• Non-revenue water a central driver of  burden passed on to customers

Operational inefficiencies, prolonged project delays, and weak financial management at the National Water Supply and Drainage Board (NWSDB) have indirectly contributed to the steep water tariff increases imposed on the public, a special audit report by the National Audit Office (NAO) has found, indicating that consumers have effectively been made to absorb the cost of the board’s own shortcomings. 

The report, signed by Auditor General L.S.I. Jayarathna, identifies the board’s level of non-revenue water – treated water lost through leaks, illegal connections, and metering failures before it can be billed – as a central driver of the burden passed on to paying customers. 

Non-revenue water stood at 28% in 2023, almost double the optimal level of 15%, and was estimated to have cost the board Rs. 11.6 billion that year alone. Kandy North recorded the highest rate, at 38.72%. The audit found that the board had not taken adequate measures to manage the problem, effectively transferring the resulting financial loss to consumers through higher tariffs. 

Delays to foreign loan-funded infrastructure projects added further to the cost. Nineteen such projects were delayed by periods ranging from one-and-a-half to seven years, with delays to five of them alone estimated to have cost the board Rs. 870.52 million in lost revenue from new connections that could not be provided as scheduled. 

Separately, the Government had paid Rs. 2.25 billion in commitment fees to foreign lenders because the board failed to utilise loan funds within the agreed timeframes, an expense the audit noted had ultimately been borne within the same tariff structure imposed on the public. 

Staff costs, which accounted for approximately 36% of the board’s total operating expenditure, were also flagged as a contributing factor. The audit found that the board paid out Rs. 894 million in bonuses and incentives in 2023 despite recording operating losses in most years between 2018 and 2022, and that the cost per employee rose by 26.67% between 2019 and 2023 even as the number of permanent staff declined. 

The Ministry of Water Supply separately owed the board Rs. 263.33 million in relation to 15 employees who had been released to the ministry but remained on the board’s payroll. 

Against this backdrop, the audit found that tariffs were raised by 70% in September 2022 and revised again in August 2023, resulting in an increase of approximately 100% compared to rates introduced in 2012. Domestic consumers using between six and 15 units a month, the largest consumer category, saw bills rise by between 310% and 319% compared to 2012 levels, while average monthly bills for educational institutions increased by between 275% and 21,454% following the 2023 revision. 

A subsequent 5% tariff reduction in August 2024, introduced after a decline in electricity prices, provided what the audit described as negligible relief: the average monthly bill for a single connection fell from Rs. 2,303 in December 2023 to just Rs. 2,284 in December 2024, a drop of only Rs. 19, leaving bills more than 52% higher than in January 2023. Several categories, including religious institutions, commercial consumers, bulk water supplies, and public water taps, received no reduction at all in 2024. 

The board had extended piped water access to only 48.1% of the population by the end of 2023, and its Water for All programme, which targeted 79% coverage by 2025, had recorded what the audit termed very low progress. The report also noted that energy costs made up 22% of water production expenses, with several planned energy efficiency projects, including upgrades at the Ambatale Water Treatment Plant and a Rs. 153 million solar investment, left incomplete. 

The Auditor General recommended that losses arising from project delays, management failures, and operational inefficiencies should no longer be transferred to consumers. The report called for future tariff revisions to be conducted transparently within established timeframes using the formula introduced in 2024, along with urgent measures to reduce non-revenue water, stricter enforcement against water wastage, and the linking of staff bonuses to measurable performance targets, noting that the board had operated for 49 years without a formal, transparent tariff policy. 

Attempts to contact the Minister and Deputy Minister of Water Supply and the NWSDB Chairman for comments on the audit findings were unsuccessful at the time of going to press.

Speaking to The Sunday Morning, NWSDB Chairman Chandana Bandara said that a water tariff formula was now in operation and that a national policy had also been established.