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If the Jamaican government wants to break the monopoly on electricity distribution, the best way to do it is to buy out the majority owners of Jamaica Public Service Company Limited (JPS), the utility’s new CEO said Tuesday.
Concurrently, the power utility announced preliminary plans to build a US$475-million 100-megawatt petcoke fuel plant as the second phase of its liquefied natural gas (LNG) project. These projects fall under its five-year US$1.5-billion capital expenditure programme.
Liberalisation without a buy-out would send negative signals to foreign investors, JPS CEO Kelly Tomblin said in a speech to a Jamaica Chamber of Commerce (JCC) meeting in New Kingston.
JPS is owned 40 per cent by Marubeni Corporation, 40 per cent by Korea East-West Power and 19.9 per cent by the Government of Jamaica. The other 0.1 per cent is held by individuals.
“Basically, the government can buy it back from us and then they can liberalise it, and we are certainly open to that. We do not want to stand in the way,” Tomblin said.
JPS’s current exclusive licence has another 16-year run to 2027.
Tomblin’s comments are in response to energy minister Phillip Paulwell’s stated policy goal of liberalising the distribution of power to customers. Paulwell has not said how he plans to execute the strategy.
Currently, some 30 per cent of Jamaica’s 820-megawatt capacity comes from independent power producers which compete to set up generation units to sell power to JPS. They, however, cannot sell power directly to customers and Tomblin advised Government to avoid breaching the JPS contract.
“I do think it would signal a lack of contract certainty and a lack of regulatory certainty,” she told the JCC. “And as the minister, I wouldn’t want to signal that to the international community.”
Higher electricity bills
The cash-strapped Government has little capacity to buy out Marubeni and East-West Power’s stake in JPS.
The utility is one of the largest companies in Jamaica, with total assets valuing US$1.05 billion (J$91 billion). JPS had a net worth of US$371 million (J$32 billion) as at December 2011.
Government wants to liberalise the sector to reduce the cost of electricity to consumers and businesses, but Tomblin argued that it would lead, instead, to higher power bills.
“It is so counter to what I have experienced in the US markets. We used to be small utilities broken down, and we found no economies of scale with workers, with systems or with technology. Then we saw those smaller distribution companies getting larger economies of scale by coming together and getting bigger and bigger,” she said.
Joint undertaking
It was not immediately clear whether the petcoke plant is a redraft of a project announced four years ago as a joint undertaking of JPS and state-owned oil refinery Petrojam Limited. That project was billed as a US$300-million investment to be finalised in 2012, but it never got off the ground.
The new US$475-million petcoke plant will be pursued after JPS finalises the US$614-million LNG plant.
“We believe it makes good sense in the second phase of the project,” Tomblin said.
The company will also spend US$143 million on upgrading its transmission and distribution lines; US$89 million to reduce system losses, including power theft; and US$73 million on renewables.
http://jamaica-gleaner.com/gleaner/20120516/business/business1.html
Threatens sale of utility to new investors
Energy minister Phillip Paulwell says that Govern-ment can, as a last option, sell Jamaica Public Service Company (JPS) to new investors rather than allow the utility to maintain its “monopolistic arrogance”.
Paulwell did not say how Jamaica would force the sale of the power company, which would likely require its takeover if its owners are hostile to the plan, given the Government’s minority 19.9 per cent holdings.
“There are serious players coming to us and any implied threat can be responded to,” Paulwell said midweek.
Its the latest tit-for-tat surrounding the push to end JPS’ monopoly on power distribution, and follows comment by JPS CEO Kelly Tomblin Tuesday that Jamaica would likely have to buy out the majority owners of the utility if it wanted to pursue liberalisation.
JPS’ current exclusive licence has another 16-year run to 2027.
“I don’t believe that Government has to buy it back,” he said, in response to Tomblin’s assertion.
“People are salivating to take part in the energy sector. The Government won’t go there, but players are salivating to get into the market”.
JPS is owned 40 per cent by Marubeni Corporation, 40 per cent by Korea East-West Power and 19.9 per cent by the Government of Jamaica. The other 0.1 per cent is held by individuals.
The cash-strapped Government has little capacity to buy out Marubeni and East-West Power’s stake in JPS. The utility is one of the largest companies in Jamaica, with total assets valuing US$1.05 billion (J$91 billion), and a net worth of US$371 million (J$32 billion) as at December 2011.
Private negotiations
Paulwell told the
JUST over one week ago, new Jamaica Public Service CEO Mrs Kelly Tomblin, having spent just over a month listening to the various stakeholders in JPS, particularly its customers and employees, revealed to the Observer Monday Exchange that she had never seen an electricity company facing such a difficult and complex set of challenges.
This was despite the fact that in her group she is normally brought in to deal with difficult situations requiring some form of turnaround. Indeed, many years ago, her first job in the electricity industry was at the infamous Three Mile Island nuclear plant in the United States, the scene of a near meltdown, and now part of the literature on how not to handle a crisis.
Mrs Tomblin was, of course, saying no more than the truth. In addition to facing legal challenges concerning some of its practices, such as back-billing, and its licence (the latter reflecting the overall legal and regulatory risk the company is facing), JPS has lost the trust of its customers, and even, Mrs Tomblin suggested, its employees.
One example of the former is that a group of Jamaica’s largest, most influential, progressive and innovative companies came together to publicly demand electricity competition. More generally, every householder and business in Jamaica, both rich and small, awaits with trepidation the monthly arrival of their electricity bill, over which many feel they have no control. Even JPS shareholders are clearly not happy with the many changes of ownership in just over a decade.
Despite the view of the man in the street that JPS is rapacious, a US$34-million profit on US$1.2 billion in sales is not particularly high, and could even be described as inadequate, given routine capital expenditure of US$40 million to US$50 million, and particularly against the huge increase in investment required over the next few years.
On the positive side, JPS shareholders have, according to Mrs Tomblin, the long-term view required to make the new investments. The decision to move ahead with the new LNG-powered electricity plant means the long-delayed decision on Jamaica’s future fuel source appears to have finally been made.
When Liquefied Natural Gas (LNG) was originally mooted as Jamaica’s preferred fuel source over coal, there were legitimate concerns over the paucity of suppliers, particularly without a guaranteed supply from our Caricom partner Trinidad. However, the huge increase in the production of shale gas has collapsed natural gas prices in the United States, which now appears poised to become a major world supplier of gas.
In Japan and South Korea, the respective home bases for the current owners of JPS, all natural gas supplied for electricity generation comes through their own LNG terminals, suggesting they will have readily transferable expertise available to Jamaica in this still emerging area.
The starting point to rebuilding trust in JPS will be for Mrs Tomblin to continue to listen to the emotional pain of her customers, and empower her front line employees, all of whom know very well what is going on.
Mrs Tomblin appears to understand that, when in pain, neither customers nor her employees will care about the needs of JPS until it is clear that the business cares about them. Her current posture of emphasising listening, observing and acknowledging, rather than trying to explain or rationalise, reflects a necessary emotional intelligence that appeared to be missing from former top management.
She is off to a good start.
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Kelly Tomblin, the new CEO of the Jamaica Public Service Company (JPS), the light and power company, has started well. Rather, in her first interview with this newspaper, she was soothing.
But neither empathy nor intent to soften the hardened image of the JPS will be enough. If JPS is to be a player in Jamaica’s energy future, it has to be fully engaged in efforts for the efficient delivery of power to customers, which will require it to be a vastly more efficient operation.
Put another way, it just won’t do for the JPS to use two barrels of oil equivalent to generate the electricity to light a simple 100-watt incandescent bulb for a year. Nor can it be tolerated that more than 70 per cent of the fuel, mostly expensive oil, it consumes goes to waste, producing nothing.
Indeed, JPS has to convince Jamaicans that it can, and will, be a serious contributor to efforts to slash the price of electricity from around US$0.41 per kilowatt-hour to the US$0.10-US$0.15 required for the Jamaican economy to have a reasonable chance of competing with its neighbours.
In this regard, the contribution of the Energy Think Tank at the University of the West Indies, Mona, to the energy debate, by making the issue accessible to most people – such as with the light bulb example – is important.
The group bases its conclusion on the fact that the value of a barrel of oil equivalent is 1.7 megawatt hours, or 1,700 kilowatt-hours (kWh). A 100-watt incandescent bulb, burning continuously for 365 days, or 8,760 hours, would consume 876 kilowatt-hours, or 51 per cent of the electricity output of a barrel of oil equivalent.
But at the rate at which JPS converts its fuel to electricity, the company gets only 35 per cent of its energy value. Old equipment and other inefficiencies mean that 65 per cent goes up in smoke – literally.
Rethink both cost and technology
Of the electricity generated by the little more than one-third of a barrel of oil that is actually converted to power, 23 per cent is lost in transmission and distribution, a combination of technical loss and consumer theft. So, only 27 per cent of the potential energy from a barrel of oil burned by JPS reaches its consumers, or, in this case, the Energy Think Tank’s 100-watt bulb.
That’s untenable!
We note Ms Tomblin’s allusion to the 360-megawatt gas-fired plant that JPS won a tender to install, which promises to cut the cost of electricity by a third. That is a start, but hardly the full solution to an energy-competitive Jamaican economy. For while fuel type is critical, it is not the only issue relevant to the delivery of competitive power in Jamaica. Plant technology, for instance, will be important, as well its financing cost.
These matters need to be fully and honestly ventilated – from all angles. So, too, must be the matter of competition.
On the latter point, given her assertion about the inefficacy of multiple grids in small countries, we suppose that Ms Tomblin has not yet been fully briefed on the competition model for transmission and distribution floated by the Government.
We look forward to an informed discourse, but urgent action.
http://jamaica-gleaner.com/gleaner/20120425/cleisure/cleisure1.html
Shell gas operator, Cool Petroleum is pumping US$2 million (J$175 million) into capacity upgrade of its Rockfort Kingston facility but denies those plans include construction of a refinery despite getting state approval for such a facility.
The upgrade will allow Shell, with one of the largest