Mr. Ram should really have been able to make a more informed analysis

Jun 13, 2013 Letters

DEAR EDITOR,
We refer to Mr. Christopher Ram’s letter of Monday June 10, 2013 in the Stabroek News captioned “GPL cannot be allowed to continue operating with a failed model and incompetent management”. In his letter, Mr. Ram referred to the Rate Calculation in accordance with the 1999 Electricity Sector Reform Act (ESRA) and the Licence.
As the independent accountants appointed under the Electricity Sector Reform Act (ESRA), we now wish to clarify certain aspects of the rate calculation, which we hope will provide a better understanding:
(1) Electricity rates are based on the Final Return Certificate which is certified by an independent firm of Accountants appointed under the Electricity Sector Reform Act (ESRA).
(2) The prescribed format of the Final Return Certificate is set out in Part (D) of the Licence to supply electricity for the public purpose granted Guyana Power and Light (GPL) under Section 4 and 42(3) (c) of the ESRA.
(3) Since the Final Return Certificate is due on or before April 30 in the year following the year of return, any increase in electricity rates will apply to billings as of May. Therefore, to achieve the required return based on the proposed increase, that rate has to be scaled up to take account of the shortened period viz eight (8) months (May to December). In this particular instance simple math would show that the required increase of 17.8 % for the year when applied to the shortened period of (8) months would amount to 26.7% (12/8 x 17.8%).
(4) It appears from Mr. Ram’s analysis that he used a very simplistic approach of assuming that the rate of 26.7% was obtained by taking the revenue deficit as per the Financial Statements of $7.668 Billion as a percentage of the total revenue for the year of $29,028 Billion and concluding that any accountant “ought to know that deferred tax is not a recurring charge” and that “deferred tax entry ought not to have been made”.
Mr. Ram may wish to know that deferred tax was not included in the computation as the Licence clearly does not allow for inclusion of such expense. Had Mr. Ram understood that it was the rate of 17.8% computed under the Licence when applied to the shortened period of (8) months that gave rise to the 26.7%, he would not have erroneously concluded that deferred tax is included in the rate calculation.
(5) Mr. Ram’s firm, which performed the function of External Auditor of GPL for several years, would have been privileged to the methodology used in the rates computation. Had Mr. Ram consulted or revisited his audit files for the period over which his firm presided as Auditors, he would have been able to make a more informed analysis rather than trying to impugn the integrity of the independent accountant when he made the statement “Contrary to what whichever accountants loosely might have said, GPL did not lose $7.6 Billion in 2012 . It lost $4.872 Billion but is now playing around with a book entry of $2.795 Billions of Deferred Tax”.
Contrary to what Mr. Ram has said Deferred Tax was not included in the rate computation and is not being played around with!
Nizam Ali & Company
Chartered Accountants

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