The economics of Linden and electricity rates – part 3

As with the first, the second installment of this column last week attracted a full length response from the Prime Minister Samuel Hinds which as far as I could understand pleaded with me “to help soothe anxiety about removing a historical subsidy.” I have no objection to doing so if Mr Hinds would share with me a copy of the Bosai Power Purchase Agreement and detailed information on the generation and distribution of electricity in Region 10.

Mr Hinds in his letter also cited ultra-conservative, anti-labour Margaret Thatcher’s handling of the coal industry in the seventies as a model against which to compare our 21st century Linden. As if to establish the firmness of his belief, his government then appoints two Bosai directors, Messrs Winston Brassington and Norman McLean, to investigate the Bosai-supplied electricity in Region 10, the genesis of the current unrest in that region.

Mr Hinds also reacted to my reference to the LEAP Completion Report and even sought to advise how I should “proceed to critique it.” After two weeks and despite assurances by the Minister of Finance that the report would be provided to me, I am yet to receive a copy.

In last week’s column I reproduced a map of Guyana showing the administrative regions of the country. Region 10 is not a particularly large region and has been described as the only landlocked region in the country. But that understates its importance. Not only is it the country’s sole bauxite region but in terms of natural resources it also is a significant forestry region which LEAP had projected would witness increased annual production of about 5% per annum from 2004 onwards. The incomplete draft Completion Report spoke confidently of the number of activities taking place in the agriculture sector, allowing farmers to target specific high yield crops for the Guyanese and export market. It referred to a draft agriculture strategy having been tabled for discussion by LEAP and the Regional Agricultural Team, which when finalised, would guide regional agricultural development in the medium to long term.

Historically the fortunes of the region have been closely linked with that of the bauxite industry. But employment reduction at Linmine and Bermine and their successors has been significant over the years. Given that the sector now employs less than 10% of the 12,000 persons employed by the industry at its peak, the largely forgotten National Development Strategy (NDS), and Poverty Reduction Strategy (PRS) both articulated the need for significant expansion and diversification of economic activities. Not surprisingly then, the draft LEAP Completion Report identified a rapid transition to a diversified economic base as of particular importance in Region 10.

Importance of Linden
Linden’s location is strategic. It has the potential to become the hub for goods from northern Brazil and a key point in the Lethem to Georgetown corridor. But its importance within Guyana has been underlined during the current impasse in which road contacts and movement of goods and people between Regions 7, 8 and 9 and Regions 4, 5 and 6 have been brought to a virtual standstill.

Ocean-going vessels navigate their way to Linden with practically no problem, while the region also has various kinds of clay to spawn a major industry. With no threat from rising sea levels and a largely concentrated population many of whom are skilled artisans, the region has the capacity to provide its current population of approximately 45,000 with a standard of living that compares favourably with the rest of Guyana.

Transformational leap
LEAP was supposed to have provided that springboard with €12.5M provided by the European Union. The project had the kind of structure so loved by those overpaid international consultants who often have a first call on project funds. Overall responsibility for the project rested with the National Authorising Officer of the Ministry of Finance, while executive responsibility lay with the Project Steering Committee. This committee was responsible for approving the annual work programme and receiving regular technical and financial reports.

The government was expected to play the major role in supporting the transition from a bauxite town to a diversified community with the key five agencies being GO-Invest, National Industrial and Commercial Investment Limited (NICIL), the Forestry Commission, the Ministry of Agriculture and the Linden Economic Advancement Programme (LEAP).

The core component of the LEAP was the Business Development Services (BDS) oriented to providing “hand-holding” assistance to new businesses and SMEs as well as to help entrepreneurs to modernise and improve management skills. Whereas in the short to medium term BDS was expected to become a one-stop-shop in Linden to streamline queries and business solutions for existing and new entrepreneurs, the ultimate purpose was to turn it into an example of a driving force for business and economic development of Region 10.

Government stalled
The results of the LEAP are disputed. Ms Kathy Whalen, LEAP International Programme Manager was confident that LEAP achieved most of its set indicators and that new jobs were created and investors were attracted to the community. Many disagreed then, and now question those glowing reports against the background of the current state of the community. The absence of the Completion Report makes any assessment of LEAP a step in the dark while there is almost a blanket of silence over the successor Linden Economic Advancement Fund which the government brought their friends in to manage.

The government appears not to have acted on some of the suggestions made in the draft Completion Report including the need for an institutional arrangement for investment promotion and micro-credit activity. The draft recommended a jointly public-private financed and operated entity with the Government of Guyana continuing to make a credit line available.

The government dilly-dallied and as a result, arguably the richest region in the country was left to become a depressed community where residents are unable to meet the economic cost of basic necessities. Sadly, it took the events of July 18 to cause the government to establish two teams to look at electricity specifically and the wider economic state of the region. While those teams will have their work cut out, there are several options they would no doubt consider. Here are my brief comments on some matters they may wish to consider.

1. Historically low tariffs have militated against any attempt not only at conservation but common sense. It appears that most consumers use electricity rather than gas for cooking and many of them keep on lights 24/7. At least one government representative agreed with a suggestion I made to him that the government buy a bulk supply of gas stoves which it can distribute to residents of the community, at a modest cost. This would have an immediate and significant impact on consumption and therefore the subsidy. Similarly the government can distribute energy-savings bulbs with the same effect.

2. The entire arrangement whereby the government supplies duty-free fuel to Bosai Services and pays the company to generate and supply electricity to the region has to be carefully scrutinized. The members of the team include GPL Chairman Mr Winston Brassington and its CEO Mr Bharrat Dindyal. GPL is of course a high cost supplier of electricity and by their presence on the team may also benefit from the kind of professional examination of electricity costs which will take place. No doubt too, there will be a thorough examination of the Power Purchase Agreement and the allocation of costs between various groups of users/consumers.

3. The team should also consider a more sustainable, lower cost alternative strategy for the medium term (3-5 years). Energy is critical to economic development and I understand from a document which was provided to me, that a regional energy plan, including the use of the region’s natural resources is being considered. This must be accelerated.

4. The region must not be forced into the national grid. This is as much an economic as a political matter. If the region can provide electricity at a lower cost, then it must be free to do so.

Economic issues and democracy
The potential of the region, like the rest of the country, has been stymied by lack of local democracy. For all the talk about budgets, the regions are at the mercy or fancy of the Minister of Finance while the Minister of Local Government appoints the Regional Executive Officers. The regions have no control over taxes and are required to deal with all kinds of garbage including plastic containers for which the central government collects more than one billion dollars annually. If ever there was one set of revenues that should be shared among the regions, the Environmental Tax is that one.

And it is not that revenue-raising is any new concept. As Article 76 of the Constitution states, “Parliament may provide for regional democratic councils to raise their own revenues and to dispose of them for the benefit and welfare of their areas.”

If this was in place, the region could raise revenues by way of tolls, charging for certain services, etc.

And while that would be at the regional level, the regions themselves will have a fair share of national revenues if the slothful parliament would do as Article 77A of the Constitution requires and make “law [to] provide for the formulation and implementation of objective criteria for the purpose of the allocation of resources to, and the garnering of resources by local democratic organs.”

Finally on this score, is the abomination of annual postponement of local government elections which some claim is unconstitutional. In depriving the people of their democratic, constitutional rights, the Parliament is proving to be the most undemocratic body in Guyana.

Next week I will conclude with some recommendations on the economic revival of Linden.

Leave a Reply