COA: Why has San Fernando water income nosedived in 4 years?

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    GOVERNMENT auditors are demanding an explanation from the management of the City of San Fernando Water District (CSFWD) on why its average income nosedived from P284.79 million in 2013 to 2016 to just P76.54 million from 2017 to 2020.

    The 2013-2016 figures were before the water district entered into a joint venture agreement (JVA) with PrimeWater Infrastructure Corp. while the 2017-2020 total represented four years under the JVA.

    According to the 2020 audit report released yesterday, the JVA took effect on December 16, 2016, making 2017 the first full year that the water district was under the joint venture operation.

    “The (water) district’s average net income has continuously diminished after it entered into JV Agreement with PrimeWater. In the first full year of the JV with Primewater in 2017, the District registered a Net Loss of P48,618,631.77, subsequently, in CY 2018 had a net income of P36,849,893.86. However, in CYs 2019 to 2020, the District continuously exhibited diminishing net income,” the Commission on Audit said.

    Net income in 2019 stood at P27.34 million and P11.63 in 2020.

    The audit team noted that the 2018 and 2019 income figures were even boosted by balloon payment sof P56.81 million and P18.55 million, respectively, of the water district’s bank loans.

    “These immediate/balloon payments were non-recurring income arising from an unexpected event, thus can be considered an outlier in the analysis of the net income,” it pointed out.

    Taking the said factors out of the calculation, the audit report set the net income at only P13.49 million in 2018 and P15.09 million in 2019.

    Reacting to the audit observation, the CSFWD management claimed that the decline in net income was “primarily an initial paper loss only,” saying it was affected by depreciation of assets caused by de-recognition of property, plant and equipment (PP&E) and the re-computation of the useful lives of PP&Es spread throughout the 25-year duration of the joint venture agreement.

    But government auditors disagreed.

    “Both the total operating income and total operating expenses decreased by 74.41 percent and 87.01 percent, respectively. This showed that despite the higher decrease in expenses, the operating income was still not enough to generate higher net income,” they said.

    The COA underscored the fact that prior to the JVA, the water district registered “good financial performance” with an upward trend in its net income attributed to the increase the water consumption of its customers and the growth in the number of new connections.
    But once the JVA took effect, the net income figures retreated even if the salaries and operating expenses were reduced.

    The COA recommended that the water district management discuss with PrimeWater the provisions in the JVA regarding the fixed revenue share of the CSFWD for renegotiation.