GPL privatisation…
Kaieteur News
January 4, 2005

Related Links: Articles on GPL
Letters Menu Archival Menu



Govt. to apply measures to guarantee return for investors

The Government intends to make the necessary amendments to remove the unintended negative impacts on the Guyana Power and Light Inc.'s (GPL) revenues so that measures could be installed to ensure a return to a new investor.

The Office of the Prime Minister (OPM) has disclosed that GPL's licence would be amended to minimise the lag in costs.

The government of Guyana is putting up GPL for re-privatisation with a 50/50 share offering for US$30M.

The government says the equity investment may open the door to a further US$150M in debt financing once GPL's performance eventually justifies a 2:1 debt-equity ratio.

As part of the measures to ensure a return to the investor, there would be monthly instead of quarterly adjustments to the basic year tariffs to allow for actual fuel costs to be passed to consumers promptly, and property tax like corporate taxes will be treated as an allowable expense.

There is also a $20M annual cap on the fines that the Public Utilities Commission could levy on GPL for failing to effectively implement its Development and Expansion Programme.

The Government of Guyana would forego its returns for a 10-year period to enable the expected returns to the investor and minimise increases in calculated prices.

It is intended that year-to-year tariff increases would be kept below 5% as benefits from loss reduction are realised.

Measures would be put in place to ensure an agreed minimum return to the investor.

It is expected that by the end of a ten-year period improvements in GPL's performance, particularly in the reduction of losses, would allow reasonable returns to all shares.

The current high technical losses of about 15% or more reflect lower than required investments in Transmission & Distribution (T&D) system over the last three decades.

The long term target for GPL would be technical losses of about 8%.

There are plans to construct new transmission lines, five sub-stations and to upgrade distribution systems in stages.

OPM said upgrading the T&D system would reduce technical losses and better keep the voltage levels within their prescribed limits.

OPM said the reduction of commercial losses, now estimated at 25% or more, requires investments and cultural changes within the society at large.

The need was pointed out to confirm that every building receiving electricity is placed on GPL's active register of consumers and that checks are made to the metering of every customer.

It has been estimated that 60-70% of meters would need changing and relocating to ensure accuracy and reduce reading errors.

A new standard was adopted three years ago which requires the relocation of the meter to the front outer wall of the consumer's premises.

It is envisaged that in time, every installation will be brought to this standard.

Another key challenge facing GPL is the illegal connections.

OPM said there is need for a cultural change to create a regime of no-tolerance for theft of electricity, illegal connections and reconnections, and schemes by GPL employees to defraud the company of revenue.

The long term target is to reduce commercial losses to 5%.

GPL would resolve to sustain collection ratio at 93% and further improve collection to about 96%, so that there could be no more than 4% bad debts on billings.

OPM acknowledged that larger commercial and industrial consumers are paying more than they should when compared with the prices charged to domestic consumers.

But it pointed out that this policy of cross-subsidy from large consumers to the smaller ones has been with the company from the earliest days.

A report on the issue of tariff rebalancing proposes widening the arrangements for supply to large consumers, including supplying to medium and high voltage levels, and introducing ‘time of day' and ‘interruptible' pricing.

This arrangement is intended to further reduce the cost of servicing such customers.

There has been an expectation that if reduction of total losses could be achieved at a fast enough rate, the net benefits would significantly offset reductions in revenues due to a phased reduction in commercial and industrial tariffs, toward their ‘cost of service' price.

Another challenge is the improvement of meter-reading, billing, and consumer information system.

This includes the installation of billing and accounting hardware and software with features which allow for more timely and accurate information on each consumer.

The implementation of the Unserved Areas Electricity Programme (UAEP) is seen as an opportunity to create a positive image of GPL and at the same time remove one major excuse for illegal connections and commercial losses.

The UAEP is subsidising the cost to extend electricity to about 220 unserved areas with a total of about 50,000 consumers.

OPM said in comparison with other utilities, the staffing levels at GPL appear high even though service is below satisfactory.

It said finding more efficient and effective arrangements gradually is essential to lowering operating costs and, by extension, tariffs.