This article was published in the Sunday Gleaner on September 4, 2011 http://jamaica-gleaner.com/gleaner/20110904/focus/focus2.html . Thought I'd post it, considering JPS's announcement of plans for a US$600million LNG power plant
As the complaints about power company JPS crescendo and
pressure mounts on the Office of Utilities Regulation (OUR), it’s like a case
of déjà vu. Just a few years ago, Belize
went through a very similar experience—a series of events that began with a flood
of complaints about the monopoly power company, Belize Electricity Limited
(BEL), and ended with the nationalization of the company just two months ago on
June 21. I use the word “ended”
tenuously, as the nationalization by no stretch means the country’s electricity
woes are over, nor does it necessarily mean light bills are coming down.
Between 2005 and 2008, I cohosted one of the country’s most
popular call-in programs, Wake Up Belize. BEL and the cost of electricity was
consistently at the top of the agenda, beside crime and politics, and was always
guaranteed to spark a heated conversation and a flurry of calls. Listeners would present copies of their light
bills, saying they’ve tried everything to conserve, yet the amount due
continued to escalate each month. Other
times, they complained that they had been unfairly disconnected, or that they
were forced to pay for power that they did not consume. Sound familiar?
The issue was of such concern that it became a priority of
the Dean Barrow administration upon gaining power in March 2008. In April, Barrow appointed John Avery to head
the Public Utilities Commission (PUC).
Avery was a former employee of BEL, but more importantly, one of its
staunchest and most public critics. He
was convinced that the power company was overcharging customers and making too
much profit. In May, Avery and the PUC
rejected BEL’s application for a 13% rate increase. In June, they forced the power company to
deliver a BZ$10.3 million (J$432.6 million) rebate to its customers for what it
felt was “unauthorised,
unjustified or ill advised spending by BEL in past years”. Then in February of 2009, the PUC ordered BEL
to reduce electricity bills by an average of 15%.
In making the tariff calculations, Avery slashed BEL’s rate
of return from the usual 10-15% to just 8½%.
At a press conference, he told reporters, “The biggest concern is that while everybody else has to be
tightening their belts and suffering from the cost that we are all experiencing
right now, the increases, BEL should at least forego a little of the huge
profits they’ve been reporting.”
Naturally, consumers were elated by what they perceived as
someone finally standing up to the BEL behemoth. BEL, however, challenged the decisions in the
courts, and began warning of massive blackouts if it was unable to get the
requested rates. Three years of public
bickering and legal battles between the PUC and BEL climaxed in May of this
year. In BEL’s annual report for 2010,
presented at this year’s AGM, CEO Lyn Young is quoted as saying, "For the last
three years it seems like the PUC has misconstrued its responsibility to
balance the interest of the consumer and the Company….the PUC…seems obsessed
with destroying what we have built over the last thirty years." Two weeks later, Prime Minister Barrow
announced that BEL, claiming to be unable to meet its debt obligations, was
essentially bankrupt. According to
Barrow, Young asked him to mandate the PUC to grant “an almost unlimited rate
increase”. Barrow refused, and two days
later, government announced it would take over the company. The decision was expedited through both
houses of parliament in just one day, and became a reality on June 21. Although the company is already in government
hands, the final amount to be paid to BEL’s owner, Canadian company Fortis, is undetermined.
It remains to be seen what the GOB will do with BEL. The scene surrounding the company has been
relatively quiet since the takeover. There
are no indications government is interested in selling the utility, and there’s
also no word on what will be its strategy in managing the power company. Will they be able to do what Fortis claimed
it was unable to do with the approved rates?
Or will the new owners find that Fortis was right after all, and that
the current rates are unsustainable? And
what role will the PUC now play in regulating BEL?
Belize has chosen the controversial route of nationalization to deal with
our countries’ common problem, a route that over the years has been vilified by
those in international financial circles.
Developing countries have been convinced that governments are unable to
run companies, a school of thought—some would say an agenda—that led to mass
and almost simultaneous privatization of utilities in the developing world in
the late 1980s and early 90s. When it
comes to utilities, however, electricity and water have become vital to not
just development, but also life.
Perhaps, then, private companies, motivated by profit and self-interest,
are not the best ones to be in charge of these essentials. On the other hand, governments
have a social responsibility that private companies don't have, which, some
argue, makes them a less than ideal business owner. However, if Prime Minister Barrow can truly
make BEL’s management autonomous, the nationalization could work and be
beneficial to the people of Belize. Mr.
Barrow has said there will be no political interference with BEL's management,
but with an election due in 2013, and the cost of electricity still a major
social issue, it would be tempting for any political party to want to
manipulate electricity rates to win votes.
Such political manipulation could result in the company becoming
unsustainable, which according to Fortis, is already the case.
Perhaps the Barrow Administration should consider the social
business model proposed by Nobel Prize winner Muhammad Yunus. Yunus, dubbed “the banker to the poor”,
believes social business is the future of capitalism. As he describes in his book Building Social Businesses: The New Kind of
Capitalism that Serves Humanity’s Most Pressing Needs, “The social
business…must be self-sustaining—that is, it generates enough income to cover
its own costs. Part of the economic
surplus the social business creates is invested in expanding the business, and
a part is kept in reserve to cover uncertainties. Thus, the social business might be described
as a ‘non-loss, non-dividend company’ dedicated entirely to achieving a social
goal” (p. xvii). This model seems
tailored for what the GOB says it wants to accomplish, and what it has been
attempting to do via the PUC over the past three years.
The PUC has kept electricity rates in Belize incredibly
stable over the past three years, despite escalations in oil prices. Based on crude calculations ([amount due –
GCT]/usage) from my own residential light bill in January 2008, the cost per
kilowatt hour was approximately US$0.202.
A friend’s light bill in March 2011 revealed a cost per kilowatt hour of
US$0.207. Meanwhile, on my most recent
light bill for August 2011 in Jamaica, the cost per kilowatt hour is some
US$0.372, almost double what it is in Belize!
How Jamaica chooses to handle the power problem now will
shape the future of this country.
Already the OUR has stepped in with an investigation into JPS’s billing
practices; meanwhile, the GOJ has been exploring alternative energy
sources. But will these measures do
anything to make electricity more affordable in the short to medium term? As the Golding administration attempts to
rescue the Jamaican economy, it must recognize that the global economic crisis
and the global energy crisis are one and the same. The next few years will be critical to
Jamaica’s economic and, importantly, human
development.
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