Deferred tax was not included in GPL’s rate computation

Dear Editor,

We refer to Mr Christopher Ram’s letter of Monday  June 10, 2013 in the Stabroek News captioned  ‘GPL cannot be allowed to continue operating with a failed model and incompetent management.’  In his letter, Mr Ram referred to the rate calculation in accordance with the 1999 Electricity Sector Reform Act (ESRA) and the licence.  As the independent accountants appointed under the Electricity Sector Reform Act (ESRA), we now wish to clarify certain aspects of the rate calculation, which we hope will provide a better understanding of it.

(1) Electricity rates are based on the Final Return Certificate which is certified by an independent firm of accountants appointed under the Electricity Sector Reform Act (ESRA).
(2) The prescribed format of the Final Return Certificate is set out in Part (D) of the licence to  supply electricity  for the  public purpose granted Guyana Power and Light  (GPL) under Section  4 and 42(3) (c) of the ESRA.

(3) Since the Final Return Certificate is due on or before April 30 in the year following the year of return, any increase in electricity rates will apply to billings as of  May 1st.
Therefore, to achieve  the required return based on the proposed increase, that rate has to be scaled up to take account  of the shortened period, viz eight months (May to  December ). In this particular instance simple maths would show that the required increase of 17.8 % for the year when applied to the shortened period of eight months would amount to 26.7%  (12/8 x 17.8% ).

(4) It appears from Mr Ram’s analysis that he used a very simplistic approach of assuming that the rate of 26.7% was obtained by taking the revenue deficit as per the Financial Statement of $7.668 billion as a percentage of the total revenue for the year of $29,028 billion and concluding that any accountant ought to know that deferred tax is not a recurring charge and that deferred tax entry ought not to have been made.

Mr Ram may wish to know that deferred tax was not included in the computation as the licence clearly does not allow for inclusion of such expense.

Had Mr Ram understood that it was the rate of 17.8% computed under the licence when applied to the shortened period of eight months that gave rise to the 26.7%, he would not have erroneously concluded that deferred tax is included in the rate calculation.

(5) Mr Ram’s firm which performed the function of external auditor for GPL for several years, would have been privileged to be acquainted with the methodology used in the rates computation.

Had Mr Ram consulted or revisited his audit files for the period over which his firm presided as auditors, he would have been able to make a more informed analysis rather than trying to impugn   the integrity of the independent accountant when he made the statement, “Contrary to what whichever accountants loosely might have said, GPL did not lose $7.6 billion in 2012. It lost $4.872 billion but is now playing around with a book entry of $2.795 billions of Deferred Tax.”

Contrary to what Mr Ram has said Deferred Tax was not included in the rate computation and no one is playing around with it.

Yours faithfully,
Nizam Ali
Nizam Ali & Company
Chartered Accountants  

Around the Web