The Guyana Power and Light Inc (GPL) has agreed to cut its tariff hike to eight per cent for this month and to apply the full 15.89% from March 1.

The delay will allow the government and GPL to clarify the procedures for calculating the rates and the commercial and line loss targets unmet by the company. The phased introduction of the increase was announced by Prime Minister Sam Hinds yesterday as well as by the power company.

Hinds yesterday said that if it was shown to him that the rate base formula rate of return to AC Power - government's joint venture partner in the power company -- will consistently give an advantage to the company over consumers, he would push a case for its review. He further stated at a media briefing at his office that if it were shown that the formula had not been applied correctly, this would be remedied.

Defending the joint-venture agreement with the Commonwealth Development Corporation (CDC)/ESB International (the consortium which formed AC Power), Hinds said it was about the best arrangement Guyana could have secured and can still secure for the power company. The joint-venture agreement has come under constant criticism in recent times over the instability of power supply and the increases in rates.

GPL's operations remain a monopoly with rate setting embedded in the formula guaranteeing it a 23% rate of return. The Public Utilities Commission (PUC), by an act of parliament, has no say in rate increases, but Hinds does not agree that the PUC was emasculated. He argued that the PUC cannot be free to do as it likes, as this would not be consistent with mobilising foreign investment for Guyana.

He said that in the case of the phone company, the PUC was supposed to have arrived at a formula to guarantee the company its rate increases and in the interim be guided by the US Federal Communications Commission's conduct. However, Hinds said, such a formula has never been arrived at.

Put to him that under his tenure as president in 1997, the PUC amendment bill was rushed through parliament without going to a select committee to benefit from the concerns of all sides in the National Assembly, Hinds said he still did not think that a delay would have helped. He said there was a two-day seminar to debate the bill and still there were accusations of a lack of consultation. He also said there was a US$45 million balance of payment support loan on hold pending the legislative reforms.

The Prime Minister, touching on several concerns in the public domain over the GPL contract, dubbed the management fee of US$3.6 million per annum the best arrangement the government could have come up with. He said other big players including Enron and Southern Electric, were not interested in investing in Guyana, because the returns would have been too small. He reminded that the management contract expires in ten years.

On the issue of commercial and line losses, he said that reducing these would take time and would require investments and pointed out that if the company brought forward its investments to make these corrections, then it would add pressure on the rate base. Nevertheless, Hinds said, the government was taking issue with AC Power over the targets it set itself to bring down these losses, and had not met. But he also raised the issue of whether the estimated commercial and line losses on the books at the time of privatisation were accurate.

Given his statements, which suggest he has no problem with the operations of GPL and the utterances by President Bharrat Jagdeo and Cabinet Secretary Dr Roger Luncheon criticising the power company, the Prime Minister seemed to confirm that there is no unified government position on the performance of GPL. Hinds said that the criticisms by the President and Dr Luncheon result from their frustrations and expectations that things would have gotten better much faster. He said sometimes even he got frustrated and wanted things to move faster. "But I can see no advantage being taken of us," Hinds stated yesterday. Asked then why he had written a letter to GPL expressing concern over the rate increases, Hinds asked whether this reporter had seen the letter.

The letter signed by Hinds expressed the government's "dissatisfaction and disappointment" over the rate increases and said the government expected a "competent review" of the calculations submitted to ensure there were no errors.

"Secondly, the government expects explicit attention to the shortfall in the reduction of losses from 40% to 29%. The obvious question is if the losses were down to 29%, how much lower would have been the projected increases which the utility now needs," Hinds told Chief Executive Officer of GPL, John Lynn, in a letter on the increases.

Hinds said yesterday that it could very well turn out that GPL's calculations were accurate and that the formula was reasonable and acceptable. He said in this instance, other compromises would have to be explored such as phasing in increases over a longer period of time.

Asked in which other developing country the rate base rate of return was applied with the watchdog body not having jurisdiction over rate setting, Hinds said he would have to check that out. He said the government acted on the advice of its adviser, Price Waterhouse Cooper and could have gone with a price cap formula, but thought this would not have been a wise thing to do as if the cap was too low, service could deteriorate.

Questioned about the wisdom behind a 50-50 joint venture and not letting go of the majority interest in the utility, Hinds said the government was guided by a lot of considerations at the time of capitalising the power company and did not want to give over control of the utility. The government had dumped Deloitte & Touche as its adviser at the time because the firm had insisted that a 50-50 arrangement would not be a good idea. The government has experienced difficulties with other such joint ventures including Edgeworth Construction Company Ltd which it had to take back and sell to the Peter Cummings Group and the Aroaima Bauxite Company which never yielded a dividend and which ended up being taken back by the government recently.

Hinds questioned what mechanism would have been used to ensure that rates were not increased to levels which the population could not afford, had the government given up control. The Prime Minister insisted that Guyana's goals must be to have a good supply of electricity at sustainable prices and to be prepared to accept these prices once they were justified.