Big, Big Electricity Rate Hike
Sunday, January 20, 2013, 17:16
by Richard Harrison
Belize Electricity Limited (BEL) is the monopoly distributor of electricity in Belize.
The CEO of BEL is Jeffery Locke. The chairman of the Public Utilities Commission is John Avery. The senior consultant for energy in the Energy Ministry is Ambrose Tillett. Senior consultant to the PM on energy issues, I understand, is John Mencias.
All of these men are friends of mine, who graduated with very high marks in 1982 from my alma mater, Belize Technical College. They were all classmates….who at one time or the other, held important posts in BEL…before it was sold to Fortis. They went on to prepare themselves in engineering degrees, and later in business degrees at the master level. They are some of the best minds I knew Belize to have. They are collectively responsible for the risks and benefits related to this big, big rate hike. I wish them...and Belice... the best end-results.
The PUC for years did not approve rates increases that were being requested by the FORTIS company ….which insisted that rates needed to be increased to offset their higher cost of operations, especially with increases of carbon fuels. Since this was never achieved, the company ran down its cash reserves, until such point that it started requiring bail-outs by the Government of Belize, since it would not pump any more money into Belize, from its very substantial international reserves…due to the PUC intransigence.
The Government of Belize subsequently expropriated the distribution company from FORTIS, after various rows in the legal courts and the courts of public opinion.
GOB promised lower electricity rates as a result of the expropriation….which should have been the yield of improved management, and lower requirements to service foreign owners with dividends resulting from profit flows…and lower management fees. They promised to keep the country from rolling blackouts….to keep the lights on! They argued that BEL in the hands of Belizeans was the best thing after sweet potato pudding.
One of the under-cover justifications for expropriation….is that CFE could not justify giving concessionary rates of electricity to a private firm such as FORTIS….but that it could consider this for the GOB, on a government to government cooperation. BUT….Mexico had advised Belize from way back in 2002, that it would no longer desire to supply Belize with electricity….given that Mexico’s own internal demand was growing rapidly with the expansion of the Mexican economy…and that demand for Mexico’s surplus power was growing in the USA, where they could earn a lot more for their electricity, than exporting it at concessionary rates to Belice. YET…Belice was hell bent on accessing concessionary rates from its neighbor, who has always tried to bend over backwards to help Belice. Beggar-thy-neighbor is what it is called in mafia lingo.
The more public justification was a patriotism bandwagon with no economic nor feasibility under-study offered.
We have come full circle.
BEL is still not paid for as yet….and it does not seem like the GOB has the money to make payment… given all its other delinquent obligations.
International creditors have decried the GOB for this expropriation. Some call it illegal….and many have argued that the very small profits BEL declares, would take over 100 years to make a dent in the liabilities created by the expropriation. Together with expropriation of BTL, it has crushed our macro-economic financial picture.
The PUC still has say over electricity rates, thus GOB, by regulation can influence/dictate the consumer price of electricity.
WHAT IS THE WAY OUT?
I. BEL should be returned to its rightful owners forthwith, with the agreement that all sides withdraw ALL claims and counter-claims that are in any courts, anywhere.
II. Belize should move aggressively to attract the investments required to supply at least 80% of its electricity requirements internally. BUT…these investors will never touch Belice without guarantees….without laws that will protect their investments for an appreciable period….and without an enabling environment that would allow them to be most efficient and optimally profitable. These investors are there, waiting. We need more than anything, to cherish and protect our national dignity and integrity. We need to stop leaning on Mexico, and participate in a more progressive and mature relationship with our neighbor, based on improved competitiveness and mutual respect for each other’s work and ambitions.
III. Belize should negotiate a VERY special rate with CFE for the 20% it will continue to buy….and get the World Bank to support Mexico with offering this rate….given that BEL will agree to pass this on the poorest consumers in Belize at a special low rate and fixed mark-up pricing. This should be part of their poverty alleviation cooperation program.
IV. No bonafide substantial investor will touch Belice as long as the long term macro-economic outlook does not improve….as long as we continue to not pay our bills….and as long as our government continues with its intransigent attitude towards foreign investments of all kinds. We need to OVERHAUL our tax laws to create a competitive economy that is production-consumption oriented…not import-consumption oriented as it is currently. This will turn around the economy very quickly and introduce confidence. We need to clean up our record as a country that protects private investment and property. We need to start paying our bills….clean up our record with international creditors….improve our credit rating. This can all happen in ONE year, if the political will and ambition was there.
V. FORTIS, once it regains BEL, would do well to sell shares to many small Belizean investors, so that the interest of the company is broadly hedged. This should be an open trade, so that Belizeans can buy and sell shares at will….the beginning of a stock exchange. BTL, BEL and the commercial banks and insurance companies should be the ones to get this started. It is a win-win formula for ALL.
VI. By law….new and more-strict accounting and company laws, rules and standards that prevent arms-length deals, excessive management charges and creative accounting that all together negatively impact the end-price of electricity. Earnings from company activities should be made to be more transparent and accountable…and repatriation of fair dividends from investments should be a key facilitation by the new rules of the company and accounting/reporting laws.
VII. The PUC should be restructured to be managed by a Board which is mostly formed from private sector users of electricity….tourism representative, production sector representative, residential consumer representative, electricity production investors, etc. The GOB can still have a big say, but consumers are better off protecting themselves within the PUC, than to depend on GOB.
VIII. Belize should make appropriations for the Cuban engineer (or other qualified investor) who has the know-how to transform Belize crude into combustible forms for electricity generation, so that most of the carbon-fuel for electricity generation be locally sourced. Stop protecting the international/local mafia that now control our carbon-fuel energy sources. Producers of crude in Belize should be made to sell locally on a special formula that allows electricity generation to be at minimum competitive with Mexico, USA and Guatemala…our principal competitors.
Richard Harrison is a local businessman and investor in the manufacturing and service industries. Send comments to email@example.com
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