The Guyana Power and Light Inc (GPL) management has informed Prime Minister Sam Hinds that it is studying the government's concern over the 15.89% rate hike from February 1 and the request for a review of the calculation.

In addition, the issue would be brought to the attention of the utility's board.

Prime Minister Sam Hinds yesterday said that he had received this response from GPL in response to a letter he sent last week expressing concerns over the rate hike.

He was not in a position to say whether the firm had been asked to suspend the collection of this higher tariff until the matter was resolved, given that the government is a 50% shareholder in the entity. Chief Executive Officer, John Lynn, would not offer any comments on the issue yesterday or say whether any such requests were made of the company.

The Public Utilities Commission (PUC) has also expressed its concern, but it has no jurisdiction over rate setting in any way whatsoever, even in ensuring that the computation was accurate as this could only be done by an independent audit firm selected by the PUC but approved by GPL.

The government has raised the issue of inefficiencies in the management contract and a possible $1.5 billion in commercial and line losses which the company failed to curb as well as the managers' inability to bring in capital at the required time to enhance efficiencies. These would all affect the bottom line of the company's operation and whether the $1.6 billion it was now trying to recover in higher rates would have been necessary.

However, the government in 1997 gutted the sections of the PUC Act which gave the commission jurisdiction over rate setting for electricity and placed in the new act, a clause, which gives precedence to the licence agreement with the power company over the act.

Under the licence, the only penalties possible would be at a maximum rate of 50% of the fixed charge of the management contract fee of about US$560,000 per annum. However, the calculation to yield penalties might not afford 100% of the US$280,000 and this could in no way go towards mitigating the impact of the tariff increases. Such penalties are to be imposed by the board of directors of the company based on shortcomings in the performance of the management contract. Currently there is a review underway of the management contract by the Privatisation Unit.

Asked whether in hindsight if the government might have erred in the changes it made to the PUC Act in 1997, Hinds said he was not suited to comment on this issue. He said it would be best if public opinion and debate on the issue was looked at. He said that at the time, experts guided the government on the issue.

He noted that the issue at hand was whether the company compromised on service and what was sustainable.

Hinds was not in a position to say anything on the review process underway, when it was likely to be completed and what sanctions were likely.

However, former chairman of the power company, Ramon Gaskin, says that the only way out of the quagmire the government has found itself in, would be to undo the damage it did to the PUC Act in 1997.

Gaskin argued that rate setting had to be taken back under the purview of the PUC and the licence of the company could not be made to take precedence over the law.

One independent observer also argued that the government made a mistake in granting the firm a fixed rate of return and noted that the weighted average cost of capital method of computing the return and the rate base formula was not applied anywhere else.