Lead Editor Investigations
asha.javeed@guardian.co.tt
Higher electricity prices, even if it’s the lowest in the Caribbean, could impact on T&T’s competitiveness especially in the energy sector.
Last week, the Regulated Industries Commission (RIC) announced its proposed rate increases for the Trinidad and Tobago Electricity Commission (T&TEC) by varying amounts across the board–for residential (15 to 64 per cent), commercial ( 37 to 51 per cent ) and industrial (58 to 72 per cent).
For E class industrial customers, for which many plants in the petrochemical sector fall under, that range is the maximum set at 119 per cent to 126 per cent.
Energy industry sources yesterday explained that what was now a bi-monthly bill for the sector would now be their monthly bill.
For example, if a customer paid two million every two months on their bill, they would now be required to pay two million in one month as well as a customer care charge, a demand charge and Value Added Tax (VAT). As with all bills, consumption will determine how high the bills amount to.
Industry sources explained that T&T’s competitiveness in the energy sector as well as the country on a whole would be impacted.
“Natural gas amounts for 60 to 70 per cent of the cost for a petrochemical company. The reality is that in re-negotiated contracts, the cost of natural gas has gone up. So you have a sector facing increased price of natural gas, increased electricity prices, increased cost of security to do business in T&T and then increased labour cost. And property tax which will come into effect next year.
“Now, in isolation, the increase in cost is not bad. But when you factor in all the other costs which are set to increase, in the bigger picture it will impact on the final costs of businesses,” one source explained.
Another source observed that energy prices in the United States had fallen and was more attractive to petchem plants looking to set up shop there especially with the incentives being offered by the US Government.
“You have to remember, T&T’s economy was built on cheap power going back some 50 years ago. At that time the associated gas wasn’t valued, hence the very low price.”
In 1999, when BP acquired Amoco and subsequently sold the oil fields to Repsol in 2005, the gas value chain changed significantly as the largest energy company in the country became a purely gas company which changed the economics fundamentally. However, the pricing into the power generation market changed over time resulting in a build-up of subsidies which are fine when a country can afford it. This changed because the gas fields in T&T are mature and the reduced production also resulted in an increase in the cost per molecule as their costs are now spread over a smaller amount of production.
“NGC as the aggregator purchases gas from the upstreamers, then sells to T&TEC for power. And, as you know, T&TEC cannot afford to pay this debt and it is building up, which puts pressure on the entire value chain from a cost perspective. BP took a big part of that burden because they historically supplied a tranche to power at a lower cost,” a source added.
Several years ago BP pushed for other oil companies to share the burden. “So a power tranche was included in their gas contracts and the prices started to rise. Which made the subsidies even larger over time, as the upstream companies didn’t want to take the full burden.This is no longer sustainable and bottom line is a rate increase is required to reduce the subsidies across the value chain,” another source explained.
“However, our economy was built on cheap power and cheap gas, removing that pillar will result in some loss of competitiveness for our export markets over time, so we need to think carefully about how we maintain and improve our competitiveness globally.”
RIC chairman Dawn Callender had said RIC was cognisant of small business and residential customers and opted not to increase the rate first proposed in the draft determination. For example, in the draft determination, it was proposed that the rates for commercial customers be increased to 51 to 63 per cent. However, in the final analysis, the rates proposed were 37 to 51 per cent. The same applied to light industrial customers–the draft determination of rates proposed were 72 to 87 per cent but were reduced to 58 to 72 per cent in the final determination.
However, she had said the burden of higher cost was placed on the E class customers as they could afford it.
