GPL blames budget cuts, moves for drastic 26.7% tariff hike

Jun 09, 2013 News

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…AFC says management “mismanaging”

Guyana Power and Light has announced moves to introduce a massive 26.7 per cent hike in electricity rates increase to recoup significant losses as a result of fuel increase.
The announcement yesterday by the Guyana Power and Light Inc. (GPL) comes six weeks after the Opposition, during the considerations of the country’s budget, slashed $5.2B from a governmental assistance programme.
A large part of the subsidy represents monies from a Chinese loan to run new transmission lines on the coastlands and for the construction of seven new substations designed to reduce GPL’s leaky systems.
According to GPL, on May 15,  2013, it submitted its Final Return Certificate (FRC) to the regulatory body, Public Utilities Commission (PUC) for an increase in tariffs of 26.7 per cent effective May, 2013.
“The new rates have not taken effect but the GPL Board is actively engaged in planning its implementation,” a statement said yesterday.
GPL, in arguing for the increase, said it is allowable according to the 1999 Electricity Sector Reform Act (ESRA) and its licence.
“The tariff filing, called the Final Return Certificate (FRC) computes annually how much GPL may increase (or decrease) its tariffs, using an internationally acceptable methodology that is based on a rate of return basis.”
The methodology calculates the tariffs looking at GPL’s income and expenses, assets, debt and equity in the prior year, in this case 2012.  “The GPL FRC was accompanied by a Notice of Compliance issued by an independent firm of Accountants and GPL’s 2012 audited accounts that shows GPL losing $7.6 B in 2012,” the company said.
GPL last increased tariffs in 2008.

The 26.7 per cent increase in tariffs will help GPL to recover from its deficit position, the statement said.
GPL also argued that proposed increased can be viewed against the $5.2B cut to its capital budget which came from loans provided by Venezuela, China and the IDB. All these loans are being repaid by GPL over a period of time, the company said.
“A recent CARILEC report shows GPL residential tariffs to be one of the lowest in the region (with only Trinidad, Suriname, and the Bahamas having lower rates). GPL’s last increase in tariffs was announced in 2007 and effected in February 2008, more than five years ago; the average increase then was 14 per cent, with residential customers facing only 6 per cent and 9 per cent and Government covering a 20 per cent increase.”
GPL, in highlighting the fuel costs problem, said prices have risen from a weighted average of US$64/barrel in 2006, to US$108, in 2012. In 2006, GPL’s fuel bill was $12.4B while in 2012, this doubled to $24.2B. Last year, fuel alone accounted for 83 per cent of GPL’s tariff revenue.
“GPL has delayed implementing full tariff increases implementing increases in only two of the last 10 years, resulting in GPL having foregone revenue of over $21.7 B, after taking account of the $5.2 B to be recovered from the 26.7 % increase.”
The power company said that the fuel situation is not likely to change until 2017 when the Amaila Falls hydro project is expected to be completed and generation costs will be reduced to half of what is the situation now.
“The Amaila Falls project is therefore critical to GPL reducing its costs of generation and the impact of fuel costs on increasing tariffs. GPL is expected to shortly highlight its current position and the challenges it faces, particularly given the reduction of access to loan financing for GPL from its shareholder (the Government of Guyana) to invest in critical improvements in its infrastructure.”
GPL is projecting that at least US$90M will have to be spent in the next five years if it is to make a substantial reduction in technical and commercial losses.
GPL made it clear that the cuts affected the company badly. “GPL regrets that as a result of funding denied to them, it has no other option but to move in the direction to raise revenue to remain financially viable.”
In April, GPL had called on the Opposition to rethink the $5.2B cut to the government assistance programme.
The utility company said that the amount slashed would seriously affect several large scale enhancement projects currently underway to improve its efficiency.
It could also lead to the very real possibilities of tariff increases for customers and impact financing by the Inter-American Development Bank (IDB) for the US$840M-plus Amaila Falls hydro-project.
Calling for the Opposition to reverse its decision to slash that sum from the $10.2B sum allocated, the officials said that it is unthinkable to place a hold on the projects which include new transmission lines, frequency upgrades and a new 26-megawatt Wartsila power plant at Vreed-en-Hoop, West Bank Demerara.
In February 2008, GPL raised its rates but government, in the form of a subsidy, was able to offset the hike, without consumers feeling the squeeze. It is likely that government may have to subsidise any foreseeable raise in the tariffs.
Yesterday, Leader of the Alliance For Change, Khemraj Ramjattan, said GPL’s management cannot use the cuts or fuel as justification for any increases.
“We have made it clear that we believe that GPL should be better managed in terms of procurement and its loss reduction efforts. We hear reports of prepaid meters being brought in bulk and a significant portion defective. We asked for documents. GPL is still to come clean.”
Ramjattan said that blame for GPL’s plight cannot be laid at the door of the Opposition.
“I am willing to appear before PUC and argue these and other issues we have with GPL. As a matter of fact, fuel prices have come down. We can’t just release billions from the Consolidated Fund because GPL says so. This is the people’s money.”

 

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