Foreign managers mooted for GPL

-with Amaila, PM refers to rebalancing rather than lower tariffs

Prime Minister Samuel Hinds yesterday defended the Guyana Power and Light (GPL) saying that the utility provides service at rates comparable to CARICOM countries but he also disclosed that a recent study has suggested that foreign managers be brought in.

Hinds, who has responsibility for the electricity sector, was at the time making a presentation before a joint meeting of the Parliamentary Sectoral Committees on Economic Services and Natural Resources at the Public Buildings. He said that in preparation for the Amaila Falls Hydroelectricity project, there had been a review of GPL and recently there has been a focus on corporate development of the utility. He did not say who had done the review but it was likely the Inter-American Development Bank (IDB), which has been mulling financial participation in the Amaila project. The recommendation for the foreign managers would be an acknowledgment that there are deficiencies currently in GPL’s management echelons relative to taking on responsibilities that could come with the Amaila project.

According to the Prime Minister, the review suggested that GPL needs US$250 million and about a dozen overseas managers to improve the services provided by the company. He said that while there were some issues with the report, he chose to view it as “a good commentary on what GPL has been doing.” He explained that local managers have been providing electricity without the US$250 million which the review says is required. “It’s not a criticism of GPL… but it points to us achieving quite a lot with what we have,” Hinds said.

Samuel Hinds
Samuel Hinds

The Prime Minister said that the challenge is to get better and he said that they are participating in a Corporate Development Programme with the IDB and are hoping to get US$100 million of additional investment in GPL. He further said that under consideration is bringing in about five persons for GPL but they “should be like coaches.” Coaches are judged on how the team performs, he noted.

On June 18 this year, Stabroek News reported that with funding from the IDB, Guyana was seeking to have a comprehensive review of all parts of the power company.
The IDB advertised on May 31st for bidders for this project and the closing date for the submission of tenders was June 14, 2013. Observers say the speed with which the advertisement was placed was a likely sign of the concern that remains over the state of the GPL and the likely weaknesses that will have to be addressed before it is in a position to handle power from the Amaila Falls  project.

The advertisement said “The Cooperative Republic of Guyana has received financing from the Inter-American Development Bank (IDB), and intends to apply part of the proceeds to payments under the project Guyana Power and Light, Inc. (GPL) Corporate Assessment, for consulting services to conduct a comprehensive review of the Guyana Power and Light, Inc. (GPL) to assess its current management and operative structures and corporate performance in key business areas, such as planning, procurement, operation, network maintenance, billing, among others.

“The assignment will include a detailed proposal of management structure, functions and performance monitoring mechanisms, as well as a design of necessary coaching and support to help GPL’s managerial functions and staff. The contract will be signed and supervised directly by the IDB.”

Hinds noted yesterday that while they want “a GPL performing like America… we’re doing quite well with what we have in terms of capital, in terms of people that we have.”

Earlier, the PM had said that government along with the IDB has been looking at ways to improve GPL and he said that great progress has been made but much more remains to
be done. He said that the provision of electricity by GPL compares quite well with other CARICOM countries but highlighted that there are several challenges faced here. The Prime Minister highlighted that geography is a challenge and this affects cost as well as quality. Another challenge here is the lower per capita GDP resulting in consumers taking less electricity, Hinds said while also pointing to the economies of scale. He said that of GPL’s 165 000 consumers, 150 000 are domestic customers.

‘Great investment’
Hinds, noting that government has been working with the IDB, rejected contentions that label GPL as a “bottomless pit.” He pointed out that GPL forgoes earnings for charging tariffs lower than they ought to be. Since 2002, the figure for earnings foregone has been $27.883 billion, he said. He also said that government, as owner of GPL, arranges for the financing for investments and upgrades for GPL.

Hinds said that since the mid-1990’s US$200 million has been put into electricity. He said that a major concern was and continues to be high losses with technical losses currently at 15% and commercial losses at 17%. The Prime Minister said that 90% of technical losses are largely related to the fact that there has been underinvestment in the utility’s old and overloaded system. Critics have said there should have been heavier investment in the transmission and distribution system years ago.

“The network needs great investment,” he said while adding that government does not have the money to keep up with the required investment. He also noted that 1 in 6 persons do not pay their electricity bills. In this light, he pointed out that 4 kilowatt/hour (Kwh) is being generated at US$1 but only 3 kwh is paid for effectively raising generation costs to 35 cents per kwh.

The Prime Minister had highlighted that the current cost of electricity generation is 30 to 35 cents per Kwh for the diesel engines while for Heavy Fuel Oil (HFO) engines, the cost is 25 cents/Kwh. Guyana currently generates 85% of total power from HFO with this figure slightly higher in Demerara at 90%.

Hinds said that the Amaila Falls hydro project over the average-term “gives us a cost that should not exceed 12 cents per Kwh.” He asserted that at current petroleum costs, the expenditure for power generation on fossil fuels would be between US$150 to US$200 million while in the case of the hydro, over a 20-year period, the average cost would be US$100 million per year with the highest being US$120 million per year in payments. “It is clearly greatly advantageous that we should proceed and put Amaila in place,” he said. He said that after Year 20, when the hydro project would be transferred to the government, it is estimated that the generation costs would be 3 or 4 cents per kwh and the project would probably be owned by GPL, or some other company or remain separate.

Should Amaila not go ahead, Hinds said that government will have to make another investment in another HFO- based generating station. Responding to questions from PPP/C committee member Odinga Lumumba, he said that in the next five years, GPL would probably need to add between 50 to 60 megawatts to the grid and this would amount to US$1.5 million per megawatt.

Hinds did not definitively say that tariffs would be reduced when Amaila is on stream. He said that going to hydro would reduce the cost of generation and “it would give us some opportunity to do some re-balancing of tariffs.”

In response to a question from APNU Committee member Desmond Trotman, the Prime Minister said that he disagreed with statements that GPL is badly managed. He said that they are in the process of reviewing the Board and at the beginning of next month, there will be changes. Cabinet has approved opposition member Cammie Ramsaroop to join the GPL board and this decision is about to be put into effect, he said.

Following Hinds’ presentation, Deputy Chief Executive officer of GPL, Aeshwar Deonarine made a presentation. Further scrutiny will be done next Wednesday when the Committees meet again.

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