An Open Letter to AFC Leader Mr. Khemraj Ramjattan… ‘GPL is deserving of the allocations in the 2013 Budget’
nday, 22 April 2013 23:17
wRwRITTEN
I AM moved to write this open letter to you on reading the AFC column, ‘GPL is a liability to the people’, in the Kaieteur News of Sunday, April 21, 2013.  I take this unusual step because others in APNU, and in the public at large, may have similar concerns, and time is of the essence.
Prime Minister, SAMUEL A. A. HINDS Being aware that it was my duty, I did seek during the general debate and in the consideration of the estimates, in Parliament, to provide sufficient and credible information about the operations, and financing, of GPL.  In an important matter such as this, I clearly would like to have an opportunity to clarify what I presented, and to respond to any other questions. Allow me firstly to bring before us again two of the exhibits which, I think, give an essential, holistic context within which we should see the allocations, from the budget, to GPL.  It may not accord with the impressions which many of us have, but (i)  the prices charged by GPL are lower than both the cost and the economic prices – the net foregone revenue over the period 2003 to 2013, is about G$27.88 billion, and (ii)  the prices charged by GPL, as well as the costs incurred and the economic prices, compare well with similar prices across the Caribbean. Please refer to the table which shows, from 2003 to 2013, the average rate charged by GPL and the economic rate (per kWh) from which is determined the earnings that GPL has foregone, monies which GPL, to keep running, needs to receive from some other source, most reasonably from our national budget.  Note also that the prices customers are required to pay have been kept unchanged since 2008.  The small movements seen in prices are related to changes in the proportion of electricity taken by the different customer-categories. An explanation may be asked about prices in the years 2010 and 2011.  The system of calculating economic prices for GPL is based on actual costs in the preceding year – there is thus a one-year lag which is small when costs are changing slowly, but, over the period 2006 to 2011, oil prices experienced a dramatic rise (from US$50 to US$150 per barrel), a fall (to US$35 per bbl), and a rise again (to US$100 per bbl). Average electricity prices could have fallen somewhat in 2010 and 2011, but only to rise dramatically in 2012.  As a mechanism of the stabilisation of prices, the foregone revenues of the period 2003 to 2007 were recovered in 2010 and 2011, enough to keep prices stable (unchanged). Please see, next, the graph which shows the domestic tariff (prices charged) across sixteen (16) reporting CARILEC countries, in June 2011.  The figure of US 26.70 cents (G$ 55) for Guyana, is the fourth lowest.  Note the US 38.9 cents (G$80.13) for Barbados.  GPL’s average price across all consumers was G$66.31 per kWh.  Additionally, when we consider that GPL’s actual cost for 2012 was put at G$75. per kWh, and the economic price put at G$82 per kWh, one can then see that the GPL’S costs and economic prices compare well with what prevails in other CARILEC countries.  These figures question the assumption in the AFC column that ‘GPL is a huge black hole of inefficiency, mismanagement, waste and squandermania’.  That belief is not true! There is the usual response that pay-scales in Guyana are lower than those in other countries.  Quite true, but about 85% to 90% of GPL’s costs arise from purchases of oil and other foreign-sourced goods and services.  The answer would be to look for other sources of electricity, particularly local sources, which could be cheaper - hence our focus on the proposed Amaila Falls development. Far from what the AFC column seems to have assumed, ‘total losses’ have been an ongoing focus of GPL since the GEC’s time of the 1980s.  At various times over the last decades, losses have exceeded 40%.  Over the last couple of years, GPL has brought losses down to about 31%.  Losses include both technical (network) and commercial (mainly electricity theft) losses.  There must, inevitably, be some technical losses. In Barbados, losses are enviably low at about 8%, with about 18% in Jamaica.  In every country, prices include total costs, which include the losses.  This is much the same as in other sectors, where costs include spoilage, theft and other shortages. The losses of GPL are high on both counts – with technical losses estimated at about 13 % and commercial losses estimated at about 18%.  The reduction of technical losses requires significant investments in network-upgrade, both transmission and distribution, in the ending of the 50-cycle generation, transmission and distribution, and in ending the 50-60 cycle conversion.  The allocations to GPL this year include soft funding to the Government from the China EXIM Bank, to complete the transmission-upgrade by December 2013/January 2014.  GPL is well on the way to complete the conversion to 60-cycles during the first half of this year, thereby ending 50 cycles in the Georgetown area.  These two afore-mentioned projects are responsible for much of the interruptions being experienced this year. GPL is ever aware that there is still the distribution-upgrade to be addressed. GPL has been steadily pursuing the reduction of commercial losses by appealing to moral suasion and by pulling down illegal connections.  Recall that the Head of this section was shot and killed some years ago.  GPL would be assisted greatly by more positive support from citizens, the majority of whom do not steal electricity.  Laws have been enacted over recent years to stiffen the penalties which are faced by persons who engage in the theft of electricity, including a mandatory prison sentence on a third conviction. GPL has also embarked on a third line of attack in the war against electricity theft, specifically illegal connections, which is to install more hardened and smart distribution-networks.  This does not come cheaply – depending on the level of hardening, the cost of connecting a customer could be increased more than five-fold.  The budget allocation to GPL, from an IDB loan to the Government, is focused on this and other ways to reduce commercial losses. In response to the contention in the AFC column about GPL focusing on its billing (and collection) system, I need to point out that recovery on billing is given the same weighting as losses, and that it is often combined with losses to determine an overall cash recovery for the utility. The profits of the years 2010 and 2011, are not an indication of widely-fluctuating performance of the board, management and other employees of GPL.  Rather, it indicates the dramatically lower oil prices in 2009 and 2010, and the recovery of revenue foregone in previous years.  The overall picture that should be borne in mind, is the remaining net foregone revenue of G$27.883 billion, over the period 2003 to 2013.  Foregone revenue for the year 2013 is projected at G$6.416 billion. Additionally, Government as owner, as the party responsible for providing the financing for expansions, rehabilitation and upgrades for GPL, provides this financing via allocations in the budget.  These allocations are mostly from soft loans sought, and identified, for GPL, and they account for about G$30 billion of budget allocations over the last five years.  Foundation works began this year for a new 26 MW generating station at Vreed-en-Hoop (enlarging and replacing the one at Versailles) to be completed by the end of this year, at a total cost of about G$6.4 billion. As minister responsible for the sector, I have been endeavouring to provide straight and fulsome[satisfactory] answers.  There is a lot of money involved, and the issues demand some time for them to be fully understood.  The monies, particularly the investment monies, have been spent as intended.  Such monies are  released only by the third-party, primary providers on satisfactory certification of the work done. As minister responsible, I am concerned that we are not once again side-tracked from the steady progress that GPL has been making, by any seeming panacea, such as privatisation, in the past.  We were side-tracked there, primarily by the view that with foreigners as owners, the customers, as well as employees, would fall into line, and total losses would readily fall to more reasonable figures.  That was not to be.  Indeed, that was highly optimistic, and when the investors walked away, we had to call on the two previously leading employees, whom we had cast aside, to break their new arrangements and to return.  It is only fair that we had to make it reasonable for them to ditch the contracts which they then had. I am confident that someone who could take the time for a full and thorough review of the many dozens of reports on, and by, GPL, would also find that rather than GPL being a liability, GPL has served, and continues to serve, our people and our country well, taking account of the staffing, the generators, the networks, and the other resources that GPL has available to it, including the budgetary allocations received over the years. With generation that is insufficient, a good portion of which is aged and of questionable reliability, with networks that are over-loaded without redundancy and much of it also aged and already amortized, there is reduced addition to costs than would be the case with new facilities and an off-setting of some of the cost of high losses, but only with service that is compromised. The failure of the large station-transformer at the Canefield generating station in July last - one of a number of similar transformers, across the GPL network, that is over 40 years old - caused many problems in putting available power into the Berbice grid, until about December when a transformer borrowed from the transmission-upgrade project was installed. With cash flows that are less than required and uncertain in timing, it takes a particular kind of courage to manage things; a courage that is fortified with the commitment to serve and the awareness that things are getting better.  This challenge, this minister and all in GPL dutifully take on, conscious that all of us Guyanese face similar challenges in whatever work we do.
Let us provide the allocations, and continue to demand the best stewardship of GPL.
SAMUEL A. A. HINDS Prime Minister