The economics of Linden and electricity rates – part 2

It is now more than three weeks since what was intended as a five-day protest against the electricity hikes in the region took a dramatic turn for the worse on the very first day with the deaths of three protesters. By contrast, the talks between the government and the regional administrators to address the region’s problems have moved at a pedestrian pace, despite the political social and economic implications for Region 10 and other regions and sectors which have come to rely on the Linden passage, and of the danger of a deteriorating situation the longer the standoff continues.

Part 1 of this column which appeared two Sundays ago had as its central theme the arrangements for the supply of electricity in Region 10 and that the increases in tariff scheduled for July 1 of a minimum of 300% for consumption in excess of 75 kWh per month were hardly consistent with the progressive realignment of rates announced by the Minister of Finance only a couple of months earlier. The column was met by a response from Prime Minister Samuel Hinds who has ministerial responsibility for energy and who is also a Region 10 representative of the government in the National Assembly.

Instead of offering some pointers to addressing the economic and social conditions facing the community in one of the country’s richest regions, Mr Hinds resorted to the usual everyday currency of ad hominem pettiness and political banality to the level at which he as Prime Minister finds it necessary to point out that the percentage increases were not in a circular about the new electricity tariffs! But it is not necessary to respond to an explanation as to why the regional supply of electricity is exempted from regulation by the Public Utilities Commission.

What I found unbelievable was his justification for the supplier – Bosai – making a profit partly out of the national subsidy, a profit he linked to the company’s cash flows. The two are as related as apples are to mangoes! Surely a more logical link would be royalties and taxes paid to gross revenues – or even to the cash flows of the region’s two international bauxite operations. It is troubling that Mr Hinds can be so insensitive to the relevance or impact of the rate of the tariff increases, in many cases exceeding 300%.

It is an indictment for his government to ignore its duty to enforce the law including the Bauxite (Production Levy) Act, and that the Finance Minister would be willing to consider waiving royalty for any non-renewable resource, particularly for a company that is hugely profitable. Any country serious about managing its resources within a framework of an acceptable climate for foreign investors would pursue a fairly negotiated Double Taxation Treaty with that country. Separate, secret negotiations with strict confidentiality clauses may be useful between private companies but have no place in a transparent democratic environment in which one of the parties is the state.

From dream to LEAP
Linden, once the dream community of Guyana, now has an unemployment rate that ranks with the worst pockets in the country, with some saying – implausibly – that it is 70% while a leading government spokesperson conceded that it was somewhere around 25%. How it got here through a series of failed policies and market circumstances is beyond the scope of this particular column, but suffice it to acknowledge that within a short few years Linden came to be singled out by the European Union and the government for special treatment.

Under the Linden Economic Advancement Programme (LEAP), the EU provided €12.5M over a nine year period which ended on December 31 2010. Yet – incredibly – neither the Office of the European Union nor the Ministry of Finance was willing to provide me with a copy of the Completion Report on that project. Acting on the unlikely suggestion that I seek out an unofficial copy, I was provided with a draft, incomplete report with many key data missing.

According to that draft, the objective of the project was the creation/strengthening of viable and competitive enterprises and the generation of new long-term jobs contributing to improving the living conditions of the community in Linden and Region 10 and to reduction of social tensions. But the same draft identified as the purpose of the project was “the development of the local market for business advisory services and financial services in order to attract new national and foreign investment and increase employment opportunities.”

And if that was not enough of a mouthful, here is how the draft defined the key results of the project as:

● improved local capacity for economic planning, project design and implementation within the private and public sectors;

● improve business and finance sector;

● viable and competitive companies created;

● direct permanent jobs created by enterprises benefiting from loans and support services;

● laid off miners or unemployed youth receive training in employable skills;

● public officials trained in economic and regional development planning, project preparation, management and proposal writing;

● basic infrastructure upgrade.

A harsh assessment based on existing conditions in the region would suggest that the project was a huge failure. That would be unfair; the funds provided were clearly inadequate for the project’s ambitious objectives. My efforts to source relevant information from the Bureau of Statistics were even less successful and I was directed to the last census a decade ago. While that is surely disappointing, what is worse is the reluctance of key parties to make the Completion Report available since that robs the national conversation of useful information about the extent of the problem and strategies to deal with the economic malaise which the region shares with so many depressed communities in the country.

Failure of governance
Linden is a failure of governance, the laws and the constitution. This is what Article 77 A of the Constitution states: 77A. Parliament shall by law 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. Nearly twelve years after that Article was inserted in the constitution, the inept National Assembly is yet to pass any such law.

But the governing party has simply made matters worse. The principal local democratic organ to which Article 77 A refers is of course the Regional Administration whose executive operations are headed by a Regional Executive Officer appointed by and accountable to a central government minister and whose funds are provided by another central government minister, the Minister of Finance.

It would be instructive to learn whether either of these ministers has had any extended conversation with the Chairman of Region 10 since the November 28 elections, let alone July 18.

Region 10 is an interesting region. It is not among the larger regions by size or population. The last census showed that it had a population of 42,000 persons or 5.5% of the total population and with a size of 19,387 km2, accounts for some 9% of the country’s 214,999 km2. Those statistics do not however reflect the region’s economic significance.

Administrative map of Guyana

Region 10 is the bauxite capital of Guyana with RUSAL living up to its international corporate reputation in exploiting the bauxite reserves at Aroaima while Bosai controls the Linden operations. Both entities have slashed the number of persons employed in bauxite, to about one-tenth of the numbers in the peak days. So while there is justification in the statement that Linden is no longer a company town, it still provides both companies with a pool of employees eager and willing to work even as they bear the cost of the illness-related externalities. For the three years 2009 to 2011, bauxite exports (tonnes) were: 1,406,908 in 2009, 1,135,817 in 2010 and 1,816,548 in 2011, bringing in export revenues of US$79.5M in 2009, US$114.2M in 2010 and US$133.3M in 2011.

Next week I will continue examining the region’s economic resources as I make the point that it contributes far more to the national treasury than it draws out.

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