GPL cuts put government in a “precarious” situation

GPL cuts put government in a “precarious” situation – Prime Minister

Apr 21, 2013 News

By Latoya Giles

Prime Minister Sam Hinds, on Friday, stated that the opposition’s budget cut for the Guyana Power and Light puts the government and company in a very precarious situation. The Prime Minister hosted a press conference on Friday to discuss the likely outcome of the GPL budget being cut.

Prime Minister Sam Hinds

According to the Prime Minister the allocations for GPL which have been cut, do two things. He stated that the funds replace the suppression in the tariffs. The prices charged by GPL are suppressed (every kilowatt) by about $12-$14.
He noted that since the government is owner, it is called upon or is required to do upgrades and expansions for GPL.
Hinds stated that the prices and costs are not expensive since they compare favourably with similar utilities in the Caribbean. He said that the prices are well within the lower half, debunking the notion that GPL is expensive. “When we go out to buy fuel among other things which constitute 90 percent or more of the cost, we pay the same prices,” the Prime Minister stated.
According to the Prime Minister, GPL prices are very low compared to some of the other Caribbean countries. Hinds said that from the charts the government could show from 2003 to present that it has foregone $27B in revenue, by keeping the prices lower.
According to the PM, prior to 2003 there were no foregone revenues as GPL implemented economic tariffs that were calculated in accordance with the company’s licence which sets out the allowable rates of return on equity and debt.
Hinds noted that the next allocation from the budget is the need for investment to improve the operation, both equity and loan type. He said that although GPL arranges some amount of loans on its own, by not having a positive profitable flow, banks and institutions are constrained to make the loans. The loans, then, have to come through the government because of this.
Hinds said that in the last four or five years, the peak demand for electricity has been growing in line with the growing economy and people’s rising standard of living. He said that the demand has risen so one has to put in the investment to deliver the required amount of megawatts. According to the PM the investment over the last five years, includes the transmission upgrade which includes seven new substations along with three expanding ones with a submarine cable across the Demerara River. The funding is coming from China.
There was also a construction of a generating station at Versailles, which is about $6.4B. He added that there was the installation of 36 megawatt of new generation which cost about $10B. There was also a programme from the IDB to counter electricity theft which has been about $1B. Within the last five years, Hinds said, Government has had to put about $28B into GPL.
According to Hinds, there is a $14B hole to be filled by the budget. He said that if that hole is not filled, who will fill it?
He noted that there is a new generating station, which is near completion and it would be used to strengthen the network. The joint opposition cut some $10.2B in allocations under the Office of the Prime Minister targeting the expansion of the electrification programme. The GPL cut was some $5 B.
Despite the warnings by Minister of Finance, Dr. Ashni Singh that the absence of this subsidy may force tariff increases, the Alliance for Change and A Partnership for National Unity (APNU) went ahead with the cut.
The Opposition MPs were not satisfied with the answers to their questions provided by Prime Minister Samuel Hinds. The Finance Minister’s appeals for them to do the right thing did not sway them.
Speaker of the National Assembly Raphael Trotman, asked the Prime Minister to indicate what would be the possible effects of the cut and Mr. Hinds replied that it could possibly see the company purchasing less needed equipment and fuel.
He explained that the fluctuating international price for fuel to keep the generation output of electricity stable was also catered for under the funding. PM Hinds pointed to GPL’s ongoing infrastructural development projects which he noted would be greatly hampered by the cuts.
Head of GPL Bharat Dindyal had on Wednesday publicly pointed out that the institution currently has several major projects being executed simultaneously under a loan agreement between the Government of Guyana and China Exim Bank for the construction of, among other facilities, seven new substations which are expected to be completed by the end of this year.
Three of these sub stations have been completed on the West Coast Demerara and others, on the East Coast Demerara, are currently under construction along with almost 100 kilometers of 69 KV transmission lines.
In highlighting the implications of the proposed cuts, Dindyal stated that if the projects are not completed this year, GPL will encounter serious problems in its ability to deliver services to supply the increased demand for electricity in Demerara and Berbice.
As a state owned entity, the budgetary allocation to GPL’s customers is intended to help the company foot its ever increasing fuel bill which is expected to be over $24.7B this year. Capital allocations also finance upgrades and expansion of the utility company to meet the growing electricity demands of the country.