Wednesday, February 18, 2009

FORTIS, BELIZE ELECTRICITY RATES AND PUC

Fortis of Electric business
THE REASON BELIZE ELECTRICITY RATES ARE ALWAYS HIGHER

The major reason is that our bureaucrats and politicians are fiscally unsophisticated.
What is happening is that FORTIS is supposed to be a MANAGEMENT COMPANY handling our electrical supply and transmission grid, which facilities be owned by the people of Belize. For this management service, Fortis gets to keep any profit they can get out of the system of management. Usuually such a utility service gets a guaranteed profit, or an average profit.
What seems to be happening to me, is that our government has misunderstood the role of the utility management company concept. I may be wrong, but not far wrong. Fortis appears to be running like a for profit company BUILDING ASSETS, not for the citizens of Belize through our Government ownership, at the expense of Belizeans for its own wealth accumulation. As the years pass, the infra structure in electricity is owned by FORTIS, increasing their wealth, which can be sold in the future for gargantuan profits, in addition to the profits they earn from managing the electricity system on an annual basis.
From all appearances, under the PUP, FORTIS owned everything. This makes FORTIS a different kettle of fish in the style of a company building assets. The reason the PRICE of ELECTRICITY is high, is that FORTIS is forcing CUSTOMERS to build the electrical supply and transmission grid system. This in a PRIVATE for PROFIT company, would be the second long term profit in VALUE of the ASSETS, besides the ANNUAL PROFIT ( management fee ), Fortis is guaranteed for management services.
A PRIVATE for PROFIT company would be re-investing PROFITS to build ASSET VALUE. In the case of FORTIS up until this year, the price of electricity has been set artificially HIGH to the Belizean customers, to pay for expansion and investment in the system. We are paying for asset expansion with population growth, and higher electricity rates, not for increasing government wealth, but for increasing FORTIS wealth. If Belizeans owned the production of electricity facilities and the transmission grid this would be acceptable. But if FORTIS owns these increased expanded assets, then FORTIS should be paying for the increase in VALUE of the ASSETS out of their profits. The most glaring case I can remember is the HYDRO DAM in which Musa gave it to FORTIS for $1 for fifty years. The cost of the dam is being born by the Belizean consumer of electricity, yet it is a FORTIS asset which can be sold off in the future to another buyer, which FORTIS has been hinting at lately. If FORTIS owns it and can sell it, then FORTIS should be paying for it out of their profits. As any PRIVATE for PROFIT company must do in business. Not the Belizean consumer of electricity via higher electricity rates.
This then raises the question of LOANS, borrowed to expand the infra-structure. If LOANS are used, and the cost is passed through to the customer in higher electricity rate costs, then the asset value of the loan investment belongs to the Government of Belize representing the citizen consumer. Or it should, but does not appear so?
The way I understand the media presentations on this subject, is that FORTIS owns the increased transmission lines, generators and so on. FORTIS cannot OWN these things, if they don’t pay for them out of their PROFITS, we the customers do. This is after all a Government alleged owned UTILITY.
The Government of Belize have to decide what is actually owned by FORTIS available for sale to another buyer, and what is owned by the citizens of Belize, paid for by FORTIS management services. This needs to be divvied up and straightened out before FORTIS calculates in the short and long term, which is most advantageous to their private for profit company system. To be able to sell our production and transmission assets paid for by our higher electricity customer rates, since the PUP gave away the store apparently, lock, stock, and barrel. Who would handle such a sale, or transfer of assets and management and who would get what, from such a sale is the question? Or say, the return of the DAMS to Belize in 50 years after they are depreciated, the asset and EARNING CAPACITY of for instance the HYDRO DAMS. At some point in the fifty years, it is going to be worth more to FORTIS to sell those dams and transmission lines to another foreign outfit, than to lose them as an operator, keeping the profit from them. There will come a time of diminishing returns for FORTIS, in which; what seems the current setup, to be a period in which selling out will be more advantageous than operating the electric utility for FORTIS.
I’m not going to get into loans and depreciation and management fees here. That requires a more detailed study. The essence here is that something is very wrong in the way the MANAGEMENT CONTRACT is operating between FORTIS and the Government of Belize, representing the citizens, who ultimately should own these assets and their value worth, for which the citizens are still paying through artifically high electricity rates.
You the PUC should be figuring this out and correcting the situation on the value of assets, investment by loans we are paying for in rates, or out of Fortis profits per capital re-investment expansion for eventual private corporate resale, as a methodology for our public utility. There is something smells about this whole thing the way the PUP organized this electric utility ownership for Belize.

1 comment:

Kevin said...

Very nice tips. Thanks for sharing!
Puppy Growth Rate