Senior players in the local energy sector are expressing concern that high dividends payout by the Jamaica Public Service Company (JPS), plus an almost 80 per cent decline in its profits in the last five years, will prevent it from establishing the new 190-megawatt gas-powered plant as scheduled.
But the JPS says any payout to its shareholders is not affecting its investment in the island, despite the heavy losses. The company says it is continuing to invest to improve its infrastructure and not just replace it.
"However, this is not sustainable and the business must be adequately funded from its tariff if we are to keep investing US$60 million or more each year," said the company in a thinly disguised jab at the Office of Utilities Regulation (OUR).
With the debate continuing over the OUR's decision to reject a request from the JPS for a 19.8 per cent return on equity and instead grant it 12.25 per cent, industry sources have pointed to the dividends paid to the shareholders as one of the major problems facing the company.
The sources say despite its financial challenges over the past six years the JPS paid out US$176 million to its shareholders - Marubeni, East West Power, the Jamaican Government and a handful of small investors.
However, the company told The Sunday Gleaner that it paid out only US$121 million in ordinary dividends to its shareholders over the five-year period from 2009 to 2013 and the ruling of the OUR has done it no favours.
The JPS said it recorded a profit of just under US$138 million for the five-year period, leaving it in a shaky position to finance any new power plant.
"To build a new power plant, we will need to raise about US$500 million in capital - 70 per cent through debt and 30 per cent through equity.
"This will be extremely difficult to do in an environment where it appears the utility is not being allowed an opportunity to make a reasonable rate of return," the JPS said in response to questions from The Sunday Gleaner.
According to the JPS, its annual capital expenditure has been an average of US$60 million while its average profit for the five-year period was US$20 million per year.
"Obviously, no business can survive like this," said the JPS as it pointed to the increase in its fixed assets from US$635 million in 2010 to US$700 million by mid-September last year.
"The important thing for Jamaica now is to get new generation in place once and for all," argued the JPS, which has been given the green light to build a 190-megawatt gas-powered plant to replace its ageing infrastructure.
But given the JPS's financial position, obtaining gas for the project could require parent company guarantees as it is unlikely that the International Monetary Fund will allow the Government to guarantee any such loan.