Editorial | Clarify JPS plan

Not unexpectedly, the announcement by Daryl Vaz, that the Government won’t renew the Jamaica Public Service’s (JPS) existing electricity generating and distribution licence when it expires in two years has been broadly popular.

Jamaicans believe that they pay too much for electricity and that the high cost of power has for a long time been a drag on the country’s economic growth.

But Mr Vaz, the energy minister, must urgently clarify two matters with respect to what the Government, from a business perspective, is doing, and second, how it expects, through a new licence, to shape the island’s electricity sector.

Regarding the first issue, what is in need of explanation and/or confirmation, is whether – given the section of the JPS licence on which Mr Vaz says he is proceeding – the administration intends, in July 2028, to acquire, even if for a short period, the assets of the light and power company.

Alternatively, is it going to the table primarily to negotiate a new licensing regime with JPS’s majority owners, Marubeni Corporation and Korea East-West Power (KEWP), each of which owns 40 per cent of JPS. The Jamaican government holds 19 per cent.

This newspaper would hardly doubt that the Government has a clear strategy, including the fact that it might have to operate on parallel tracks at the same time – in going into these negotiations. However, fuller, clearer information would ease domestic anxieties, including among the more than 1,600 people employed by JPS.

When the Government formally announced the move in Parliament last Monday, he said he had “written to JPS pursuant to Condition 27 of the licence”.

“...We intend to negotiate new licensing terms and conditions with potential investors which are favourable to the people of Jamaica,” the minister said.

ACQUISITION

Condition 27 of the licence relates to the government’s acquisition of JPS’s assets and terms under which this is to be done.

It says: “ … The acquisition price to be paid by GOJ (Government of Jamaica) to the licensee shall be the fair market value of an ongoing business concern, including this licence and all lands, buildings, works, materials, plant and property of all kinds whatsoever suitable to or intended for the purposes of the undertaking.

“Fair Market Value shall be determined by a mutually agreed team of independent valuation experts. In the absence of agreement on the team of independent valuation experts, the team shall be decided pursuant to the Arbitration Act on application by the minister or licensee…”

Two years notice is required if the government doesn’t intend to renew the operating licence.

However, Mr Vaz has stressed that it isn’t the government’s intention to re-nationalise JPS, which was privatised in the 1990s. This suggests that any takeover by the government would be a short interregnum, until new private owners are in place.

At the same time, Mr Vaz has suggested that the administration was open to negotiations with JPS.

He told Nationwide radio that he was “going to the table” with JPS, so didn’t wish to “pre-empt” plans about the future of the company until after he met with its executives.

Whether the Government can, or wishes to, fashion a deal with Marubeni and East-West Power, there are several issues to be sorted out over the next two years if Jamaicans are to enjoy a sustainable reduction in the price of electricity, which for residential customers, has averaged, since 2023, at US$0.285 per kilowatt hour. It has reached as high as US$0.36/kWh. This compares to regional peers such as the Dominican Republic (US$0.117), Panama (US$0.175) and Belize (US$0.218).

ELECTRICITY THEFT

However, whatever arrangements that are arrived at, as this newspaper has consistently argued, no company, in any sector, will find it easy to sustain low prices, if more than 15 per cent of the product is stolen. Which is the case with electricity theft in Jamaica. That, in stark terms, imposes costs on legitimate consumers, amounting, informally, to the socialised delivery of electricity to those who don’t pay.

This is an opportunity for the Government to not skirt around the issue and do something about it. It must accept that Jamaica has significant pockets of energy poverty and fashion policies to address it, including strong enforcement of the laws against electricity theft.

But this of itself won’t deal with the issues that contribute to the high cost of electricity in Jamaica. Whoever generates and distributes electricity in Jamaica must be forced to higher efficiency standards, which translate to lower revenue caps and return on equity that company is allowed, if those are key metrics used by the regulators in determining rates.

Further, the risk premium assumed by the JPS and regulators in rate determinations should fall under scrutiny. Some of these were fashioned before Jamaica was fully on its path to macroeconomic stability and financial markets looked more favourably on the island.

New power generation and distribution entrants, notwithstanding Jamaica’s reformed macroeconomic profile, may still be skittish about financing risks for additional renewable plants, and distribution systems, to increase capacity at lower costs to consumers.

The Government, therefore, will have to be creative in working with multilateral development institutions and the private sector in designing affordable financing instruments for green energy projects.

There is much to do!