Gov't briefs interest groups on power talks
PM sees 'difficult' gaps
By Gitanjali Singh
Stabroek News
February 11, 2003
The government last weekend began briefing the social partners on some of the crucial proposals made by the power company investors to restructure GPL but consumer advocate Eileen Cox feels that the new deal is a "fait accompli".
Cox said from the discussions it appeared the government had already decided with its investor partner which direction GPL was going. But Prime Minister Samuel Hinds insisted yesterday this was not a cosmetic exercise: "We (the CDC and government) are still talking and I am hoping that we can close the gaps by next week but they seem difficult at this time. The government has not taken a position on the issues as yet," Hinds told Stabroek News.
A government team headed by Hinds and including Winston Brassington, Ministers Shaik Baksh and Manzoor Nadir on Saturday briefed the consumers body as well as the Private Sector Commission on four of the key areas of the proposed restructuring. The Guyana Manufacturers' Association was briefed yesterday.
The groups were informed about AC Power's, led by the Commonwealth Development Corporation (CDC), proposals for the government to revoke the compensation order of $1.3 billion made by the Public Utilities Commission (PUC) against GPL; to cap any future compensation order by the PUC at $20M; to reduce the performance targets and to have these treated as part of the general investment and expansion plan and in return have the current managers removed at a cost of US$1.2M (the fees outstanding).
The groups were told that the first two issues were being linked by the CDC to the release of the last tranche (US$3.45M) of its purchase price for 50% equity in GPL and to a further injection of US$4.5M in equity. This outstanding amount is held in an irrevocable Letter of Credit at the Citibank and is to be the subject of arbitration proceedings.
The groups were told that GPL was in a financial crunch - with regulation regarded as the reason for this - hence the need to dilute further the powers of the PUC. The argument is that no potential creditor would want to lend money to GPL if there is a risk that the company would not be in a position to repay, which could happen if it is subjected to penalties by the PUC. However, this has been countered by the argument that had AC Power injected its US$23.45M equity upfront in October 1, 1999, and had it followed up on a guarantee to secure financing to invest in transmission and distribution, there would have been system savings and the financial crunch would not have materialised. The government continued to subsidise the operations of GPL in the first months of its operation.
Cox yesterday said her group was told that CDC is willing to walk from the investment and if monies could not be secured for the company then Guyana would return to the days of load shedding.
She said the consumer body asked whether utility expert Joseph Tyndall could be asked to advise the government on the issue but was told that the government has lawyers advising it.
"For me it is a fait accompli. The agreement is already reached and they are only informing us as a matter of formality," Cox said.
She also says if a cap is placed on the fine by the PUC at $20M, then it is an end to regulation in Guyana and she has told the government team this.
The government had already diluted the PUC Act of 1990 when it agreed to a rate setting mechanisms for tariff increases for GPL to guarantee it a 23% rate of return on equity. However, the claim to date is that the company has earned no dividends but no mention is being made by the government on the system losses which stand at 44%, 20 percentage points above where it should be. When AC Power took over the management of GPL, system losses (technical and commercial losses) were at 39% and instead of these being brought down over the three years to the agreed 24%, they are now at 44% with each point estimated to cost over $200M.
The company has had to over-generate electricity, burning more fuel and financial resources in the process, to carry the amount of electricity required to consumers. This is said to have cost the firm an additional $1.9B last year. That is, consumers, instead of paying increased prices for 55% of the electricity which reach them, have to pay for the full 95% of power generated, a 45% surcharge for system losses by the company.
GPL because of inefficiencies in the system, had to raise rates from this month (now on hold pending a court action) to secure an additional $2.6B in revenue for last year to earn it a 23% rate of return. Despite this, the firm to date has not been able to earn dividends. This is because the monies collected to secure the rate of return (profits and dividends) were during the year whittled away on current expenses.
AC Power has been earning its 20% on its preference shares which now stands at $2B in GPL's balance sheet, management fees of US$3.6M annually and directors fees which amount to $25M per annum. (This has been compared to Guysuco where the chairman earns $9000 per month in directors fees and board members 7000.)
If the government agrees to revise the targets and cap the PUC at a $20M compensation order observers say there will be no incentive for management to reduce system losses and make the operation more efficient.
Meanwhile, head of the Private Sector commission Peter deGroot said that body would meet this afternoon to craft a response to the positions put to it by the government. The consumers group is also expected to do the same. The government is to meet the recently formed Upper Corentyne Utility Committee to brief members on the issues.
