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Electricity rates to increase; opposition to discuss restoring budgetary allocation

The Guyana Power and Light (GPL) on Saturday announced plans to increase tariffs by a whopping 26.7 percent, but the opposition was yet to say whether it would restore a GUY$5.2 billion budget cut.

“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,” the power company said in a statement.

But both the opposition Alliance For Change (AFC) and A Partnership for National Unity (APNU) said they would have to meet to discuss whether the money should be restored.

AFC Chairman, Nigel Hughes said his party’s management committee would discuss the issue next Monday. “It certainly would be a priority issue at our weekly meeting,” he told Demerara Waves Online News (www.demwaves.com).

APNU Vice Chairman, Dr. Rupert Roopnaraine called the GPL’s announcement a “retaliatory” measure added to government’s misrepresentation aimed at making “maximum political capital” out of the decision by the majority opposition in the National Assembly.

“We have not had an opportunity to discuss how we are going to respond to the increases in the tariff. It sounds very large and punitive and we would have to consider carefully what kind of response it merits,” Roopnaraine said.

The AFC and APNU have cut the allocation to GPL, citing the need for the power company to improve its management, reduce losses and increase efficiency.

The National Association of Agricultural, Commercial and Industrial Employees (NAACIE), which represents some power company workers, promised to support restoration of the cuts only if there is a probe into the state-owned company’s operations.

GPL said it would 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.

Within the next 5 years, GPL projects that at least US$ 90 M will be required for investment, with considerably more needed, if GPL is to make substantial reductions in technical and commercial losses.

GPL said that on May 15th 2013 it its Final Return Certificate (FRC) to the PUC that allows GPL to charge an increase in tariffs of 26.7 % effective May, 2013. “The new rates have not taken effect but the GPL Board is actively engaged in planning its implementation,” said the power company.

The allowable increase of 26.7%, GPL says is calculated in accordance with the 1999 Electricity Sector Reform Act (ESRA) and its License. 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. This 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.

GPL last increased tariffs in 2008, over 5 years ago.

The computed increase in tariffs as stated in the 2013 FRC is based on a deficit of $5.2 B, and a headline tariff or service tariff increase of 26.7%, that is computed to recover the deficit over an 8 month period (May-Dec, 2013). GPL’s has published its 2013 FRC, its 2012 audited accounts, and other information on its website: www.gplinc.com

GPL has stated that the permitted increase can be reviewed against the following:

  1. The Opposition in Parliament has recently cut GPL’s capital budget by over $5.2 B, despite available funding from loans provided by Venezuela, China and the IADB. All these loans be repaid by GPL over a period of time;
  2. A recent CARILEC report shows GPL residential tariffs to be one of the lowest in the region (with only Trinidad, Suriname, and the Bahamas having lower rates);
  3. GPL’s last increase in tariffs was announced in 2007 and effected in February 2008, over 5 years ago; the average increase then was 14%, with residential customers facing only 6% and 9% and Government covering a 20% increase;
  4. GPL’s fuel cost has risen from a weighted average of US$ 64 /barrel in 2006, to US$108, in 2012; in 2006, GPL’s fuel bill was $12.4 B; in 2012, this had doubled to $24.2 B; in 2012, fuel alone accounted for 83% of GPL’s tariff revenue;
  5. GPL has delayed implementing full tariff increases (implementing increases in only 2 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.)
  6. GPL projects that the Amaila Fall project, expected to start construction at end of 2013, will not be ready until 2017; at this time, GPL expects generation costs to be reduced to half of the current version. The Amaila Falls project is therefore critical to GPL reducing its costs of generation and the impact of fuel costs on increasing tariffs.