Shanghai is working on a standard water price formula to enhance
supervision of water company costs and ensure reasonable returns, a
move analysts say will help improve profitability at
waterworks.
The formula will also serve as a yardstick for the municipality
to decide whether the current water rate needs to change, according
to a government document.
"The formula is needed to reflect the water and sewage treatment
costs and is necessary to support the water companies' sustainable
development," the document stated.
To complete the formula, water companies will have to report
their annual budget to governmental departments at the beginning of
the year for examination of their annual expenditures, while the
return rate for water companies will vary from year to year based
on the previous year's 1-year benchmark lending rates set by the
central bank.
A reasonable return would be about 1 or 2 percentage points
higher than the benchmark rate, which is currently 6 to 8 percent,
said Yao Wei, an analyst with Guotai Jun'an Securities Co, who
estimated the current returns for waterworks are only 1 to 2
percent. In April, the People's Bank of China raised the benchmark
1-yearloan rate to 5.85 percent a year from 5.58 percent.
Officials from the Shanghai Water Supply Administration said all
of the four major waterworks in downtown are losing money. The
average cost of producing a cubic meter of tap water in 2004 was
1.23 yuan, while the average tap water price is currently 1.17 yuan
per cubic meter.
In 2004, the four downtown companies took in 1.76 billion yuan
(US$220 million) in revenues, but reported combined losses of 14
million yuan loss. Sewage treatment companies lost 130 million yuan
on mounting salaries, and energy costs.
"Government-invested sewage facilities will simply have to make
ends meet, but reasonable returns will be given to private and
foreign-invested projects," said Zhang Jiayi of the Shanghai Water
Authority.
(Shanghai Daily August 17, 2006)