboration with the NWA to replace 6km of 400mm pipes between the Harbour Head and Norman Manley International Airport round-a-bouts. This was done at a cost of $230M. 8. KMA (JICA) Lot 2B Portmore Pipeline, St. CatherineConstruction of 10km of transmission pipelines from Caymanas Estates to Marley Hill to increase the supply capability along with 3km of distribution reinforcement mains to improve service to communities in Portmore, Greater Portmore and Hellshire. This was completed in December 2013 at a cost of $1.4B and is positively impacting 180,000 citizens. 9. Hounslow to Parottee W/S St. Elizabeth. Phase1: Hopewell Well to Hill Top Storage Tank Work commenced in May 2013 for the replacement/ upgrading of the aged 4” pipes extending from the Hopewell Well site, to the Hill Top storage tank with approximately 0.5 km of 250mm and 3.5km of 200mm transmission pipelines and was completed in December at a cost of $68M to the benefit of 20,000 persons.

National Water Commission Annual Report 2013/2014


Many other capital projects were started during the same period and were continuing up to the end of the year. Among these projects are:

1. Jamaica Water Supply Improvement Project Category ‘B’ Works which comprise: a) Replacement of Segment 2 of the Rio Cobre pipeline between Content District St. Catherine and Ferry, to reduce losses by 2 IMGD and improve supply to Kings- ton and St. Andrew, Spanish Town and Portmore. b) Supply & installation of 40,000 domestic and commercial water meters to enhance accuracy in the measurement of consumer consumption. c) Refurbishment of 3 Water Treatment Plants at Bogue, St Ann (6 IMGD); Great River, St. James (15 IMGD); and Matha Brae, Trelawny (6 IMGD) to improve the reliability and quality as well as to restore production output to the original design capacities. 4. Mason River /Kellits /Bullhead /Sandy River Water d) Upgrading of the Linstead / Ewarton Supply Project in Clarendon in nine (9) contracts inWater Supply and the Norwood Water volving 27 km of transmission and distribution pipes Supply Systems thereby improving supply as well as storage tanks. to consumers in these areas and reducing losses. 5. Construction of the Non-Pariel /Orange Hill / e) Expansion of the Martha Brae Water Retirement Water Supply Scheme in Westmoreland Treatment Plant in Trelawny by 5 IMGD to in eight (8) contracts involving 32 km of transmisincrease the available supply to areas sion and distribution pipelines, two (2) pumping along the north coast. stations and two (2) storage reservoirs. f) Construction of 6 km of 500mm transmission mains through the town of Lucea 6. Scotts Cove to Belmont Pipeline Replacement in to increase supply capability to areas Westmoreland - This is being implemented in coorextending as far as Negril. dination with the NWA’s road rehabilitation works g) Network management, social intervention, and involves the construction of 15 km of 300 mm and revenue enhancement in the parishes pipeline to replace the existing line to eliminate of Trelawny, St James, Hanover and excessive breaks and leakage, resulting in reduced Westmoreland. maintenance costs and improved supply to Belmont and communities between Scott’s Cove and 2. The Cascade /Claremont /Jericho Water Supply Belmont. Project in Eastern Hanover is being implemented through eleven (11) contracts in conjunction with Rural Water Supply Ltd. The works consist of 18 km 7. Upgrade, rehabilitation of the Highland Meadows housing development sewerage facilities and connecof transmission and distribution pipelines, and the tion to the Mineral Heights sewage treatment plant construction and equipping of two pumping stain Clarendon. This involves installation of 140m of tions and two reservoirs. 200 mm and 100 mm sanitary sewers, together with restoration of a pumping station. 3. Stage 1 of the Port Antonio Water, Sewerage & Drainage Project which will result in the upgrading of 10 8. Construction of the Burnt Savannah /Knoxwood water km of water mains and installation of 8 km of new sanitary sewers (including house connections), 3 km supply scheme in St. Elizabeth comprising 24 km of transmission and distribution pipelines in five (5) of storm water drainage conduits and associated material supply and pipelaying contracts. sea outfalls.

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National Water Commission Annual Report 2013/2014


public health / environmental hazards, while achieving greater operational efficiencies. Capital cost is $1.8B and 180,000 persons are expected to be directly impacted. 2. Construction of the Boscobel (600m3/day) and refurbishment of the Elletson Flats (1,100m3/day) sewage treatment plants. As part of the IDB supported CReW project, this project is expected to cost $450M with 8,500 persons to benefit. 3. North and Bottom (Swaby’s) Hope Distribution Pipelines, Manchester - Construction of 0.4km of 100mm distribution pipes in Bottom Hope and 0.4km of 50mm pipes in North Hope; Capital cost:$15M. Impacted population 1,100 persons.

9.Upper Montrose / Montrose / Lady Musgrave Avenue Sanitary Sewer in St. Andrew involving construction of 300m of 400mm, 700m of 250mm and 700m of 200mm sanitary sewers. 10. Clarks Town Pipeline Replacement - Phase 2: Spicy Hill Reservoir to Georgia in Trelawny consisting of 6 km of replacement pipes to improve service in Clarks Town, Duncans, Georgia and environs. 11. Eastern Westmoreland Water Supply - Cedar Valley and Bethel Town Pipeline Extensions involving construction of 12 km of pipelines as well as rehabilitation of a storage tank. 12. Hounslow to Parottee Water Supply Upgrading, Phase 2B: Newell Square to Williamsfield Pipeline in St. Elizabeth. 13. Halifax Avenue Sanitary Collector Sewers, Barbican, St. Andrew - Construction of approximately 160m of 200mm (8”) Nominal Diameter sanitary collector sewers to facilitate residential development and increase in building density. Additionally, several other capital projects were awarded during the year and were scheduled for construction activity during the new financial year. These include: 1. Reconfiguration of the Portmore Sewerage Network Retirement of five (5) wastewater treatment plants and transfer of sewage to Soapberry to reduce

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4. Fairway / Seymour Avenue/ Retreat Avenues Collector Sewer – Construction of 1.2 m of 250mm and 0.3km of 200mm (8”) from the intersection at Lady Musgrave/Argyle Roads to Old Hope Road, along Seymour Avenue from its intersection at Retreat Avenue to the intersection at Hopefield Avenue. Capital cost for this project is $50M with approximately 750 persons to benefit. 5. IDB KMA Supply of Pumping Equipment - Energy efficiency improvement programme involving the procurement of replacement pump sets in seven (7) lots at a cost of $75M. Still other contracts for projects are at the procurement stage and are scheduled to commence in the new financial year. These include: 1. Essex Valley Water Supply Phase 1 - Equipping of Long Hill Well Station - Work includes equipping well and relift facilities at Long Hill to improve supply of potable water to Nain and Myersville at a cost of $200M to benefit approximately 14,000 persons. 2. Essex Valley Water Supply Phase 2 - Nain to Junction -Work includes construction of 9km of 300mm pipeline from Nain to Junction and a new re-lift station and terminal reservoir. Project will result in improved water supply to Junction and its environs at a cost of $170M. 25,000 persons are expected to benefit. 3. IDB KMA Water Supply Three Towns and Ferry to Forest Hills - Engineering Consultancy services for:a) Upgrading of the water supply system for Old Harbour, May Pen and Mandeville, involving comprehensive improvement in water supply in the three towns and environs to improve reliability, satisfy

National Water Commission Annual Report 2013/2014


existing demand, facilitate planned housing developments and reduce nonrevenue water (NRW) and energy costs. Capital cost $5B. Impacted population: 600,000. b) Improvement of the Forest Hills, Red Hills, water supply comprising construction of 6.1km of 200mm dia. transmission main from Ferry to Rock Pond storage tank along with four relift stations to increase supply and improve the reliability of ser vice to Forest Hills, Red Hills and adjoin- ing areas. Capital cost $630M. Impacted population 75,000 persons. 4. IDB KMA Water Supply - Procurement of 100,000 Solid State Water Meters - Installation of new meters of this type will result in more accurate customer billing and reduced NRW. 500,000 persons will benefit from this $1.3B project. 5. IDB KMA Water Supply - Construction of a groundwater Artificial Recharge Facility, Innswood St Catherine - Construction of a facility to settle 5 IMGD of raw surface water and inject it into the limestone aquifer to allow for sustainable abstraction of ground water resources. Capital cost for this project is $1.2B with approximately 70,000 direct beneficiaries.

under review, 18 new K-Factor funded projects valuing approximately $10B were developed. Of that total, 13 projects valuing $5.3B were approved, 1 project valuing $2.67B withdrawn and 4 projects valuing approximately $2B are pending. Total overall project portfolio totals $31B for the 65 projects. The project status is 53% complete, 32% ongoing and 15% upcoming.

6. IDB KMA W/S - Non-Revenue Water Reduction Comanagement programme for KSA - Comprehensive NRW reduction including mains replacement, pressure zoning, leak repairs, network management, etc. The cost for this project is $5B and 700,000 persons are expected to benefit.

One of the most significant projects initiated with small funding support from the K-Factor funds during the year is the Tank & Pump Rehabilitation and Energy Efficiency Project which is expected to impact all aspects of the NWC’s operations and contribute significantly to its transformation. It involves introducing more effective and efficient equipment into the various systems island wide, thus reducing energy costs and Non-Revenue Water to save an estimated $2.316B annually.

Funding for the projects being done comes from a variety of sources. Among the projects being undertaken are some 65 projects being financed to varying degrees by K-Factor funds. For the year

Status

# Of Potable Water Projects

Completed

30

30

25

25

10

10

65

65

Ongoing Upcoming Total

# Of Wastewater Projects

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National Water Commission Annual Report 2013/2014


WASTEWATER OPERATIONS The National Water Commission directly operates seventy (70) wastewater treatment plants in twelve of the fourteen parishes, treating approximately 113,040 m3/d of sewage. These facilities serve mostly discreet housing developments through the use of various wastewater treatment technologies as shown in the table below. In addition to the directly operated facilities, there is the Soapberry Wastewater Treatment plant, which is managed under a special operating arrangement. This facility received more than 90% or about 40,000m3/d of the sewage collected in the Kingston metropolis. While the majority of the facilities under management are packaged plants, there are four (4) major urban centres in which central sewerage systems were installed - corporate area Kingston and St.

Parishes

Andrew, Montego Bay, Negril and Ocho Rios. These systems receive and treat 75% of the sewage treated from households, commercial businesses and other users. On a monthly basis the effluents from these facilities are sampled and analyzed to determine conformity to the National Environmental Planning Agency’s (NEPA) current sewage effluent regulations. These facilities are in compliance with different parameters, a reflection of the earlier design premise on which these facilities were constructed. The NWC is embarking on a comprehensive programme to ensure compliance with NEPA’s new sewage effluent standards. Some of these works will include: a. Decommissioning of existing facilities and diversion of sewage flows to other treatment plants; b. Reconstruction of Treatment Plants; c. Rehabilitation of existing facilities.

Wastewater Treatment Employed

Waste Contact Extended Oxidation Stabilization Stabilization Aeration Ditch Ponds Kingston & St. Andrew 3 1 4 St. Catherine 2 11 6 2 Clarendon

4

St. Thomas

1

Westmoreland

1

1

Hanover

Aerated Septic /w Tile Lagoons Fields / Reed Beds 1 2 1

5

2

1

1

1

2 2

St. James

3

Trelawny

1

1

4

1

St. Ann St. Mary Portland Total

1

1

1

1 2

8

26

17

26

6

National Water Commission Annual Report 2013/2014

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Achievements during 2013-2014 included: • Completion of a $35M project to divert all wastewater flows from the hurricane damaged Yallahs Wastewater Stabilization Ponds (WSP) to the West Albion WSP some 1km away; • Completion of Phase 1 of the building of a new Harbour View Wastewater Treatment plant. Work continues on Phases II and III. The projected budgeted cost is $990M of which expenditure to date has totaled $760M. • Commencement of designs for the Portmore Sewage Diversion Project, a US$23M project, which will see the decommissioning of five wastewater treatment plants at Bridgeport, Independence City, Hamilton Gardens, Caymanas Gardens and Portmore Villas which converted into pumping stations and flows being diverted to the Soapberry Treatment Plant. In keeping with our strategic objectives, to increase our sewered customer based as well as cauterizing the pollution of underground water resources, we have embarked on sewer expansion projects in the following sections of the KSA: • Swallowfield • Roads leading off Hope Road between Matilda’s Corner and East Kings House Road • Upper Montrose Road • Montrose Avenue • Lady Musgrave Road With the completion of these projects the NWC

has increased its sewered customer base by approximately two hundred (200). We have also undertaken to increase the number of customers charged for sewerage services in other parishes by taking over three (3) wastewater treatment plants constructed by developers. These are in Rosevale in St. James, Florence Hall in Trelawny and New Harbour Village in St. Catherine.

Billing, Revenue Collections and Revenue Recovery The total Revenue billed for the entity for the financial year ending March 31, 2014 was $24,167,189,307.75. This represents an overall increase of 15.4% when compared to the previous financial year 2012/2013. Approximately 353,000 accounts were billed on a monthly basis. As outlined in the graph on the opposite page - Revenue Comparison by Parish - all parishes recorded increases ranging between 13% and 25% in billed revenue for 2013 / 2014. As illustrated in the Revenue Comparison by Month graph on the opposite page, the average monthly billed revenue for the enterprise stood at $1.923B during the 2013 / 2014 financial period. Through sustained efforts to ensure that all meters

Jamaica Water Supply Improvement Project-Category B

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National Water Commission Annual Report 2013/2014


were read and that frequent rechecks for accuracy were done, there was a 98% increase in the total number of meters read monthly as well as a 90% reduction in the number of breaches for “meters not read for over two months� based on the OUR guaranteed standard (WGS10). The Revenue Recovery Department (RRD) continued its mission of protecting the integrity of the National Water Commission’s revenue base while also dealing with the problem of customer delinquency. Revenue Recovery investigations generally try to identify and remove sources of revenue loss. This is achieved by seeking to ensure that persons who are supplied with water are billed for actual usage and payments are made in a timely manner by encouraging payment of debts owed to the Commission and to discourage trespassing on the works of the Commission. During the year, the Revenue Recovery Department visited 45,759 of a total of 58,869 temporarily disconnected accounts in the eastern half of the island alone. 14,916 instances were found with unauthor-

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ized connections to the NWC system. 10,367 of these cases were prosecuted, 13% more than in the previous year. Payments to these accounts totaled $508.3M or 117% higher than the previous year. 9,754 supplies were disconnected by the Revenue Recovery Department for non-payment in the year under review. This was 31% more than the previous year. Delinquent account holders were issued a total of 12,988 letters of demand for payment. 498 persons were prosecuted, 39% more than in the previous year. At the same time, 337 lawsuits were initiated against delinquent account holders. Our collection efforts were complemented by the retention of debt contractors who were assigned a portion of the bad debt portfolio. We also continued our engagement of inner city communities with a view to regularizing their accounts and increasing collections. While arrangements made with these communities have borne fruit, the collection to billing ratios remain below the national average necessitating a continued reliance on disconnection to

National Water Commission Annual Report 2013/2014


improve compliance.

INFORMATION COMMUNICATION TECHNOLOGY (ICT) Staffed by 28 mainly technical personnel, the Information, Communication and Technology (ICT) Department is charged with the responsibility of determining the information and technology needs of the organization, the boundaries and priorities of new projects to enhance systems capacity and equipment acquisition as well as negotiating arrangements to deliver quality services to the Commission and its customers. During 2013-2014, the major achievements of the department included:1. Implementation of an online Requisition System making it possible for appropriate staff persons to generate and have service order requests approved online, thereby eliminating the need to move paper-based documents prior to the generation of service orders. 2. Significant reduction in faults logged related to the use of Customer Suite (CS) through upgrading of the storage and processing capability of the CIS hardware. 3. Significant increases in the access to and use of the Geographic Information System (GIS) applications including GIS mapping of all NWC Water and Sewerage facilities and equipment, fire hydrants, customer meter locations, sub-division applications, pipeline network as well as the development of web applications to capture damage done to facilities during hurricanes. 4.Greater access to the Facilities Downtime Information Management System (FDIMS) making it possible for maintenance and operational personnel to be better able to keep track of the various issues affecting our facilities. 5. Cash Collection System Software Upgrading providing better security features and providing the basis for integrating the online payments by our customers seamlessly in the near future. 6. Corporate Website Upgrading including bringing the hosting of the internet site in-house and redesigning the site. 7. Lab Information System implemented to make the

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recording of water quality samples and the tracking of these samples more reliable with better auditing capability. 8. Acquisition of 225 new Meter Reading/GIS Handheld Devices and integrating them into the CIS system.

INTERNAL AUDIT The Internal Audit Department (IAD) continues to strive for improvement in its operations with the able assistance and guidance of the Board’s Audit Committee. The department aims to build its capacity and improve its coverage of NWC operational activities, to foster attitudinal changes through training that will improve efficiency in the completion of audit reviews and increasing the ratio of audit reviews per auditor each year. As part of the Transformation Process, two (2) new Internal Auditors were employed to the Internal Audit Department (IAD) during the year. The IAD resources were also supplemented by those of our co-sourcing partners PricewaterhouseCoopers, who assisted with IT related and other sensitive

National Water Commission Annual Report 2013/2014


audits reviews. Among the audit reviews conducted during the fiscal year were:1. Finance – Annual Inventory for year ended March 31, 2012, Annual Inventory for year ended March 31, 2013, Petty Cash at the Mandeville Commercial Office, Procurement (small values contracts) and Fixed Assets Register

Auditors also attended the NWC Tariff Review Meeting, IFRS/IAS, and the Working Papers and Report Writing Training Seminar in January 2014.

2. Human Resource and Corporate Services – Fortnightly Overtime Payments and Retroactive Lunch Allowances for KSA Meter Readers. 3. Wastewater Operations and Maintenance Portmore Sewerage Project Design and Construction, Sewerage Conveyance Facilities, Wastewater connection 100yards of Sewer pipes in Mona and Barbican and Follow-up on the Transport Department and Advance Card System. 4. Potable Water Operations and Maintenance Effectiveness of NWC’s Programme of Preventative Maintenance of Pumping Equipment and Trucking of Water. 5. Customer Services – Mandeville Commercial Office, Billing Process, May Pen Commercial Office, Zero Payments Exceptions, Portmore Commercial Office and Accounts Receivables Financial Adjustments in St. James. 6. Special Audit – K-factor Programme Fruitful Vale Water Supply Programme 7. ICT (MIS) Review of Network Security Phase 2. 8. Corporate Planning and Special Projects - Regulatory Compliance with the OUR standards and Tariffs The Department successfully completed 80% of the non-technical areas listed in the Annual Audit Plan and issued Thirteen (13) reports for 2013/2014. Team members were also engaged in the following continuing education activities: • ICAJ IFRS/IAS Seminars with PWC and KPMG • NWC Requisition system • 2013 Inventory Audit Seminar • NWC Tariff, IFRS/IAS, Working Papers and Report Writing Seminar • Fire Awareness and Emergency Response • Advance Interview Techniques for Investigating Internal Fraud and Abuse

21

National Water Commission Annual Report 2013/2014


PUBLIC AND COMMUNITY RELATIONS During 2013-2014, the Corporate Public Relations Department and the Community Relations departments in the East and West continued to provide communications advise and support to the Commission, to undertake activities to improve and maintain the image of the Commission, to assist in the settlement of customer complaints, to facilitate speedy and efficient communication services, and to enhance the Commission’s ability to collect revenue and reduce wastage of its resources. These initiatives included developing effective lines of communication, and building goodwill and mutually beneficial relationships with various internal and external stakeholders to include staff, businesses, community groups and media personnel. The departments also worked to ensure that the Commission has positive visibility in the minds of the public and that customers are informed of the Commission’s programmes, achievements, contributions and viewpoints. During the 2013-2014 financial year, the Community Relations departments worked closely on the implementation of the Social Intervention and Revenue Enhancement Programme (SIREP) and the Welcome Back Programme being offered by the Commission in a number of communities across the island as well as many capital projects being implemented. Community meetings, public education presentations and speaking engagements, exhibitions, facility tours, partnerships with Community-Based Organizations, Parish and

22

Community Development Councils and persons of influence such as Members of Parliament, Councillors, Pastors, School Principals, mass and local media releases, distribution of flyers and loud hailed messages (town crier), advisories and media interviews and assistance with customer complaints resolution were just a few of the mechanisms used by the departments. In fact, an average of more than 10 external meetings were held or attended each month; more than 100 facility tours and other public education outreach events facilitated; more than 400 media releases issued; innumerable media interviews conducted, tens of thousands of fliers distributed and more than

National Water Commission Annual Report 2013/2014


1,000 customer complaints facilitated towards resolution.

to calls between the NWC and the call centre among other benefits.

Recognizing that inter-departmental collaboration and a healthy internal communication environment are major keys to achieving the company’s mission and vision, more than 75 inter-departmental meetings were participated in, an internal newsletter (ESplash) maintained, several internal communication bulletins circulated and numerous other events promoting social interaction and employee support within the organization were engaged in by the unit. Through the externally contracted services of Xerox Company, formerly E-Services Group International and ACS, approximately 15,000 inbound calls were handled of the approximately 25,000 calls made each month to the NWC’s toll free number. Steps are being taken to improve the integration of the telephone and computer support systems being utilized, increase the number of agents at the call centre to ensure better customer service experiences, better service levels, reduced call charges, and to facilitate ease of access

23

National Water Commission Annual Report 2013/2014


Financial Performance Report 2014

Profitability The National Water Commission (NWC) made an operating profit of $2.76B for the year ending March 2014. This was a decline over the prior year when the operating profit was $3.08B. The trend of decline continued during the early months of 2014/15 and without drastic changes a negative outturn is expected for this year. The decline in operating performance occurred despite the Commission receiving a tariff increase in October 2013. Revenues increased by 10.7% from $21.55B at March 2013 to $23.85B at March 2014. The major components of revenue includes base water charges which increased by 11% to $13.2B; base sewerage charges which increased by 9.2% to $3.9B; service charge increased by 17.4% to $2.8B; and PAM which increased by 73.8% to $0.86B. The operating expenses accounted for 88.4% of the Commission’s revenue, and stood at $21.09B. This is a 14.2% increase over 2012/13 which was $18.47B. The greatest portion of the operating expenses is salaries and wages which account for 30.9%, an amount of $6.51B in 2013/14, up from $6.1B in the prior year. Electricity accounts for 30.8% and stands at $6.49B in 2013/14, up from $5.97B in 2012/13. The other operating expenses totaled $8.1B in 2013/14, a 26.3% increase from $6.41B in 2012/13. These expenses included repairs and maintenance of $3.15B, administration $4.23B, and telephone, fuels and lubricants totaling $0.72B. Miscellaneous income totaled $1.08B in 2013/14, up from $0.99B in 2012/13. On the other hand, other expenditures jumped 68.2% from $5.82B in 2012/13 to $9.8B in 2013/14.

Cash Flows

Net cash and cash equivalents at March 2014 was $2.45B (March 2013: $6.51B) following $9.59B of investments in new assets which were funded by long term loans, capital grants and some cash flows from operations.

such as foreign exchange loss of $2.4B and depreciation of $6.26B.

Financing Cash Flows

The Commission’s capital programme was financed by long term loans of $5.97B and capital grants of $0.69B. Some long term loans were repaid amounting to $1.41B.

Balance Sheet

At March 2014, NWC non-current assets amounted to $65.69B of which $65.30B represents investments in property, plant and equipment. Net current assets amounted to $63.78M a significant decline from $2.6B the previous year; this is a cause for concern for the NWC. There was a decline in current assets from $11.99B to $10.35B. On the other hand, current liabilities increased to $10.29B from $9.39B the prior year. The Commission’s equity has been massively depleted, moving from $15.45B in 2013 to $5.13B at March 2014. This as the accumulated deficit moved from $16.18B at March 2013 to $26.50B at March 2014. If the trend continues the Commission could see a negative capital reserve by the end of March 2015. Measures need to be implemented to improve revenues of the Commission.

Operating Cash Flows

Despite making a net loss of $6.98B for the year, net cash from operations was a positive $1.11B, a decline from the $5.27B in 2012/13. This is because significant non-cash items were included in net loss,

24

National Water Commission Annual Report 2013/2014


25

National Water Commission Annual Report 2013/2014

208,000 199,500 133,500 184,000 116,700

80,500 31,500 73,500 14,700

-

127,500 119,000 102,000 110,500 102,000

Commissioner #5

Commissioner #6

Commissioner #7

Commissioner #8

Commissioner #9

473,200

119,000

80,500

-

119,000

Commissioner #4

1,108,000

161,500

59,500 -

102,000

Commissioner #3

Total (J$)

178,000

77,000 -

101,000

Commissioner #2 (Deputy Chairman)

1,581,200

-

-

-

-

-

281,000

56,000

Benefits (J$)

Vehicle (J$)

Total (J$)

-

Non-Cash

225,000

sation Including

Assigned Motor

Honoraria (J$)

ling OR Value of

(Board Meetings)

Commissioner #1 (Chairman)

Position of Commissioner

All other Compen-

Upkeep/Travel-

Fees (J$)

Motor Vehicle

NATIONAL WATER COMMISSION BOARD OF COMMISSIONERS’ COMPENSATION FOR F/Y/E MAR 31, 2014


26

National Water Commission Annual Report 2013/2014

2013/2014

VP, Planning & Special Projects

4,177,831

2013/2014 2013/2014 2013/2014 2013/2014 2013/2014 2013/2014 2013/2014 2013/2014 2013/2014 2013/2014 2013/2014 2013/2014 2013/2014 2013/2014 2013/2014 2013/2014 2013/2014 2013/2014 2013/2014 2013/2014 2013/2014

VP, Potable Water Systems Development & O & M

Director, K-Factor (VP level)

AVP, Budget & Cash Management

AVP, Internal Audit

VP, Legal Affairs

VP, ICT

AVP, Materials Management

AVP, Development Planning

Public/Private Partnership (AVP level)

VP, Waste Water Systems Development & O & M

Regional Water Supply & Distribution Mgr (AVP)

Regional Water Supply & Distribution Mgr (AVP)

Regional Water Supply & Distribution Mgr (AVP)

Regional Water Supply & Distribution Mgr (AVP)

Institutional Strengthring Consul (AVP level)

Mgr, Technical Services (East - AVP level)

Mgr, Technical Services (West - AVP level)

Snr. Proj. Mgr. (AVP level)

Snr. Proj. Mgr. (AVP level) Mgr. Cap. Proj. (AVP level)

GM, CWTC (VP level)

TOTAL

4,747,533

2013/2014

IDB Programme Manager (VP level)

154,301,315

6,500,000

5,587,848

3,958,766

3,958,766

4,227,441

3,958,766

3,958,766

3,958,766

3,958,766

5,947,028

3,958,766

3,829,387

3,871,993

5,947,028

5,947,028

3,829,387

3,829,387

5,947,028

6,360,773

3,964,685

2013/2014 5,947,028

5,947,028

6,002,911

6,002,911

5,947,027

6,360,773

6,360,773

9,307,126

Salary (J$)

VP, Customer Service Delivery

2013/2014

2013/2014

VP, Finance Procurement & Materials Management

VP, Humanr Resource & Corporate Services

2013/2014

Engineering Consultant (VP level)

2013/2014

2013/2014

VP, Engineer, Projects & Quality Services

Director, Public/Private Partnership (VP level)

2013/2014

Year

President

Position of Senior Executive

13,797,193

1,625,000

1,044,458

-

-

-

-

1,056,860

-

-

-

-

-

-

-

-

-

-

-

-

1,486,757

1,590,193

-

-

-

-

-

1,486,757

1,590,193

1,590,193

2,326,782

Gratuity or

47,914,650

1,597,155

1,597,155

1,597,155

1,597,155

1,597,155

1,597,155

1,597,155

1,597,155

1,597,155

1,597,155

1,597,155

1,597,155

1,597,155

1,597,155

1,597,155

1,597,155

1,597,155

1,597,155

1,597,155

1,597,155

1,597,155

1,597,155

1,597,155

1,597,155

1,597,155

1,597,155

1,597,155

1,597,155

1,597,155

1,597,155

8,466,109

-

-

-

680,907.70

-

680,907.75

680,907.75

680,907.70

680,907.70

-

658,654.50

665,982.79

1,022,888.82

1,022,888.82

658,654.50

-

-

-

-

1,032,500.69

-

-

-

Travelling Allowance OR Pension Or Other Retirment Performance Value of Assigned Benefits (J$) Incentive (J$) Motor Vehicle (J$)

1,545,925

-

-

-

-

-

-

-

-

-

-

241,187

-

-

-

-

-

-

-

-

1,304,737

4,514,904

159,155

144,334

147,970

153,334

142,936

142,936

144,651

142,936

142,936

142,936

142,936

155,626

142,936

142,110

142,382

155,626

155,626

142,110

142,110

155,626

158,267

142,974

155,626

155,626

155,983

155,983

155,626

158,267

158,267

177,072

Other Allowances Non-Cash Benefits {Housing, Robing, {Group Insurance Practising} (J$) Health & Life} (J$)

Salaries and Emoluments for Senior Management

230,540,095

9,881,310

6,963,778

6,492,659

7,338,337

5,698,857

6,379,764

7,026,107

6,379,765

6,379,765

6,379,764

6,379,764

7,699,809

5,698,857

6,227,306

6,277,513

8,722,698

8,963,885

6,227,306

5,568,652

9,186,566

9,706,388

5,704,814

7,699,809

7,699,809

7,756,049

8,788,549

9,186,565

9,706,388

9,706,388

14,712,872

TOTAL (J$)


Audited Financials

Report on the Financial Statements

27

National Water Commission Annual Report 2013/2014


Audited Financials

P.O. Box 76 Kingston Jamaica, W.I. Telephone + 1 (876) 922-6640 Fax + 1 (876) 922-7198 + 1 (876) 922-4500 e-Mail firmmail@kpmg.com.jm

KPMG Chartered Accountants The Victoria Mutual Building 6 Duke Street Kingston Jamaica, W.I.

INDEPENDENT AUDITORS‟ REPORT To the Commissioners of THE NATIONAL WATER COMMISSION

Report on the Non-Consolidated Financial Statements We have audited the separate financial statements of The National Water Commission (the Commission), set out on pages 3 to 51, which comprise the non-consolidated statement of financial position as at March 31, 2014, the non-consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Financial Statements Management is responsible for the preparation of financial statements that give a true and fair view in accordance with International Financial Reporting Standards and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on the financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether or not the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence relating to amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including our assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity's preparation of financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our adverse audit opinion. KPMG, a Jamaican partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”) a Swiss entity

28

R. Tarun Handa Patricia O. Dailey-Smith Linroy J. Marshall Cynthia L. Lawrence Rajan Trehan

National Water Commission Annual Report 2013/2014

Norman O. Rainford Nigel R. Chambers W. Gihan C. de Mel Nyssa A Johnson


2

To the Commissioners of THE NATIONAL WATER COMMISSION Report on the Non-Consolidated Financial Statements, continued Basis of Adverse Opinion As disclosed in note 2(b) of the financial statements, the non-consolidated financial statements do not comply with International Financial Reporting Standards, which require consolidated financial statements to be prepared. The effects on the financial statements of the failure to consolidate have not been determined. Adverse Opinion In our opinion, because of the significance of the effects of the matter discussed in the Basis of Adverse Opinion paragraph, the non-consolidated financial statements do not give a true and fair view of the non-consolidated financial position of the of the Commission as at March 31, 2014, and of its non-consolidated financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards. Emphasis of matter Without qualifying our opinion in respect of the following matter, we also draw attention to note 2(c) to the financial statements, which discloses that the Commission made a loss for the year of $6,984,105,000 (2013: profit of $1,153,069,000), and, at the reporting date, had an accumulated deficit of $26,497,190,000 (2013: $16,182,540,000). In addition, whilst the Government of Jamaica has provided financial guarantees in respect of a significant portion of the Commissionâ€&#x;s debt as guided by the National Water Commission Act, it has not given any commitment of continuing financial support. The ability of the Commission to regain and sustain profitability and to generate the incremental cash flows to meet its significant debt service obligations and other operational costs is therefore dependent on its ability to successfully minimise operational costs and reduce non-revenue generating water supplied.

Chartered Accountants Kingston, Jamaica August 14, 2014

29

National Water Commission Annual Report 2013/2014


Audited Financials

3 THE NATIONAL WATER COMMISSION Statement of Financial Position March 31, 2014 Notes CURRENT ASSETS Cash and cash equivalents Short-term investments Consumer accounts receivable Other accounts receivable and prepaid expenses Inventories CURRENT LIABILITIES Bank overdrafts and short-term loans Current maturities of long-term loans Current portion of obligations under finance leases Deposits and retentions Trade accounts payable Other accounts payable Taxation payable

3 4 5 6 7 8 15 16 9

10 11 12 13

EQUITY: Reserves Accumulated deficit

2,450,651 874,630 5,613,145 382,445 1,028,833

6,505,827 185,999 3,976,428 306,903 1,017,987

14

2,420,537 70,863 279,874 5,756,909 1,161,340 596,399

162,234 1,667,051 86,017 175,309 5,868,036 1,376,504 58,749

9,485 2,505,497 77,306 111,472 3,356,444 1,188,982 109,323

63,782

2,599,244

2,772,714

71,449 75,527 321,302 339,608 65,295,567 62,165,213

87,114 389,198 34,029,594

65,752,100 65,179,592

37,278,620

15 16 17 18 19 20

10,131,223

9,393,900

7,358,509

65,688,318 62,580,348

34,505,906

31,631,330 31,631,330 15,677,645 (26,497,190) (16,182,540) (16,056,287) 5,134,140 15,448,790

NON CURRENT LIABILITIES Long-term loans Obligations under finance leases K-Factor fund Deferred income Employee benefits obligation Deferred taxation

5,369,522 397,729 2,871,067 295,334 1,197,571

10,349,704 11,993,144

10,285,922

NET CURRENT ASSETS

NON CURRENT ASSETS Investments Interest in subsidiary Intangible assets Property, plant and equipment

Thousands of Dollars 2014 2013 2012 (Restated)* (Restated)*

(

378,642)

28,040,109 21,800,191 16,073 87,455 8,286,823 8,409,229 22,234,344 16,189,359 2,040,611 3,244,568

14,490,035 175,029 1,104,831 7,964,363 13,923,004 -

60,617,960 49,730,802

37,657,262

65,752,100 65,179,592

37,278,620

The financial statements on pages 3 to 51 were approved by the Commissioners on August 14, 2014 and signed on their behalf by:

Commissioner

Marjorie Fyffe-Campbell

Commissioner

Wensworth Skeffery

*See note 27 The accompanying notes form an integral part of the financial statements.

30

National Water Commission Annual Report 2013/2014


4 THE NATIONAL WATER COMMISSION Statement of Profit or Loss and Other Comprehensive Income Year ended March 31, 2014 Thousands of Dollars 2014 2013 (Restated)*

Notes Operating revenue Operating expenses

21 22(a)

Operating profit

Miscellaneous income: Interest income Project management fees Loss on sale of investment Gain on disposal of property, plant and equipment Amortisation of capital grants Other income

Other expenditure: Bank charges and interest Loan interest Lease interest Depreciation and amortisation Impairment of property, plant and equipment Foreign exchange loss, net

23,849,488 (21,093,427) 2,756,061

105,755 521 810 1,664 812,071 162,968

18

12,13 13

21,553,419 (18,470,030) 3,083,389

93,459 12,885 2,568 746,129 140,724

1,083,789

995,765

20,960 1,064,381 21,444 6,262,140 2,426,748

61,924 711,219 38,184 3,066,276 48,273 1,898,861

9,795,673

5,824,737

Loss before taxation

22(b)

( 5,955,823)

( 1,745,583)

Taxation (charge)/credit

23

( 1,028,282)

2,898,652

( 6,984,105)

1,153,069

-

22,223,778

20

-

( 6,270,093)

20

( 4,995,818) 1,665,273

( 1,365,081) 105,923

(10,314,650)

15,847,596

(Loss)/profit for the year Other comprehensive (loss)/income: Items that may never be reclassified to profit or loss Surplus arising on revaluation of property, plant and equipment Deferred tax on revaluation of property, plant and equipment Re-measurement loss on employee benefits obligation Deferred tax on employee benefits obligation Total comprehensive (loss)/income for the year

( 3,330,545)

* See note 27 The accompanying notes form an integral part of the financial statements.

31

National Water Commission Annual Report 2013/2014

14,694,527


Audited Financials

5 THE NATIONAL WATER COMMISSION Statement of Changes in (Deficit)/Equity Year ended March 31, 2014

Reserves (note 14)

Thousands of Dollars Accumulated deficit

Total

Balances at March 31, 2012’ as previously stated Impact of change in accounting policy (note 27)

15,677,645 -

(17,103,599) 1,047,312

( 1,425,954) 1,047,312

Balances at March 31, 2012, as restated

15,677,645

(16,056,287)

(

378,642)

1,220,402 67,333)

(

1,220,402 67,333)

Total comprehensive income for the year: Net profit for the year: As previously reported Impact of change in accounting policy (note 27) As restated Other comprehensive income: As previously reported: Surplus arising on revaluation of property plant and equipment Deferred taxation on revaluation of property, plant and equipment (note 20) Impact of change in accounting policy (note 27) Other comprehensive income for the year net of taxation, as restated Total comprehensive income for the year, as restated Impact of National Debt Exchange 2013 (note 10)

-

(

-

22,223,778

1,153,069

1,153,069

-

22,223,778

( 6,270,093) -

( 1,259,158)

( 6,270,093) ( 1,259,158)

15,953,685

( 1,259,158)

14,694,527

15,953,685

(

106,089)

15,847,596

(

20,164)

-

(

20,164)

Balances at March 31, 2013, as restated

31,631,330

(16,182,540)

Balances at March 31, 2013, as previously stated Impact of change in accounting policy (note 27)

31,631,330 -

(15,903,361) ( 279,179)

Balances at March 31, 2013, as restated

31,631,330

(16,182,540)

15,448,790

-

( 6,984,105)

( 6,984,105)

-

( 3,330,545)

( 3,330,545)

-

(10,314,650)

(10,314,650)

(26,497,190)

5,134,140

Total comprehensive income: Net loss for the year Other comprehensive loss: Re-measurement gain on employee benefits obligation, net of taxes Total comprehensive loss for the year Balance at March 31, 2014

31,631,330

* See note 27 The accompanying notes form an integral part of the financial statements.

32

National Water Commission Annual Report 2013/2014

15,448,790 (

15,727,969 279,179)


6 THE NATIONAL WATER COMMISSION Statement of Cash Flows Year ended March 31, 2014 Notes CASH FLOWS FROM OPERATING ACTIVITIES (Loss)/profit for the year Adjustments for: Depreciation and amortisation Impairment of property, plant and equipment Gain on disposal of property, plant and equipment Employee benefits obligation Interest income Taxation Unrealised foreign exchange gains on investments Write off of property, plant and equipment Loss on sale of investment Interest expense Unrealised foreign exchange losses on long-term liabilities Capital grants amortised

12,13 13

Thousands of Dollars 2014 2013 Restated* ( 6,984,105)

1,153,069

6,262,140 ( 1,664) 1,049,166 ( 105,755) 1,028,282 ( 524) 212,736 810 1,085,825

3,066,276 48,273 ( 2,568) 901,274 ( 93,459) (2,898,652) 749,403

2,439,369 812,071)

2,091,924 ( 746,129)

(

(Increase)/decrease in current assets Consumer accounts receivable Other accounts receivable and prepaid expenses Inventories

4,174,209

4,269,411

( 1,636,717) ( 72,570) ( 10,846)

(1,105,361) ( 11,569) 179,584

Increase/ (decrease) in current liabilities Deposits and retentions Trade accounts payable Other accounts payable

( (

104,565 111,127) 299,931)

63,837 2,511,592 ( 174,135)

Cash provided by operating activities Taxation paid, net Interest paid

Net cash provided by operating activities

2,147,583

5,733,359

( 29,316) ( 1,001,058)

( 72,140) ( 387,746)

1,117,209

5,273,473

CASH FLOWS FROM INVESTING ACTIVITIES Short-term investments, net Investment, net Purchase of property, plant and equipment and intangible assets Proceeds from disposal of property, plant and equipment Interest received Net cash used by investing activities

Net cash used before financing activities c/fwd

( 12,13

211,730 11,587

( 9,587,699) 2,439 102,783

(8,977,734) 3,502 94,075

( 9,050,107)

(3,383,367)

(10,167,316)

* See note 27 The accompanying notes form an integral part of the financial statements.

33

688,631) 3,792

National Water Commission Annual Report 2013/2014

(8,656,840)


Audited Financials

7 THE NATIONAL WATER COMMISSION Statement of Cash Flows (Continued) Year ended March 31, 2014 Thousands of Dollars 2014 2013 Net cash used before financing activities b/fwd

( 9,050,107)

(3,383,367)

(

70,549) 5,966,923 ( 1,412,888) ( 86,536) 689,666

61,549 6,199,399 (1,819,613) ( 78,863) ( 20,164) (1,104,831) 1,190,995

5,086,616

4,428,472

Cash and cash equivalents at beginning of year

6,414,142

5,369,037

CASH AND CASH EQUIVALENTS AT END OF YEAR

2,450,651

6,414,142

CASH FLOWS FROM FINANCING ACTIVITIES Short-term bank loans Long-term loans received Repayment of long-term loans Obligations under finance leases, net Transaction with state owners K-Factor fund, net Capital grants received, net Net cash provided by financing activities

Net (decrease)/ increase in cash and cash equivalents

( 3,963,491)

Comprising:

Cash and bank balances Bank overdrafts (note 8)

2,450,651 2,450,651

* See note 27 The accompanying notes form an integral part of the financial statements.

34

National Water Commission Annual Report 2013/2014

1,045,105

(

6,505,827 91,685) 6,414,142


8 THE NATIONAL WATER COMMISSION Notes to the Financial Statements March 31, 2014 1.

The Commission (a)

Corporate structure The National Water Commission (the Commission) is a statutory body of the Government of Jamaica, which, under the provisions of The National Water Commission Act, 1963, as amended by The Water Resources Act, 1995, with attendant regulations, is responsible for providing and operating water supply services in the urban and the rural areas of Jamaica. It also provides sewerage facilities in the same areas. The Commission is domiciled in Jamaica with registered office at 28 Barbados Avenue, Kingston 5. Under Section 21(1) and (2) of the National Water Commission Act, 1963(„the Act”), the Commission is entitled to a first charge upon the premises in respect of which rates and monies are due and payable until payment or recovery of such rates, monies and interest. This charge is in priority to any other charge, encumbrance or lien, save and except any other charge or lien created on the premises by any other enactment in favour of the Crown. This relates to water supply services or any contract for the supply of water, materials, repairs, and interest thereon, at the rate and in the circumstances fixed by the Minister.

(b)

Regulatory arrangements and tariff structure The tariff and rates levied by the Commission for supplies are regulated by the Office of Utilities Regulation (OUR). The OUR reviews the Commission‟s efficiency levels and, where appropriate, adjusts these tariffs, primarily in relation to rates for water, sewerage, service charge and the price adjustment mechanism (PAM). Under the tariff agreement, the rates for water, sewerage and service cost are adjusted annually using the Annual Price Adjustment Mechanism (ANPAM); and PAM is adjusted monthly to reflect fluctuations in foreign exchange rates (based on the exchange rate between the United States (US) dollar and the Jamaica dollar), electricity rates and the consumer price index. As of April 30, 2008, and thereafter, on each succeeding fifth anniversary, the Commission must submit a filing to the OUR for further rate adjustments to its base rate. The rate filing, which requires OUR approval, is based on a test year and includes operating costs and a return on investment. The Commission made submission to the OUR for the 2013 rate adjustments which were approved and became effective October 3, 2013.

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9

Notes to the Financial Statements (Continued) March 31, 2014 2.

Statement of compliance, basis of preparation and significant accounting policies (a)

Statement of compliance: The financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) and interpretations issued by the International Accounting Standards Board. Certain new, revised and amended standards and interpretations came into effect during the current financial year. The Commission has adopted the following new standards and amendments to standards, including any consequential amendments to other standards, applicable to its operations, with a date of initial application of April 1, 2013. The nature and effects of the changes are as follows: (i)

(ii)

IFRS 10 Consolidated Financial Statements (2011)

IFRS 10 introduces a new control model that focuses on whether the commission has power over an investee, exposure or rights to variable returns from its involvement with the investee and ability to use its power to affect those returns. The Commission has reassessed the control conclusion in respect of its investees as at April 1, 2013. This has not resulted in any change to the control conclusions previously determined. IFRS 13 Fair Value Measurement

IFRS 13 establishes a single framework for measuring fair value and making disclosures about fair value measurements when such measurements are required or permitted by other IFRSs. It unifies the definition of fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It replaces and expands the disclosure requirements about fair value measurements in other IFRSs, including IFRS 7. In accordance with the transitional provisions of IFRS 13, the Commission applied the new fair value measurement guidance prospectively and has not provided any comparative information for new disclosures. The change had no significant impact on the measurements of the Commissionâ€&#x;s assets and liabilities and appropriate disclosures noted in note 26 (c).

(iii)

IAS 19, Employee Benefits As a result of the adoption of IAS 19, Employee Benefits (2011), the Commission has changed its accounting policy with respect to the basis for determining the income or expense related to its post-employment defined benefit plans.

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Notes to the Financial Statements (Continued) March 31, 2014 2.

Statement of compliance, basis of preparation and significant accounting policies (cont‟d) (a)

Statement of compliance (cont‟d): (iii)

IAS 19, Employee Benefits (cont‟d) As a result of the change, the Commission now determines the net interest expense on the net defined benefit liability for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the net defined benefit liability at the beginning of the annual period. Net interest also takes into account any changes in the net defined benefit liability during the period as a result of contributions and benefit payments. Actuarial gains and losses are now recognised immediately in other comprehensive income. Previously, the company recognised actuarial gains and losses using the corridor method, which required that any cumulative unrecognised gains or losses exceeding 10% of the present value of the benefit obligation be recognised in profit or loss over the expected average remaining working lives of the employees affected. The change in policy is applied retrospectively (see note 27).

(iv)

IAS 1 Presentation of Items of Other Comprehensive Income As a result of the amendments to IAS 1, items of other comprehensive income (OCI) that may be reclassified to profit or loss in the future are presented separately from those that will never be reclassified to profit or loss. Also, the title of the statement has changed from statement of comprehensive income to statement of profit or loss and other comprehensive income.

(v)

IAS 16, Property, Plant & Equipment – The standard is amended to clarify that the definition of „property, plant & equipment‟ in IAS 16 is now considered in determining whether spare parts, standby-by equipment and servicing equipment should be accounted for under the standard. If these items do not meet the definition, then they are accounted for using IAS 2 Inventories. The change had

no significant impact on the classification of the Commission’s assets

At the date of authorisation of the financial statements, certain new, revised and amended standards and interpretations, have been issued which are not yet effective, which the Commission has not early-adopted. The Commission has assessed the relevance of all such new standards, amendments and interpretations with respect to its operations and has determined that the following may be relevant to its operations: 

IFRS 9, Financial Instruments (2010 is effective for accounting periods beginning on or after January 1, 2018. The standard retains but simplifies the mixed measurement model and establishes two primary measurement categories for financial assets: amortised cost and fair value. The revised standard includes guidance on classification and measurement of financial liabilities designated at fair value through profit or loss and incorporates certain existing requirements of IAS 39 Financial Instruments: Recognition and Measurement on the recognition and derecognition of financial assets and financial liabilities.

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THE NATIONAL WATER COMMISSION Notes to the Financial Statements (Continued) March 31, 2014 2.

Statement of compliance, basis of preparation and significant accounting policies (cont‟d) (a)

Statement of compliance (cont‟d): 

Amendments to IAS 36 Impairment of Assets: Recoverable Amount Disclosures for Non-financial Assets, which is effective for accounting periods beginning on or after January 1, 2014, reverse the unintended requirement in IFRS 13 Fair Value Measurement, to disclose the recoverable amount of every cash-generating unit to which significant goodwill or indefinite-lived intangible assets have been allocated. The amendment requires the recoverable amount to be disclosed only when an impairment loss has been recognised or reversed.

Amendments to IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of interest in Other Entities and IAS 27 Consolidated and Separate Financial Statements is effective for accounting periods beginning on or after January 1, 2014. The amendment defines an investment entity and requires a parent that is an investment entity to measure its investments in particular subsidiaries at fair value through profit or loss, instead of consolidating those subsidiaries in its consolidated and separate financial statements. In addition, the amendments introduce new disclosure requirement related to investment entities in IFRS 12 Disclosure of Interests in Other Entities and IAS 27 Separate financial Statements.

IFRIC 21 Levies is effective for accounting periods beginning on or after January 1, 2014. It provides guidance on accounting for levies in accordance with the requirements of IAS 37 Provisions, Contingent Liabilities and Contingent Assets, The interpretation defines a levy as an outflow from an entity imposed by a government in accordance with legislation. It requires an entity to recognise a liability for a levy when and only the triggering event specified in the legislation occurs.

Improvements to IFRS 2010-2012 and 2011-2013 cycles contain amendments to certain standards and interpretations and are effective for accounting periods beginning on or after July 1, 2014. The main amendments applicable to the Commission are as follows: 

IFRS 13 Fair Value Measurement is amended to clarify that issuing of the standard and consequential amendments to IAS 39 and IFRS 9 did not intend to prevent entities from measuring short-term receivables and payables that have no stated interest rate at their invoiced amounts without discounting, if the effect of not discounting is immaterial.

IAS 24 Related Party Disclosures has been amended to extend the definition of „related party‟ to include a management entity that provides key management personnel services to the reporting entity, either directly or through a group entity. For related party transactions that arise when key management personnel services are provided to a reporting entity, the reporting entity is required to separately disclose the amounts that it has recognized as an expense for those services that are provided by a management entity; however, it is not required to „look through‟ the management entity and disclose compensation paid by the management entity to the individuals providing the key management personnel services.

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Notes to the Financial Statements (Continued) March 31, 2014 2.

Statement of compliance, basis of preparation and significant accounting policies (cont‟d) (a)

Statement of compliance (cont‟d): 

IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets. The standards have been amended to clarify that, at the date of revaluation: (i)

(ii)

the gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount of the asset and the accumulated depreciation (amortization) is adjusted to equal the difference between the gross carrying amount and the carrying amount of the asset after taking account of accumulated impairment losses or the accumulated depreciation (amortization) is eliminated against the gross carrying amount of the asset.

The Commission is assessing the impact, if any, that the new, revised and amended standards may have on its financial statements in future years when they become effective. (b)

Non-consolidation: International Financial Reporting Standards require that financial statements prepared for issuance to shareholders should be prepared on a consolidated basis except in limited circumstances. These financial statements: (i)

have not been prepared on a consolidated basis because the financial statements of the subsidiary were not available at the reporting date.

(ii) do not purport to present the Commission‟s consolidated financial position, results of operations and cash flows in accordance with International Financial Reporting Standards. (c)

Basis of preparation: These non-consolidated financial statements are intended to show the affairs of the Commission as a stand-alone enterprise. They are not intended to, and do not, show the consolidated financial position, results of operations, changes in equity and cash flows of the group. The Commission's interests in the non-consolidated subsidiary (note 11) is shown at cost, less impairment losses [note 2(p)]. Unless otherwise indicated, references to financial statements herein are to the non-consolidated financial statements. These financial statements are presented in Jamaica dollars ($), which is the functional currency of the Commission. The financial statements are prepared on the historical cost basis, modified for the inclusion of and certain property, plant and equipment [see note 2 (k)(i)] at fair value. The preparation of the financial statements in accordance with IFRS assumes that the Commission will continue operations for the foreseeable future. This means, in part, that the statements of profit or loss and other comprehensive income and financial position assume no intention or necessity to liquidate or curtail the scale of operations and to discharge liabilities in the ordinary course of business. This is commonly referred to as the going concern basis.

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13

Notes to the Financial Statements (Continued) March 31, 2014 2.

Statement of compliance, basis of preparation and significant accounting policies (cont‟d) (c)

Basis of preparation (cont‟d): The Commission made a loss for the year of $6,984,105,000, and, at the reporting date, had an accumulated deficit of $26,497,190,000 (2013: $16,182,540,000). In addition, whilst the Government of Jamaica has provided financial guarantees in respect of a significant portion of the Commission’s debt as guided by the National Water Commission Act, it has not given any commitment of continuing financial support. The ability of the Commission to regain and sustain profitability and to generate the incremental cash flows to meet its significant debt service obligations and other operational costs is, therefore, dependent on its ability to successfully minimise operational costs and reduce non-revenue generating water supplied. Based on current plans and strategies being pursued and implemented, management believes that there is a reasonable expectation that the Commission will generate cash flows and profitability which would allow it to continue in operational existence for the foreseeable future. On this basis, the Commissioners have maintained the going concern assumption in the preparation of these financial statements.

(d)

Use of estimates and judgement: The preparation of the financial statements to conform to IFRS requires management to make estimates and assumptions that affect the reported amount of assets, and liabilities, contingent assets and contingent liabilities at the reporting date and the income and expense for the year then ended. Actual amounts could differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Judgements made by management in the application of IFRS that have significant effect on the financial statements and estimates with a significant risk of material adjustment in the next financial year are discussed below: (i)

Pension and other post-retirement benefits: The amounts recognised in the statement of financial position and profit or loss and other comprehensive income for pension and other post-retirement benefits are determined actuarially using several assumptions. The primary assumptions used in determining the amounts recognised include expected long-term return on plan assets, the discount rate used to determine the present value of estimated future cash flows required to settle the pension and other post-retirement obligations and the expected rate of increase in medical costs for post-retirement medical benefits. The expected return on plan assets assumed considers the long-term historical returns, asset allocation and future estimates of long-term investment returns. The discount rate is determined based on the estimate of yield on long-term government securities that have maturity dates approximating the terms of the Commission‟s obligation. In the absence of such instruments in Jamaica, it has been necessary to estimate the rate by extrapolating from the longest-tenor security on the market. The estimate of expected rate of increase in medical costs is determined based on existing inflationary factors. Any changes in these assumptions will affect the amounts recorded in the financial statements for these obligations.

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Notes to the Financial Statements (Continued) March 31, 2014 2.

Statement of compliance, basis of preparation and significant accounting policies (cont‟d) (d)

Use of estimates and judgement (cont‟d): (ii)

Allowance for impairment losses on receivables: In determining amounts recorded for impairment losses on receivables in the financial statements, management makes judgements regarding indicators of impairment, that is, whether there are indicators that suggest there may be a measurable decrease in the estimated future cash flows from receivables, for example, default and adverse economic conditions. Management also makes estimates of the likely estimated future cash flows of impaired receivables as well as the timing of such cash flows. Historical loss experience is applied where indicators of impairment are not observable on individual significant receivables with similar characteristics, such as credit risks.

(iii)

Net realisable value of inventories: Estimates of net realisable value are based on the most reliable evidence available, at the time the estimates are made, of the amount the inventories are expected to realise. These estimates take into consideration fluctuations of price or cost directly relating to events occurring after the end of the period to the extent that such events confirm conditions existing at the end of the period. Estimates of net realisable value also take into consideration the purpose for which the inventory is held.

(iv)

Residual value and expected useful life of property, plant and equipment: The residual value and expected useful life of an asset are reviewed at least at each financial year-end, and, if expectations differ from previous estimates, the change is accounted for. The useful life of an asset is defined in terms of the asset‟s expected utility to the Commission.

It is reasonably possible, based on existing knowledge, that outcomes within the next financial year that are different from those assumptions outlined above could require a material adjustment to the carrying amount reflected in the financial statements. (e)

Cash and cash equivalents: Cash and cash equivalents comprise cash, bank balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the Commission‟s cash management activities, are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

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15

Notes to the Financial Statements (Continued) March 31, 2014 2.

Statement of compliance, basis of preparation and significant accounting policies (cont‟d) (f)

Investments: (i)

Reverse repurchase agreements: A reverse repurchase agreement (“reverse repo”) is a short-term transaction whereby an entity buys securities and simultaneously agrees to resell them on a specified date and at a specified price. Although the security is delivered to the “buyer” at the time of the transaction, title is not actually transferred unless the counterparty fails to repurchase the securities on the date specified. Reverse repos, which are included in short-term investments, are accounted for as short-term collateralised lending. The difference between the sale and repurchase considerations is recognised on an accrual basis over the period of the agreement and is included in interest income.

(ii)

Loans and receivables: Investments with fixed or determinable payments, and which are not quoted in an active market, are classified as loans and receivables and are measured at amortised cost less impairment losses.

(iii)

Available-for-sale: Available-for-sale investments are measured initially at cost and subsequently at fair value, except where fair value cannot be reliably determined, in which case they are stated at cost. Gains or losses arising from changes in fair value are recognised directly in other comprehensive income, except for impairment losses. When these investments are derecognised or impaired, the cumulative gain or loss previously recognised in other comprehensive income is recognised in profit or loss. The fair value of available-for-sale investments is based on their quoted market bid price at the reporting date. Where a quoted market price is not available, fair value is estimated using discounted cash flow techniques. Available-for-sale investments are recognised or derecognised by the Commission on the date it commits to purchase or sell the investments.

(g)

Accounts receivable: Consumer and other accounts receivable are stated at amortised cost less impairment losses. Allowance for impairment relates to non-government customers who have not serviced their accounts for a protracted period of time.

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Notes to the Financial Statements (Continued) March 31, 2014 2.

Statement of compliance, basis of preparation and significant accounting policies (contâ€&#x;d) (h)

Inventories: Inventories, materially comprising pipes, fittings and spare parts, are valued at the lower of cost, determined principally on a weighted average cost basis, and net realisable value.

(i)

Accounts payable and other liabilities: Trade and other payables are stated at amortised cost.

(j)

Provisions: A provision is recognised in the statement of financial position when the Commission has a legal or constructive obligation as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and the amount can be reasonably estimated. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the obligation.

(k)

Property, plant and equipment and intangible assets: (i)

Owned assets: Land, buildings and warehouses, reservoirs, pipelines, pumps and sewerage plants, and other equipment are re-valued every five years by external consultants and in the intervening years by management, based on the depreciated replacement cost basis using relevant indices (Consumer Price Index and the US Producer Price Indexes). Gains and losses on revaluation are recognised in other comprehensive income and included in reserves, see (note 13). Motor vehicle and other equipment are carried at cost less accumulated depreciation and impairment losses.

(ii)

Leased assets: Lease arrangements through which the Commission assumes substantially all the risks and rewards of ownership are classified as finance leases. Plant and equipment acquired by way of finance leases are stated at an amount equal to the lower of fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation and impairment losses. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that for owned assets.

(iii)

Subsequent costs: The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Commission and its cost can be reliably measured. The costs of day-to-day servicing of property, plant and equipment are recognised in profit or loss.

(iv)

Intangible assets: Intangible assets, including computer software, are stated at cost, less amortisation and impairment losses.

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THE NATIONAL WATER COMMISSION

Notes to the Financial Statements (Continued) March 31, 2014 2.

Statement of compliance, basis of preparation and significant accounting policies (cont‟d) (l)

Depreciation and amortisation: Depreciation is computed on a straight-line basis at annual rates to write down the assets to their estimated residual values at the end of their expected useful lives. No depreciation is charged on freehold land and land rights or capital work-in-progress. The depreciation rates are as follows: Owned assets: Buildings and warehouses Reservoirs, pumps and sewerage plants: Raw water reservoirs and intakes Water treatment plants Clear water reservoirs Sewerage plants Wells, meters and pumps Pipelines Motor vehicles and other equipment Leased assets: Motor vehicles

2½% 5% 5% 5% 5% 10% 10% 25% 25%

Computer software is amortised over 4 years with the exception of the customer information system, which is amortised over 10 years. The depreciation methods, useful lives and residual values are reassessed annually as at the reporting date. (m)

Related parties: A related party transaction is a transfer of resources, services or obligations between related parties, regardless of whether a price is charged. A related party is a person or entity that is related to the entity that is preparing its financial statements (referred to in IAS 24, Related Party Disclosures as the “reporting entity”, that is, the Commission).

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Notes to the Financial Statements (Continued) March 31, 2014 2.

Statement of compliance, basis of preparation and significant accounting policies (contâ€&#x;d) (m)

Related parties (contâ€&#x;d): (a)

A person or a close member of that personâ€&#x;s family is related to the Commission if that person: (i)

has control or joint control over the Commission;

(ii) has significant influence over the Commission; or (iii) is a member of the key management personnel of the Commission or of a parent of the Commission. (b) An entity is related to the Commission if any of the following conditions applies: (i)

The entity and the Commission are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).

(ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member). (iii) Both entities are joint ventures of the same third party. (iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity. (v) The entity is a post-employment benefit plan established for the benefit of employees of either the Commission or an entity related to the Commission. (vi) The entity is controlled, or jointly controlled by a person identified in (a). (vii) A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity). (n)

Foreign currencies: Transactions in foreign currencies are converted at the rates of exchange ruling on the dates of those transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to Jamaica dollars at the rates of exchange ruling at that date. Gains and losses arising from fluctuations in exchange rates are included in profit or loss. For the purpose of the statement of cash flows, realised foreign currency gains and losses are treated as cash items and included in cash flows from operating or financing activities, along with movements in the relevant balances.

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19

Notes to the Financial Statements (Continued) March 31, 2014 2.

Statement of compliance, basis of preparation and significant accounting policies (cont‟d) (o)

Employee benefits: Pensions and other post-employment assets and obligations included in these financial statements have been actuarially determined by a qualified, independent actuary appointed by management. The appointed actuary‟s report outlines the scope of the valuation and the actuary‟s opinion. The actuarial valuations were conducted in accordance with IAS 19, and the financial statements reflect the Commission‟s postemployment benefit obligations as computed by the actuary. In carrying out their audit, the auditors rely on the work of the actuary and the actuary‟s report. (i)

Pensions: Prior to December 31, 2001, pensions were paid to retired employees from internally generated funds under the Pensions (Parochial Officers) Act. However, effective January 1, 2002, the Commission introduced a contributory superannuation scheme which was available to eligible employees, but most employees exercised their option to continue to be eligible for pensions under the Pensions (Parochial Officers) Act. While the Commissioners and management have been advised administratively that the Commission is responsible for all future post-retirement benefits, regardless of the option exercised by employees, appropriate legislative ratification and funding of past-service benefits is still pending. Constructive obligation, in respect of pension payable under the Pensions (Parochial Officers) Act, has been accounted for as defined benefit arrangements. The Commission‟s net obligation in respect of defined pension benefits under both arrangements, described above, is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that value is discounted to determine the present value, and the fair value of any plan assets is deducted. The discount rate applied is the yield at reporting date on long-term government instruments that have maturity dates approximating the terms of the Commission‟s obligation [see note 2(d)(i)]. The calculation is performed by an independent actuary, using the projected unit credit method. When the benefits of the arrangements are improved, the portion of the increased benefit relating to past service by employees is recognised as an expense in profit or loss on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits are vested immediately, the expense is recognised immediately in profit or loss. Re-measurements of the net defined benefit liability, which comprise actuarial gains and losses are recognised immediately in other comprehensive income. The Commission determines the net interest expense (income) on the net defined benefit liability for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability, taking into account any changes in the net defined benefit liability during the period as a result of contributions and benefit payments. Net interest expense and other expenses post-retirement obligations is recognised in profit or loss.

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20 THE NATIONAL WATER COMMISSION Notes to the Financial Statements (Continued) March 31, 2014 2.

Statement of compliance, basis of preparation and significant accounting policies (cont‟d) (o)

Employee benefits (cont‟d): (i)

Pensions (cont‟d): When the benefits of a plan are changed or when the plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognized immediately in profit or loss. The Commission recognizes gains and losses on the settlement of a defined benefit plan when the settlement occurs. Where the calculation results in a benefit to the Commission, the recognised asset is limited to the net total of any unrecognised actuarial losses and past service costs and the present value of any future refunds from the plan or reductions in future contributions to the plan.

(ii)

Other post-retirement benefits: The Commission provides post-retirement benefits to pensioners as is required under the Pensions (Parochial Officers) Act. These benefits are usually conditional upon the employee remaining in service up to retirement age and the completion of a minimum service period. The expected costs of these benefits are accrued over the period of employment, using a methodology similar to that for defined benefit pension plans and the present value of future benefits at the reporting date is shown as an obligation on the statement of financial position. Re-measurement of net defined benefit liability, which comprise actuarial gains and losses are recognised in a similar manner to the defined benefit pension plan.

(p)

Impairment: The carrying amounts of the Commission‟s assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, an asset‟s recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in profit or loss. (i)

Calculation of recoverable amounts: The recoverable amount of the Commission‟s receivable is calculated as the present value of expected future cash flows, discounted at the original effective interest rate inherent in the asset. Receivables with a short duration are not discounted. An impairment loss in respect of an available-for-sale investment previously recognised in equity is transferred to profit or loss. The recoverable amount of other assets is the greater of their net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

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THE NATIONAL WATER COMMISSION Notes to the Financial Statements (Continued) March 31, 2014 2.

Statement of compliance, basis of preparation and significant accounting policies (contâ€&#x;d) (p)

Impairment (contâ€&#x;d): (ii)

Reversals of impairment: An impairment loss in respect of receivables is reversed if the subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognised. An impairment loss is reversed if there has been a change in the estimate used to determine the recoverable amount. For financial assets measured at amortised cost and available-for-sale debt securities, the reversal is recognised in profit or loss. For available-for-sale equity securities, the reversal is recognised directly in other comprehensive income. Where the calculation results in a benefit to the Commission, the recognised asset is limited to the net total of any unrecognised actuarial losses and past service costs and the present value of any future refunds from the plan or reductions in future contributions to the plan. An impairment loss is reversed only to the extent that the assetâ€&#x;s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

(q)

Interest-bearing borrowings: Interest-bearing borrowings are recognised initially at cost. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost, with any difference between cost and redemption value being recognised in profit or loss over the period of the borrowing on an effective interest basis.

(r)

Finance leases: Arrangements by which all the risks and rewards incidental to ownership have been transferred to the Commission are treated as finance leases. The fair value of the asset is capitalised at the inception of the lease and the corresponding obligation is recorded. The interest portion of lease instalments is recognised in profit or loss on the effective interest rate basis.

(s)

Revenue recognition: Operating revenue is recognised when billings are made for services provided by the Commission. Deferred revenue collected in respect of the K-Factor fund established by regulation is recognised as operating revenue in profit or loss when expenditures arising from approved projects are incurred.

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22 THE NATIONAL WATER COMMISSION Notes to the Financial Statements (Continued) March 31, 2014 2.

Statement of compliance, basis of preparation and significant accounting policies (contâ€&#x;d) (t)

Grants: Grants received are deferred where the benefit of a grant is represented by property, plant and equipment. Annual transfers, equivalent to depreciation charged on property, plant and equipment funded by a grant, are made from the deferred credit account to profit or loss. In all other cases, grants are brought to account as revenue of the period in which they are received.

(u)

Income taxes: Taxation on the profit or loss for the year comprises current and deferred tax. Taxation is recognised in profit or loss, except to the extent that it relates to items recognised directly to equity, in which case it is recognised in other comprehensive income. Current tax is the expected tax payable on the income for the year, using tax rates enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted at the reporting date. A deferred tax liability is recognised for all taxable temporary differences, except to the extent that the Commission is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

(v)

Financial instruments: A financial instrument is any contract that gives rise to a financial asset of one enterprise and a financial liability or equity instrument of another enterprise. For the purpose of these financial statements, financial assets have been determined to include cash and cash equivalents, investments and accounts receivable. Similarly, financial liabilities include accounts payable, deposits and retentions, bank overdrafts, short and long-term loans.

(w)

Interest in subsidiary: The Commissionâ€&#x;s interest in its subsidiary is carried at cost less impairment losses.

49

National Water Commission Annual Report 2013/2014


Audited Financials

23 THE NATIONAL WATER COMMISSION Notes to the Financial Statements (Continued) March 31, 2014 3.

Cash and cash equivalents Cash and cash equivalents include the following restricted amounts aggregating US$13,021,000 and JM$509,671,000 (2013: US$37,883,000 and JM$1,939,529,000) broken down as follows: (a)

US$134,000 (2013: US$133,000) deposited for self insurance purposes at Citibank, N.A;

(b)

US$51,000 and JM$33,000 (2013: US$859,000 and JM$29,000) in respect of unutilised loan funds deposited at The Bank of Nova Scotia Jamaica Limited, for the funding of the Kingston Water & Sanitation project, in accordance with a loan agreement with the Inter-American Development Bank;

(c)

US$8,547,000 and JM$49,000 (2013: US$8,968,000 and JM$807,000) in respect of unutilised loan funds deposited at The Bank of Nova Scotia Jamaica Limited, for the funding of the Kingston Metropolitan Area Water Supply Improvement project, in accordance with a loan agreement with the Inter-American Development Bank;

(d)

US$3,000,000 and JM$3,000 (2013: US$3,000,000 and JM$3,000) in respect of unutilised loan funds deposited at The National Commercial Bank (US$) and The Bank of Nova Scotia Jamaica Limited (JM$), for the funding of the Caribbean Regional Fund for Wastewater Management project, in accordance with a loan agreement with the InterAmerican Development Bank;

(e)

US$133,000 (2013: US$10,667,000) in respect of unutilised loan funds deposited at The Scotia Investments Jamaica Ltd., to facilitate the drawdown of the Syndicated Loan, in accordance with a loan agreement with Bank of Nova Scotia Jamaica Limited, National Commercial Bank and First Caribbean International Bank; and;

(f)

US$1,156,000 and JM$509,586,000 (2013: US$14,256,000 and JM$1,938,690,000) in respect of unutilised K-factor funds deposited at The Bank of Nova Scotia Jamaica Limited, for the funding of K-factor projects approved by the Office of the Utilities Regulations (OUR) in accordance with the National Water Commission Review Rates Determination Notice Document No. 2013/WAS/004 DET.003. Lodgements and withdrawals are made from this account as follows: 

Lodgements are to be based on 90% of monthly K-factor billings to customers, up to October 2, 2013; thereafter 92%.

Withdrawals are based on qualifying expenditure, that is: (a)

Value of approved projects with loan financing – principal and interest payments only; and

(b) Value of projects not financed – full payment allowed.

50

National Water Commission Annual Report 2013/2014


24 THE NATIONAL WATER COMMISSION Notes to the Financial Statements (Continued) March 31, 2014 3.

Cash and cash equivalents (cont‟d) (f)

(cont‟d) At March 31, 2014, there was a net shortfall of funds not deposited to this account in the amount of $267,877,000 (2013: $1,327,602,000). During the year ended March 31, 2014, the Commission‟s actual collection experience, as compared to the OUR‟s deemed collection rate of 90%, up to October 2, 2013; and 92% thereafter was 82% (2013: 84%).

4.

Short-term investments

Thousands of Dollars 2014 2013

Reverse repurchase agreements: Jamaica dollars United States dollars [US$443,106 (2013: US$Nil)] Loans and receivables: Certificates of deposit

800,473 48,296

157,507 -

25,861

28,492

874,630

185,999

Included in loans and receivable is $25,861,000 (2013: $28,492,000) being held in escrow. The fair value of the short-term investments approximates to their carrying value. The fair value of the underlying securities for reverse repurchase agreements approximates their carrying value. 5.

Consumer accounts receivable (i)

The aging of consumer accounts receivable at the reporting date was: Thousands of Dollars 2014 Impairment Gross allowance

Gross Due 0-30 days Past due 31-60 days Past due 61-90 days Over 90 days Net balances

2,472,723 757,614 650,109 17,015,119

20,895,565

814,697 233,885 225,490 14,008,348

15,282,420

1,793,272 543,729 575,479 13,792,550

16,705,030

5,613,145

51

National Water Commission Annual Report 2013/2014

2013

Impairment allowance 662,561 159,442 215,717 11,690,882

12,728,602 3,976,428


Audited Financials

25

THE NATIONAL WATER COMMISSION Notes to the Financial Statements (Continued) March 31, 2014 5.

Consumer accounts receivable (contâ€&#x;d) (ii) The movement in the allowance for impairment losses for the year was as follows: Thousands of Dollars 2014 2013 Balance at beginning of year Impairment loss recognised Balance at end of year

12,728,602 2,553,818 15,282,420

10,461,176 2,267,426 12,728,602

(iii) Consumer accounts receivable includes $1,560,448,000 (2013: $773,728,000) receivable from Government of Jamaica entities. 6.

Other accounts receivable and prepaid expenses Prepayments and deposits Interest receivable Rent and royalty receivable Staff loans and advances Other receivables

Thousands of Dollars 2014 2013

203,730 4,894 5,826 32,954 135,041

199,886 1,922 6,334 33,088 65,673

382,445

306,903

These are shown net of an allowance for impairment losses of $163,032,000 (2013: $106,148,000). The movement in the allowance for impairment losses for the year was as follows:

Balance at beginning of year Impairment loss recognised/(recovered) Balance at end of year

Thousands of Dollars 2014 2013

106,148 56,884

163,032

(

106,617 469) 106,148

The aging of other receivables at the reporting date was: Thousands of Dollars 2014 2013 Neither past due or impaired Past due 1-30 days Past due 31 -90 days Over 90 days past due Less: Allowance for impairment

52

National Water Commission Annual Report 2013/2014

252,159 13,543 10,323 269,452

545,477 (163,032) 382,445

294,610 1,089 117,352

413,051 (106,148) 306,903


26 THE NATIONAL WATER COMMISSION Notes to the Financial Statements (Continued) March 31, 2014 7.

Inventories Thousands of Dollars 2014 2013 Pipes, fittings, and valves Pumps Equipment spares Other Less: Allowance for impairment

752,128 393,668 24,250 56,764 1,226,810 ( 197,977) 1,028,833

769,071 402,888 25,108 20,820 1,217,887 ( 199,900) 1,017,987

Materials used and included in operating expenses amounted to $207,115,000 (2013: $298,461,000). 8.

Bank overdrafts and short-term loans Bank overdrafts: Guaranteed by Government of Jamaica Bank loan: Nil (2013: US$638,396) – Guaranteed by Government of Jamaica J$ - Guaranteed by Government of Jamaica

Thousands of Dollars 2014 2013 -

91,685

-

63,131 7,418

-

162,234

In the previous year, bank overdrafts and short-term loans (including those disclosed in note 15), except as specifically secured, were subject to letters from the Ministry of Finance and Planning giving its irrevocable and unconditional undertaking to repay the amounts outstanding if the Commission was unable to do so from its own resources. The bank loan was repayable over ten months; bore interest rate on the USD portion of Nil (2013: 3.4%) and J$ Nil (2013: 8.75%). 9.

Other accounts payable

Thousands of Dollars 2014 2013

Statutory deductions Interest payable Other payables and accrued charges

53

National Water Commission Annual Report 2013/2014

79,617 723,135 358,588

1,161,340

81,974 638,368 656,162

1,376,504


Audited Financials

27

THE NATIONAL WATER COMMISSION Notes to the Financial Statements (Continued) March 31, 2014 9.

10.

Other accounts payable (cont‟d) Other payables and accrued charges include provisions as follows: Thousands of Dollars 2014 2013 Balance at beginning of year Provisions made during the year Provisions utilised during the year Balance at end of year

Comprised of provisions for:

Retroactive and incentive salaries and unused vacation leave

428,002 152,268 (280,369)

593,829 50,821 (216,648)

299,901

428,002

299,901

428,002

Retroactive and incentive salaries are estimated based on salary rates at year-end. Actual rates could differ at final settlement. Investments

Thousands of Dollars 2014 2013

(a)

Available for sale security: (unquoted equities, at cost [see*below] Central Wastewater Treatment Company Limited (CWTC) (b) Loans and receivables : Government of Jamaica Bond [see note below**] Government of Jamaica Bonds [US$Nil (2013: US$51,000)] (a)

-

-

71,449

70,542

-

4,985

71,449

75,527

*This was stated after deducting provision for impairment of $Nil (2013: $63,818,000). See note 11.

(b) **National Debt Exchange.

This represents Fixed Rate Accreting Notes (“FRANs”) issued by the Government of Jamaica (GOJ). As part of the National Debt Exchange, GOJ mandated the Commission and all other state-owned/controlled entities that held GOJ issued notes (“Old Notes”) in February 21, 2013 to exchange those Old Notes for new notes – FRANs – as at February 22, 2013. Old notes with a carrying amount of $90,706,000 at that date were exchanged for FRANs with a fair value of $70,542,000, resulting in a loss of $20,164,000. The terms of the FRANs are as follows:

(i)

A holder of Old Notes will be issued with J$80 of initial principal value of FRANs for every J$100 of principal value of Old Notes.

(ii)

Interest is payable semi-annually on February 15 and August 15 at a fixed rate of 10% p.a. on the accreted principal value with the first payment being due on August 15, 2013.

54

National Water Commission Annual Report 2013/2014


28 THE NATIONAL WATER COMMISSION Notes to the Financial Statements (Continued) March 31, 2014 10.

Investments (cont‟d) (b) **National Debt Exchange (cont‟d): (iii)

Accretion for the additional J$20 of principal value will commence in August 2015 as follows:  0.5% of $100 every six months from August 15, 2015 until August 15, 2020;  Thereafter, 1.0% of $100 every six months until August 15, 2026; and  Thereafter, 1.5% of $100 every six months until August 15, 2027.

(iv)

The FRANs may be redeemed by GOJ on any interest payment date after August 15, 2020 (The value at which the FRAN could be redeemed is not included in the offer document.).

(v)

In accordance with IAS 39, Financial Instruments: Recognition and Measurement, this exchange was accounted for as a disposal of the Old Notes and acquisition, at their fair value, of the FRANs. The effect of this was a loss of J$20,164,000 at March 31, 2013.

As permitted by IAS 1, Presentation of Financial Statements, the mandatory exchange of the notes at a loss was accounted for as “a transaction with owners in their capacity as owners”. Accordingly, the loss arising on this transaction was recognised directly in equity in the nature of a distribution. (c) 11.

The fair value of investments classified as loans and receivables as at March 31, 2014 aggregated $71,449,000 (2013: $75,557,000).

Interest in subsidiary Unquoted equities, at cost Central Wastewater Treatment Company Limited (CWTC)

Thousands of Dollars 2014 2013 -

*

-

On June 14, 2010, Cabinet approved the transfer of GOJ‟s interest in CWTC to the Commission. CWTC‟s place of business is in Jamaica. The Commission previously held 15% in CWTC, which was fully provided for [see also note 10(a)]. In 2013, the formal process of the transfer of the 85% shareholding in CWTC commenced. * This is stated after deducting provision for impairment of $63,818,000 (2013: $Nil). 12.

Intangible assets This represents computer software costs capitalised as follows: At cost: At beginning of year Transfer from projects in progress (note 13)

At end of year Amortisation: At beginning of year Charge for the year At end of year

Thousands of Dollars 2014 2013 500,097 31,284 531,381

55

National Water Commission Annual Report 2013/2014

500,097

160,489 49,590

110,899 49,590

321,302

339,608

210,079

Net book value

500,097 -

160,489


Audited Financials

29 THE NATIONAL WATER COMMISSION Notes to the Financial Statements (Continued) March 31, 2014 13.

Property, plant and equipment Thousands of Dollars Owned assets Freehold land and land rights At cost or valuation: March 31, 2012 Additions Revaluation Disposals/write-off Transfers from inventory Transfers

424,521 829,380 -

Reservoirs, pipelines, Buildings pumps and and sewerage warehouses plants

Motor vehicles and other equipment

1,265,837 902 2,337,001 -

40,367,418 107,548 54,845,799 -

1,383,572 38,836 443,024 -

10,976,399 8,786,236 -

2,019

44,212 9,039,451

-

( 9,041,470)

1,865,432 144,688

10,721,165 9,213,490 ( 212,736)

March 31, 2013 1,253,901 Additions Disposals/write-off Transfer to intangible assets Transfers -

3,605,759 104,404,428 5,828 223,693

March 31, 2014

4,102,669 108,526,022

Depreciation: March 31, 2012 Charge for the year Revaluation Eliminated on disposal/write-off Impairment

1,253,901

491,082

3,897,901

2,190,362

31,958

15,177

1,138

-

-

1,079,366 94,933

57,389,740 5,881,568

1,377,034 111,995

-

-

1,174,299

63,271,308

(

31,284) -

20,903,662 3,016,686 36,231,426

-

-

-

122,364,249 9,587,699 ( 214,681)

228,642 125,265 -

-

March 31, 2014

513,564 ( 1,945)

131,705,983

945,376 69,949 360,571

-

44,212 -

511,619

19,433,890 2,789,743 35,150,930

-

-

15,121,410

295,754 31,729 719,925

-

Total

515,509 54,933,256 8,933,522 58,455,204 ( 1,945) ( 1,945)

( 31,284) 180,242 ( 4,569,225)

-

March 31, 2013 Charge for the year Eliminated on disposal/write-off

Leased motor vehicles

Projects in progress

(

1,011) -

(

352,896 124,054 -

1,489,029

-

(

1,170) 475,780

1,011) 48,273 60,199,036 6,212,550

(

1,170) 66,410,416

Net book values: March 31, 2014

1,253,901

2,928,370

45,254,714

701,333

15,121,410

35,839

65,295,567

March 31, 2013

1,253,901

2,526,393

47,014,688

488,398

10,721,165

160,668

62,165,213

(a) Under Law 34 of 1936, certain of the lands are vested in the Commission but titles thereto are not registered in the name of the Commission, but are held by the Commissioner of Lands on its behalf. (b) Projects in progress include several projects that are being constructed by Rural Water Supply Limited, also a Government of Jamaica entity. At March 31, 2014, capital expenditure on these projects aggregated approximately $376,952,000 (2013: $348,653,000).

56

National Water Commission Annual Report 2013/2014


30 THE NATIONAL WATER COMMISSION Notes to the Financial Statements (Continued) March 31, 2014 13.

14.

Property, plant and equipment (cont‟d) (c)

Additions to projects in progress for the year include capitalised borrowing costs related to the acquisition of assets amounting to $442,919,000 (2013: $500,077,000).

(d)

Property, plant and equipment includes $35,839,000 (2013: $160,668,000), net, under finance leases.

(e)

Property, plant and equipment were re-valued on March 31, 2013, by Castalia Strategic Advisors. The reported surplus on revaluation is included in reserves (see note14).

Reserves

Thousands of Dollars 2014 2013

Arising on transfer of assets (i) Revaluation reserve (ii) Deferred tax on revaluation of property, plant and equipment

15.

64,026 37,837,397 ( 6,270,093)

64,026 37,837,397 ( 6,270,093)

31,631,330

31,631,330

(i)

This comprises primarily the capitalised value of public mains in subdivisions taken over by the Commission from the parish councils.

(ii)

This represents the net surpluses arising on the revaluation of the Commission‟s property, plant and equipment as at the IFRS transition date of April 1, 2002 and March 31, 2013 (see note 13).

Long-term loans (a) (b) (c) (d) (e) (f) (g) (h) (i) (j)

Thousands of Dollars 2014 2013

BNP – Paribas [€719,431 (2013: €1,199,052)] BNP – Paribas [€1,243,913 (2013: €2,073,188)] BNP – Paribas [€4,798,768 (2013: €5,758,521)] Government of Jamaica: (i) Jamaica dollar (ii) US dollar [US$7,499,999 (2013: US$7,499,999)] Inter-American Development Bank [US$22,135,027 (2013: US$19,671,832)] Inter-American Development Bank [US$33,539,307 (2013: US$13,669,582] The Bank of Nova Scotia Jamaica Limited [US$2,002,763 (2013: US$2,574,985)] The Bank of Nova Scotia Jamaica Limited [€497,779 (2013: €640,001)] JCSD Trustee Services Limited BNP – Paribas [US$66,509,808 (2013: US$71,830,592)]

Balance carried forward

57

National Water Commission Annual Report 2013/2014

108,401 187,427 723,055

151,144 261,331 725,877

789,645 821,808

789,645 741,649

2,425,432

1,945,279

3,675,050

1,351,737

219,452

254,631

75,003 540,000 7,287,772

80,674 720,000 7,103,076

16,853,045

14,125,043


Audited Financials

31

THE NATIONAL WATER COMMISSION Notes to the Financial Statements (Continued) March 31, 2014 15.

Long-term loans (contâ€&#x;d)

Thousands of Dollars

Balance brought forward (k) (l) (m) (n) (o) (p)

Vinci Construction Grand Projects [US$ 9,135,188 (2013: US$9,857,163)] Vinci Construction Grand Projects [US$3,402,388 (2013: US$3,671,286)] National Commercial Bank Jamaica Limited National Housing Trust Syndicated loan [US$93,450,854 (2013: US$60,246,636)] JCSD Trustee Services Limited Less: Current maturities

2014

2013

16,853,045

14,125,043

1,000,983

974,740

372,814 104,002 10,239,823 1,889,979 30,460,646

368,373 41,000 110,528 5,957,579 1,889,979 23,467,242

( 2,420,537) 28,040,109

( 1,667,051) 21,800,191

All of the loans are guaranteed by the Government of Jamaica (see also note 8) with the following terms: (a)

The loan is for a period of eight years and is repayable in sixteen equal consecutive semiannual instalments maturing May 21, 2015. Interest is payable semi-annually at a fixed rate of 4.21% (2013:4.21%).

(b)

The loan is for a period of eight years and is repayable in sixteen equal consecutive semiannual instalments, maturing May 27, 2015. Interest is payable semi-annually at a fixed rate of 4.56% (2013:4.56%).

(c)

This loan is for a period of ten years and is repayable in twenty equal consecutive semiannual instalments, maturing December 15, 2018. Interest is payable semi-annually at a fixed rate of 4.95% (2013:4.95%).

(d)

(i)

The Jamaica dollar loan represents a portion of a loan extended by the Government of China to the Government of Jamaica and which was on-lent to the Commission for the procurement of pipes, fittings and valves. The loan is repayable in twentyone equal semi-annual instalments which should have commenced March 21, 2011. It bears a fixed interest rate at 2%. The loan is repayable in Jamaica dollars.

(ii) The US dollar loan comprises a credit facility extended by the Government of India to the Government of Jamaica in 2007, and which was on-lent to the Commission for the procurement of pumps and generators. Documentation and repayment terms are still to be formalised but interest is being accrued at 3.375% per annum. (e)

This loan represents aggregate drawdowns and is for a period of nineteen years and six months with a moratorium on principal repayment commencing March 21, 2011 and the last instalment to be paid no later than September 21, 2030. The loan is repayable in 40 equal semi-annual instalments. The loan bears interest at a variable rate to be determined by the bank periodically and interest is paid semi-annually. Variable interest rate for the quarter ended March 31, 2014 was 1.16% (2013: 1.19%).

58

National Water Commission Annual Report 2013/2014


32 THE NATIONAL WATER COMMISSION Notes to the Financial Statements (Continued) March 31, 2014 15.

Long-term loans (contâ€&#x;d) (f)

The loan represents aggregate drawdowns and is for a period of twenty (20) years with a moratorium period of five (5) years and six (6) month. The loan is repayable in 30 equal semi-annual instalments. Interest is paid semi-annually. Interest rate as at March 31, 2014 was 1.16% (2013: 1.19%).

(g)

The loan is for a period of five years and is repayable in ten (10) equal consecutive semiannual instalments of US$286,111, maturing September 2017; this loan was refinanced in November 2012. Interest is payable quarterly at a fixed rate of 6.75% (2013: 6.75%).

(h)

The loan is for a period of five years and was repayable in seven (7) equal consecutive semi-annual instalments of â‚Ź71,111, maturing September 2017; refinanced as at November 2012. Interest is payable quarterly at a fixed rate of 6.25% (2013: 6.25%) per annum.

(i)

The loan, in the form of tradable variable rate notes, is for a period of ten years with a moratorium on principal repayments for twenty four (24) months. The loan is repayable in ten (10) equal consecutive semi-annual instalments of $90 million, commencing April 2012 to October 2016. Interest is payable semi-annually and will be variable with a reset of 175 basis points above the weighted average (6) month Government of Jamaica Treasury Bill yield. At March 31, 2014 the interest rate was 9.59% (2013: 8.32%).

(j)

The loan is for a period of seven years with moratorium on principal repayments for thirty (30) months. The loan is repayable in twenty-eight (28) equal semi-annual instalments, commencing September 2012. Interest is capitalised on principal and payable semi-annually with a fixed interest rate of 7.02% (2013: 7.02%).

(k) and (l) These loans are for a period of seven years with moratorium on principal repayments of thirty (30) months. The loans are repayable in twenty-eight (28) equal semi-annual instalments, commencing September 2012. Interest payments which commenced September 2010 are payable semi-annually with a fixed interest rate of 9.77%. (m)

The loan is for a period of three (3) years and repayable in five (5) equal quarterly instalments of $41 million, maturing May 2014. Interest is payable semi-annually at a fixed interest rate of 15.5% (2013: 15.5%) per annum.

(n)

The loan is for a period of fifteen (15) years with moratorium on principal and interest repayments for three (3) years and is repayable in one hundred and forty (144) equal monthly instalments of $1,142,222, maturing October 2022. Interest is payable monthly at a fixed interest rate of 5% (2013: 5%) per annum.

59

National Water Commission Annual Report 2013/2014


Audited Financials

33

THE NATIONAL WATER COMMISSION Notes to the Financial Statements (Continued) March 31, 2014 15.

Long-term loans (cont‟d) (o)

This loan represents aggregate drawdowns on a syndicated loan from three institutions, the Bank of Nova Scotia Jamaica Limited, National Commercial Bank Jamaica Limited and First Caribbean International Bank Jamaica Limited for US$55 million, US$40 million and US$20 million respectively. The loan is for a period of seven (7) years with moratorium on principal repayments for two and a half (2½) years. The loan is repayable in seventeen (17) quarterly equal instalments of US$1,916,667 and a balloon payment of US$82,416,667 commencing September 2014. Interest is payable quarterly; interest is calculated on a margin of 5.25% + US LIBOR; at March 31, 2014, the relevant US LIBOR rate was 0.23% (2013: 0.28%).

(p)

This loan is for a period 10 years with moratorium on principal also for 10 years. A lump sum payment of principal of 1,889,979,000 is due October 6, 2022. Interest rate is variable calculated on a margin of 1.75% + average treasury yield. Average treasury yield at March 31, 2014 was 7.96% (2013: 6.22%).

Aggregate future payments pursuant to these loan agreements, with reference to reporting date are as follows:

Minimum loan payments due: Within 1 year Within 1-2 years Within 2-5 years Within 5 –10 years More than 10 years

Less: Future finance charges

Present value of future minimum loan payments 16.

Thousands of Dollars 2014 2013 4,180,326 3,553,648 11,385,847 14,185,469 9,201,102

42,506,392 (12,045,746) 30,460,646

2,755,985 3,508,282 12,927,948 8,143,705 4,530,308

31,866,228 ( 8,398,986) 23,467,242

Obligations under finance leases This represents finance leases for motor vehicles. Future payments under these leases, with reference to reporting date are as follows: Thousands of Dollars 2014 2013 Minimum lease payments due: Within 1 year Within 1-3 years

Less: Future finance charges

Present value of future minimum lease payments Less: Current portion

Balance at end of year

60

National Water Commission Annual Report 2013/2014

77,899 17,721 95,620 ( 8,684)

86,936 (70,863) 16,073

107,548 95,992 203,540 ( 30,068)

173,472 ( 86,017) 87,455


34

THE NATIONAL WATER COMMISSION Notes to the Financial Statements (Continued) March 31, 2014 17.

K-Factor fund Under the National Water Commission Review Rates Determination Notice Document No. #WAT 2008/01, the Commission was empowered to impose a K-Factor charge of 25% on water, sewage and service charges up to October 2, 2013. Effective October 3, 2013, the National Water Commission Review Rates Determination Notice Document No. 2013/WAS/004 DET.003, the Commission was empowered to impose a K-Factor charge of 14% on water, sewerage and service charges. In subsequent years, 20152028, the K-Factor charge will be 14% on water, sewerage and service charges. The amount so collected, net of X-Factor, which represents efficiencies gained, is to be used for the purpose of financing a capital programme for efficiency improvement inclusive of mains and sewerage replacement and other Non-Revenue Water (NRW) activities. The fund is represented as follows: Thousands of Dollars 2014 2013 Liability balance at beginning of year K-Factor billings during the year Reduced by transfers to profit or loss for qualifying expenditures incurred Asset balance at end of year

3,984,630

1,104,831 3,999,786

(3,984,630)

(5,104,617)

-

-

At March 31, 2014, qualifying expenditures incurred but not transferred to profit or loss aggregated $5,276,597,000 (2013: $2,002,592,000). These amounts are expected to be utilised against future K-factor billings within twelve months of the reporting date. 18.

Deferred income Thousands of Dollars 2014 2013 Deferred capital grants at beginning of year Received during the year: Government of Jamaica International grants: Inter-American Development Bank

Reduced by transfers to profit or loss consequent on depreciation charged for the year on property, plant and equipment purchased out of capital grants Balance at end of year

61

National Water Commission Annual Report 2013/2014

8,409,229

7,964,363

663,516

894,544

26,149

296,451

9,098,894

9,155,358

( 812,071)

( 746,129)

8,286,823

8,409,229


Audited Financials

35

THE NATIONAL WATER COMMISSION Notes to the Financial Statements (Continued) March 31, 2014 19.

Employee benefit obligations Employee benefits obligation recognised in the statement of financial position in respect of: Thousands of Dollars 2014 2013 (Restated)* Pensions (Parochial Officers) Act NWC Pension Scheme

15,420,000 1,050,716

Pension benefit obligations (a) Post-retirement medical and other benefit obligations (b)

12,258,000 787,251

16,470,716 5,763,628

13,045,251 3,144,108

22,234,344

16,189,359

(a) Pension benefit obligations: ( i) Movement in the net defined liability Thousand of Dollars Fair value of plan assets 2014 2013 (Restated)*

Defined benefit obligation 2014 2013 (Restated)* Balance as at April 1

Net defined benefit liability 2014 2013 (Restated)*

12,745,075

321,173 1,419,892

309,648 1,233,279

321,173 ( 160,587) ( 130,751) 1,259,305

309,648 1,102,528

1,741,065

1,542,927

( 160,587) ( 130,751) 1,580,478

1,412,176

Included in profit or loss: Current service cost Interest cost (income)

14,582,136

Included in other comprehensive income: Re-measurement loss/(gain): Actuarial loss/(gain) arising from: Demographic assumptions 1,558,568 Financial assumptions 1,212,182 Experience adjustment ( 52,474) Return on plan assets -

900,808 -

2,718,276

900,808

36,762

24,782

(1,536,885) (1,293,700) 13,045,251 11,451,375

( (

16,981) 9,511) 27,339 -

1,541,587 1,202,671 ( 25,135) 56,669 -

900,808 56,669

847

56,669

957,477

36,762) (

24,782)

2,719,123

Other : Annuities Contributions paid by employer Benefits paid Balance at March 31

(

-

(

51,352 820,910) (

51,484 ( 213,488) ( 215,261) ( 682,940) 108,910 70,940 (

162,136) ( 712,000)(

163,777) 612,000)

(

732,796) (

606,674) ( 141,340) ( 169,103)(

874,136)(

775,777)

18,308,681

14,582,136

(1,837,965) (1,536,885) 16,470,716 13,045,251

*See note 27

62

-

National Water Commission Annual Report 2013/2014


36 THE NATIONAL WATER COMMISSION Notes to the Financial Statements (Continued) March 31, 2014 19.

Employee benefit obligations (cont‟d) (a) Pension benefit obligations (cont‟d): (ii)

Plan assets consist of the following:

Annuities Equities Fixed income securities (iii)

Thousands of Dollars 2014 2013 (Restated)* 310,284 243,259 1,284,422

1,837,965

242,866 210,850 1,083,169

1,536,885

The following were the principal actuarial assumptions at the reporting date (expressed as weighted averages): 2014 2013 Discount rate Expected return on plan assets Future salary increases Future pension increases

9.5% 9.5% 5.5% 5.5%

10.0% 9.5% 5.5% 5.5%

Assumptions regarding future mortality are based on GAM 94 table. The expected long-term rate of return on plan assets is based on the assumed long-term rate of inflation. At March 31, 2014 the weighted average duration at the defined benefit obligation was 34 years (2013: 39 years). (iv)

Sensitivity analysis on projected benefit obligation: The calculation of the projected benefit obligation is sensitive to the assumptions used. The table below summarizes how the projected benefit obligation measured at the end of the reporting period would have increased/(decreased) as a result of a change in the respective assumptions by one percentage point. In preparing the analyses for each assumption, all others were held constant. 2014 $’000 $’000 1% 1% Increase Decrease Discount rate Future salary increase Future pension increases

2,395,832 620,160 2,359,800

3,038,159 548,902 1,969,600

As mortality continues to improve, estimates of life expectancy are expected to increase. An increase of one year in life expectancy will increase the employee benefit obligation by approximately 308,300,000, while a decrease of one year in life expectancy will result in an equal but opposite effect. *See note 27

63

National Water Commission Annual Report 2013/2014


Audited Financials

37 THE NATIONAL WATER COMMISSION Notes to the Financial Statements (Continued) March 31, 2014 19.

Employee benefit obligations (contâ€&#x;d) (b)

Post-retirement medical and other benefit obligations: (i)

Movement in net post-retirement medical and other benefit liability: Defined benefit obligation 2014 2013 (Restated)* Balance as at April 1 Included in profit or loss: Current service cost Interest cost

Balance at March 31 (ii)

2,471,629

104,501 311,073

86,154 244,114

526,883 324,492 1,425,320

407,604

2,276,695

407,604

415,574

Included in other comprehensive income: Re-measurement loss/(gain): Actuarial loss/(gain) arising from: Demographic assumptions Financial assumptions Experience adjustment Other: Benefits paid

3,144,108

(

72,749)

5,763,628

330,268

(

65,393)

3,144,108

Principal actuarial assumptions at the reporting date (expressed as weighted averages): Discount rate Medical claims growth

2014

2013

9.5% 8.5%

10.0% 9.0%

Actuarial assumptions regarding mortality, inflation, etc. follow the same bases as those outlined in note 19 (a)(ii) above. At March 31, 2014, the weighted averages duration of defined benefit obligations was 30 years (2013 : 34 years).

*See note 27

64

National Water Commission Annual Report 2013/2014


38 THE NATIONAL WATER COMMISSION Notes to the Financial Statements (Continued) March 31, 2014 19.

Employee benefit obligations (cont‟d) (b)

Post-retirement medical and other benefit obligations (cont‟d): (iii)

Sensitivity analysis on projected benefit obligation: The calculation of the projected benefit obligation is sensitive to the assumptions used. The table below summarizes how the projected benefit obligation measured at the end of the reporting period would have increased/(decreased) as a result of a change in the respective assumptions by one percentage point. In preparing the analyses for each assumption, all others were held constant. $‟000 1% Increase Discount rate Future medical cost

2014

811,025 699,377

$‟000 1% Decrease

1,039,801 543,683

As mortality continues to improve, estimates of life expectancy are expected to increase. An increase of one year in life expectancy will increase the medical and other benefit obligations by approximately $104,600,000, while a decrease of one year in life expectancy will result in an equal but opposite effect. (c)

20.

The estimated pension contributions expected to be paid into the plan during the next financial year is $224,871,000.

Deferred taxation Deferred tax liability is attributable to the following:

Unrealised foreign exchange gain Accrued investment income Finance lease Other accounts payable Employee benefits Property, plant and equipment

2014 Thousands of Dollars

Balance at March 31, 2013 (Restated)*

Recognised in profit/loss [note 22(a)]

6,846 838) 57,819 254,334 5,395,928 (8,958,657)

( 1,868) ( 793) ( 28,476) 27,785 349,507 (807,471)

4,978 ( 1,631) 29,343 282,119 1,665,273 7,410,708 (9,766,128)

(3,244,568)

(461,316)

1,665,273

(

*See note 27

65

National Water Commission Annual Report 2013/2014

Recognised equity

Balance at March 31, 2014

(2,040,611)


Audited Financials

39

THE NATIONAL WATER COMMISSION Notes to the Financial Statements (Continued) March 31, 2014 20.

21.

22.

Deferred taxation (contâ€&#x;d) Balance at March 31, 2012 Unrealised foreign exchange gain Accrued investment income Finance lease Other accounts payable Employee benefits Property, plant and equipment

2013 Thousands of Dollars Recognised in profit/loss [note 22(a)]

Recognised equity

Balance at March 31, 2013 (Restated)*

-

6,846 838) 57,819 254,334 5,290,005 (2,688,564)

105,923 (6,270,093)

6,846 838) 57,819 254,334 5,395,928 (8,958,657)

-

2,919,602

(6,164,170)

(3,244,568)

(

(

The amount recognised in equity for property, plant and equipment relates only to the upliftment in value of the deemed cost. The amount recognised in income for property, plant and equipment relates to the net impact of depreciation and capital allowances given. Operating revenue The Commission's revenue arises primarily from the supply of water, sewerage and service charges. Disclosure of expenses/(income) and related party transactions (a)

Operating expenses classified by type, are as follows:

Salaries, wages and related cost Repairs and maintenance Administration Electricity Telephone Fuel and lubricants Purchases – water

Thousands of Dollars 2014 2013

21,093,427

*See note 27

66

6,507,028 3,149,411 4,227,513 6,487,201 113,243 279,971 329,060

National Water Commission Annual Report 2013/2014

6,093,633 2,252,627 3,490,365 5,965,447 110,938 265,253 291,767

18,470,030


40 THE NATIONAL WATER COMMISSION Notes to the Financial Statements (Continued) March 31, 2014 22.

Disclosure of expenses/(income) and related party transactions (cont‟d) (b)

Loss before taxation is stated after charging:

Commissioners‟ emoluments - fees Staff costs

Compensation for key management: Short-term benefits Post retirement benefits (c)

2,084 6,507,028

1,799 6,093,633

222,654 38,052

179,331 39,544

Significant transactions with government entities during the year were as follows:

Revenue: Water and sewerage services Expenses: Purchases of water Repairs and maintenance Trucking of water 23.

Thousands of Dollars 2014 2013

Thousands of Dollars 2014 2013 (2,527,422) reinstatement of roads sewerage services

268,996 11,384 795,008 55,831

(2,173,194) 226,549 4,380 480,000 17,970

Taxation (a)

Taxation is computed at 33⅓% of the Commission‟s results for the year, adjusted for tax purposes, and comprises: Thousands of Dollars 2014 2013 (Restated)* Current tax expense: Income tax 511,609 20,950 Withholding tax written off 55,357 566,966 20,950 Deferred taxation: Origination and reversal of temporary differences (note 20)

*See note 27

67

National Water Commission Annual Report 2013/2014

461,316

(2,919,602)

1,028,282

(2,898,652)


Audited Financials

41

THE NATIONAL WATER COMMISSION Notes to the Financial Statements (Continued) March 31, 2014 23.

24.

Taxation (contâ€&#x;d) (b)

Reconciliation of tax expense:

Thousands of Dollars 2014 2013 (Restated)*

Loss before taxation

(5,955,823)

(1,745,583)

Computed "expected" tax credit@331/3% Difference between loss for financial statements and tax reporting purposes on: Exempt income Depreciation charge and capital allowances Disallowed expenses/(income) and other items, net Withholding tax written off Gain on disposal of property, plant and equipment

(1,985,274)

( 581,861)

( 270,690) 2,198,517 1,030,927 55,357

( 248,710) 238,908 (2,306,133) -

(

(

555)

1,028,282

856)

(2,898,652)

Contingent liabilities (a)

At March 31, 2014, the Commission was contingently liable in respect of various lawsuits alleging damages aggregating approximately $404 million (2013: $448 million) the outcome of which cannot be determined at this time. Consequently, these have not been provided for in these financial statements.

(b)

In March 1999, the Commission was assessed for interest and penalties aggregating $151 million on income tax payable for the year 1997. The Ministry of Finance and Planning by letter dated October 29, 1999, granted approval for a full waiver of the outstanding penalty as at March 31, 1999. Tax Administration Jamaica was informed of this decision, however, the claim has not been formally discharged.

(c)

At March 31, 2014, no provision has been made in the financial statements for employee benefits and other post-retirement liabilities relating to two categories of employees who have not made a claim for their pension and other post employment benefits.

(d)

At March 31, 2014, there were disputes in respect of amounts due to suppliers, for which no provision has been made in the financial statements as follows: Thousands of Dollars 2014 2013 Central Wastewater Treatment Company Limited Other

*See note 27

68

National Water Commission Annual Report 2013/2014

2,052,149 -

2,052,149

1,871,245 546,040

2,417,285


42 THE NATIONAL WATER COMMISSION Notes to the Financial Statements (Continued) March 31, 2014 25.

Commitments (a)

Capital: At March 31, 2014, there were capital commitments amounting to approximately $3,025 million (2013: $13,677 million) in relation to contracts for capital expenditure. No provision has been made in these financial statements for the unexpended capital commitments as at reporting date although appropriate funding has been approved.

(b)

Operating leases: At March 31, 2014, the Commission had operating lease commitments aggregating $70,524,000 (2013: $224,488,000) of which $48,624,000 (2013: $28,181,000) is due within one year.

(c)

Loans: At March 31, 2014, the Commission had an approved loan facility of €15,000,000 (2013: €15,000,000), for which no draw down was made and, consequently, no liability has been recognised in these financial statements.

26.

Financial instruments (a)

Financial risk management: The Commission has exposure to the following risks from its use of financial instruments:    

Credit risk Liquidity risk Market risk Operational risk

This note presents information about the Commission‟s exposure to each of the above risks arising in the ordinary course of the Commission‟s business, the Commission‟s objectives, policies and processes for measuring and managing risk, and the Commission‟s management of capital. The Commissioners oversee the Commission‟s risk management framework. Key management has responsibility for monitoring the Commission‟s risk management policies in their specified areas and report monthly to the Commissioners on their activities.

69

National Water Commission Annual Report 2013/2014


Audited Financials

43

THE NATIONAL WATER COMMISSION Notes to the Financial Statements (Continued) March 31, 2014 26.

Financial instruments (cont‟d) (a)

Financial risk management (cont‟d): The Commission‟s risk management policies are established to identify and analyse the risks faced by the Commission, to set appropriate risk limits and controls, and to monitor risk and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions. The Commission, through training and management standards and procedures, aims to develop a disciplined and constructive control environment, in which all employees understand their roles and obligations. The Commission‟s risk management policies also include the functions of its internal audit department which undertakes both regular and ad-hoc reviews of risk management controls and procedures, the result of which are reported to the Commissioners. (i)

Credit risk: Credit risk is the risk of financial loss to the Commission if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Commission‟s consumer accounts receivable, which is stated net of an allowance for impairment. As part of its management of credit risk, the Commission requires cash deposits from certain consumers, which generally cover their significant credit risk. Additionally, management has credit practices in place to minimise exposure to credit risk, generally. This involves procedures for the prompt disconnection of services, and recovery of, amounts owed by defaulting customers. The maximum credit exposure is represented by the carrying amount of financial assets on the statement of financial position. Cash and cash equivalents and reverse repurchase agreements, short-term and long-term investments: The Commission limits its exposure to credit risk by investing only in liquid assets with counterparties that have high credit ratings. Cash and cash equivalents and reverse repurchase agreements, short-term and long-term investments are held with reputable financial institutions. Therefore, management does not expect any counterparty to fail to meet its obligations. Collateral is held for all reverse repurchase agreements.

70

National Water Commission Annual Report 2013/2014


44 THE NATIONAL WATER COMMISSION Notes to the Financial Statements (Continued) March 31, 2014 26.

Financial instruments (cont‟d) (a)

Financial risk management (cont‟d): (i)

Credit risk (cont‟d): Consumer accounts and other receivables The Commission establishes an allowance for impairment losses that represents its estimate of incurred losses in respect of consumer accounts receivable and other receivables. The main component of this allowance is a specific loss component that relates to individually significant exposures. Whilst the Commission has preferential rights embodied in law in respect to the collection of its rates [see note 1(a)], the allowance for impairment is determined based on historical payment statistics for similar financial assets and an assessment of the debtor‟s ability to settle debt. There is concentration in respect of consumer accounts receivable with the Government of Jamaica entities (see note 5), which at March 31, 2014, represented 7.5% (2013: 5%) of gross consumer accounts receivable. There has been no change to the Commission‟s exposure to credit risk or the manner in which it measures and manages the risk.

(ii)

Liquidity risk: Liquidity risk also referred to as funding risk, is the risk that the Commission will not meet its financial obligations as these fall due. Liquidity risk may result from an inability to sell a financial asset quickly at, or close to, its fair value. Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, and the availability of funding through an adequate amount of committed credit facilities. The Commission‟s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to its reputation. The Commission‟s material liabilities and significant receivables are guaranteed by or are otherwise with the Government of Jamaica as counter-party.

71

National Water Commission Annual Report 2013/2014


Audited Financials

45

THE NATIONAL WATER COMMISSION Notes to the Financial Statements (Continued) March 31, 2014 26.

Financial instruments (cont‟d) (a)

Financial risk management (cont‟d): (ii)

Liquidity risk (cont‟d): An analysis of the contractual maturities of the Commission‟s financial liabilities, including interest payments and excluding the impact of netting agreements, is presented below. Thousands of Dollars Carrying Amount

Contractual undiscounted cash flows Total Less cash than 1-2 2-5 outflow 1 year years years

5-10 years

More than 10 years

March 31, 2014: Deposits and retentions 279,874 Trade accounts payable 5,756,909 Obligation under finance leases 86,936 Other accounts payable 1,161,340 Loans 30,460,646

279,874 5,756,909

279,874 5,756,909

95,722 1,161,340 42,506,392

78,292 1,161,340 4,180,326

17,430 3,553,648 11,385,847 14,185,469

9,201,102

Total financial liabilities 37,745,705

49,800,237 11,456,741

3,571,078 11,385,847 14,185,469

9,201,102

-

-

-

-

Thousands of Dollars Carrying Amount

(iii)

Contractual undiscounted cash flows Total Less cash than 1-2 2-5 outflow 1 year years years

March 31, 2013: Bank overdrafts and loan 162,234 Deposits and retentions 175,309 Trade accounts payable 5,868,036 Obligation under finance leases 173,472 Other accounts payable 1,376,504 Loans 23,467,242

163,292 175,309 5,868,036

163,292 175,309 5,868,036

203,540 1,376,504 31,866,228

107,548 1,376,504 2,755,985

Total financial liabilities 31,222,797

39,652,909 10,446,674

-

-

5-10 years

More than 10 years

-

-

95,992 3,508,282 12,927,948

8,143,705

4,530,308

3,604,274 12,927,948

8,143,705

4,530,308

Market risk: Market risk is the risk that changes in market prices, such as interest rates, foreign exchange rates and equity prices will affect the value of the Commission‟s assets, the amount of its liabilities and/or the Commission‟s income. Market risk arises in the Commission due to fluctuations in the value of assets and liabilities.

72

National Water Commission Annual Report 2013/2014


46 THE NATIONAL WATER COMMISSION Notes to the Financial Statements (Continued) March 31, 2014 26.

Financial instruments (cont‟d) (a)

Financial risk management (cont‟d): (iii)

Market risk (cont‟d): The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk. The nature of the Commission‟s exposures to market risks and its objectives, policies and processes for managing these risks have not changed significantly over the prior period. For each of the major components of market risk the Commission has policies and procedures in place which detail how each risk is managed and monitored. The management of each of these major components of market risk and the exposure of the Commission at the reporting date to each major risk are addressed below. Derivative financial instruments are not used to reduce exposure to fluctuations in interest and foreign exchange rates. At March 31, 2014, the Commission had no significant exposure to market risk relating to changes in equity prices. 

Interest rate risk: Interest rate risk is the risk that the value of or future cash flows from a financial instrument will fluctuate due to changes in market interest rates. The Commission contracts financial liabilities at fixed and floating interest rates. These primarily relate to bank overdraft and loans subject to interest rates fixed in advance, which may be varied by appropriate notice by the lenders. The maturity profiles and interest rates of the Commission‟s long-term loans are disclosed in note 15 and the details of bank overdrafts and short-term loans in note 8. Interest bearing financial assets relate to cash and cash equivalents and shortterm investments. These are materially contracted at fixed interest rates for the duration of the term.

73

National Water Commission Annual Report 2013/2014


Audited Financials

47

THE NATIONAL WATER COMMISSION Notes to the Financial Statements (Continued) March 31, 2014 26.

Financial instruments (cont‟d) (a)

Financial risk management (cont‟d): (iii)

Market risk (cont‟d): 

Interest rate risk (cont’d): At March 31, 2014, the interest profile of the Commission‟s interest-bearing financial instruments was: Thousands of Dollars Carrying amount 2014 2013 Fixed rate instruments: Financial assets 2,873,842 6,193,439 Financial liabilities (10,868,554) (10,931,569) ( 7,994,712)

( 4,738,130)

Thousands of Dollars Carrying amount 2014 2013

Variable rate instruments: Financial liabilities

(19,592,092) ( 12,697,908)

Fair value sensitivity analysis for fixed rate instruments: The Commission does not account for any financial instrument at fair value, therefore a change in interest rates at the reporting date would not affect the carrying value of the Commission‟s financial instruments. Cash flow sensitivity analysis for variable rate instruments: An increase of 250 basis points (2013:400) or a decrease of 100 basis points (2013:100) in interest rates at the reporting date would have increased/(decreased) reserves and surplus or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The analysis is performed on the same basis for 2013. Thousands of Dollars 2014 2013 Effect on Effect on profit or loss profit or loss 250bp 100bp 400bp 100bp increase decrease increase decrease Cash flow sensitivity (net)

74

489,802 (195,921)

National Water Commission Annual Report 2013/2014

507,916

(126,979)


48 THE NATIONAL WATER COMMISSION Notes to the Financial Statements (Continued) March 31, 2014 26.

Financial instruments (cont‟d) (a)

Financial risk management (cont‟d): (iii)

Market risk (cont‟d): 

Foreign currency risk: Foreign currency risk is the risk that the value of or future cash flows from a financial instrument will fluctuate due to changes in foreign exchange rates. The Commission incurs foreign currency risk primarily on purchases and borrowings that are denominated in a currency other than the Jamaica dollar. The currencies giving rise to significant foreign currency risk are the United States dollar (US$) and Euro (€). The risk is partially mitigated by the effect of exchange rate adjustments under the Commission‟s tariff structure [(see note 1(b)]. The Commission manages foreign exchange exposure by maintaining adequate liquid resources in appropriate currencies and by managing the timing of payments on foreign currency liabilities. The table below shows the Commission‟s foreign currency exposure at the reporting date: Thousands of currency equivalents 2014 2013 € J$ US$ €

US$ Cash and cash equivalents 14,875 Investments 443 Other accounts receivable and prepaid expenses 22 Trade accounts payable ( 8,898) Other accounts payable ( 4,372) Long-term loans (237,675) Net exposure

(235,605)

J$

-

1,620,668 48,296

37,890 51

-

3,710,815 5,009

-

2,368

18

-

1,739

( 5,383) ( 1,777,016) ( 18,408) ( 2,900) ( 2,185,829) ( 100) ( 494,134) ( 4,245) ( 132) ( 436,453) ( 7,260) (27,137,018) (189,076) ( 9,671) (19,916,089)

(12,743) (27,736,836) (173,770) (12,703) (18,820,808)

Exchange rates in terms of Jamaica dollars were as follows: Buying Selling Buying J$ equivalent J$ equivalent J$ equivalent of US$ of US$ of Euro € At March 31, 2014: At March 31, 2013:

75

108.99 97.94

109.57 98.89

National Water Commission Annual Report 2013/2014

149.94 125.06

Selling J$ equivalent of Euro € 150.68 126.05


Audited Financials

49

THE NATIONAL WATER COMMISSION Notes to the Financial Statements (Continued) March 31, 2014 26.

Financial instruments (cont‟d) (a)

Financial risk management (cont‟d): (iii)

Market risk (cont‟d): 

Foreign currency risk (cont’d): Sensitivity analysis: Movement of J$ against the United States dollar 15% (2013: 10%) weakening 1% (2013:1%) strengthening Movement of J$ against the Euro 15% (2013: 10%) weakening 1% (2013:1%) strengthening

(b)

Thousands of Dollars Increase/(decrease) in loss before taxation 2014 2013 (3,872,454) 258,164

(1,718,351) 171,835

Thousands of Dollars Increase/(decrease) in loss before taxation 2014 2013 ( 288,005) 19,200

( 160,112) 16,011

Capital risk management: Capital risk is the risk that the Commission fails to comply with mandated regulatory requirements, resulting in a breach of its regulatory framework, guiding legislation, with possible adverse effects on its tariff structure. The Commission‟s objectives when managing capital, which is a broader concept than the „equity‟ on the face of the statement of financial position, are:    

To comply with the operational requirements set by the regulators; To safeguard the Commission‟s ability to continue as a going concern; To maintain creditor and market confidence; and To maintain a strong capital base to support the development of its business.

There were no changes in the Commission‟s approach to capital management during the year.

76

National Water Commission Annual Report 2013/2014


50 THE NATIONAL WATER COMMISSION Notes to the Financial Statements (Continued) March 31, 2014 26.

Financial instruments (cont‟d) (c)

Fair value: Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Market price is used to determine fair value where an active market exists as it is the best evidence of the fair value of a financial instrument. The amounts reflected in the financial statements for cash and cash equivalents, short-term investments, consumer accounts receivable, other accounts receivable and prepaid expenses, investments, bank overdrafts and loans and trade and other accounts payable are assumed to approximate to their fair values. Long-term loans are stated at contracted settlement values, which are considered to be broadly equivalent to fair value. Additionally, the cost of all monetary assets and liabilities has been appropriately adjusted to reflect estimated losses on realisation or discounts on settlement. Determination of fair value and fair values hierarchy for long term instruments IFRS 7 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. These two types of inputs have created the following fair value hierarchy: Level 1 – Quoted prices in active markets for identical assets or liabilities. This level includes listed equity securities and debt instruments on exchanges.

Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 – Inputs for the asset or liability that are not based on observable market data (unobservable inputs). This level includes equity investments and debt instruments with significant unobservable components. This hierarchy requires the use of observable market data when available. The Commission consider relevant observable market rice in its valuation where possible.

Investment that was classified as level 3 aggregating Nil (2013:$63,818,000) was fully provided for.

77

National Water Commission Annual Report 2013/2014


Audited Financials

51 THE NATIONAL WATER COMMISSION Notes to the Financial Statements (Continued) March 31, 2014 27.

Impact of change in accounting policy As indicated in note 2(a)(iii), effective April 1, 2013, the Board of Commissioners adopted IAS 19 Employee Benefits (2011). The change in accounting policy was applied retrospectively. The effects of the adjustments are detailed below: (a)

Effect on the statement of financial position: Employee benefit obligations Balances as reported at March 31, 2012 Effect on other comprehensive income for the year

Accumulated deficit

14,970,316

-

(17,103,599)

( 1,047,312)

-

1,047,312

Restated balances as at March 31, 2012

13,923,004

-

(16,056,287)

Balances as reported at March 31, 2013

15,770,590

Effect on other comprehensive income for 2012 Effect on other comprehensive income for 2013 Restated balances as at March 31, 2013 (b)

Deferred tax liabilities

( 1,047,312)

3,384,158 -

(15,903,361) 1,047,312

1,466,081

( 139,590)

( 1,326,491)

16,189,359

3,244,568

(16,182,540)

Effect on profit or loss for the year:

Operating expenses Deferred tax

2013 $’000 (101,000) 33,667 ( 67,333)

(c)

Effect on other comprehensive income for the year ended March 31, 2013: 2013 $’000 Actuarial losses recognised in other comprehensive income Deferred tax on actuarial loss

(1,365,081) 105,923 (1,259,158)

(d)

Other than restatement of comparatives there was no effect on the statement of cash flows for the year ended March 31, 2013.

78

National Water Commission Annual Report 2013/2014


THE NATIONAL WATER COMMISSION SUPPLEMENTARY INFORMATION TO THE FINANCIAL STATEMENTS YEAR ENDED MARCH 31, 2014

79

National Water Commission Annual Report 2013/2014


Audited Financials

I

THE NATIONAL WATER COMMISSION Supplementary Information to the Financial Statements Year ended March 31, 2014 Thousands of Dollars 2014 Water

Sewerage

Total

Thousands of Dollars 2013 Water

Sewerage

Total

OPERATING REVENUE Water 13,153,570 13,153,570 11,846,833 11,846,833 Sewerage 3,945,114 3,945,114 3,613,926 3,613,926 Service charge 2,166,292 647,074 2,813,366 1,844,617 550,990 2,395,607 Price adjustment mechanism 664,736 198,557 863,293 382,508 114,255 496,763 Bulk water 35,345 35,345 17,463 17,463 Bulk water shipping 1,507 1,507 3,741 3,741 New installations 113,883 113,883 78,977 78,977 Reconnections 280,375 280,375 144,633 144,633 K-Factor 3,068,165 916,465 3,984,630 3,930,555 1,174,062 5,104,617 X-Factor ( 1,042,877) ( 311,509) ( 1,354,386) ( 1,663,924) ( 497,016) ( 2,160,940) Cesspool & other sewerage 12,791 12,791 11,799 11,799 18,440,996

5,408,492

23,849,488

16,585,403 4,968,016

21,553,419

5,051,099 1,945,388 3,283,994 5,970,473 87,200 223,033 329,060

1,455,929 1,204,023 943,519 516,728 26,043 56,938 -

6,507,028 3,149,411 4,227,513 6,487,201 113,243 279,971 329,060

4,750,117 1,343,516 1,473,426 779,201 2,688,720 801,645 5,494,187 471,260 85,422 25,516 210,829 54,424 291,767 -

6,093,633 2,252,627 3,490,365 5,965,447 110,938 265,253 291,767

16,890,247

4,203,180

21,093,427

14,994,468 3,475,562

18,470,030

OPERATING EXPENSES Salaries, wages and related cost Repairs and maintenance Administration Electricity Telephone Fuel and lubricants Purchases – water Operating profit

1,550,749

80

1,205,312

2,756,061

1,590,935 1,492,454

National Water Commission Annual Report 2013/2014

3,083,389


II

THE NATIONAL WATER COMMISSION Supplementary Information to the Financial Statements Year ended March 31, 2014 Thousands of Dollars 2014 Water Sewerage Total

SALARIES, WAGES AND RELATED COST Salaries and wages 2,146,621 Allowances – housing 126,966 Allowances – motor vehicle 282,109 Allowances – uniform 76,947 Allowances – other 534,208 Pensions 1,379,456 Gratuity paid 95,463 Insurance (group) 192,804 Travelling and transportation 4,837 Statutory contributions 211,688

Thousands of Dollars 2013 Water Sewerage Total

604,472 38,363 83,470 21,077 153,654 411,926 28,514 52,872 1,395 60,186

2,751,093 165,329 365,579 98,024 687,862 1,791,382 123,977 245,676 6,232 271,874

2,202,397 99,186 309,511 72,004 476,111 1,151,695 58,199 178,544 5,033 197,437

595,768 2,798,165 30,221 129,407 92,135 401,646 19,721 91,725 137,510 613,621 344,011 1,495,706 17,384 75,583 49,030 227,574 1,426 6,459 56,310 253,747

5,051,099 1,455,929

6,507,028

4,750,117

1,343,516 6,093,633

312,277 1,192,160 187,336 659,208 210,855 223,923 240,670 106,295

200,290 241,703 139,432 347,144 143,327 166,817 156,521 63,791

13,832 566,724 31,657 60,809 52,516 7,509 24,087 17,841

214,122 808,427 171,089 407,953 195,843 174,326 180,608 81,632

12,451 4,236

9,060 5,341

2,719 1,507

11,779 6,848

1,945,388 1,204,023

3,149,411

1,473,426

779,201

2,252,627

2,188,538 137,656 138,142 283,036 62,575 37,571 164,210 130,007 1,212 11,458 71,778 820 18,312 38,679

653,719 41,123 43,337 84,543 18,691 11,348 10,643 38,830 344 3,422 19,191 245 5,470 12,613

2,842,257 178,779 181,479 367,579 81,266 48,919 174,853 168,837 1,556 14,880 90,969 1,065 23,782 51,292

1,746,868 116,683 157,552 239,857 57,885 28,461 43,373 111,277 2,305 17,073 54,812 1,930 12,676 97,968

521,791 34,039 45,393 71,645 17,277 8,527 12,186 33,239 663 5,100 16,486 576 3,786 30,937

2,268,659 150,722 202,945 311,502 75,162 36,988 55,559 144,516 2,968 22,173 71,298 2,506 16,462 128,905

3,283,994

943,519

4,227,513

2,688,720

801,645

3,490,365

REPAIRS AND MAINTENANCE General repairs (pipes) Materials and supplies Motor vehicles Plant and equipment Building Chemicals Equipment rental Reinstatement of roads Office furniture and equipment Claims and contingencies ADMINISTRATION Bad debt Rent, rates and taxes Security services Insurance charges Computer services Printing and stationery Consultancy fees Postage and cables Overseas travel Audit and accounting fees Staff welfare Legal expenses Advertising Miscellaneous expenses

286,040 269,855 153,509 562,215 155,533 214,988 200,501 87,479 9,567 5,701 (

81

26,237 922,305 33,827 96,993 55,322 8,935 40,169 18,816 2,884 1,465)

National Water Commission Annual Report 2013/2014



NWC 2013 - 2014 Annual Report