The financial performance of the water companies is extremely variable with some reporting very high profits whilst others report catastrophic losses (refer Annex 2 – Financial statements). This variability is due to a variety of reasons:

• Tariffs set by varying criteria, e.g. cost of service, political perception of affordability etc.
• Different cost structures due to the unique technical characteristics of the companies’ systems
• Water companies accounts including the financial performance of non-core activities such as bottled water factories
• Different levels of efficiency (described earlier)
• Varying capital structures
• Inequitable accounting policies that favour older systems over newer ones (depreciation charged on original asset procurement costs)

Because of these differences and many more besides simple comparisons of financial performance through standard accounting methods cannot necessarily distinguish poor performers from good ones.

We are in the process of developing regulatory accounting standards that eliminates many of the anomalies in the current accounting systems for comparative analyses and tariff determination methods.

Cash flow performance

major area of concern that plagues almost all of the water companies is their very poor cash flows. We have undertaken a detailed analysis of several companies and have discovered that the problem is very often due to non-payment by government agencies. We have prepared a strategy for the water companies to improve their cash flow but without the support from the government to ensure that its provincial agencies meet their financial obligations to the water companies this strategy will not succeed. The cash flow status is one that we intend to monitor on a monthly basis, reporting to the government in order to secure the financial commitments necessary to achieve acceptable levels of liquidity. The seriousness of this situation cannot be under-estimated. Various international development agencies have expressed their serious concern over this issue and future financial support in the sector is threatened.

Figure 1 illustrates the accounts receivable for the 18 water companies relative to the number of days turnover as at 31 December 2002. The short-term target, in line with the expectations of various international development agencies, is to reduce this to no more than 90 days although a longer-term target of nearer 60 days should be achievable. On current performance only three water companies comply with the 90 days target, i.e. Borikhamxay, Huaphanh and Luangnamtha.

Tariffs

Tariffs for the 18 water supply companies are generally based upon the actual costs of service provision, themselves based upon statutory accounting principles, some of which do not reflect the real costs, especially depreciation. Along a similar vein many companies have high levels of debt but do not, as yet, incur costs related to that debt due to generous grace period provisions. Once these costs start to be incurred significant rises in tariffs may well be necessary.

Although it is possible to report on current tariffs is important to recognise that without a more rigorous regulatory accounting system no firm conclusions can be drawn at this stage of the regulatory process.

Figure 2 illustrates the very wide disparity between tariffs throughout the country.