Management of the Guyana Power and Light Inc (GPL) is now looking at measures, including a hike in electricity tariffs by 17%, to offset the $5.2 billion cut from its subventions in the national budget.
GPL Chief Executive Officer Bharat Dindyal yesterday told a news conference that the implications of the cuts are dire and he suggested that the combined opposition, which last Thursday voted to slash the proposed $10.2 billion in subventions by more than half to $5 billion, did so as a result of poor understanding of the company’s operations.
A similar decision was taken last year when APNU and AFC slash $1 billion from a total of $6 billion proposed by the government to supplement GPL’s operations.
This year, the opposition parties cited GPL’s failure over the years to reduce its losses as a justification for the reduction in its subventions and also said that questions asked of Prime Minister Samuel Hinds last week were insufficiently answered.
Last year, the company registered losses of $5 billion, despite soliciting $6 billion in subsidies and $5.35 billion in loans from the government. Additionally, the company has been incurring heavy losses from as far back as 2007, with the exclusion of 2009 and 2010, when fuel prices were reduced.
Dindyal, commenting on the opposition’s justification for making the cuts, said that it neither understands GPL’s losses nor how the cuts will impact its efforts to mitigate its losses and improve its services. As a result, he said, the company will now be forced to consider an array of very unfavourable measures. “If there is no redress, basically, and there is nowhere the money can be found otherwise and you still have to implement the project and you have already spent 75% of the money and the last 25% has to be implemented, you have to finish it. And, if the recourse is a tariff increase to get the money to complete the projects, then it’s a consideration,” he added.
Winston Brassington, Chairman of the company’s Board of Directors, yesterday said that options being considered by the company in the light of the cuts are to increase tariff levels, to cut its ongoing capital programmes, to shift its existing resources around or to implement a combination of all these actions. Brassington said the company is yet to decide on a fixed decision as to what will be done. “Management now has to look at our priorities and make a decision,” he said.
Addressing each option, Brassington said that GPL has the right to increase tariffs as it sees fit but noted that the subventions have always gone towards meeting certain ends, including the suppression of tariff levels. He said that based on the company’s performance last year, it would have been entitled to an increase this year, but it decided, as always, to forego it.
Brassington explained that last year the company chose to forego $27 billion in revenue by refusing to impose tariff increases, which it would have every right to do. He said the company continues to sacrifice this revenue, despite the fact that fuel prices, which comprises almost 80% of its expenditure, have doubled from about $60 million to around $120 million from 2006 to 2012.
Brassington said that if done, tariff levels would have to be raised by 17% to make up for the loss of the $5.2 billion.
GPL’s Deputy Chief Executive Officer (DCEO) Aeswar Deonarine said that though the company’s revenue has grown steadily—from $19.8 billion in 2007 to $29 billion in 2012—so has its expenditure. Last year, the company spent around $32.76 billion, almost 80% of which went towards procuring fuel.
He said that a large portion of this increase was also as a result of the increased supply of services to new customers. Deonarine said the company, over the space of a few years, has acquired around 40,000 new customers.
‘Shooting yourself in the foot’
Dindyal explained that the company has been reluctant to institute a tariff increase for several reasons, including GPL’s experience under foreign management, when losses went up every December in anticipation of the increased tariffs which came religiously the following year.
Dindyal explained that the suppression of tariffs is largely aimed at controlling losses, while considering the economic situation of customers. Additionally, he said “the technique [raising tariffs] is intended to get additional revenue, but you would not be getting what you should be due to the fact that losses would go up, so it’s like shooting yourself in the foot,” he explained.
Responding to claims that the company was ineffective in cutting losses, Dindyal said that instituting loss reduction projects while expanding services to new customers is a difficult task, especially if one considers its fuel expenditure.
He said, however, that the company has been making strides in the direction of cuttings losses, but said that the subventions cut may very well halt the progress which had been made, since the construction of new sub-stations, frequency converters and the purchasing of new meters were all aimed at reducing the company’s losses.
Both Dindyal and Brassington said that GPL’s ability to deliver the benefits of the Amaila Falls hydropower project hinges on the completion of many of its capital projects. In relation to the company’s ongoing capital programmes, He also said that works to several sub-stations as well as frequency converters, all at varying stages of completion, have been compromised.
Highlighting the significance of the financial drawback, he said that the improvements currently being worked on were initiated since the 1970s. “Now, 30 years later, we’re almost there but we can’t continue it,” he said, while adding that the replacement of equipment, much of which is decades old, is also in question.
Dindyal said that the lack of funds may very well render GPL unable to purchase additional meters, which is crucial if the company is to extend its services to new customers.
He said currently the company has just over 4,000 meters and requires additional funding if it is to procure more. If GPL is unable to do this, he said, the company may have to “close the doors” to new applications. He added that its ability to replace defective meters will also be impacted. This action, according to Deonarine, would also hurt the company’s revenue stream, since no new customers translates to stagnated revenue.
The DCEO said that the company would have set and submitted standards to the PUC, including the number and duration of blackouts expected in a year. Failure to meet these standards, he said, attracts financial penalties, which are imposed by the regulatory body. He said that achieving these goals while cutting losses requires substantial capital investments and said that the $10.2 billion investment proposed by government were “peanuts” in the larger context of world-wide investment in the industry.
As a result, Deonarine said, the company can choose to shift around its existing resources and Dindyal explained that the option to use resources intended to improve quality of services may have to be sacrificed to complete some of its capital project since “some of them cannot be compromised at this stage.” They have to continue, he added. “The projects have some so far, do we now sacrifice that?” he questioned.
Additionally, Brassington said that the cuts may even impact the tenure of some of its employees. He explained that most of the company’s current employees are relevant to its capital projects and if its capital projects have been stagnated, there might very well be a need for a reassessment and restructuring of GPL’s workforce.
