GPL’s problems are bigger than $5.2b

Aside from the questions that would naturally arise about how the President in this day and age can instruct a state corporation against a course of action that it deems crucial to its operations, the public will be relieved that for the moment the proposed swingeing 26.67% tariff increase proposed by the Guyana Power and Light is on hold.

Keen observers and those who have had experience of the manner in which the government runs its business   will detect that the furore over the $5.2b subvention cut for GPL by the opposition in the 2013 budget was merely a tool for the administration to train pressure in the direction of its parliamentary opponents. In this instance it seems to have failed miserably. The opposition did not blink and the private sector and the unions applied their own brand of lobbying to ensure that this tariff increase wasn’t under serious consideration. Indeed, a tariff hike of that magnitude would put many a small business under water and increase the amount of power theft, something which has been the bane of GEC/GPL for the last several decades.

So, President Ramotar was left with no choice but to tell the launching event for GuyExpo that he had intervened with GPL to have a hold placed on the tariff hike with the hope that some pathway would be found towards the restoration of the $5.2b. This is as it should have been from the start. Except that once the cut was made by the opposition, it was the government that was first out of the blocks with the warning that tariffs would have to be lifted. The government was clearly setting the agenda then for a contretemps with opposition.

If there is one positive thus far from this debacle is that the government has recognized that it has to return to Parliament and convene mature discussion with the opposition for the funds to be restored. That is not to say that the government doesn’t have the ability to find ways around this. None of the 2012 cuts made any impact on the respective sectors as the Contingencies Fund was tapped and in spite of moans and groans this year about salaries not paid, both the Government Information Agency and State TV, NCN have continued with business as usual despite their budgets being cut to $1. This is an occurrence worthy of a reality show. How did they do that?

Yet this whole ruckus couldn’t really be about $5.2B. After all there are several ways  both GPL and the government could bridge this gap in what is said to be funding for a crucial infrastructural rehabilitation programme. Billions of dollars in prospective revenue to the utility has been forgone in recent years without any apparent adverse impact on the corporation’s ability to run its business. What appears to be the real issue is that neither the government nor GPL is prepared or anxious for careful scrutiny of the utility’s management and operational practices, and most importantly why it has been unable to significantly cut technical and non-technical losses in the last decade or so.

Both the government and GPL have argued that the money that was lopped off was vital to the China-funded capital project to improve infrastructure and lower losses. It would indeed be worthy expenditure if its objective was achieved and this is what needs to be examined at the parliamentary level and also in front of the Public Utilities Commission before there is any decision on a tariff increase.

Why should funding for GPL – be it taxpayers’ funds or loan money – be approved willy-nilly without frank and comprehensive disclosures about why the utility company has repeatedly failed in its quest to  bring down costly losses and maintain these gains. This project to bring down losses didn’t start last year or two years ago. It has certainly been on the agenda of this government for the over 20 years it has been in office and that of the administration that preceded it. If the ordinary consumer was to ask Prime Minister Hinds, the Minister responsible for GPL, or the power company the cumulative value of the bleeding of power through commercial and technical losses in the last 20 years, the figure will be mind-boggling and will make the $5.2b being quarrelled about at the moment, a mere pittance.

It is exactly this debate that the public and their representatives on both sides of the National Assembly should want and insist on. The government and GPL must be able to provide some assurance that they are up to the task and that the continuing loan funds to be used – which taxpayers will have to repay  – will be judiciously applied and produce results. This is what opposition MPs were seeking when they sheared chunks of the GPL budget.There must  also be a recognition by GPL that had current losses been cut, tariffs could have been lower.

The present project to slash transmission losses may indeed lead to a significant improvement but MPs may reasonably ask why there wasn’t this type of treatment of the problem earlier – 10 years back perhaps? GPL’s haemorraghing falls largely into two categories: commercial losses – theft by residents and big consumers – and transmission and distribution losses as a result of decrepit infrastructure and poor maintenance. Tackling the latter category confers a greater likelihood of sustaining loss reduction while the former is less solid particularly in a low wage environment and where the culture of power theft has not been broken. GPL has paid attention to both. While commercial theft has come down it remains an intractable problem and technical losses have risen despite attempts by the PPP/C government over the last two decades to restrain it.

GPL does not deny this. Its latest annual report for 2011 states “Reduction of technical and commercial losses remains a significant challenge for the Company. Technical losses increased from 14.3% in 2010 to 14.5% in 2011, largely on account of the transmission and distribution network, reflecting its age and limited capacity relative to demand. The reduction of technical losses requires significant capital investment. It is hoped that the US$$39M infrastructure development project currently ongoing would greatly assist in improving the network and reduce the level of losses”. The government and GPL have spent enormous sums on new generators which were direly needed but without confronting the reality that a significant amount of the power produced was being wasted day in, day out, year after year and needed urgent redress.

Money has not produced results. The Inter-American Development Bank has over several decades funnelled huge loans to GEC/GPL to address a variety of ills ranging from management, the regulatory framework, privatization and loss reductions. Its most recent intervention, which was partly focused on cutting commercial and technical losses, did not meet its targets and the bank was forced to waive the requirement for certain benchmarks before further disbursals.

The Project Completion Report dated May 25th, 2012 for the 2008 US$12M Power Sector Support Programme testifies to the problems experienced in meeting the targets. The report which the government and GPL should defend in the context of the questions raised by the opposition about the efficacy of efforts to restrain losses said that three years after the start of the project, losses had not reached the 20.4% target. It remained at 31.3% at 2010. In 2011 it actually rose to 31.6%. The IDB was forced to conclude that “using electricity losses as (a) success indicator for the project failed to reflect the commitments and efforts of the (Government of Guyana and GPL) to curb electricity losses, though it provided a measure of the magnitude of the challenge”. It is precisely this challenge that the government and GPL should convince the public that they are capable of meeting before more money is thrown at this problem.

The Bank concluded in the report that “There were a broad range of factors that contributed to the inability of the project to achieve its target loss reductions. These included a combination of internal management challenges at GPL during the course of the project (e.g. management turnover, poor data maintenance, delays in the (Customer Information System)  and ITRON meter procurement), repeat illegal connections and meter tampering violations…” These are definitely matters of continuing concern as the report itself suggested. It stated “GPL’s ability to understand, monitor and reduce losses are a central condition for the success of future electricity sector projects. The capacity building provided to GPL during the PSSP program appears to have been useful, but it is likely that direct, ongoing support will be necessary to continue to address loss reductions”.  The report then recommends that new approaches to both technical and non-technical losses be adopted. What are these and what assurances of success do they come with?

The report also found that GPL does not have the tools and technical capability for long-term planning and required assistance to evaluate how prepared it is to deal with upcoming investments in transmission and distribution infrastructure and hydropower etc. Before the word Amaila is even uttered it is evident that the public deserves detailed explanations via Parliament on what is going on at GPL in terms of meeting loss reduction. Can one envisage the costliest project in the country’s history serving hydropower to a network that isn’t up to scratch? It is high time that the bluster over the $5.2b dissipates and the government, GPL and the opposition get to work in parliament on the way forward.