IMF zeros in on Guyana’s oil dependency …high electricity costs, tariffs attract most attention

Jul 27, 2016 News

IMF Managing Director, Christine Lagarde

By Kiana Wilburg
Even though it has acknowledged the efforts of the coalition administration in moving towards alternative sources of energy, the International Monetary Fund (IMF) still expressed concern during its recent assessment of Guyana’s energy sector.
The team noted that Guyana depends heavily on imported oil for its power needs. It was informed by the authorities here that the country’s installed power generation capacity is about 83 percent oil-based and 17 percent biomass (bagasse)-fueled.
This capacity translates into a generation mix that is almost entirely dominated by oil-based generators, which supply about 95 percent of the country’s power consumption.
The IMF representatives stated, however, that the oil-dependent power generation mix contributes to macroeconomic instability. This means that it is one of those factors which affect the stability of national production and/or profits.
The officials said that high oil prices widen the external current account deficit, increase fiscal transfers to the public utility – Guyana Power and Light (GPL) – and reduce oil tax revenues due to the limited pass-through in the domestic fuel pricing regime.
Accordingly, they said that adverse oil price shocks consume foreign exchange and fiscal resources. They said that volatility in oil prices quickly propagates to the external and fiscal sectors.
Additionally, the team asserted that high electricity costs and tariffs are a drag on competitiveness and growth. They said that oil price shocks increase the cost of power generation.
“When those costs are passed on to users, they increase the cost of production and constrain investment. Average retail electricity prices were among the highest in the region in 2014. GPL’s relatively high rate of technical and commercial losses also contributes to high electricity prices. Although the recent decline in oil prices has provided some respite, Guyana remains exposed to oil price corrections,” the team said.
They added, “Oil-dependent power generation is at odds with the vast renewable energy potential. The country has extensive hydro power potential, estimated at 7600 MW, which by far exceeds its annual consumption and installed capacity.”
In the meantime, the IMF has not turned a blind eye to the fact that various studies have identified 67 sites as suitable for hydro power generation. The IMF believes Guyana’s climate is also suitable for wind and solar power generation, while its sugar and rice industries provide opportunities for co-generation of electricity from biomass (sugarcane bagasse and rice husk).

Minister with responsibility for the Energy Sector, David Patterson

They said that a transition to a green power matrix will bolster resilience to shocks while reducing its carbon footprint. They noted, however, that the green power matrix has been delayed by various constraints.
“Interest in developing Guyana’s hydro potential dates back to the first oil shock of 1974-75. Plans to build a large hydroelectric project at Amaila Falls began in the late 1980s and evolved through several proposals and rounds of negotiations, but implementation has been constrained by the project’s large size, complexity, cost, and Guyana’s limited fiscal space,” the team said.
Guyana recently launched a comprehensive review of its power sector strategy. The government has tasked the Inter-American Development Bank (IDB) with a review of its optimal energy matrix.
The IDB will assess the optimal power generation mix for the country, looking at a broad array of energy sources. The government has also retained an international consultant for a review of the feasibility of the Amaila Falls Hydropower Project. The power sector strategy will draw upon the results of these studies.
The government has also taken steps to increase the contribution of renewables to its power generation mix. A recently signed MoU with a private firm provides an opportunity for the construction of a 25 MW wind farm.
The government has put in place fiscal incentives to promote solar power and will use solar panels and mini hydro stations in remote communities without grid access. Solar power is also increasingly used by businesses to power their buildings and operations.
In this respect, enabling green technology independent power producers to sell their excess power to the grid could reduce energy losses, increase supply, and lower tariffs.
The government is also exploring the modalities of renewing its ground-breaking low carbon partnership with Norway, which has provided grants for developmental projects in exchange for Guyana’s progress in preventing deforestation and reducing the economy’s carbon footprint.

1 thoughts on “IMF zeros in on Guyana’s oil dependency …high electricity costs, tariffs attract most attention”

Pedro July 27, 2016 at 2:39 pm

The IMF always state the obvious in their usual convoluted technospeak.If they will state how we can finance, the more than obvious solutions, then they will be worth their salt.