June 12, 2013 | By KNews | Filed Under News

…says board, management should be sent packing …has no application in PUC to increase tariffs

Christopher Ram

The Guyana Power and Light Inc. (GPL) may have been premature in its announcements to introduce a hefty 26.7% increase in its tariffs, with the regulator yesterday saying it has not yet received an official request. GPL’s announcement has also been greeted by criticism, with the Opposition parties calling for a probe of the power company, and claiming the move was a political one to force a reversal of the $5.2B cutback in April to a government assistance programme. Utility companies in Guyana are regulated by the Public Utilities Commission (PUC) and any proposed increases in tariffs must first be approved by the body before implementation. PUC Chairman Justice Prem Persaud yesterday said that no application for increases has been received as yet.

Prime Minister Samuel Hinds

Utility companies like GPL, Guyana Water Inc. and the telephone companies, are mandated by law to submit financials and other requirements periodically to PUC. Over the weekend, GPL in announcing the increases, which it hopes to soon become effective, said it has submitted its Final Return Certificate (FRC) to the PUC. “The new rates have not taken effect, but the GPL Board is actively engaged in planning its implementation,” a statement from GPL said over the weekend. On Monday, A Partnership for National Unity (APNU) joined with the Alliance for Change (AFC) to reject the increase. As a matter of fact, AFC Leader Khemraj Ramjattan made it clear that his party is prepared to appear before any PUC hearing on increases to address the issue. GPL said that initial figures are indicating a massive $7.6B loss last year as a result of fuel increases. GPL also said that the $5.2B budget cut is hurting them. According to Justice Persaud, any public hearing for a tariff increase will have to follow a process, including an application. According to APNU, GPL’s own admission that it is losing more than 31% of the power that it generates is alarming. Technical losses are listed at 14% and commercial losses at 17%. DISMISSED “Anywhere else in the world (where there is) a corporation with this type of track record, the board and top-tier management would be dismissed. Instead, the government of Guyana sought in the national budget to give GPL a whopping $5.2B, without demanding reorganization or a turn-around plan.” APNU is convinced that the announcement is a conspiracy between the PPP/C administration and GPL to “punish the people of Guyana” for the power company’s “failures. “The tactic is clear to all that this government intends to link this proposed rate increase with the 2013 Budget cuts.” The coalition warned that it is an attempt to provoke unrest. “APNU will not stand idly by and allow this burden on the backs of the Guyanese people. APNU calls for the removal of the entire board of GPL and total managerial overhaul of this mismanaged corporation.” Yesterday also, business columnist and accountant, Christopher Ram, joined calls for a full probe without delay at the state-owned power company. Ram, in a letter to the editor said that GPL in late April said it needed a 17% increase in tariffs because of the $5.2B budget cuts. Yet, in May it submitted documents to PUC saying 26.7% is needed. “Around April 22 last, the Guyana Power and Light Inc. (GPL) announced it was seeking a 17% tariff increase because of the $5.2B budget cut by the National Assembly. Yet only three weeks later, on May 15, the government-owned utility submitted to the Public Utilities Commission (PUC) what is called a Final Return Certificate (FRC) which it claims allows it to increase tariffs by an even higher percentage – 26.7% – effective May, 2013,” Ram said. DISHONEST? Ram also claimed that GPL’s figures on its losses of $7.6B last year are incorrect. “Contrary to what whichever accountants loosely might have said, GPL did not lose $7.6 B in 2012. It lost $4.872B, but is now playing around with a book entry of $2.795B of Deferred Tax which any accountant ought to know is not a recurring charge. Dishonestly it seems, the company is using this charge to come close to the figure of $7.750B which it is asking the PUC to approve.” Ram said that it appears to have escaped the attention of the company and its independent accountants that if the 26.7% rate increase is approved, the Deferred Tax entry ought not to have been made in the first place. Ram also argued that GPL is relying on a licence signed between the Government and CDC, under which CDC as an investor was guaranteed a minimum rate of return. “By its reliance on the Licence, GPL is effectively demanding increased returns on every dollar injected in the company by the Government. What makes such a reliance more absurd and illogical is that the licence is effectively between the Government and the Government.” Ram noted that indications are that GPL is only getting revenue from 68% of its production. “It needs to explain why with the highest paid management team in Guyana (the CEO alone receives $4M per month), it cannot drastically increase that percentage and therefore earn more revenue, or at least reduce its costly losses. GPL’s licence imposes on the company a duty to reduce losses but after several years and billions of dollars it has been unable to do so. It is commercial lunacy for the company to believe that it can increase charges by 26.7% without any impact on demand,” Ram wrote. The accountant argued that “the PUC, the Government and the public can no longer allow the company to operate with a failed model and incompetent management under an inappropriate licence. A full enquiry into this company needed to have been held a long time now and meaningful action taken to address systemic policy, technical, managerial, human resources and regulatory issues. We see what the delay has cost us. We cannot afford any further delay”. LONG OVERDUE On Monday, Energy Minister, Prime Minister Samuel Hinds, in justifying the proposed increase, said it is coming after five years of no adjustment during which time oil prices had risen by about 60 percent. The cost of oil constitutes about 80 percent of the cost of providing electricity. Speaking on a programme on the National Communications Network (NCN), the Prime Minister said that GPL has been foregoing the increase in tariffs that it ought to have been receiving. The company has calculated over $20B of foregone income. The Prime Minister said that while this increase will be very demanding on people, the adjustment should have been coming in smaller steps of about five percent per annum. He said the annual government subsidy has been meeting a lot of the shortfall in the income required by the company. It has been part of the Government’s efforts to ensure that customers are not made to bear the burden of the high cost. He said that there has been a lot of pressure on GPL to reduce technical losses; however, this would require significant investments. In preparation for the Amaila Falls Hydropower Plant, many studies have been conducted, and one of the consulting groups retained by the Inter-American Development Bank (IDB) noted that GPL needs an investment of US$250M to bring its networks up to the required levels. This investment, it was emphasized, is not within the company’s reach at this time. “We have been giving great consideration to the issue of electricity tariffs, but costs eventually have to be met. Our hope was that we could somehow manage until Amaila came along,” the Prime Minister said.