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EDITORIAL - Encouraged by power moves

Published:Thursday | February 5, 2015 | 12:00 AM

We are encouraged that falling oil prices seem not to be seducing Jamaica into losing the plot and that real progress is being made on projects to develop new, efficient, gas-fired power plants.

Of particular note is the exercise by Jamaica Public Service Company (JPS), the monopoly distributor of electricity, of its right of first refusal and its decision to have a go at building a 190-megawatt plant and associated infrastructure. That project is likely to cost upwards of US$700 million.

The danger of succumbing to a false sense of security when the price of oil falls is real. Jamaica has been there before. And not only with regard to electricity generation. Indeed, after the first oil shock of 1974, there was much discussion about improving energy efficiency and the development of renewables. The country's first energy policy aimed at giving practical application to these issues was launched in 1979 - more than three-and-a-half decades ago.

Little of substance happened. Jamaica adjusted to high oil prices. When prices fell, the country perceived the 'savings' as windfalls to be consumed, as was the case in 1986 when the government of the day saw the collapse of the oil market as a signal for the reintroduction of consumer subsidies. This strategy, combined with other bad choices in macro-economic policies and failures at fiscal management, contributed to the minuscule growth and high debt that has dogged Jamaica for the past 40 years.

In that regard, lowering the cost of energy is an essential part of the mix to improve the competitiveness of Jamaican firms. But comparative gains won't be made only because oil prices fall; that is an advantage that all competitors receive in equal measure.

Bidding Process

The confirmation that JPS will be part of the process, replacing some of its own old oil-fired generators, is, at this stage, important on two fronts. It means that the authorities won't have to go to market in a lengthy process of competitive bidding that might delay delivery of the plant until well into 2018, or later. Further, and critically, it suggests that JPS may be assuaged that it will be provided with the room to finance the project, which it feared was endangered by the recent ruling by the Office of Utilities Regulation (OUR) lowering the underlying electricity tariff by one per cent.

We assume, therefore, that with the OUR having rejected the company's request that it be allowed to charge interest on debt by commercial consumers to cushion foreign-exchange losses on its transactions, the government will end its system of strong-arming unauthorised, interest-free loans from JPS in the form of overdue payments by its agencies and departments - amounting to more than J$7 billion. We expect, too, a rigorous programme against electricity theft, a process that is beyond the capacity of a private company in an environment where the stealing of nearly a fifth of JPS's output is almost normalised as social welfare.

Such actions are necessary, unless government doesn't believe that Jamaica needs a viable electricity sector.