EDITORIAL - Rethink the double taxation on power

This newspaper consistently makes the argument that cheaper energy is the potential game-changer for the Jamaican economy. For, as is now widely embraced, at a cost of nearly US$0.40 per kilowatt-hour for electricity, Jamaican firms find it extremely difficult to compete with their regional counterparts, which enjoy cheaper energy.

This high cost of energy, though, has been exacerbated by the taxation policy, which we urge the administration to urgently reconsider by removing the consumption tax on fuel.

Clearly, we do not believe that the tax matter to which we refer represents the ultimate solution to Jamaica's problem of expensive energy, which, by and large, is the result of generally old, inefficient power plants that mostly burn expensive oil. There is broad consensus that the answer lies in installing new power plants and changing the fuel they burn.

As yet, though, there is no firm agreement on what that fuel should be, or how the plants it fires should be structured. For now, however, the Jamaican Government is backing liquefied natural gas (LNG). Unfortunately, it made a horrid mess with its request for bids for the establishment of an LNG facility here.

So, it will now be at least another three years, and more like five, before a new energy project, whatever the fuel source, can be designed, financed and delivered.

The economy, however, can't be put on hold while policymakers dither over the medium- to long-term energy fix. The Government has to be aggressive in seeking short-term solutions while the permanent ones are devised.

It is in that context that the suggestion for a review of the administration's tax on electricity arises.

First, Jamaica's power producers, including the monopoly electricity distributor, the Jamaica Public Service Company (JPS), burn petroleum-based fuels, including diesel. These carry a flat rate special consumption tax, plus an ad valorem tax of 15 per cent, having been rolled back earlier this year by five percentage points.

Taxing a tax

According to Bill Saunders, an energy expert who used to run the Government's Petroleum Corporation of Jamaica, JPS pays the same tax on diesel as does the general consumer. Then, consumers of more than 200 kilowatts of power pay a 10 per cent general consumption tax on their bills.

"So, they are taxing a tax," Mr Saunders said at a forum sponsored by this newspaper. Mr Saunders estimates that this brings more than $8 billion to the Government's coffers.

Damian Obiglio, the CEO of JPS, agreed, saying the matter pointed to the need for "a serious discussion that somebody will have to take on".

None of this obviates the need for JPS to move with greater urgency to improve its efficiency, including the 11 per cent of "technical loss" in the electricity it generates and the similar amount that is stolen. JPS has to structure its operation, with the proper oversight, to ensure that it delivers electricity to consumers from the most efficient producers.

The administration, on the other hand, will note that it has a yawning fiscal deficit with which to contend. But part of the reason for the deficit is the country's sluggish economic performance, which is being exacerbated by high energy costs. The Government, therefore, can ill-afford more business collapses and job losses.

The opinions on this page, except for the above, do not necessarily reflect the views of The Gleaner. To respond to a Gleaner editorial, email us: editor@gleanerjm.com or fax: 922-6223. Responses should be no longer than 400 words. Not all responses will be published.