Gov’t calls for GPL managers to go
Says rate hikes “unjustified”
By Gitanjali Singh
Stabroek News
January 31, 2003
The government yesterday sharply criticised the imminent hikes in electricity rates announced by the power company calling them “unjustified” and asserted that consumers were being “punished for management’s incompetence.”
“The Guyana Power and Light (GPL) management has failed and should be removed. The consequence of management’s failure has led to increased tariffs, which is a source of much concern and frustration to consumers,” an Office of the President statement said yesterday. GPL announced increases of 13.9% and 16.6% in tariffs for domestic and commercial consumers for bills to be issued from tomorrow. The effective increase, however, would be 21.68% against bills issued in December because of differences in rate filings by GPL last year.
The statement by the President’s Office yesterday said the government has repeatedly criticised GPL’s management failure (to meet the commercial and line loss targets) and the need to remove the managers. This was however the first public statement by the government calling for GPL managers’ removal and it comes amidst the government’s negotiations with AC Power to restructure the investment agreements for the power company including an offer to remove the current managers.
Among the items under discussion is replacing the management contract with individual managers. ESB International, the managing company for GPL, has indicated a willingness to retire from the partnership with the Commonwealth Development Corporation in AC Power at cost of US$1.2M. But this is contingent upon other key proposals by CDC being found favourable by the government including the further dilution of the powers of the Public Utilities Commission (PUC) to impose any penalty on GPL for non-compliance with its targets; the reduction of those targets and the revocation of the June 2002 $1.3bn compensation order. The investors’ position has been that they have not received any returns from their US$22.45M equity investment and foresee no dividends for another five years. CDC is prepared to invest another US$4.5M in equity into GPL this year and release the US$3.45M standing in escrow but wants a guarantee that there would be no interference in the revenue flow to GPL. It is asking for the revocation of the PUC order and a capping of any future penalties at $20M or 10% of dividends paid. No dividends have been declared to date.
In the case of the line losses and commercial targets, CDC’s position is that they were over-optimistic in Guyana’s context and these need to be revised downward. Commercial and line losses stood at 44% last year, an increase of two percentage points, instead of the reduction by 20 percentage points ESBI agreed to in its management agreement. This non-reduction in losses is costing GPL $4.7B, as each percentage point at the current production levels is equal to $233.3M. As a result of this level of system losses, the firm had to further expend $1.9B in surplus generation to meet the needs of consumers for electricity.
Asked to respond to the Office of the President statement yesterday, Chief Executive Officer, John Lynn told Stabroek News that “the comments about management performance are noted” but the management would refrain from making any response now in light of the status of discussions between the government/GPL and CDC on restructuring the company.
But he says the tariff increases announced were determined in full conformity with the requirements of the Electricity Sector Reform Act and GPL’s licences.
“The increases are required to enable GPL to pay for goods and services that are essential to the continuing provision of electricity supply. GPL has not paid dividends to its shareholders since it began operations three years ago and such payments are not expected in the near future.”
He says the company’s financial status is one of the many issues confronting the current discussions aimed at ensuring that a structure is in place to allow GPL to acquire sufficient funds to continue to improve electricity services in Guyana. “Management continues working to build on the improvements to supply that have been delivered to date and GPL looks forward to the successful outcome of the discussions so that the ability of GPL to deliver improvements in future can be enhanced.” Lynn would not be drawn into further discussion on the issue before the parties.
Stabroek News understands that ESBI has taken the view that it would not stand in the way of changes at GPL but is not prepared to invest any further sums in a venture yet to yield returns. The CDC position is said to be different because it has a residual developmental role and has a long-term commitment to Guyana.
The changes to the agreement being negotiated would not be a gift to the government but would be part of an entire package which requires reciprocity, a source said yesterday. The sources point out that when the PUC imposes a penalty of US$7M on GPL, it deletes the amount of resources available to pay bills to keep the operations afloat. This source noted that the operations have become unstable, as lenders are not willing to take the risk with GPL.
And changes in the management contract, which has cost US$3.6M annually since October 1st, 1999, may not necessarily yield US$1M in savings. The fees were scheduled to be lowered by US$1M from October 2003. Hiring individual managers would make the management system more transparent as there would be no profits built into a management contract.
