Financial Considerations and Policy

JWU has maintained this balance during the past 30 years, i.e. its regular revenue covers its regular expenses. Development and capital expenses are financed largely through grants from national and international sources.

In 1993, JWU started adapting a cost recovery policy, and in order to ensure that, detailed cost statements are prepared, and a cost study was conducted by JWU staff with cooperation from Institute Mediterranean DeL'au' ( IME ), the World Bank and the Principality of Monaco.

The Board of Directors of JWU decided in 1993 to adapt a policy of allocating 10% of all granted funds in a revolving fund for reinvestment retroactive since 1985. JWU is considering ways to invest this fund in the most secure, least risk and maximum return investment.

FINANCING SOURCES

JWU depends on three main sources to finance its projects:

1. Internal self financing using its own income and earnings to finance the daily work and the scheduled operations and maintenance.

2. A growing revolving fund for reinvestment. As of December 1994, the balance in this fund is $ 572,312.27.

3. External financing from contributions by national and international Development Agencies to finance capital projects that are beyond JWU financing means such as drilling wells, building reservoirs etc.

During the past 10 years, JWU utilized funds donated by the national and international development agencies such as the World Bank, UNDP, EEC, Arab Fund, the Islamic Development Bank, Community Development Fund (CDF), the German Government through GTZ, Palestinian Economic Council for Development and Reconstruction (PECDAR) and the Joint Palestinian Jordanian Committee to finance the drilling of 3 wells, rehabilitation main distribution lines through out JWU pipeline networks, to construct reservoirs and increase the conveyance capacity from own resources. The following "HONOR LIST" illustrates the kind, amount and funder that invested in JWU projects:

Table 17 List of International Funding for JWU Projects

FINANCIAL RATIOS AND REVENUE ANALYSIS

To illustrate the financial position of the JWU, Table 18 shows selected financial ratios as calculated based on the financial statements of JWU 1994, compared to the respective ratios of selected water authorities in different cities. It indicates that the working ratio which shows the ratio between operation cost excluding depreciation and the operating revenues is relatively high compared to other water utilities in different cities, it is about 89% of operating revenues. To add the depreciation to the operating cost, the operation ratio excluding administration cost will increase to 107% of revenues. This ratio also is higher than the ratios of the selected three cities.

Table 18 Financial Ratios of JWU as in 1994 Compared with Ratios of Selected Countries as shown in the TWUWS Report, 1993

To consider the profitability of the JWU operations; the return on equity has been calculated. It is about minus 0.004 of the total owner equity, however, this ratio is very close to zero, but it is acceptable for a non-profit organization. The ratio between current assets and current liabilities in JWU is about 9.5, while more than 75% of water utilities that have been included in the Transport Water and Urban Water and Sanitation (TWUWS) report, 1993 have a current ratio of less than one, which means that the current assets is higher than it should be, while the amount of the accounts receivable is acceptable at JWU as indicated by collection ratio. The collection of revenue takes on an average of 1.7 months, while 59% of the total water utilities worldwide have a collection period of two months and above as indicated by TWUWS Report, 1993.

The operational revenues of JWU range between 7 to 8 $ million a year. The total revenues are generated from four major sources as followed:

• Water sales, represent 83% of the total of operational revenues.
• Meter Rental, represents 5% of the total operational revenues.
• New connections, represent 9 % of operational revenues.
• Other revenues (including bank interest, fees, late payments interest, insurance refunds, and other returns) represent 3% of operational revenues

Concerning the water sales items, the JWU has been supplying and distributing water to subscribers at a specified tariff which is subject to change based upon the changes in costs. Price changes are proposed by the JWU for approval by the Officer in Charge of Water Affairs of the Occupation Authority . JWU currently implements a progressive tariff with the unit price increasing according to the consumption of water. Table 19 represents types of subscribers based on the tariff applied, ratios of consumption and revenues. The existing tariff (1995) is divided into four categories:

• Minimum Charge (for consumption up to 10 cubic meters): $12.66 per bill
• Consumption between 10 to 20 cubic meters (category 1): $1.00 /m³
• Consumption between 21 to 40 cubic meters (category 2): $1.05 /m³
• Consumption over 40 cubic meters (category 3): $1.50 /m³
• Meter Rental Fee $2.66 per connection

Consumers are billed every two months.

Table 19 Types of Subscribers based on Tariff applied, Ratios of Consumption and Revenue as in 1994

COST ANALYSIS OF WATER AT JWU

As indicated by the above figure the tariff employed varies and ranges between $ 0.91 per m³ to $1.32 per m³. The way the tariff is stated encourwater conservation by increasing the rate for high consumption. This leads to having different ratios of consumption and returns as shown by Table 19. The distribution of consumption in the tariff categories indicates that third category actually subsidize others.

FINANCIAL ACCOUNTING SYSTEM

The present accounting system does not include a cost system or relevant classifications to serve establishing a relevant cost system. JWU entries and financial records are made according to the double entry method rather than the single entry method used by other water institutions in the West Bank. To verify costs at each stage of water production and distribution, expenditures are entered under different heads, namely: pumping, supply lines, meters, stores, transport and administration.
A chartered accountant audits JWU accounts and prepares its annual balance sheet at the end of each fiscal year.

Water Cost

Table 20 shows average cost and expenses per m³ based on supplied or sold water.

Table 20 Summary of Total Cost and Cost per m³ of the JWU Operations (1992-1994)

The following table and charts show the different ratios of operation costs.

Table 21 Summary of Cost Ratios of JWU Operations
Based on Cost Items

Plans for Cost Reduction:

JWU started a comprehensive analytical process to its costs componants in order to reduce the cost per m³ of water supplied to consumers. The implementation and utilization of the appropriate technology will lead to the reduction in labor cost, and preventive maintenance and rehabilitation programs for networks also decrease the operation cost.

The Following table shows the ratios of the expected cost reduction and its effect on water cost per m³:

Table 22 Summary of the Expected Reductions on the Average Water Cost per m³ ( Based on Figures from 1994 )

Table 23 Distribution of Cost and Expenses of JWU Operations as in 1994 Based on Function Centers

BALANCE SHEET

Table 24 Balance Sheet as of December 31/1994

SURPLUS AND DEFICIT STATEMENT

Table 25 Surplus and Deficit Statement as of December 31/ 1994

FEES COLLECTION

Due to the prevailing social and political conditions in the area, and the inefficiency of the postal and banking services, JWU was compelled to distribute its bills directly to the consumers by hand. This method, entails extra effort and cost to JWU that could otherwise be saved. The following table and chart show how the consumers paid their drinking water bills to JWU during 1990 and 1994:

Table 26 Methods of Payments

Collection rate at JWU in 1994 is about 88% which is an excellent collection rate in any standards. Very little if any pressure is put on the consumers to pay their water bills especially in the last few years due to the political and social hardship that faced them. However, as stated earlier, the consumers showed an excellent sense of cooperation and patronage by continuing to pay their bills on time. A noticeable change is evident in the trend of consumers payments i.e. in 1990, 41% of the payments were made at JWU Head Office and 52% were paid to the JWU collectors visiting the homes. In 1994 only 20.5% of the payments were made at JWU Offices and 73% paid to the collectors. This change is due to the frequent, strikes, curfews and closures of the areas by the Israeli Military.

FUTURE PLANS IN FINANCE

1. Full Cost Recovery: Despite of the deficiencies of certain years, it can be said that the Undertaking achieved cost recovery. Theoretically, the value of assets in balance sheet does not show the real value due to world inflation and the constant devaluation of Israeli Currency. The revaluation of the assets should be done by the help of experts, the value of assets should be adjusted when necessary in order to have the right depreciation value which will lead to full cost recovery achievement.

2. Periodical Budgets: Divisions will be required to work within pre-established budgets based upon the level of sales and production expected that year or period. Cost control procedures will be implemented, division managers held accountable for over-budget expenses, budgeting the cost can be achieved, thus leading to a sound water pricing policy.

3. Find more profitable and secure methods to reinvest the Undertaking revolving f.

4. Revaluation of the Undertaking's assets: In order to get the real depreciation value and true cost of water, the assets of JWU should be reevaluated by experts in the field.