Richard Browne, Business Reporter
The development of new energy capacity fired by cheaper fuel sources comes with an estimated 25 per cent of savings, with the biggest relief likely to flow to businesses, according to financial analyst, Colin Steele.
Jamaica expects to commission around 360 MW of new capacity in 2016 fuelled by natural gas, a portion of which is expected to replace old, inefficient capacity while the rest will grow the base load. Five bids are under review.
Based on JPS revenues of J$101 billion last year, the savings reportedly built into the projects, if fully realised, would amount to about J$25 billion in total, Steele says.
According to Steele's analysis, commercial users would be the biggest winners, with resulting savings of approximately J$12.5 billion, households would retain J$9.2 billion, while the Government's electricity bill would be reduced by J$3.2 billion.
The benefits, he adds, are expected to extend beyond money savings, especially for Government.
"Residential users will see a reduction in inflation and an increase in disposable income, with which it is likely they will buy increased goods and services," Steele told Wednesday Business.
This in turn will create a virtuous circle, boosting revenue to Jamaican commercial businesses, and resulting in Government receiving more GCT and tax on company profits - revenue which will go directly to the Budget and help to reduce the fiscal deficit, the analyst said.
Increase in Competitiveness
As an added bonus, the increase in profits "should result in an increase in competitiveness of industry," he adds.
The current round of energy bids is Jamaica's second attempt at finding an investor to develop the new capacity. The first was derailed after the contractor general challenged the procurement procedures.
In the meantime, Jamaican industry has watched its production costs soar as energy prices climb. Their frustration has boiled over into conflicts with trading partner Trinidad, an oil producer, whose energy costs are at one-tenth the level of Jamaica's 40-42 US cents per kilowatt hour.
Businesses have more than two years to go before they see real relief from the 360 MW project - the new capacity is expected to be commissioned in January 2016 - but producers are a little more upbeat, now that the selection process is again under way.
The Jamaica Manufacturers Association is expecting a reduction, "all things remaining equal", of between 25 and 30 per cent in electricity bills, according to deputy president Metry Seaga.
He said such a reduction would have "a massive impact" on manufacturing in Jamaica.
"Manufacturers are large users of electricity. It is one of our largest costs. Projects which could not be started before would be able to go ahead with the reduced rate," said Seaga.
'We are pleased that it seems to be starting now. We want to urge all parties that we must have no more delays, and that we won't allow anything to stop it," he said. "We want the best arrangement now, not the best one for down the road."
The Private Sector Organisation of Jamaica (PSOJ) was a little more conservative in its estimate, saying savings might be in the range of 20 to 25 per cent. PSOJ chief executive officer Dennis Chung says this would realise reductions in the oil import bill of about US$500 million (J$51 billion).
He was sceptical, however, that it would be enough to create comparative advantage for Jamaican companies.
"This will improve the cost profile of businesses and improve consumer's standard of living. But the challenge is, will that be enough to make our businesses competitive?" said Chung.
"A 25 per cent reduction would mean 30 cents per kilowatt hour, compared to Jamaica's competitors, which typically have a rate of US 22 cents, or even less for the special case of Trinidad with a rate of US 10 cents," Chung said.
He noted that several companies are starting up their own power sources, such as Caribbean Cement and the bauxite companies. Meanwhile, private individuals are migrating to solar energy.
"So pretty soon, electricity costs for those people will go down even greater," Chung said.
For his analysis, Steele used statistics from the Economic and Social Survey Jamaica to break down electricity consumption between commercial consumers at 49 per cent, with 12.5 per cent to Government and 36 per cent to residential users.
The Office of Utilities Regulation expects to conclude the first phase of its review of the five bids by September 9 and finalise negotiations by December 2 for construction of the new capacity to begin by next January.
The bidders are: Azurest Partners-Cambridge, 300 MW for US$690 million; Energise Jamaica Limited, 360 MW for US$586.73 million; Energy World International, 478 MW for US$737 million; Optimal Energy Limited, 360 MW for US$559.07 milllion; and an alternative bid by Optimal Energy, 360 MW for US$571.94 million.