THE NATIONAL Investment Bank of Jamaica (NIBJ) has defended the Government's sale of the Jamaica Public Service Company (JPSCo) to US-based Mirant Corporation for US$201 million.
The investment bank was responding to a Financial Gleaner report that the sale price for the utility company was low, and that the Government had struck out on the deal. The article, published last Friday, said the $201 million was, in industry circles, considered to be less in real terms than the US$160 million Houston Industries Energy offered in 1996. The Government rejected that offer as being too low.
But, the NIBJ in defending the sale of 80 per cent of JPSCo to Mirant, argued that the circumstances of the company in 1996 were quite different from what they are today. As such, it said a "simple comparison" of the different offers cannot yield any meaningful result, it said.
Electricity
According to the NIBJ, in 1996 the 72 megawatts provided by Jamaica Energy Partners had just come on line and the 60 megawatts provided by the Jamaica Private Power Company was in the final stages of completion. Along with JPSCo, an adequate, reliable source of electricity was ensured at the time. There would therefore be no need for a private owner to find funds to invest in new generation capacity within the first three to five years of assuming control of the light and power company, the NIBJ said.
The investment bank noted that Mirant has committed to add 42 megawatts in the first year and another 83 megawatts in the next two years of its operations. "The need to install new generation plant immediately makes a significant difference in JPSCo's cash flow and therefore its value," said the NIBJ.
It explained that Houston Energy had refused to assume the liabilities of JPSCo, associated with the contracts of the private power companies. Mirant will assume responsibility for these liabilities.
JPSCo's short-term debt of J$5.4 billion (US$120 million) which must be repaid in one year has also been assumed by Mirant. At the time the 1996 offers were made, there was no short-term debt on JPSCo's books.
The offer price of US$201 million for a 80 per cent stake in JPSCo puts the value of the whole company at US$251 million, NIBJ said. It added that when the short-term debt and additional equity (US$38 million) to be injected into the company are taken into consideration, the total value which accrues to the Government from the sale exceeds US$400 million.
