GPL awash in cash from low oil prices – close to US$50M in coffers 

Former Prime Minister Samuel Hinds

…Govt should use surplus to bail out rice industry – stakeholders 

Given the record low prices for oil on the world-market and from its suppliers, the Guyana Power and Light Inc (GPL) is raking in hundreds of millions of dollars in profits as a result of the consequently lower expenditures for fuel, which is their largest expense.

As a result, stakeholders in the rice industry suggest that with the prevailing crisis in the local rice industry, the Government can now utilise this surplus in profits to sustain the economically critical sector until a more permanent solution is implemented.

Guyana Power and Light Company’s Main Street Branch, Georgetown

Rice farmers have signalled their inability to invest in the harvest for the next crop owing to the onerous financial challenges before them to purchase the necessary inputs.

They have also not surprisingly been reluctant to invest when there is no profit in sight with the prices projected to remain at rock bottom since the Government and the GRDB have abdicated their responsibility to find new markets after the collapse of the Venezuelan market.

This move could ultimately result in the industry being crippled and the economy eventually dipping lower into recession.

Guyana Times has learnt that the tariffs requested and charged by GPL are directly proportional to the rates at which GPL purchases fuel and is based on the prevailing world prices. In 2008, world oil prices fluctuated around the US$100 per barrel range.

That range was maintained until this year. Recently prices plummeted to far below US$50 or $10B Guyana dollars to the present, resulting in the Power Company saving hefty sums.

With the rates to customers – business and domestic – remaining at the old rate, profits have gone through the roof.

When contacted to confirm the financial status of the Power Company, Public Infrastructure Minister David Patterson refused to speak with this newspaper.

Nonetheless, arguably this increase in profit could be reinvested into the company to aid in improving several technical or operations areas where it continuously falls short.

However, given the plight of rice farmers, who are forced to down tools for the upcoming crop, the option exists for these profits to be directed by the Government towards the ailing industry.

When contacted, former Prime Minister Samuel Hinds, who had responsibility for the energy sector in the previous Administration, confirmed that Government has two options, if they wanted to virtually transfer the excess in profits to another sector.

Referring to a hypothetical situation where the GPL was functioning effectively and efficiently, Hinds said Government could have reduced the subsidy it usually provides to the company and use the remaining funds to invest in another sector. Given that the new Government refused altogether to provide subventions to the GPL, then the possibility exists that the monies, which would have otherwise been allotted to that entity could now be used to relieve the rice farmers, just so they can produce for the next crop.

 The other option, Hinds suggested, is that since the Government-owned National Industrial and Commercial Investments Limited (NICIL) is a shareholder of GPL, if it receives any dividends the money could be transferred to the Consolidated Fund which could then be directed towards another industry.

In May 2013 the Power Company sought an increase in tariffs of 26.7 per cent. In doing so they revealed their computed rationales for the increase in tariffs, as stated in the 2013 Final Return Certificate. Prior to that GPL’s last increase in tariffs was announced in 2007 and effected in February 2008, the average increase then was 14 per cent  with residential customers facing only 6 per cent.

This is the present rate since the 2013 request was not granted. The submissions revealed however that GPL’s fuel cost has risen from a weighted average of US$64/barrel in 2006, to US$108 in 2012; in 2006 GPL’s fuel bill was US$12.4 B; in 2012, this had doubled to US$24.2B; in 2012, fuel alone accounted for 83 per cent of GPL’s tariff revenue.

With oil now being purchased at US$40-50 per barrel, it is easy to understand why GPL is now awash with cash, with its coffers presently bulging with $50M in surplus which will increase exponentially in the months ahead.

This is the present rate since the 2013 request was not granted. The submissions revealed however that  GPL’s fuel cost has risen from a weighted average of US$ 64 /barrel in 2006, to US$108, in 2012; in 2006, GPL’s fuel bill was $12.4 B; in 2012, this had doubled to $24.2 B; in 2012, fuel alone accounted for 83 per cent of GPL’s tariff revenue.

When rice was doing well with the 200,000 tonne annual shipment to Venezuela, because of the PetroCaribe facility the GPL benefited because the rice was in essentially being bartered for rice. Stakeholders in the rice industry maintain the now that the shoe is on the other foot, the surplus from GPL can be used to tide it over until new markets are found.