On or around April 22 last, the Guyana Power and Light Inc. (GPL) announced it was seeking a 17% tariff increase because of the $5.2 billion 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. According to a statement issued by GPL last Saturday, “the GPL Board is actively engaged in planning its implementation.”
According to the GPL, the increase is calculated in accordance with the 1999 Electricity Sector Reform Act (ESRA) and a Licence that allowed the previous private investor to increase (or decrease) its tariffs, using an internationally acceptable methodology based on a rate of return. According to the company, the FRC was accompanied by a Notice of Compliance issued by an unnamed independent firm of Accountants and GPL’s 2012 audited accounts which show GPL losing $7.6 billion in 2012.
The effect of the increase is more than the difference between 17% and 26.7%. In dollar terms using GPL’s 2012 turnover of $29,028 million consumers will have fork out another $7,750 million per year. As we await the predictable calls from Government’s ventriloquists in the private sector and consumer movement, we should consider the following:
1. Contrary to what whichever accountants loosely might have said, GPL did not lose $7.6 billion in 2012. It lost $4,872 million but is now playing around with a book entry of $2,795 million of Deferred Tax which any accountant ought to know is not a recurring charge. Improperly, it seems, the company is using this charge to come close to the figure of $7,750 million which it is asking the PUC to approve. 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.
2. The Licence on which GPL is relying is 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 into 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.
3. GPL’s business model seems to be one that says regardless of how much the company is mis-managed the taxpayers or consumers must underwrite it. That is turning business on its head. It must first operate efficiently, charge fair rates and put itself in a position where it becomes attractive to investors and lenders. Under the Brassington/Dindyal stewardship, the company has deteriorated.
4. The company derives revenue from only 68% of its production. It needs to explain why with the highest paid management team in Guyana (the CEO alone receives $4 million per month), it cannot drastically increase that percentage. It has been unable to meet its obligations under the Licence to reduce technical and commercial losses. If the Brassington/Dindyal duo had managed to reduce losses of 1-2% per annum during their stewardship, they would not have been asking for any increases at this time and for years to come since the reduction of losses would release funds to the bottom line. As my letter in the Stabroek News of April 24 stated “…inappropriate policies and inept management at GPL are costing the country in the range of $5,469 million and $6,641 million per annum, based on 2010 turnover.” Those numbers would have risen significantly since then.
5. It is commercial lunacy for the company to believe that it can increase charges by 26.7% without any impact on demand. I therefore look forward to an explanation from the company on the assumptions it has made about the impact on demand which a 26.7% tariff increase will have (elasticity of demand).
6. Even a utility has to take note of social considerations and the likely response of consumers to what appears to be arbitrary, unreasonable and unjust imposition on the people. The public would simply not accept the proposed rates.
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.