Fri | Sep 22, 2017

Editorial | Heat, but no light on HFO

Published:Wednesday | June 15, 2016 | 6:00 AM

It is urgent that the Ministry of Finance, and more important, its senior minister, Audley Shaw, clarify this matter of the application of the special consumption tax (SCT) to the electricity sector lest it be accused of policy flip-flop or breeding uncertainty, which is bad for business confidence.

On May 12 when Mr Shaw told Parliament how he intended to finance this fiscal year's Budget, he announced a J$13.5-billion tax package to compensate for J$12.5 billion in income tax giveback to workers. That package, based on the minister's parliamentary statement and finance ministry documents, included an increase in the SCT on heavy fuel oil (HFO) to J$2.0006 per litre, while the ad valorem SCT would rise by 0.395 per cent. Overall, the SCT on HFO would, on average, be 6.5 per cent, against 3.7 per cent for liquefied natural gas (LNG), whose use for electricity generation in Jamaica will start later this year.

At present, upward of 80 per cent of the HFO used in Jamaica is in the power sector, so the finance minister's announcement immediately raised fears of rising electricity prices, halting a trend of lower rates that has proved a fillip to Jamaican enterprises. However, at a press conference the day after the Budget pronouncement, Mr Shaw told journalists that the increased SCT on HFO would not apply to the Jamaica Public Service Company (JPS), the private electricity transmission and distribution company.

"It is only related to SCT for fuel for road transport only," he said.

The expectation among electricity consumers, therefore, was that any increase in their energy costs would be driven by any uptick in the price of petroleum, such as the market has been experiencing in recent months, and adjustments in the value of the Jamaican dollar to reflect relative inflation between Jamaica and its main trading partners. It is understandable, therefore, that electricity consumers, including many firms, were surprised that in explaining a 12.8 per cent increase in the price for electricity for this month, listed among its drivers was "the impact of the recent increase on the special consumption tax charged on heavy fuel oil".

 

NO ERROR

 

Officials at JPS insist that there is no error in either attribution or calculation on their part. The company calculates the cost of fuel, and therefore, its contribution to the overall price at which they sell power to customers based on bills from their supplier, Petrojam, the state-owned oil refinery. And based on those bills, the company increased SCT on HFO, with an impact of around two per cent on price at which the company sold electricity to consumers.

If Mr Shaw changed his mind about the application of the increased SCT to the light and power company, he may have announced it. We, like others, may have missed it. We give the minister the benefit of the doubt. However, Mr Shaw could not have made that proclamation at the decibels or with the force and clarity he normally commands.

The Government knows the problem it had with the formulation of its income tax policy. In the end, it recast the whole plan. The administration wasn't hurt by the twists and turns. With the election campaign over and faced with the job of governing, there isn't much room for seeming flip-flops.