Letters of Intent exchanged for GEC privatisation deal
By Gitanjali Singh
The Government of Guyana and the Commonwealth Development Corporation (CDC)/ESBI consortium, yesterday exchanged letters of intent to close the Guyana Electricity Corporation (GEC) privatisation deal shortly. Actual signing of the agreements is expected before the end of next month and will coincide with the operationalisation of the new power company, the Guyana Power and Light Inc. These announcements, made at a media briefing yesterday, were welcomed by the business community which sees the events as a confidence booster for business. In recent times the business sector was hit by one disincentive after another; the most recent being the public sector strike, which ended yesterday. Apart from government and business representatives, other interest groups, including consumer bodies were present at the press briefing. "One of the most important aspects of this deal is the huge demonstration effect, not the least because CDC is a very respected investor in many parts of the world," manufacturer George Jardim said yesterday. His sentiments were echoed by Executive Secretary of the Private Sector Commission, David Yankana. "The CDC's credentials are well known and ... coming to Guyana, it can bring with it other investments," Yankana stated, pointing to Costa Rica which has seen reputable business investors drawing others to that state. "This is definitely a bright spot in the whole business process now, given the effects of the public sector strike," Yankana added. The government and the consortium have reached agreements on four crucial areas to conclude the transaction; the share subscription agreement, the shareholders agreement, the management agreement and the operating and agency agreement. According to Head of the Privatisation Unit, Winston Brassington, the mechanics of these have to be worked out and the legislative framework created within the upcoming weeks to facilitate signing by July 21, or before the end of that month. "CDC/ESBI is delighted to be here today to publicly acknowledge that we have completed negotiations with the government with respect to the text of the four substantive agreements. This is a major milestone...," CDC's Regional Manager, David Bishop, told reporters at Le Meridien. Bishop said he did not believe that in recent times many events were so eagerly awaited, adding that not only present consumers stood to benefit from the new operation. "I believe that the establishment of a secure electricity service at reasonable rates will provide the welcome opportunity for businesses with self generation to come back to the grid but also fundamentally, provide an essential service for future investment in Guyana," Bishop stated. Guyana Light and Power Inc is getting a monopoly licence for transmission and distribution for 25 years, but is not getting a monopoly on power generation. However, according to Prime Minister Sam Hinds, other independent power producers will not be allowed to so generate in the first five years, to allow the new power company to find its footing in the electricity sector. Hinds, the government's representative to exchange letters with Bishop, said that discussions with the Guyana Sugar Corporation on alternative sources of energy and with two potential hydropower producers will be proceeded with. Tariffs have already been decided on until December 2000 and this agreement will be stuck with despite the severe depreciation of the Guyana dollar, since that deal was inked with the social partners several months ago. Brassington said that to compensate for the risks in the exchange rate, which was a major issue for the negotiations, the US$23.45 million equity injection by CDC/ESBI will be phased over a three-year period with US$9 million in the first year; US$11 million in the second year and the rest the following year. This, he said, has lowered the pressure to provide the investor with a high return on investment. Additional safeguards and protection, Brassington said, were built into the agreements, including that fuel be sourced via the Guyana National Energy Agency and paid for by the Bank of Guyana and certain debts like that to Wartsilla, being paid from the same source. The government has also agreed to fund the $1.5 billion to $2 billion subsidy in the first few years to ensure than no additional increases are made in tariffs. This will be financed by giving up its dividend flow from the preference shares in the new company in which the government will hold 50%. However, dividends on common stock will be used to pay off other outstanding debts of GEC not taken over by the new company. Hinds estimates that this debt stands at about $5 billion and will be paid off over a ten-year period. ESBI, which is the international arm of the national electric power company in Ireland, will be responsible for the management of the new company and will be bringing in 14 managers and technical experts to take up key positions. Qualified Guyanese will eventually be allowed to fill many of these positions. The new company officials are still exploring the staff requirements for the new, expanded power operations, and Bishop, noting how sensitive this issue was, said it was being proceeded with cautiously. He said the consortium recognised that the uncertainty over the past year had been difficult for workers, but the prospects of the future will more than make up for that. Initially, the new company will be striving to provide reliable power supply and expand its operations while improving on its metering and billings and collections. At least US$1 million is to be spent each year on rural electrification. Bishop was not in a position to detail how the US$23.45 million will be spent over the three years, US$14.45 million of which is in the form of a promissory note to the government initially. However, he said, the new company intends to concentrate on the security of power supply, which means reliable power, blocking line losses, while at the same time addressing the demand for the service by moving into new communities. He said there is a five-year business plan which will be updated each year. The government, through Brassington and Hinds, contends that the deal ensures that a world class, reputable management team will manage the new entity and significantly reduce inefficiencies. It also paves the way for the disbursement of US$30 million from a US$45 million Inter-American Development Bank loan and offers a package which allows rates to be maintained at the lowest sustainable level. For Hinds, the deal provides tremendous hope for the future. "We are now confident that we have agreement between the partners which will continue and complete the transformation of the GEC into a reliable and efficient business, providing consumers in Guyana with reliable electricity at reasonable rates... while providing all shareholders, including CDC/ESBI consortium with a fair return on their investment," said Hinds. He said he has no doubt that the transaction will encourage others to look at Guyana as a favourable place to be. "We could not have gotten a better deal," Jardim told Stabroek News immediately after the media briefing. He said though privatising the power company has been a long time in coming, he was glad it was happening. Noting that many of the questions raised at the media briefing were raised by the private sector, he said he now felt that the agreements reached were "absolutely transparent and enforceable." Yankana also described it a good step and feels the exchange of letters is the first step to concretise the deal and see other investments flowing into Guyana. 
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