On the line – Guyana Power and Light, Inc, 2007-2010

Amidst the din and controversy of ‘to cut or not to cut’, Guyana Power and Light Inc, the country’s number one, state-owned electricity supplier was voted the sum of five billion dollars in the 2012 Budget. This is $1 billion less than requested by the Finance Minister as a 2012 budget measure. It is a topsy-turvy world for GPL. In 2009 the company reported profits after tax of $1.8 billion and at December 31, 2010 the company was sitting on cash resources of $2.8 billion, perhaps the highest ever cash balance reported by any Guyana company outside of the commercial banks.

As this column surveys the operations of the company over the four years 2007-2010, a scenario emerges of a yo-yo performance with losses of $1.6 billion in 2007 and $1.9 billion in 2008 and profits of $1.8 billion in 2009 and $553 million in 2010. And nine months after reporting the cash hoard, taxpayers in 2011 were forking out $1.5 billion from the increasingly abused Contingencies Fund in subsidies.

Chairman Winston Brassington explained, or rather excused the significant 69.4% fall in 2010 profits from 2009 as largely on account of an increase in fuel costs of $3.5 billion above 2009 costs of $13.1 billion. This is surprising because the company has been spending massive sums to reconfigure its plants to enable it to use the lower cost Heavy Fuel Oil (HFO). And with some success: raising HFO use to 80% in 2010. The word is that the problems might lie much deeper than the cost of fuel and may have something to do with huge bungling at the Cane Field operations in Berbice. But that is supposed to be a secret.

In his 2010 report, the Chairman speaks of a 3% reduction in technical and commercial losses which he attributed to overall efficiencies from the implementation of the new US$3M customer information system, meter change-out programmes and efforts to reduce thefts. If the 2011 figures confirm the reported 3% decline, that would be very good news. Particularly since the 2010 performance is in spite of an increase in technical losses from an estimated 13.4% in 2009 to 14.3% in 2010, which the Chairman attributes to the “distribution and transmission network reflecting its age and limited capacity relative to demand.”

Total generation in 2010 was 626 GWh (gigawatt hours) of which GuySuCo Skeldon – using Wartsila generators – supplied GPL with 60 GWh, with the remaining 566 GWh being produced by GPL. Of the GPL portion, 441 GWh (78%) was generated by GPL owned, but Wartsila operated units and 125 GWh (22%) from GPL owned and operated generating sets. Surely this makes it all the more troubling that the company maintains perhaps the highest paid set of top management in any company in Guyana – an average of ten million dollars per annum for 29 employees – including arguably the highest paid CEO in the country.

Over the period peak demand has ranged from 94.8 MW in 2007 to 100.6 MW in 2010 while available capacity has been 124 MH in 2007 to 124.3 MW in 2009 and 121.5 MW in 2010. The company does a poor job therefore of load planning and/or explaining why across the country consumers have to face outages with such irritating frequency.

Income statement
Here are some extracts from the income statements for the years 2007 to 2010.

Turnover has increased over the four year period by 33.8% while generation cost has risen by a smaller 17.6%. Indeed generation cost in 2007 was 85% of turnover and in 2010 it was 74.9%. According to the Chairman the revenue growth reflects the increased number of customers and volume, as well as a portion of the loss reduction benefits flowing into revenue.

Employment cost as a percentage of turnover was 12.8% in 2007 but declined to 8.8% in 2010. It is an interesting statistic that 3% of the employees account for 16% of the employment cost. No wonder then that the Chairman in his 2010 report explained the remuneration of the management team is “reflective of international standards.” Reflecting the increasing share of outsourcing, employment numbers fell by 30% between 2007 (1320 employees) and 2009 (912 employees) but rose again in 2010 by 94 to 1006 employees.

Interest cost has declined from $403 million to $90 million as the government seems to absorb increasing sums of debts for the company and converts net liabilities into equity on which any returns are looking extremely unlikely in the foreseeable future.

The only payment of taxes reflected in the company’s cash flow statement is a sum of $77 million in 2010, despite the substantial profits in 2009 and 2010 and the charges for property taxes in each of the years 2007 to 2010.

Balance sheet
The company’s net equity position has increased from $8.2 billion to $12.0 billion while its fixed assets have increased from $11.2 billion to $16.8 billion, or some 49%. With the company’s billing system improving, the $4.8 billion of accounts receivables on a turnover of $26.6 billion, or 66 days worth of sales, is still high. But that $4.8 billion is net of $6 billion provision for bad debts, excluding related parties balances. That makes the collection situation desperate with the provision for bad debts at 60% of customer account balances.

The Chairman reports that collections were 99.6% of 2010 billings which would suggest that the bulk of the accounts receivables is irrecoverable and will have to be written off. Since the provision has already been made such action will have no impact on the income statement.

Another account receivable under serious doubts is the related party balance of $791 million net from the state partner-in-need GuySuCo. Any payment of this balance in the near future will have to come from the government, which really means the taxpayer.

On the liability side the company is shown as owing some $22 billion, with the prospects of actual cash outlays being about $15 billion, mainly to the government for the use of PetroCaribe funds, Infrastructural Development Project and an IDB loan and to third parties of another $3 billion.

The question which the National Assembly should have asked is how much of the $5 billion subsidy will be going to pay operating debts and how much to capital expenditure which is being partly financed by the Chinese and to a lesser extent the IDB.

Much is made of the efforts to stamp out electricity theft. The company is looking at the wrong places. Yes, there are some working class areas where theft is indeed rampant. But it takes only one businessman to steal the electricity consumed by 500 hundred and more small consumers. What is worse the company knows who the real thieves are but they are some of the country’s “reputable” business persons – the same ones who dodge corporation tax, pay their employees under the table, convert VAT to other income and who will run to the courts pleading their innocence! If we want to deal with electricity theft we have to deal with the real thieves, not the small thieves.

If the situation is seen to be bad now, Amaila will make it worse. The company can now sell only around 600 MWH. Yet it has to guarantee the purchase from Sithe Global of approximately 900 MWH. It will have to pay for that at the switch, whether or not it can sell the power. When Amaila comes on stream, GPL will still have to keep its own plant and that of Wartsila as the back-up. GuySuCo will find that GPL no longer needs it. Leguan and Wakenaam will have to continue operating as they do now. The current costs being met by GPL will not disappear.

The prospects for GPL are not good. Its GuySuCo receivable balance is in jeopardy. Its recent survival has been due to the grace of the Consolidated Fund. Its management has failed to reduce one of its most expensive costs – commercial losses – because they are looking in the wrong direction. The company has spent billions on transmission and distribution without any noticeable results. Lured by Chinese renminbi, it is taking on some huge debts not related to Amaila. These will have to be serviced. Amaila will simply be too heavy a burden for GPL.

But then its Chairman Winston Brassington is also the executor-in-chief of NICIL which will impose Amaila on GPL – whether they like it or not. Or whether there is a conflict or not.

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