GEBE’s failed assessment is about more than tariffs

POSTED: 07/25/11 12:09 PM

Water losses estimated at 5 million per year

St. Maarten / By Donellis Browne – The management of water and electricity company was quick to issue a statement last week that it would begin implementation of a new tariff structure “conditionally approved by government” on August 1, 2011, but that point is only one of 12 points where the company is non-compliant or partially compliant with the terms of its concession to generate and distribute electricity. The company is also non-compliant with all aspects of the Water Supply Agreement.
The lack of compliance is found in an evaluation conducted by Minister of Energy and Water Theodore Heyliger roughly a year after the Island Council approved the new Electricity Ordinance and Electricity Concession in July 2010 and just ahead of the concession being granted to GEBE in August 2010. The assessment of the water business comes a year after the water supply agreement, which dates back to 1996, was renewed in 2010. All developments in the evaluation are up to the period of July 18.
Although the company accepted its concession and paid the concession fee for 2010 these items were completed late. Even though the concession was issued in August, GEBE only confirmed acceptance on December 20, 2010 and the concession fee was not paid to the Receiver until January 14, 2011. The late payment has extended to no payment because the company has yet to pay its concession fee for the first three quarters of the years, depriving government of 4.75 million guilders in budgeted revenue.
There has also been no compliance on the submitting income use reports showing that no revenue collected here is used outside of St. Maarten for operational expenses or capital investments. No reports have been submitted even though the company promised to do so in a letter dated January 31, but the company took a first step by sending letters to the Executive Councils of Saba and St. Eustatius. Heyliger quantifies that move as “a single step with no real results.”
Though the company committed itself to delivering the multi-annual plan for 2011 to 2015 by January 31, 2011 and the multiannual plan for 2012 to 2016 was due by June 20, 2011, GEBE has yet to submit either one. The multi-annual plan was originally due on November 30, 2010. Heyliger this document will give government assurances that the company is living up to the terms of its concession over a period of several years.
GEBE actually has a matter of days to comply with submitting the first draft of new general conditions relating to supply and connection. That draft is now due on August 1 because GEBE did not meet the deadline to submit it six months after the concession took effect. Heyliger wants to finish the new conditions by August 30 when the current ones expire.
GEBE has defaulted on its commitment to submit a quality of supply and safety plan. That should have been submitted on March 31, 2011 and the first reports, covering one third of the grid – should have been submitted by June 30. The plan should focus on implementation of a reliable, accurate and independent measuring system, the selection of the instruments that will measure quality and a reporting structure on the quality standards and safety regulations.
The utility company has also defaulted on the requirement to work with government on a network stability and protection study. Discussions on this point should have been held by November 30, 2010 and three member steering committee was supposed to be set up. GEBE was requested to submit its views on the steering committee by December 31, 2010 so the committee could be established by January 2011, but there has been no action up to July 18.
Though GEBE has taken over responsibility for street lighting as of January 1, 2011 but has not followed up with action to date. The company also has not replied to a request by government to submit its opinion on the establishment of a working group or steering group that would execute specific tasks.
The matter of water losses is at the top of Heyliger’s evaluation of the Water Supply Agreement and shows that the water losses leaped by 12.4 percent between 2007 and 2010, going from 22 percent to 34.4 percent. The government estimates that the value to those percentages is 1.7 million cubic meters per year and a minimum monetary value of five million guilders per year. Heyliger has now informed GEBE that the losses will be for GEBE’s account, and not the water company and that the water company has a right to claim all the losses above the 20 percent mark. The amount should be added to the reserve. Also water losses from theft should be valued at the average consumer tariff and added to the reserve.
In order to move things forward Heyliger has requested the company submit its plan for reducing losses – which was due on December 31, 2011 – especially in light of reports that the company has told the media it was taking action with the help of consultants. That plan will then form the basis for a discussion between the government and the company that will take place as soon as possible.
Heyliger has also demanded that GEBE freeze all budgets related to water for 2011 and stop all expenses not related directly to the process of supplying water. This includes advertisements, travelling to off island conferences and water platform activities etc.
Under the heading organizational changes Heyliger points out that GEBE has yet to present the plan of action for the creation of either a subsidiary or totally new company that will handle all water supply and sewage issues. All the assets of the water distribution company would be transferred to the new entity. The plan of action should include the most favored corporate structure, statues of incorporation, and a detailed transition plan. An indication of the kind, extent and cost of the (sharing) services with the water distribution entity was also to be presented but the January 31 deadline for the plan’s submission and the June 30 deadline for completing the process have come and gone without any action from the company. A review and update of the water supply agreement so that it includes sewage is also part of the revamp and government has requested the company present its plan of action on this integration by October 30.
The company has also failed to report on four operational areas. One of them is in not supplying a report on areas where there is low water pressure, the reasons for that low pressure, how it’s being resolved and a time line. These reports should be submitted quarterly, but none have been submitted. The company has also failed to present a year report on water quality for 2010 by January 31, but it has not been submitted yet. It has also failed to submit new general conditions and the company has yet to submit the Master Plan Water Distribution 2011 – 2020. That document was due on June 30.
Nearly eight months into the year GEBE has yet to submit the operational budget for water and the investment and liquidity plan. These documents were due in October 2010.
“The indirect consequence of operating without a government approved water budget is that finalized financial statements of NV GEBE may have to be updates as a result of corrections required by, for example, overspending the water budget and/or by government justifying a different cost allocation,” Heyliger states in his letter.
Heyliger has also requested that GEBE provide government with its annual reports on water for 2008, 2009 and 2010 even if they are preliminary. The company is required to report annually but has not done so in last few years.
GEBE has also failed to supply government with the water tariffs as requested. A request for the company to show supply agreements with large consumers and the status of compliance on these agreements has also not been met and the company still has yet to provide an update on implementing one fuel clause for large consumers, the consumption and billing of large consumers per month over the last two years with the corresponding fuel oil prices and how far the company is with reviewing and updating the agreements for large consumers considering the “foreseen new prices for production of water” has also not been met.
The company also has yet to provide government with an overview of the results of the operations and amounts credited to the reserves for the last five years even though the report was due on January 31, 2011. The company has also failed to open a special reserve bank account by December 31, 2010 in which it was to deposit the positive result from water operations.
On the matter of investments government has yet to be given insight into the budgeted investments for 2011, the required financing and the effect on the reserve account. Government has also instructed that the company upgrade the intake system to the water plant and invest in the pumping and transport capacity to the storage tanks outside the plant. The investments are to be financed from the reserve account. There has not been any action and the company has not provided its views despite a December 31, 2010 deadline to do so.
Government also desires structural discussions on the water business and has proposed a work/steering group that will have specific tasks but the company has yet to comment.

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