JPS plundering Jamaica

Delroy Warmington, Contributor

Ever since the divestiture of JPS in 2001, everyone has benefited except the Jamaican public. First, Mirant made an obscene gross 400 per cent return on its investment in five years. According to our beloved former minister of finance, in 2007, Mirant sold its 80 per cent share of JPS to Marubeni for $800 million, giving JPS a value of $1 billion. That is a very unusual return considering that we are talking about the utility industry.

In 2009, Marubeni then sold 50 per cent of its 80 per cent to Abu Dhabi Energy. Now, Marubeni has resold that 40 per cent for $285 million to Korea East West. This put the value of JPS at $712 million. Someone needs to explain how and why the company lost 30 per cent of its value in four years. Does anyone think that these two investors will be around in five years?

These are just financial transactions and should be subjected to the same punitive tax Brazil now uses to discourage short-term investors. It is obvious that the benefit to the Jamaican public is imaginary at best, and illusionary at worst.

The carping and cavils of the JPS management are disingenuous. The returns they are making in Jamaica are way above the industry average. Could the management please tell us which utility companies are producing 16 per cent return on equity (ROE). The current CEO worked at American Electric Power, and their ROE is 9.25 per cent, less than what he is getting in Jamaica. The new investor, Korea East West, sports an 8.8 per cent ROE. The facts speak for themselves. Let's look at some of these returns for the industry (ROA means return on assets and ROI means return on investment).

Given that JPS is enjoying a 4.44 per cent ROA and a reasonable 10 per cent ROE, Jamaica has been very good to its foreign investors. It is about time the public become aware that the distance between fact and fiction is very hazy. The JPS investment has been accretive to all its foreign investors.

The relationship between the Government and JPS should not be confrontational, nor should it be incestuous. The impression given was that Jamaica would experience enhanced service, and rate increases would be restrained. But what we get is an epoch of diminishing expectations. It seems as if the Government's energy policy is still in gestation.

Explanation needed

JPS management and the OUR need to explain to the public why the electricity rate is so high in Jamaica - now at 31 US cents per kilowatt-hour. Remember, it was 14.6 cents in 2001. Why the more than 100 per cent increase? The average in the UK is 20.51 cents. Duke Energy customers pay 6.36 cents, while Florida Power customers pay 8.94 cents. I am sure the Jamaican customers would be glad to pay twice as much as any of these two utility companies' customers.

The utterance of management should be taken with a grain of cynicism. They complain about the return on their investments, but they are not letting us know how much of their capital expenditure (CAPEX) is maintenance CAPEX. I am not too sure how many of us would agree that a taxi driver should charge extra because he changed the oil in his car. This is the equivalent of JPS charging its customers for maintenance CAPEX.

The Government must demand strenuous service level from JPS. Any breach should be accompanied with a significant financial penalty. Moreover, JPS should be forced to produce simple bills which any layman can read. No more convoluted billing statements. Any investment in JPS should be for a duration of 10 years or more. Any exit before this time frame should be subject to a tax of 30 per cent, or selling it back to the Government at a steep discount, whichever is higher.

JPS has put the Jamaican public through grief. The irony is that the original divestiture was supposed to provide enhanced efficiency and a reasonable electricity rate. It has failed miserably on both counts.

Email feedback to columns@gleanerjm.com and dlwarm2001@yahoo.com.