Utilities woe$

Martin Henry, Contributor

Consumers are up in arms over escalating electricity bills. But we are hell-bent on crucifying the wrong goats. The Mirant to Marubeni to Korea East-West Power-owned Jamaica Public Service Company (JPS) is more a scapegoat than the real goat. And so is the Office of Utilities Regulation (OUR).

It was particularly painful to see officers and members of the People's National Party, fresh out of nearly two decades in Government, hypocritically cavorting in 'Blackout Friday' protests against the JPS. And the dodging, deflecting silence of convenience of the present Government is deafening. For it is what Government has failed to do since the setting up of the Petroleum Corporation of Jamaica in 1979, in response to the OPEC oil shock earlier that decade, that is most determining the cost of electricity in 2011. And citizens must understand this as a basis for sensible action for real change.

Except for those crazy doubling-up bills that particular consumers have been complaining about, the general cost of electricity is mainly determined not by the wickedness of the JPS monopoly but by the cost of fuel and the efficiency of generating electricity from the fuel. Every single one of those specific bills where charges have been increasing by astronomical margins, while consumers claim that patterns of usage have not changed, must be examined by an independent third party and a fair settlement arbitrated. But those cases are really neither here nor there in the general cost of electricity to Jamaican consumers.

While we welcome the consultancy reviews commissioned by both the OUR and the JPS itself, let us not be fooled that they can lead to any dramatic reductions in rates, except in those specific cases where billing seems to have gone awry. The much maligned scapegoat OUR has already clearly indicated that significant relief cannot be expected ahead of 2014 when some critical system upgrades are due to kick in.

Yasmin Chong, the chairman of the Consumer Advisory Committee on Utilities of the OUR, writing in these pages last Sunday ('Pursuing a more secure energy future for Jamaica'), pointed out that "65-70 per cent of the monthly electricity bill is directly attributed to the cost of fuel". And Jamaica is stuck with the most expensive fuel on the world market - oil - in some of its most expensive manifestations, like diesel, burnt in ancient and inefficient generating plants. Some 60 per cent of the JPS system is diesel and about the same proportion of generating plants are more than 25 years old.

"It is important for us to remember, though," Chong told anyone who cared to listen, "that in spite of the JPS's deficiencies, the major responsibility for Jamaica's high energy costs does not reside with JPS but with the policymakers - our Government. Electricity costs cannot and will not be lowered until critical decisions are taken and measures implemented to replace old and inefficient generating plants with more modern and efficient units and, more important, an alternative to the traditional and expensive oil is identified. The implementation of both sets of measures is squarely within the purview of the Government of Jamaica, and not the JPS."

State-inspired catastrophe

But even the deficiencies and inefficiencies of the JPS are largely a Government matter. The State was majority shareholder in the company over three decades which were critical for pushing energy diversification and efficiency, 1970-2001, and has been regulator of the monopoly all the time since its founding in 1923.

The unpalatable truth, as Chong writes it, is that "considerable investment in electricity infrastructure is urgently required if we are to maintain and improve the reliability and the quality of electricity service we have come to expect". Who is to do it and under what terms of business? It is a massive investment. This is the kind of area critical for national development into which money from the bauxite levy should have gone instead of into politically opportunistic 'food and drink' for the poor who are now most hurt by unbearably high electricity costs. This is an area into which loan money should have gone with the payback in productive output.

One of the weird effects of the 2008 global recession, when investment and production were supposed to be slowing down, was a sharp spike in the price of oil. Oil crossed the US$100 per barrel threshold in late February 2008 and, despite bouncing around pretty wildly since then, is not likely to settle below the US$50 level which prevailed in the mid-2000s.

And we've been lucky. The earlier San José Accord, and now the PetroCaribe arrangement with Venezuela, have provided access to oil at concessionary rates well below world market prices. Jamaicans should be selfishly praying for the longevity of the Hugo Chavez-led Bolivarian Revolution and for Chavez himself, who is now undergoing cancer treatment.

'Jooked' by the cockspur 'macka' of public anger, the OUR has aroused from publicly perceived stupor and has taken out multi-page advertorials to say that "under the current law and licence, the rate-making mechanism only addresses the non-fuel component", which accounts for under 35 per cent of electricity bills. Fuel charges are passed through directly to the consumer. And the JPS is not guaranteed a profit.

The agency has bitterly complained to journalists that it could be far more effective and serve the consumers of Jamaica better if certain legislative changes it had recommended to Government were, in fact, made.

Decisions on, and implementation of, the use of alternative and cheaper fossil fuels like liquefied natural gas and coal are set to drag on forever and a day, not to mention the use of renewables which has been on the table since the PCJ's inception.

Meanwhile, in the telecommunications sector, the prime minister and Government last week signed off on the Digicel acquisition of the Jamaica operations of Claro. All kinds of precautions were taken to protect consumer interest, the prime minister proudly advised Parliament. Except that the punitive cross-network call rates being imposed by the dominant player in the market, Digicel, and which the prime minister published in his statement to Parliament, were left undisturbed.

Digicel is charging up to $17.70 per minute for calls terminating on phones on the other networks, against $10 for calls within its own network. By comparison, LIME charges no more than $12 at peak for cross-network calls, and Claro was charging the same $9.99 it charges for in-network calls for cross-network calls.

Interestingly, one of the Government's stipulations for the buyout is that Digicel operates the Claro network under the existing terms and conditions of the Claro licence and not undertake a network merger. What this will mean for what the industry calls the mobile termination rate (MTR) for calls within a two-part company is left to be seen.

As I argued in my June 29 article, 'Digicel-Claro buyout a concern' (http://mobile.jamaica-gleaner.com/gleaner/20110629/lead/lead94.php), "Consumers already have been bearing the cost burden of anticompetitive practices in the mobile telephony market with little action on the part of our Government for providing relief. Providers in the market have been manipulating the MTR to unfairly entrap customers. ... Consumers have resorted to owning two, and even more, handsets to avoid the exorbitant and punitive cross-network MTRs which have little to do with the real costs of providing the service ... ."

Digicel abusing dominance

Because of the large MTR diffe-rentials and the sheer number of Digicel customers, a mobile phone user is far more likely to switch to Digicel, assisted by price coercion, than to switch from Digicel to another provider, no matter how good the quality of the service provided by the other carrier might be or how much better the call charges might be within that network.

Digicel, clearly, is abusing its dominant position and using the MTR to entrap its customers and block switching to another provider, while exerting undue pressure for subscribers to other providers to switch to Digicel despite the others providing lower in-network charges which should be a competitive advantage. LIME to LIME, $8; Digicel to Digicel, $10.

LIME says it is interested in a low and uniform MTR. As I said in that June 29 piece: "I am all for the free market. And the opening up of the telephone market has brought significant benefits to consumers in access, costs, cutting-edge technology, and quality of service. But markets need regulation to ensure fairness, transparency and the dampening of any anticompetitive practices. The Government must stop tiptoeing around the matter of fair competition in the mobile telephone market and, as umpire, resolve any anticompetition issues."

And briefly over to water: We have had a wet summer and, thankfully, spared the annual water lock-offs this time of year caused not really by lack of water but by lack of capacity for storage and distribution. Government has always viewed supplying potable water as a social service, not as a business needing profitability for efficiency. National Water Commission rates have been artificially kept ridiculously low without adequate compensatory subsidy from Government, leaving no income for significant expansion and retooling.

The poor use water too, but it is the poor who suffer most when the commodity is not available in the taps because improving supplies cannot be paid for from revenue or subsidy. The last major reservoir, Mona, was completed in 1946. The Supplementary Estimates tabled by the minister of finance last Tuesday, 65 years later, sliced $49 million from the Rural Water Supply Programme and cut the allocation to the Rapid Response Water Programme (the saviour during water lock-offs) by $6.7 million. Let's drink!

Martin Henry is a communication specialist. Email feedback to columns@gleanerjm.com and medhen@gmail.com.