JPS to invest J$30b in LNG plant, anti-theft initiatives - Says returns, profit not guaranteed
Published:Friday | July 8, 2011 | 12:00 AM
Steven Jackson, Business Reporter
Korea East-West Power (KEP), the new partner in Jamaica Public Service Company (JPS), is serious about investing in new generating capacity, says president and CEO of JPS, Damian Obiglio, at the first of a monthly press conference by the utility held Wednesday.
"KEP comes to Jamaica; they see an opportunity to expand the generation in Jamaica. Sooner or later, someone has to make a change and that is what they saw - an opportunity to go into the market of generation. They already have a power plant in Haiti - 30 megawatts. So they are expanding in the Caribbean and North America," he said.
Obliglio did not say how much capital KEP was bringing to the JPS partnership, having acquired 40 per cent or half of Marubeni's stake, but he outlined two big spending plans to be undertaken by JPS equivalent to J$30 billion of investment at spot rates.
JPS continues to invest in anti-theft projects amounting to US$26 million to grow its customer base by 10 per cent in two years. Another US$330 million is to be poured into a liquefied natural gas-fuelled plant in partnership with parent Marubeni of Japan.
JPS this year was named sole bidder on the 480-MW power-supply project and is negotiating the terms of the project with, Office of Utilities Regulation (OUR). The project opens up room for LNG-fired generating plants.
Obiglio said OUR would respond to its US$330-million LNG proposal by September.
Arab focus
KEP recently bought its stake from Marubeni. It follows the sale last year by TAQA, based in the Arab Emirates, which sold its stake in Marubeni Caribbean operations. TAQA exited to focus on its Arab operations.
"I do not know how much Marubeni sold to Korea East West Power," Obiglio said about the deal not yet disclosed in overseas-based company financials, "but I don't think TAQA lost money on JPS."
JPS lost about US$14 million from light theft last year (US$45 million over seven years). Obliglio said the anti-theft project would target 130 communities over a five-year period.
"We presented to the OUR a five-year plan in which we identified communities year by year. Last year, we did 16,000 new customers—people who were previously stealing electricity. This year, we are going to have 20,000 new customers, and next year 23,000 and so on," he said.
"We are finishing Flankers in Montego Bay by July. Flankers was an icon of the inner city in the past and nobody could go in there. Now they will become new customers."
The elimination of theft, however, won't occur for now due to the Jamaica's economic stagnation, he reasoned.
"In my professional opinion - not JPS' opinion - we will have about five to six per cent theft of electricity until the country makes step forward on macroeconomic side or if everyone has jobs; that is the minimum that we can attain. The actual theft at December 2010 represented 11.8 per cent of fuel losses and we can reduce that to about six per cent," he said adding that both the poor and wealthy steal power.
The fuel charges that JPS passes on to customers keeps electricity bills fluctuating, but Obiglio says that oil prices will stay below US$100 per barrel for this financial year, resulting in a fall in charges for businesses and consumers year on year.
His guidance on the company's profit performance this year was that earnings would be flat due to the sluggish economy; while also attempting to nix what the company president said was misinformation that JPS is guaranteed a profit or a minimum return on equity.
The latter was a central focus of Wednesday's briefing.
"In Jamaica...there is no guaranteed rate of return," said Obiglio.
JPS neither has a guarantee on its net profit, operational profit or a minimum return on equity (ROE), he said.
"We do, however, have a maximum ROE of 16 per cent," he said.
The utility, recorded a ROE of 10 per cent for its last two financial years. It made US$40 million in profit in 2010 and US$42.2 million in 2009.
Last month, Castalia, an international team of consultants recommended that Jamaica pursue, as a top priority, changing the main fuel for generating electricity to liquefied natural gas or coal, saying it would result in a one-third reduction in the cost of power supplies to customers.
At the same time, the Washington, DC-based advisers hired by JPS, suggested in a report obtained by the Financial Gleaner that Government should not break the JPS monopoly over power distribution.
The break-up would more likely result in an increase in rates for residential and small commercial customers, and no reduction in the costs to large industrial users, Castalia said.