About this issue

This is the second edition of our monthly business supplement edited by William Walker. The articles are written by Mr Walker unless otherwise stated.

We will be inviting selected business leaders to make their comments in each issue on a subject of their choice. That series starts today below with a piece by Mr Clifford Reis, the Executive Chairman of Banks DIH Limited.

We welcome comments or letters from readers on the contents and ideas for topics for future issues.

Wind Energy- A lot of hot air?

Wind energy might work in Guyana but as with many large infrastructure projects the country's fundamentals present their own obstacles.

The recent agreement with the government for Delta Caribbean NV to study wind patterns along the coast could mean new sources of alternative energy for Guyana, so long dependent on fossil fuels for its power generation.

Any move to alternative energy would obviously have a beneficial impact on fuel imports which totaled US$121m per year in 2000 and were a significant factor in the country's obstinate merchandise trade deficit. With oil producing countries trying their best to create an era of higher prices, in the US$20-30 range per barrel as opposed to the bargain prices of the late nineties, alternative energy, be it wind or hydropower is now looking more feasible as a cost efficient source of energy. Many countries have already invested heavily in wind farms. The Argentina power grid is partially supplied by 3000 MW of wind generated energy. And with carbon dioxide reduction being emphasized there might be concessionary financing available for alternative energy projects.

Putting aside the benefits to the environment of wind energy, the economics have improved substantially in recent years with advances in turbine technology. Refinements in blade airfoil shapes have seen annual efficiency increases of 10 to 25%. Whereas it cost 14 cents to produce one kilowatt hour in 1985, costs had decreased to 5 cents per Kwh by 1994 and estimates are that by 2005 these will be down by another 25%. This is in part because of the technological improvements and because as more turbines are produced their cost to manufacture decreases.

For Guyana as elsewhere, the key factor affecting such a project's viability is wind speed. While a study is still to be conducted on wind patterns along the coast, rough estimates put it at an average of 6 to 8 metres per second or 13mph. Peter Bouchard of Eagle Resources Ltd which supplies alternative energy systems for homes says this is not terribly strong compared to United Kingdom's average wind speeds of 28mph but could still be viable commercially . The speed and consistency of the wind is critical as it obviously affects the quantity of power generated and thus the cost per unit. (See next story on Page 12B).

Consistency is also important as the current systems feed right into the national grid and as such must be able to supply reliable amounts. GPL as the purchaser of this power would require this reliability or else would be forced to install generators for those times when alternative supplies are reduced. Under the terms of the GPL agreement any arrangement must "reflect the principle that the purchase price payable by GPL to the independent power producer shall not be greater than the Licensee's marginal cost of electrical energy production, including GPL's adjustments to reflect incremental losses and other capital and operating expenses associated with the inclusion of the independent power producer in GPL's system."

The cost of a commercial wind turbine averages US$ 600,000 to US$900,000 per Megawatt of power produced, with a standard commercial size turbine generating 1.3MW. Installation costs add another $250,000, so to set up a 20MW wind farm would cost approximately US$20m. Very rough estimates for a 10MW fossil fuel plant are in the US$9m range although comparisons can be misleading. The great beauty of wind turbines is that the costs after installation are negligible averaging US1-2cents per unit of electricity produced. These include land rental or purchase, maintenance and insurance premiums; all factors which would be part of any conventional system. And wind generation compares favourably to hydropower which requires a larger capital investment per MW and can cause damage to the environment by changing river flows. In Guyana the proposed sites for hydropower projects at Amaila Falls and Tumatumari are many miles from the centres of highest usage and would require expensive transmission systems. Even then line losses might be significant. And rivers sometimes run dry thus reducing output, in contrast to wind patterns which generally remain constant.

The high cost of financing for a wind farm could however be its downfall. Currently many large infrastructure projects including the Berbice River bridge and even GPL's own expansion plans are finding some difficulty in acquiring low interest long term loans due to the country's presumed political instability and economic fundamentals. As such the final cost of production once it includes interest payments might be too high to be economical. In addition wind farms require large areas of real estate which in Guyana's case would be along the coast and these are already being used commercially. The cost of acquiring or renting the land might be prohibitive.

Ultimately with the continuing migration patterns, the number of new households needing energy might not be large enough to require new sources of energy be they conventional or alternative.

So all the talk of wind energy in Guyana might just end up being a lot of hot air.

Wind Energy - How it Works

The power in the wind is a cubic function of wind speed. A small increase in wind speed means a big increase in power in the same way that 10 is 5 more than 5 but the cube of 10 (100) is 75 more than the cube of 5 (25) So if the wind speed drops only a little, the power falls away a lot in the same manner.

This is one of the main concepts of wind energy. But wind speed varies all the time. So we have to use an average wind speed, which in Guyana is 6 meters/second or about 13 mph although average wind speeds are deceptive.

Wind energy is measured in watts per square metre (W/m2) using a special formula to calculate the power in the wind. We know the generator blade area and therefore how much power is available. We can't capture all of it of course - no machine is 100% efficient!

We can calculate that there are 184 W/m2 at 15 mph. 15 happens to be the average of 10 and 20. So is this the power we would get if the average wind speed was 15 mph? It is not that simple.

At 10 mph our formula says we get 55 W/m2. At 20 mph, we get 438 W/m2 because of the cube factor mentioned above. If we average those figures we get 247 W/m2 - much more than the 184 W/m2 we got for our 15mph calculation. It is the wind speeds above the average that contribute most of the power. A small increase in wind speed makes a big difference in power.

Computerising a small to medium size business

Some businesses in Guyana have taken long to embrace new technologies. One still hears the incongruous tap tap of a typewriter in a law office of receives a hand written bill when making a purchase. While those companies might still function well, computer applications can make them work even better by providing the owner with one thing - timely and accurate information.

People love to talk about the Information Age and it does seem at first glance to be a rather vacuous term. But for business, information is vital to making better decisions. Let's say you own a number of clothing stores around the country. A fully computerised inventory can tell you immediately how many pairs of pinks socks you have sold for the day at a particular location, how much they cost you, how much profit you made per pair and how many are left in stock. Perhaps pink socks don't sell in Linden but sell by the container load in Georgetown. Perhaps they sell mostly on Wednesdays. Computer programmes can give you all this information with one click of the mouse helping you to make more accurate decisions. Software can calculate your sales per square foot and help you make decision on how to arrange merchandise to maximise profits. The key advantage of computers for retailers is inventory control. With a point of sale (POS) system where all sales are recorded and immediately deducted from inventory, out of stocks and over stocking are less likely to occur. Businesses can anticipate demand based on year to year comparisons and sales trends, keep leaner inventories and most importantly detect theft at an earlier stage than when the accountant or cashier has run off with a few million. The vague feeling that stocks are missing or that the books aren't balancing can be quantified. And with many software programmes allowing audit trails, evidence of tampering with computer systems can be identified by user.

But there are some points that need to be made clear. First computers will not ma-ke a badly run business work better. If you as a proprietor is not keeping up to date inventories or regularly balancing your books, computerising your operations will make no difference. You have to be already disciplined in running systems and keeping a close eye on inventory levels. While computers can save time and encourage better business practices they are too often not properly employed. This comes to the second point. Don't go halfway. If you have a POS system registering sales this must be accompanied with computerised records of inventory levels. A POS should not become a glorified cash register. And you have to be committed every day to making the system work. Why keep an inventory if you forget to enter that new shipment that came in last week because there was no time?

Many businessmen are not familiar with computers and quite frankly some are probably threatened by their presence as they tend to disperse information and thus power amongst many employees. But any modernisation must be initiated from the top and most importantly the head of the company should have at least a working knowledge of computers otherwise you can be fooled not only in purchasing unsuitable hardware and not knowing what to do with it, but then having to rely on a few employees for the very information you are supposed to have at your fingertips. Levels of security can be installed which re-strict information from jun-ior employees.

When purchasing software it is imperative to buy packages that are originals and can be customised to suit your business needs. The computer services company should be willing to spend time getting to know your business and figuring out what the best system is for you. They should provide a comprehensive service package that includes employee training and maintenance. It is important that as many employees as possible have a working knowledge of the system and can fix simple malfunctions without having to call supervisors every five minutes. They will then view the system as a friendly tool which can help them do their jobs more efficiently. In addition your accountant should be involved in the purchase of your new software. Don't think it will make him obsolete. Computers only crunch the numbers which he used to do with a calculator.

Many businesses look to skimp on their purchases. This is a mistake. Buy the best and very importantly budget for upgrades as the software evolves and the needs of your business grow. Computerising is often a very costly undertaking with software modules averaging $1000 each. A small retail business such as a gas station convenience store wo-uld need hardware costing anywhere around US$7000 and software packages and training worth another $2500.

Perhaps the greatest at-tribute in managing a computer system is patience. There will be much more work particularly at first when having to enter data. After that maintaining in-ventories would be easier. At first you will have to run existing manual operations alongside the computerised ones perhaps for many mon-ths, perhaps permanently and this too will require ex-tra work. But ultimately the new technology should ma-ke your business run more efficiently and hopefully will translate into what you really want ... increased profits!

10 ways your business can be improved with new technology

1. Control inventories more efficiently. Point of sales systems automatically deduct inventory levels and create reports on reorder levels. This helps businesses to keep leaner inventories thus freeing up capital.

2. Provide more accurate and timely sales data. Information on sales by location enable more accurate restocking or purchases of raw materials.

3.Help detect internal fraud more quickly. Vital function in that checks of inventories/accounts can not only quantify level of thefts but also identify perpetrators before fraud becomes catastrophic.

4. Create data bases on customers for use in marketing. Names and addresses of customers can be analysed for purchase patterns and used in direct marketing. Courts is a good example of a local company making use of its extensive data base 5.Analyse true business costs. How much money do you make per product/service sold? Computers can quickly calculate costs and profit margins

6. Handle employee payroll and compensation. Payroll software can be customized to deduct PAYE and NIS contributions.

7.Up to date records of accounts receivable / payable. Who owes you and how delinquent. Might not help you collect or pay but still gives you current numbers!

8. Encourage good business practices: If the business adapts the way the software works, and follows its use, instead of the other way around, it may foster sound practice and improve efficiency. 9.Forecast revenue and cash flows. Software can anticipate cash flows based on year to year comparisons or by trends

10.Enable marketing and purchases through internet. Even if you operate on the side of a mountain you are only a click away either to sell your product or to buy inputs at lowest cost possible. No more expensive overseas phone calls or trips.

Case Study

Palm Court Restaurant and Bar

The conversion of Palm Court's business to a computerized system has not been easy but there have been benefits amidst the frustrations.

General Manager Nadia Jabour says the operation used to work on a manual bill book system which took time and was prone to mistakes. More seriously bills went missing and there was a lot of dishonesty. A few years ago the company installed a Point Of Sale POS LOGIC system where serving staff punch orders into a computer terminal which generates bills and keeps a record of current sales. The system also updates accounts of those customers with credit facilities.

Palm Court started offering such clients credit cards which are swiped through the terminal. However this concept has been harder to sell given the lack of familiarity by many Guyanese with credit cards. Each account is programmed with a credit level which the patron cannot exceed. However once again Guyanese customs are resistant to a waitress informing a patron after a few hours of drinking that his card has "maxed" out, so overriding is frequent. The programmes give a detailed statement of what type of dishes are popular and ones that are not selling well. This helps greatly in creating new menus. Tips no longer go directly into the waiter's pocket and this has meant that almost all the sixty employees now benefit from monthly disbursements.

In the bar section the company has for many years been struggling to combat theft. It installed a system based on a software package called BARMATE where the heads of the bottles are covered with computer controlled pourers that measure out shots - 27 to each bottle. Customers who run tabs are now required to sign each round they order so that at the end of the evening there is no dispute over the total. But the software has developed many flaws and it has been a costly exercise to call IBM in Florida to fix the problem.

Still Jabour says the technology has helped in keeping track of customers accounts so they do not become delinquent and in using the data base for marketing. Customers whose bills reflect a preference for wine were recently invited to a series of wine tasting evenings. Year on year comparisons have helped in anticipating sales.

Theft however has not gone away and despite employees supposed lack of computer knowledge, Jabour finds they have the most amazing propensity to infiltrate computer programmes and make adjustments in their favour. The computer has only helped in stopping theft at an earlier stage and the bartenders are now made accountable when stocks don't equate to sales, by having to dip into their own pockets to make up the shortfall.

Workers continue to get training for the systems and Jabour hopes to fully computerize the kitchen and food inventory at some point. In fact the business is planning to purchase a comprehensive system which will combine the bar and restaurant operations. For the bar, computers will automatically pour and mix drinks so there would be no chance for a slip of the hand. Palm Court has installed an Uninterrupted Power Supply which gives them three hours of power after a blackout on top of a standby generator.

Despite the frustrations Jabour believes the new technology has made Palm Court run more efficiently and encouraged better business practices as it is easier to generate information which before was quite easy to ignore.

Denmor Garments (Manufacturers) Ltd - taking advantage of opportunities

Part of being successful in business is being in the right place at the right time. For Denmor Garments (Manu-facturers) Ltd, the latest chapter of the Caribbean Basin Initiative has come along just when the company is consolidating its ties with American buyers.

Managing Director Den-nis Morgan started the company back in 1997 at a time when many Caribbean garment manufacturers had already been devastated by Mexican competitors taking advantage of the North American Free Trade Agree-ment. Denmor operated under the original 807A programme that allowed for duty free access for some garments assembled in one of the 24 Caribbean Basin countries as long as they contained 75% US material. The fabric had to be cut into patterns in the US and then shipped down simply to be stitched up .The enhanced access provided by the U.S. Carib-bean Basin Partner-ship Trade Act (CBPTA), while expanding the list of products now eligible for duty free entry, now allows for manufacturers to cut from cloth. This essentially gives Caribbean Basin countries the same benefits as their competitors in Mexico.