Most of Guyana’s electricity is not generated by GPL; 80% is produced by GuySuCo and Wartsila

It is hard to believe that GPL’s Chairman Brassington and CEO Bharat Dindyal do not understand the difference between the income statement and electricity rates and capital expenditure and cash flows. It is equally difficult to understand why they would mistake assertion for “insinuation” even describing it as a demonstration of “gross ignorance” (‘GPL denies scare tactics over cut of subsidies’ SN, April 25).

The Brassington-Dindyal statement deserves only a limited response while the letter by the company in other print media deserves none.

Not because of their absurdity or crudeness but to help contribute to an understanding why electricity consumers continue to pay exorbitant rates, why GPL is unable to manage and control expenditure, why a board of independent professionals is so important, why highly paid managers should produce equally high quality results and why their collective failure is making electricity unaffordable.

Messrs Brassington and Dindyal claim that GPL has “foregone revenues of over $27 billion to the end of this year.” They are either delusional or dishonest. The ESRA formula for rates is linked to performance targets, including substantial reduction in system losses by the former private investor. That investor abandoned the company in 2003 and its successor has not met the loss reduction targets. Any $27 billion of foregone revenue is therefore a mirage.

But if Messrs Brassington and Dindyal seriously believe GPL is entitled to the rate increase why do they not apply for and have consumers pay, rather than ask taxpayers to pay? Maybe they understand that with a more transparent rather than disguised tariff increase elasticity of demand would bite and more businesses would invest in their own generation plant. Or maybe they do not understand that the budget’s announcement to subsidise the light bills of pensioners is a realisation that tariffs are already too high for tens of thousands of Guyanese.

“So much for lack of progress,” smugly exude Messrs Brassington and Dindyal as they boast of their performance as top managers of system loss control.

This time, delusion or distortion. According to the company’s annual reports and information released at various PUC hearings, system losses under Brassington and Dindyal in the past six years were: 2007: 33.6%; 2008: 33.9%; 2009: 34.3%; 2010: 31.3%; 2011: 31.6%; and 2012: 31.7%. In other words, between 2010 and 2012 system losses increased despite capital expenditure estimated at over $20 billion or US$100 million during the same period.

And even if the duo prefer to measure the progress over five rather than the more recent three years, the improvement is 1.9% or 0.38% per year. My former boss Grenada Finance Minister Bernard Coard would probably be pleased that I am finally taking his advice.

Embarrassed at the exposure of the widespread super-salaries paid to GPL’s 29 management staff, Messrs Brassington and Dindyal seek comparison with the region. Would they point out a single regional utility that generates less than 20% of the electricity it has available for sale that produces as poor results as GPL does? Or which has a ratio of management compensation to total wages and salaries as GPL does?

Not only are the top personnel in GPL overpaid but they are increasingly so. In 2008 the percentage of key management compensation to total wages and salaries was 9.66%; in 2010 it rose to 12.55%! Incidentally among these highfliers is Mr Kumar Sharma, who is listed as a Loss Reduction Director. Would Mr Brassington describe as “ignorant” or “grossly ignorant” the suggestion that Messrs Dindyal and Sharma should have their salaries tied to performance and loss reduction?

But what about comparing the salaries of GPL’s managers with their peers in other local entities that are so better directed and managed? Here are some revealing statistics. According to their most recent annual reports, the top seven public companies in Guyana paid their entire key management team an average of $131 million for that year. In GPL for 2010 the comparable amount was $272 million, more than twice as much.

And using GBTI as GPL’s nearest comparator with 31 key management personnel versus GPL’s 29, we note that average monthly salary per key management staff member of GBTI is $451,481 per month but at GPL it is $782,600 per month, 73% higher.

Here are some other troubling numbers: GPL’s administration expenses in 2010 increased by a whopping 47% over 2009. And of the 626 GWh power generated in 2010, 501 GWh or 80.03% was produced not by GPL but by GuySuCo (60 GWh) and Wartsila (441 GWh). In other words, while GPL owns generating equipment it contracts out its generation and then buys it back to sell to consumers. It seems to me that if the company was engaged in generation, its performance would probably have been so much worse. This raises the question: what do all those high-paying managers do?

On accountability, Mr Brassington assures us that the 2012 audit report would be issued by the end of this month but says nothing about 2011. So I remind him of this and that a recent company Development Plan projects system losses of 20.8% by the end of 2014.

Finally, to get back to the initial point I raised in my letter that caused apoplexy in GPL. I have no doubt that the National Assembly would entertain a request by GPL of the $5.2 billion it withheld once the company produces a credible plan to use the money sensibly and efficiently.

The operations and management of GPL need to be subject to a thorough performance and efficiency audit before it is given any more public funds. No amount of spinning by Messrs Brassington and Dindyal will convince any informed and independent observer that GPL as presently set up and operated is not a massive waste and a burden on the consumers.

Only $1,000M was requested for GPL’s operations and the National Assembly approved that; the warning of a tariff increase is nothing but scare tactics

Now more than ever I lose hope and faith in our politicians whose words speak louder than their action. But then I see some dishonesty, chicanery or fabrication that upsets me and makes me take up my pen.

In today’s (April 23) Stabroek News Messrs Brassington and Bharat Dindyal, Chairman and CEO respectively of the mismanaged Guyana Power & Light Inc are threatening a 17% tariff increase because of the $5.2 billion cut by the National Assembly. The reasons they give are so dishonest that I cannot help but recall the feigned outrage by Messrs ‘Fuzzy’ Sattaur and Martin Goolsarran when the NCN subsidy was cut last year.

Mr Dindyal was reckless enough to accuse the parliamentary opposition of “a poor understanding of the company’s operations.”

In fact it is more than likely that it is because they not only understand but know that the GPL is among the most poorly operated and managed companies in the history of Guyana that the opposition is reluctant to put $11,255 million in the company in 2013, following the $6 billion in 2012 for which there has been no accounting to date.

Assuming as I do, that Messrs Dindyal and Brassington are not dishonest, then it is they who do not understand. Here is what the Minister of Finance said in the 2013 Budget Speech about the $11,250 million to GPL.

“Budget 2013 therefore provides operating and capital transfers to GPL totalling $5.8 billion to support that company in meeting its cash flow requirements. It is worthwhile to mention that, in addition to the $5.8 billion budgeted to be transferred to GPL in 2013, Government is also budgeting a further $5.4 billion to be provided to GPL to support key projects such as the upgrade of its transmission and distribution network, the loss reduction programme, and other activities required in anticipation of the AFHP.”

They so comingle money that they probably do not even realise that only $1,000 million was requested for GPL’s operations.

The National Assembly approved that sum in full. It is nothing but scare tactics for Mr Brassington to warn about a potential tariff increase following the cut of $5,800 million which, knowing our parliamentarians, will be restored sooner rather than later, as happened last year.

And let me reassure Mr Dindyal that Guyanese understand what is going on in GPL including:

1. That at December 31, 2010 the company had an accumulated deficit of $2,008 million and was indebted to the Government of Guyana for $9,035 million in long-term liabilities, $1,189 million in current liabilities and $402 million in taxes payable, making a total owing to the Government of $10,626 million. The company’s indebtedness would surely have increased in 2011 and 2012, in addition to the $7,500 million it received by way of budgetary allocations in those years.

2. That over the approximately six years of the Brassington-Dindyal partnership at the helm of GPL, line losses have remained stuck at around 32% when they should be no more that 15% -18%. In other words 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.

3. That GPL has failed to table its 2011 Annual Report in the National Assembly which was due by the middle of 2012. The National Assembly should have told the Prime Minister to go and bring the report before we entertain any request.

5. That the cost of fuel in 2013, which accounts for a significant part of annual expenditure, is projected to be less than in 2012.

6. That the company’s procurement is no less tainted than national procurement.

7. That the management is not only incompetent but also overpaid. In 2010, twenty-nine management staff were paid a total of $271 million plus perks. This works out at $9,400,000 per year per person. That would have gone up in the two years since.

8. That GPL does not have the power to increase rates but only the Public Utilities Commission and only after public hearings. Maybe Messrs Brassington and Dindyal should put their threat to the test and open themselves to examination.

Finally, the duo’s spuriously precise 17% tariff increase reminds me of my days in Grenada when Bernard Coard advised me, “Chris, don’t say around 50. Say 47 or 53. People will think you are being honest and accurate.”

Conditional on the granting of any transfers to GPL, the National Assembly should have demanded the firing of the entire Board of GPL and their replacement by competent individuals. Messrs Brassington and Dindyal may mistake the temerity of our politicians as stupidity of our people. We know and understand what is taking place. And it is not good.

The economics of Linden and electricity rates – part 1

Region Ten is not a burden on, but rather a contributor to the state

In the 2012 Budget Speech, Dr Ashni Singh, Minister of Finance said: “Currently, in Linden, electricity costs between $5 and $15 per kWh, while on the GPL [Guyana Power and Light] grid customers pay an average of $64 perkWh. The total cost of this electricity subsidy was $2.9 billion last year, the equivalent of 10 per cent of GPL’s total revenues. Starting from 2012, reforms will be initiated to the tariff subsidy with the aim of giving effect to a progressive alignment of the subsidised rates with the national rates that are applicable on the GPL grid.”[Emphasis added].

There are a couple of small things wrong with that statement. Linking the subsidy to the total recorded revenue of GPL is tenuous at best, and misleading under any circumstances. Linden is not on the GPL grid; it is provided with electricity produced by Bosai Mineral Services for sale to Bosai Minerals Group and to the community through Linden Electricity Company and the Electricity Cooperative Society. Third, a random survey of the electricity bills for the most recent period of five GPL consumers, all staff of Ram & McRae, showed an average of $55 per kWh, high but 14% lower than the charge stated by the Minister.

Nothing progressive
But what is patently misleading is that part of the Minister’s statement that speaks of a progressive alignment starting from 2012. Here are the increases which customers were being asked to pay before the tragic deaths which led to the rates being put on hold.

Source: Linden Electricity Company Inc circular

Anyone consuming 75 kWh or more of electricity will face an increase in their bill of at least 300%. In my group of five, the average consumption is 157 kWh. The increase applicable to them would be over 600% making it hard to find any word but deception to describe the Minister’s clever use of words.

This government which has a good sense of history has had twenty years to address the subsidised tariffs in Linden. Assuming a $5 per kWh in 1992, it would have required a semi-annual increase of roughly 6% to bring the tariff up to the same level as GPL. With fatal consequences, the government has attempted to do in one year what it did not do in 20 years.

Profiting from the subsidy
But the Minister is not the only person producing misleading information. Bosai Minerals Services Inc released recently a document described as an “Audited Operation report” showing that the company made a profit of US$233,000 in 2010. The public records however show that the company made a profit (before tax) of G$76,342,000, the US Dollar equivalent of $380,000. Since the company’s business is the operation of a power plant to provide electricity to its (group) bauxite operations and the community, it must explain this difference and whether it is permitted under the agreement with the Government of Guyana to make a profit from the subsidy.

There are other concerns about the electricity operations. The information the electricity company has provided on fuel costs needs explanation. Invoices for diesel imported by its parent company (Bosai Minerals) from the State Oil Company of Suriname show a lower cost of fuel than that reflected in the company’s income statement. Since its financial statements do not suggest that the company buys diesel from the parent company, the question is why does it not pay the same price from the same supplier as its parent.

A second concern has to do with the agreement signed with the government for the supply of electricity, a regulated service which would otherwise come under the Public Utilities Commission. The government has excluded Bosai from any regulatory obligation hence its freedom to charge rates that should have been fixed on a cost recovery basis. It seems incontrovertible that that would be the more appropriate basis since the supply serves the group and in some cases its service is specific to the group. For example, any plant capacity for the operation of the dust collector cannot be shared with the community charge while on the remaining plant, the pricing policy should be based on the marginal cost of providing electricity to the community.

A third concern I have touches on the government’s paranoia that if it applies the country’s laws to Bosai, the company will pull out. Perhaps that is the message – or threat – the company communicates to the government in private. We should not fall for that. Bosai and China are here not to develop Guyana but to guarantee access to raw materials. They need Guyana as much as Guyana needs foreign investment. Our failure to recognise that allows investors and Bosai in particular to exploit the country. Let us look at Bosai’s Income Statement for the years 2008-2010.

Source: Audited financial statements

Under the agreement with the government the company was exempted from the payment of property tax and royalty for the five years to December 8, 2009. The notes to the 2010 financial statements state that the company has sought a five year extension, but went on to state that no royalty was payable on sales during the period December 9, 2009 to December 31, 2010 and that no property tax provision to December 31, 2010 had been made.

Order 8 of 2005 indicates that the company is subject to royalty at the rate of 1.5% but to a zero rate for the first five years. I searched the Laws of Guyana but could only find statutory authority for a 3% rate and first saw a reference to 1.5% in a 1997 Mining Policy and Fiscal Regime by Prime Minister Samuel Hinds. Mr Hinds’ paper did not even mention the Bauxite (Production Levy) Act 1974 which was introduced to ensure that the country gets a fair share of the revenues from its natural non-renewable resources.

Mrs Da Silva and Mr Hinds
The Hansard of the debate on the Production Levy Act in the National Assembly of September 25, 1974 records then leading member of the United Force as saying: “These big multi-national corporations seem to think that because they are huge multi-million concerns, that because they are big and we are small and we need the revenue from our bauxite so badly for the economy of our country, that they should have the upper hand and be allowed to dictate [to us]. That time has passed.” If you can hear me, Mrs Da Silva, that time has returned.

Those whom her party now supports in the National Assembly are prepared to waive royalties and to ignore the Bauxite (Production Levy) Act for a hugely profitable company which was on target to recover its original investment in less than five years. Prime Minister Sam Hinds, failing to appreciate the difference between royalties and corporation tax, has ensured that under Order 8 of 1995, the company will pay only the greater of royalty and corporation tax. In other words, if the corporation tax payable exceeds the amount payable as royalty, no royalty will be payable.

Let us put that into context. In the three years 2008 to 2010, the bauxite companies exported some 4,659,317 tonnes of bauxite with an exchange value of US$325.2 M. For this, the country received no royalties.

And if 2010 was a good year, 2011 was a great one. Bauxite production shot up in 2011 by 68%, from 1,082,512 tonnes to 1,818,399 tonnes. If there was no technical or economic case for a royalty waiver in 2005, there can be no financial case for an extension of that waiver in 2011.

And there is one other point which may have escaped the Government of Guyana. Without a Double Taxation Treaty between Guyana and China the income earned in Guyana would under normal tax rules, be subject to tax in China. In other words, income we do not tax is effectively contributing to the Treasury of China. If only we are courageous enough to negotiate a fair deal with Bosai, and apply Guyana’s tax laws including the anti-transfer pricing provisions as necessary, the country will be better off.

And let us end today’s column on this note. Guyana is a 30% shareholder in Bosai. So that when Bosai paid one billion dollars in dividends in 2010, Guyana received $440 million of that in revenues, $300 million in dividends paid to NICIL and $140 million paid to the Guyana Revenue Authority as withholding tax. And that is on top of the $708 million received from corporate taxation! If only we did not waive all those other taxes!

Clearly Region Ten is not a burden on, but rather a contributor to the state.

Next week I will identify some specific solutions to the tariff question.

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.

Mounting losses by GPL

If everything goes according to plan and the new Kingston Power Plant finally comes into operation within the next week or two, Guyanese can expect a reduction in the spate of blackouts that for the better part of 2009 have been plaguing the business sector, torturing households, arousing tempers and making any planning almost impossible. So bad and widespread has the situation become that it is non-discriminatory in its impact – affecting with equal effect rural and urban Guyana alike; children at school and housewives at home; commerce and industry, successful and loss-making. The financial statements inform us that the company has spent some $3.1 billion in capital expenditure for 2008, obviously with more to come in 2009, though the level of capital commitments has not been disclosed. Whatever the technical (de)/merits of these massive sums, all borne in the final analysis by the long-suffering, impoverished consumers, any kind of relief will surely be welcome, not least so that Guyanese can have a lit, if not bright Christmas. This will indeed be good news even as the Guyana Power and Light Inc. (GPL) continues to haemorrhage money for the state and the taxpayers of this country.

According to GPL’s financial statements for the year ended December 31, 2008 posted on its website, the company racked up losses before tax in 2008 of $2.9 billion, a 23% increase over 2007 and close to double the corresponding loss two years earlier. What makes this loss even more significant is that over the same period the company has shed hundreds of employees even as a handful of senior staff are paid several millions of dollars each. The financial statements show the Government advancing to the company, cumulatively, more than $7 billion, much of it interest-free, whether authorised by the National Assembly or not being another matter. It is obviously hard to understand what drives this financial irrationality and one must wonder whether the Government is satisfied with the results following changes at the top of the company.

The past few years have seen a number of changes in the company including the replacement of former Chairman Chartered Accountant Ronald Alli with privatisation czar Mr. Winston Brassington, the appointment to the Board of PPP member Desmond Mohammed and Mr. Rajendra Singh, recently appointed Deputy CEO of Guysuco. Sitting on the GPL Board as well is Mr. Carvil Duncan of FITUG, who does not seem uncomfortable at the loss of hundreds of jobs under his watch. The shedding of jobs has taken place over the token, tepid opposition from Mr. Kenneth Joseph, President of the government-friendly National Association of Agricultural, Commercial and Industrial Employees (NAACIE) to an earlier proposal to lay off 250 workers. Mr. Joseph may not have noticed but that number has been exceeded by more than 25%! It is hardly reassuring to the members of NAACIE that in the two entities in which the Union has historically been most effective – sugar and electricity – workers have seen their numbers shrink and influence reduced.

But it is not only money that the company has been losing. It is losing approximately one out of every three units of electricity it generates under the rubric of Technical and Commercial Losses, losses which have to be borne by consumers. In the past couple of years, it has also lost key management personnel including former Chief Executive Officer Rabindranath Singh, Deputy CEO Martica Thomas, Commercial Services Director Kesh Nandlall, Legal Officer Neil Bollers, and Human Resources Director Donna Tucker. Such a situation makes for depressing reading by consumers who in both absolute and relative terms pay some of the highest rates and receive some of the poorest service for electricity in the region.

Financial Highlights


Source: GPL’s Audited Financial Statements 2008.

But back to the finances
Total assets of the corporation increased in 2008 by $6 billion or 32%, even as inventory declined from $2.1 billion to $1.6 billion or approximately 25%. The largest drop in this asset group was in the value of fuel stock but disturbingly, the value of spares declined by 25%. Normally, as the value of plant and equipment increases, the spares to support them should increase as well, but this did not happen. Another major item in assets was what the accounts refer to as Deferred Tax Assets of $2 billion, of which a large proportion is in respect of the tax value of losses carried forward. It is open to speculation whether consumers are as optimistic as the company’s management and its auditors about the prospects of these losses being reversed any time soon and these tax losses realizing any value to the company.

Some 27% of the total assets of the company are financed by capital contributions from the Inter-American Development Bank, the Government of Guyana and private customers. GPL is one of the few service providers which can insist that its customers pay for the infrastructure to supply them which the supplier then owns, to share with other consumers as it chooses. Now it is telling those customers that they must prepay for their electricity consumption as well!

The gross amount of receivables from customers is $8.2 billion against which there is a whopping $5.2 billion Provision for Bad Debts or 64%. In other words, for every three dollars owed by customers, the company is confident of receiving only one dollar. Yet, only a couple of weeks ago, the company was boasting in one of its PR moments that the company has achieved a 100% rate of collection. That too makes little sense.

Who are the auditors?
The website financial statements bear an audit report signed by the Auditor General suggesting that he has audited the company’s financial statements. In fact the statements were audited by PKF, Barcellos, Narine & Co. to whom the audit was subcontracted. This is no simple legal technicality of principal and agent and it is entirely incorrect and highly misleading for the Audit Office to make such a misrepresentation. These statements are circulated to a wide group of users who may rely on them for a number of purposes. Unvarnished truth is therefore necessary.

Subject to that, the public would have better been able to understand the numbers if the directors act properly and post on the web the Annual Report as well. That report is ready but responding to my request for a copy, a senior member of the company told me that the report which was presented to the company’s annual general meeting some weeks ago could not be released until it has been authorised by Cabinet! Yet, only recently the company hosted media personnel over dinner and announced the appointment of Mr. Ron Robinson as its public relations consultant. The press persons should have asked about that Report and Mr. Robinson’s first piece of advice to the directors is that the best PR for any service provider is good service, transparency and accountability and that the annual report is a major PR tool. It has taken letters and several calls to the Chairman for me to have a rotting pole at my residence replaced. After about one year a new pole was planted but the old pole is still there, leaning precariously, while my calls to the GM find him always at meetings.

Prepaid meters
Another development announced by the company is the prepaid meter which would require the consumer to pay in advance for the electricity supply s/he receives. This I understand has received support from some quarters of the consumer movement and at least one prominent businessman.

I discussed the matter of prepaid meters with the relevant persons and I believe that they now realise that they may have too readily accepted the company’s arguments about the virtues of the proposed arrangement. One issue that arose during our conversation was whether the proposed arrangement falls within the Standard Terms and Conditions for Electric Service and that any amendments will have to be approved by the Public Utilities Commission.

GPL has touted its proposed move as benefiting customers since the “prepaid metering system … will allow them to manage their consumption of electricity” and that “through the new system consumers will become more knowledgeable about their electricity use and a significant reduction in demand is expected.” If the company truly believes that there will be a significant reduction in demand, one must wonder why the company is bothering to expand its capacity. I was told that the company has told a consumer representative that the system will remove the opportunity for theft! Worse, the person actually believed. The truth is that the company sees its proposed move as helping it to resolve one of its perennial problems – the collection of receivables. If every consumer is required to have prepaid meters, amounting in effect to paying for their supply in advance, the company will collect some $2 billion upfront, interest free, helping it with its cash flow problem.

The company has preferred not to engage the public in any meaningful discussion on the use of such meters but if it had it would no doubt have sought some guidance from South Africa, New Zealand, India, Philippines and Singapore where such a system has been introduced. In South Africa a number of unanticipated problems surfaced and there is universal agreement that the system often militates against the poor, just like VAT does. It is unthinking to assume that electricity can work on identical principles as cell phones and the PUC needs to consider very carefully the conditions under which it will approve any amendments to the regime under which electricity is supplied and paid for.

State of the Art v Common Sense
The company has also announced that it is implementing a US$2.8M automated Customer Information System (CIS) which it claims will boost the accuracy of the cash receipting process, improve customer service by giving prompt responses to billing requests and allow new payments to be immediately credited to a customer’s account. Not only is this an extra-ordinary amount of money for such ordinary benefits but it seems untimely that this is being done when the company is moving to prepaid meters which will reduce the need for as many accounts.

Throwing its own money, or that of its customers or shareholder, behind problems is certainly not the way a modern, large public enterprise should be run. The company is indeed a complex operation but any attempt to solve its myriad problems will first require an examination of its business model. Is it planning sufficiently long in advance and is it taking account of potential developments such as hydro in a couple of years as the President has promised?

I recall my thought in reaction to the announcement about the new software constituting a state of the art billing system. I could not help thinking that what the company needed was nothing state of the art, but simple courtesy and common sense management that does not leave a rotting pole for more than one year or allow losses to keep mounting, year after year.