Legal framework for new power company presented to public
Editorial
The Government of Guyana has found a capable operator for the production of electricity in CDC/ESBI and has installed a legal framework which includes clear definitions in calculating rates and performance targets to ensure both the viability of Guyana Power and Light Inc (GPL), and to provide reliable and high quality service to the consumer. This was the message presented by the government's consultants at a seminar held yesterday at the Ocean View International Hotel, Liliendaal. In a review of the Guyana Electricity Corporation's (GEC) current operations, Yohan Van't Hof accountant for Price Waterhouse Cooper, who arranged the tendering of GEC described the corporation as deficient in all aspects. With outdated machinery, some dating back to the 1960s, peak output stands at 82.60 megawatts (mw) when name plate or ideal capacity is 101.2 mw. With peak demand at 70 mw, one generator out of commission can result in load shedding. The aging generators at the Kingston Steam Power Plant are likely to be retired as the cost to keep them in operation is prohibitive. Van't Hof made the point that low voltage was not solely a result of capacity shortfall, but that an inadequacy in the size of power lines could restrict delivery of power to the consumer. The main problem of the present GEC is line loss. Twenty percent of power loss is technical, in part caused by the conversion needed in a dual 50khz/60khz system. The 19% in non technical losses result from meter tampering or bypassing. The GPL will reserve the right to inspect all wiring on site in an effort to reduce fraud. It will also be replacing up to a third of all meters. The computers at GEC are not Y2K ready and as such GPL will be bringing in a whole new computer system. Outstanding receivables currently stand at 252 days past due with bad debts accounting for ten percent of that. GPL hopes to get receivables down to within 45 days and cut bad debts to one percent. The six months to June 1999 have seen a loss at GEC of $539 million. Head of the Privatisation Unit, Winston Brassington, described present rates as "unsustainable for even an efficient utility." The cost of electricity production is now estimated to be around 14-15 US cents, whereas residential rates are ten US cents per kilowatt hour. Higher rated commercial and industrial usage accounts for 50% of consumption. Under the agreement GPL will be responsible for collecting the $1.24 billion in the outstanding receivables of the old GEC and these will be split 50/50 with the government. Under the quadripartite agreement--which emerged from a committee made up of the government, private sector, unions and consumer body--this money will then go to subsidize consumer rates until a time when operating efficiencies can lower costs of production. Factors that also affect cost of production include the price of oil worldwide and the rate of exchange. Rates will be established by the Public Utilities Commission (PUC) taking into account the interests of the consumer and mandated rates of return on equity to the investors, CDC/ESBI. There were concerns by citizens at the seminar that these two forces were incompatible. Consumer advocate, Sheila Holder, observed that the agreement had "satisfied the needs of the investors to the detriment of the consumer." But Van't Hof explained that any investor must expect reasonable returns on their investments. Other systems such as a regulation on prices have been found to discourage investment in capacity and encourage companies to look for cost savings such as layoffs, solely to increase profit margins. It was not expected that GPL will lay off workers, although job security is not guaranteed for every worker. A Rate of Return agreement can be abused by over investment, as companies look to increase equity without maximizing benefits to the consumer. According to Janice Brennan, legal adviser to the Government of Guyana, a strong regulatory framework is needed to ensure service, quality and technical standards met timetabled criteria. Unlike the Guyana Telephone and Telegraph Company Ltd (GT&T) deal, no advisory fees or high interest loans from the parent company could be undertaken between GPL and CDC/ESBI. Capital investment programmes will be reviewed annually by the Prime Minister and the PUC to make sure they are appropriate to the needs of the Guyanese consumers. In all cases the lowest price must prevail. Should the PUC consider GPL's performance to be below standard, fines could be imposed, the company could be ordered to perform certain procedures and ultimately its licence to operate could be revoked. It was revealed that 25% of infrastructure costs for connecting rural communities will be borne by GPL and the rest by grants the government would be required to source through international agencies such as the Inter-American Development Bank (IDB) or the grant aid programme with Japan. Returns to GPL would only be based on its share of the investment. GPL would not have a monopoly on the generation of electricity and will be required to purchase electricity competitively after the first five years from alternative sources of energy such as hydroelectric schemes. However, Van't Hof cautioned that many times these systems do not have a base load, in that their output is extremely variable depending on wet or dry seasons. This requires a power company to still maintain costly generators for any shortfall. Van't Hof said the company needed a lot of money very quickly and investment this year will total US$9 million, with a five-year budget of US$50 million. Approximately US$25 million will be spent on increasing capacity, US$15 million in transmission improvements and US$7 million in customer service and billing upgrades. The official closing of the negotiations is scheduled for October 1. The license for operation will then be issued and the relevant legislation will be harmonized. Prime Minister, Samuel Hinds, who chaired the seminar said he would not be providing the document to the other parties as the sheer volume of paperwork would be prohibitive to a reasoned assessment. He said he would take the burden of laying the agreement before Parliament. Managers for the new corporation are already in the country to effect a smooth takeover and 14 employees of ESBI will be installed at GPL.
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