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Mike Carr.230505130
The recent lack of rainfall, resulting in a drop in water pressure, and proposed increases in water rates have combined to spark a fierce debate over water use, as evidenced by recent headlines and articles in newspapers and (I understand) a lot of discussion/debate on social media, writes Mike Carr.
Cook Islands News published a front page article on Monday 26 August which quoted many of the recent 28 June 2024 report on “Financial/Regulatory Assessment and Tariff Structure Alternatives”. In the last column of the article, CI News quoted a paragraph from the “Executive Summary” on page 5 of the report: “2) The largest users of water services are hotels…”. However, based on the details in the report, this statement is misleading at best. Hotels may be the two largest individual users of water. But the water use of the two largest accommodation properties is not an average or indicator of total tourism water use. Accommodation properties on Rarotonga are rapidly shrinking in size (name 10 large properties?). This is a bit like saying that farm water use in Wigmore will become the norm for all agricultural sectors.
As a humble accountant, I often pay more attention to numbers than words. So let’s look at the numbers and what the details in the report actually say?
On page 38 of the report we find Table 2-7 for 2023, entitled “Estimated consumption by customer category”. The figures are in cubic meters.
Combining “free water distribution” and “residential” gives a total of 755,857, “commercial/industrial” 620,500, institutions 182,500, agriculture 1,679,000, and tourism 706,640.
In other words, by 2023, agriculture is expected to use almost 2.5 times as much water as tourism, according to To Tatou Vai’s study.
But by far the biggest “user” is the “leak”, at the top of the page, at 1,468,449 cubic metres. The report states this is 27.1% of the “total production”. It is estimated that over a quarter of the water is “lost”! And this is after we spent $100 million to “fix” the system!
The report also shows the percentage of water used by usage category (net of leaks). In order of usage, agriculture accounts for 42.6%, free water allocation and residential use account for 19.2%, tourism accounts for 17.9%, commercial/industrial accounts for 15.7%, and institutional use accounts for 4.6%.
Page 37 of the report contains some comments on the assumptions used. “Tourism – Comprehensive analysis, testing and calculations by TTV staff indicate that average usage for the entire category should be 1936 cubic meters per day.” I note that many tourism properties have meters installed starting in November 2023, so the data collected by TTV is recent and can be assumed to be fairly reliable. 1936 cubic meters per day multiplied by 365 equals 706,640 cubic meters per year in Table 2-7.
Agricultural Review said it “used an AECOM estimate of 4,600 cubic metres per day for the entire class. However, early instrumentation testing by TTV staff suggests this figure may be revised upwards in future forecasts” This means there could be more! 4600 cubic meters per day multiplied by 365 equals 1,679,000 cubic meters per year from Table 2-7.
Now don’t blame the messenger, these numbers are not mine, I didn’t make them up, they come directly from TTV’s reporting and can be viewed online on the To Tatou Vai website under “About Us/Publications/Proposed Tariff Studies”.
Therefore, the report’s conclusion that “hotels are the largest users of water services” is misleading, as their own data clearly shows that the total water use by the tourism sector is less than leaks, less than residential use, and less than agricultural use. Of course, their argument is that the tourism sector should pay (because they use the most water!?), which makes sense, but is not true according to their own research.
You’ll also notice on the TTV website that their values include “honesty” and “clear communication.” Both of these seem to be missing in this case.
The full quote on page 5 of the report is: “2) The largest users of water services are hotels and there is currently no way to confirm whether the taxes paid by hotels and other tourism-related businesses are sufficient to cover the cost of water provided to tourists”. This entire sentence is both misleading and malicious, but it also fits with TTV’s claim that the tourism industry should pay more.
The easiest way to check whether the accommodation is paid out of pocket is for TTV to visit the Revenue Management Department and ask for the total VAT revenue for the tourism industry for the whole year (this will not violate any individual taxpayer confidentiality rules). I can assure you that from VAT revenue alone, the industry more than covers the “cost of providing water to tourists”, not to mention income tax.
Interestingly, the report does not question whether other users (such as commercial/industrial or agricultural) pay taxes covering their usage.
Of course, now that the rains have come, we will have more reasonable pressure, and hopefully more reasonable debate, before November of this year, when we enter the usual dry season.
– Mike Carrformal A chartered accountant, currently riceLagoon Breeze Villas anager.
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