Lessons from Belize on electricity monopoly
Kalilah Enriquez, Guest Columnist
As the complaints about power company, the Jamaica Public Service (JPS) crescendo and pressure mounts on the Office of Utilities Regulation (OUR), it's like a case of déjà vu. Just a few years ago, Belize went through a very similar experience - a series of events that began with a flood of complaints about the monopoly power company, Belize Electricity Limited (BEL), and ended with the nationalisation of the company just over two months ago on June 21.
I use the word 'ended' tenuously, as the nationalisation by no stretch means the country's electricity woes are over, nor does it necessarily mean power bills are coming down.
Between 2005 and 2008, I co-hosted one of the country's most popular call-in programmes, 'Wake Up, Belize'. BEL and the cost of electricity was consistently at the top of the agenda, beside crime and politics, and was always guaranteed to spark a heated conversation and a flurry of calls. Listeners would present copies of their light bills, saying they had tried everything to conserve, yet the amount due continued to escalate each month. Other times, they complained they had been unfairly disconnected, or that they had been forced to pay for power they did not consume. Sounds familiar?
The issue was of such concern that it became a priority of the Dean Barrow administration upon gaining power in March 2008. In April, Barrow appointed John Avery to head the Public Utilities Commission (PUC). Avery was a former employee of BEL, but more important, one of its staunchest and most public critics. He was convinced that the power company was overcharging customers and making too much profit. In May, Avery and the PUC rejected BEL's application for a 13 per cent rate increase. In June, the utilities watchdog forced the power company to deliver a BZ$10.3-million (J$432.6-million) rebate to its customers for what it felt was "unauthorised, unjustified or ill-advised spending by BEL in past years". Then in February 2009, the PUC ordered BEL to reduce electricity bills by an average of 15 per cent.
Suffering from the cost
In making the tariff calculations, Avery slashed BEL's rate of return from the usual 10-15 per cent to just 8.5 per cent. At a press conference, he told reporters, "The biggest concern is that while everybody else has to be tightening their belts and suffering from the cost that we are all experiencing right now, the increases, BEL should at least forego a little of the huge profits they've been reporting."
Naturally, consumers were elated by what they perceived as someone finally standing up to the BEL behemoth. BEL, however, challenged the decision in the courts, and began warning of massive blackouts if it was unable to get the requested rates.
Three years of public bickering and legal battles between the PUC and BEL climaxed in May 2011. In BEL's annual report for 2010, presented at this year's AGM, CEO Lyn Young was quoted as saying, "For the last three years it seems like the PUC has misconstrued its responsibility to balance the interest of the consumer and the company ... . The PUC ... seems obsessed with destroying what we have built over the last 30 years."
Two weeks later, Prime Minister Barrow announced that BEL, claiming to be unable to meet its debt obligations, was essentially bankrupt. According to Barrow, Young asked him to mandate the PUC to grant "an almost unlimited rate increase". Barrow refused, and two days later, Government announced it would take over the company. The decision was expedited through both Houses of Parliament in just one day, and became a reality on June 21. Although the company is already in government hands, the final amount to be paid to BEL's owner, Canadian company Fortis, is undetermined.
It remains to be seen what the government will do with BEL. The scene surrounding the company has been relatively quiet since the takeover. There are no indications government is interested in selling the utility, and there's also no word on what will be its strategy in managing the power company. Will they be able to do what Fortis claimed it was unable to do with the approved rates? Or will the new owners find that Fortis was right after all, and that the current rates are unsustainable? And what role will the PUC now play in regulating BEL?
Belize has chosen the controversial route of nationalisation to deal with our countries' common problem, a route, that over the years, has been vilified by those in international financial circles. Developing countries have been convinced that governments are unable to run companies, a school of thought - some would say an agenda - that led to mass and almost simultaneous privatisation of utilities in the developing world in the late 1980s and early '90s. When it comes to utilities, however, electricity and water have become vital not just to development, but also life. Perhaps, then, private companies, motivated by profit and self-interest, are not the best ones to be in charge of these essentials. On the other hand, governments have a social responsibility that private companies don't have, which, some argue, makes them less-than-ideal business owners.
No political interference
However, if Prime Minister Barrow can truly make BEL's management autonomous, the nationalisation could work and be beneficial to the people of Belize. Mr Barrow has said there will be no political interference with BEL's management but, with an election due in 2013, and the cost of electricity still a major social issue, it would be tempting for any political party to want to manipulate electricity rates to win votes. Such political manipulation could result in the company becoming unsustainable which, according to Fortis, is already the case.
Perhaps the Barrow administration should consider the social business model proposed by Nobel Prize winner Muhammad Yunus. Yunus, dubbed 'the banker to the poor', believes social business is the future of capitalism. As he describes in his book, Building Social Businesses: The New Kind of Capitalism That Serves Humanity's Most Pressing Needs, "The social business.must be self-sustaining - that is, it generates enough income to cover its own costs. Part of the economic surplus the social business creates is invested in expanding the business, and part is kept in reserve to cover uncertainties. Thus, the social business might be described as a 'non-loss, non-dividend company' dedicated entirely to achieving a social goal" (p. xvii). This model seems tailored for what the Belizean government says it wants to accomplish and what it has been attempting to do via the PUC over the last three years.
The PUC has kept electricity rates in Belize incredibly stable over the past three years, despite escalations in oil prices. Based on crude calculations ([amount due - GCT]/usage) from my own residential light bill in January 2008, the cost per kilowatt-hour was approximately US$0.202. A friend's light bill in March 2011 revealed a cost per kilowatt-hour of US$0.207. Meanwhile, on my most recent light bill for August 2011 in Jamaica, the cost per kilowatt-hour is some US$0.372, almost double what it is in Belize!
How Jamaica chooses to handle the power problem now will shape the future of this country. Already the OUR has stepped in with an investigation into JPS's billing practices; meanwhile, the GOJ has been exploring alternative energy sources. But will these measures do anything to make electricity more affordable in the short to medium term? As the Golding administration attempts to rescue the Jamaican economy, it must recognise that the global economic crisis and the global energy crisis are one and the same. The next few years will be critical to Jamaica's economic and human development.
Kalilah Enriquez is the former news editor at Krem Radio/TV in Belize City. She is currently a broadcast journalist at CVM TV. Email comment to email@example.com or send feedback to @kalilahe on Twitter.