Recolonization by invitation? A review of aspects of the GPL privatisation
An open letter to the people and Government of Guyana
Stabroek News
March 28, 2002

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The fact that the GPL privatisation documents have not been tabled in the House of Assembly must not deny the Guyanese public access to information so important to our existence when such information is readily available to our neighbours who regard it with a mixture of amusement and derision. Further to my earlier "open letter" (l5.2.2002), I now offer a review of some salient aspects of the arrangements governing the operations of Guyana Power & Light Inc.(GPL). This is presented in the interest of informed discussion and necessary action here in Guyana.

There are four main documents:

i. Licence to Supply for Public Purposes Granted to Guyana Power & Light Inc. under Sections 4 & 42 (3) of the Electricity Sector Reform Act 1999 effective October 1, 1999 signed by the Honourable Samuel A. Hinds Prime Minister & Minister with Responsibility for the Electricity Sector.

ii. Operating & Agency Agreement signed by Ronald Alli, Director, G.E.C and by Winston Brassington, Director, GPL.

iii. Shareholders' Agreement Respecting Guyana Power & Light Inc. October 1, 1999 signed by: (a) Honourable Samuel A. Hinds, Prime Minister of the Cooperative Republic of Guyana; (b)Winston Brassington, Director for Guyana Power & Light Inc.; and (c) Andrew Aldridge for Americas & Caribbean Power Limited registered office at Craigmuir Chambers, Roadtown, Tortola British Virgin Islands. (Note: Americas Power & Light is identified as the "Investor") and iv. Management Agreement Respecting Guyana Power & Light Inc. signed by Winston Brassington, Director, GPL and by Andrew Aldridge, Director, Americas & Caribbean Power Ltd.

Perhaps surprisingly, the most striking aspect of the GPL arrangements is not the alarmingly high expatriate staff costs and the relatively modest actual fixed fee. The most striking aspect is the total absence of "deliverables" as opposed to targets against which these costs should be assessed. Targets are useful for determining bonuses. Targets are useful for voyages into the unknown. "Best efforts" and cutting edge technology may not get a space probe to the planet Saturn, but the effort itself may be a learning experience.

On the other hand, the efficient operation of an electricity utility does not require post doctoral research in inter stellar physics. It requires only the application of proven technology available world wide for a very long time together with merely competent management. In Guyana, the most common example of "deliverables" is piecework: payment by results so many roods of trench cleaned or so many hundredweight of cane cut. For a contract the magnitude of that of GPL, there must be payment by results. It is almost impossible to manage a contract effectively, even a low cost one, in the absence of deliverables. And as the information below demonstrates, the GPL arrangements are not only far from low cost but extend over a 10 year period with an option to renew! Now a look at the costs:

i. Management Fee (per annum) for years 1 4
Staff Costs US$ 3,100,000
Annual Fixed Fee US$ 560,000
Incentive Fee Plus/minus 50% of Annual Fixed Fee
ii. Management Fee (per annum) for years 5 10
Staff Costs US$ 1,450,000
Annual Fixed Fee US$ 1,050,000
Incentive Fee Plus/minus 50% of Annual Fixed Fee
iii. Personnel to be Supplied by the Manager ("The Investor")
Key Positions
Specified Positions
Total 141088444444

These numbers tell an amazing tale. In years 1-4, average staff costs rise from US$ 221, 429 to US$ 387,500 per person per annum as the number of personnel supplied declines from 14 to 8. In years 5-10, average staff cost per person remains constant at US$ 362,500 per annum and the number of personnel supplied is only 4. This is 19% above the rate for years 1-4. Again the Annual Fixed Fee almost doubles from US$ 560,000 per annum in years 1-4, to US$ 1,050,000. Why? To judge from the number of personnel supplied, the electricity supply situation has been more or less stabilized by the end of year 4 so that in years 5-10, the Manager only needs one half the number of personnel as were supplied in year 4. Why then should the Annual Fixed Fee double and the average personnel cost increase? It should be noted, that as may have been expected, all aspects of the Management Fee are exempt from Guyana taxes. What is even more remarkable about this fee structure is that the level of remuneration seems much more appropriate for a short term (6 to 1 year) contract with guaranteed results, that it is to a 10 year agreement period. There is nothing inherently exploitative with high fees if results can be delivered in a short time period.

Also, in the absence of clearly stated deliverable results, how is the "Incentive Fee" to be determined? Does the Board of Directors make the determination? Please note that the Board comprises five members, two of whom (at present Alli & Brassington) are appointed by us and three by the "Investor". All the decisions of the Board are by majority vote. Alli and Brassington as signatories to the documents should know what was intended in the seeming absence of such explicit information. Messrs Alli and Brassington cannot be absolved for signing the documents in the first place but even with the best will in the world, where there are no stated objective criteria, there is too much room for nuanced discussion. And as Professor Alvin Hansen pointed out more than eighty years ago, and so many Enron shareholders discovered much more recently, "control" is much more important than ownership. The Investor not only has control, he has also equal shareholding. Everything is in the Investor's favour.

The lack of investment capital to pursue the loss reduction program (here please see Stabroek News report on GPL's letter to PUC, March 15, 2002) is an area of overriding concern. Nowhere in the available documentation is a figure specified for the acquisition by the Investor of 50% of GPL's Common Shares and Class A Preference Shares. A not unusual practice in privatisations is that the Investor does not actually purchase shares as would be necessary in an ordinary private sector enterprise. Instead the Investor provides capital for the replacement/modernization of inefficient plant and equipment. GPL, which is effectively controlled by the Investor, cannot then excuse its inability to secure financing for the slow progress on the loss reduction programme. And this, 2 1/2 years into the contract when at least US$ 9,150,000, more than G$ 1.6 billion (Management Fees not including any Incentive Fee) would have accrued to the Investor from GPL''s operation. How many more tariff increases are needed to sustain this level of exploitation? Remember this programme would reduce GPL's operating costs. Instead GPL unilaterally increases its revenue with an additional 15% rise in the electricity tariff. Instead of reducing costs to increase profits, as any competitive enterprise must do, GPL increases its tariff while maintaining high costs as only a monopolist, especially a State sponsored one, can. More revenue same costs: the consumer pays again! Is the provision of electricity to the community still regarded as an essential service? Is water going to be next? Is it reasonable to assume that improvement in the electricity services is of greater priority than the specifics of the Management Agreement? Should the "specifics of the Management Agreement" not have been tailored more explicitly and specifically around the fundamental requirements of an essential service? This kind of privatisation is totally inappropriate for an essential service.

Initially, the rationale for GPL's zeal in pursuing the GEC's outstanding "accounts receivable" the need to continue the subsidy by GEC for "life line" consumers. But the zeal has continued unabated. Where does this money go? Other Caribbean countries reduced their transmission and distribution losses in a very short time period by rearranging their recurrent budgets. Why does Guyana seem so different? In fact it is not and cannot be, and, in the circumstances there can be no justification for a 15% tariff increase.

GPL is not merely a "bad privatisation". It is a gross extravagance that this country and its people cannot afford. Proposed or suggested resignations are not the answer though they may be needed. As a matter of grave national interest, the GPL arrangements must be aborted or at least meaningfully renegotiated as a matter of considerable urgency i.e. in no more than six months. There cannot and must not be any recolonization by invitation - not in the twenty first century when so much lip service is paid to "good governance". If the Government cannot act, then we the people must and soon!

C.F. Granger