GPL on June 7th, 2013 indicated its intentions to apply for a tariff hike of 26.7 per cent. This proposal is fraught with deception and trickery. If one looks at the Final Return Certificate; one can establish that GPL had a Financial Deficit of $5.2 billion in 2012. But financial deficits are not cash flows and do not accurately reflect the ability of GPL to pay its financial obligations.
The cash flow statement is more relevant to any analysis of GPL’s financial condition. The purpose of a cash flow statement is to provide readers with the information they need to make an assessment of the ability of the reporting entity to generate cash and cash equivalents, as well as the needs of the entity to utilise that cash. I will ask some questions that I hope will encourage the Consumer’s Association, the Unions and the political opposition to advocate strongly against this size of tariff hike at this point in time.
GPL had an increase in cash of G$33 million in 2012
If one looks at the Cash Flow statement of GPL on page 5 of the audited accounts, one would see that GPL had an increase in its cash and cash equivalent in 2012 of some $33 million as compared to a drain on its bank account of some $2.9 billion in 2011. If there was a year to request a tariff increases, it was 2011, when GPL bled billions. However, as per standard operating practice, politics overwhelmed commercial realism in the Government in 2011. Now they are using politics again to drive fear into the people with no foundation of commercial realism. In the final analysis GPL will survive with no tariff increase or no further cash injection from the Parliament in 2013 unless there is an abnormal escalation in the price of fuel and from all projection this seems unlikely. So why all this hysteria from GPL?
In addition to the $6 billion cash injection into GPL in 2012, the people also injected some $5 billion in new cash in 2013, but yet GPL found reasons to attempt to devour the consumers with this indefensible 26.7 per cent rate hike request. If this is not the action of a serial bully, then what is?
The political opposition has to up their game on this situation since GPL has taken its “eyes and pass” the people. There is no valid justification for any rate hike until GPL can clearly justify to the people the following:
* What was the cost per barrel of their last shipment of fuel and what is the budgeted cost of fuel in their 2013 budget? The latest estimate I have seen has revealed that GPL will be saving some $1.5 billion in the cost of fuel in 2013 as compared to 2012. So why is GPL asking for rate increases?
* Why is GPL failing to curb the non-technical losses (mainly electricity theft)? The records reveal that non-technical losses in 2010, 2011 and 2012 were 17.0 per cent, 17.1 per cent and 17.0 per cent respectively. Zero progress, yet the CEO at GPL got salary increments on his monthly multi-million dollar salary packages? Talk about rewarding non-performance! GPL is clearly not serious on this issue since from all appearances they seem to be going after the marginal thieves when the real “fat cats” continue to burn their air conditioners and high powered security lights 24 hours a day compliments of free GPL electricity.
* Why is GPL not progressing on the question of bringing their technical line losses closer to the international standards? Actual GPL technical line losses have deteriorated between 2008 and 2012 jumping from 11.4 per cent to 14.6 per cent. The world is moving in a direction that reaps technical line losses of 8 and 9 per cent but GPL continues to run in the opposition direction. After reviewing these figures, I am now beginning to question if we are going to get value for money for the $22 billion being spent by GPL to construct five new sub-stations among other investments since the argument they advanced to secure these funds is that it will contribute to the reduction of technical line losses to meet international standards.
* Why is the Ministry of Finance not prepaying electricity charges for Government Agencies up front? Can’t the Government advance to GPL an estimated amount for electricity charges to October 2013 at this time to ease their cash flow situation?
* Why is GPL not selling all of its properties in central Georgetown and consolidating all of its operations at Garden of Eden? Why is GPL renting properties in Central Georgetown? Western Union and the Post Office can be the preferred mode of bills payment and there can be a small sub-office at Sophia and Kingston for those who really want to deal directly with GPL. The sale of those building will reap several hundreds of millions that can be injected into GPL immediately. The Government, can also use the resources from NICIL and Lotto Funds to construct a “GRA type building” at Garden of Eden and treat that as a further capital contribution to GPL.
In conclusion, it is my firm view that GPL’s request for a 26.7 per cent increase in tariffs is ridiculous and should be rejected. It is designed to bully the opposition into voting under duress for more taxpayers’ resources for this badly managed company.
Secondly, I believe that it is in the best interest of GPL that before the Parliament consider one dollar more for GPL, that it become a non-negotiable precondition that the current Board of Directors be fired and a new Board with a new Chairman that reflects the political, economic and social make up of Guyana be appointed. The role of the new Board should be mainly stabilization but more importantly, one that will conduct a comprehensive diagnostics of the company with a view of formulating a more people friendly but business smart action plan to take GPL forward.
Thirdly, the majority political opposition must use this opportunity to mobilize so that the PUC can be motivated to see the issues from the people’s perspective. I am convinced that GPL can survive this year with no rates hike. This public announcement by GPL is more grounded in politics rather than arithmetic, it is all about the big stick approach on the people.
Fourthly, the PUC should demand that GPL present its 2013 half year financial statements including the cash flow statement before any serious consideration can be given to this ludicrous request. I am of the firm position, this is all fear mongering with a political agenda. GPL continues to mislead the public as to it not being financially viable, but this is not necessarily the truth. GPL has a solid stream of cash inflows every month. GPL is in a much better shape than GuySuCo or NIS and thus my description at the beginning of this letter. The truth remains; this GPL proposal is fraught with deception and trickery.