Dear Editor,
Your indulgence is once again sought to respond to another article by Mr Christopher Ram, entitled ‘The economic resources of Region 10,’ appearing in the Business Page of the August 12 edition of the Sunday Stabroek.
Misrepresented table
Pointing out that the table Mr Ram presented in his column of July 29,which was headed ‘Source: Linden Electricity Company, Inc. circular’ had had an additional column inserted, was not “pettiness, political banality,“ nor trivial. Indeed, that insertion, without an appropriate notation, is a potentially dangerous misrepresentation. Other columns could have been inserted, for example, the quantity or percentage of cost that is still being received as subsidy, which should engender quite different emotions from those of Mr Ram’s inserted column of the percentage increase in the tariffs. Most readers would take the table at face value as presented, and would wonder whether LECI was not shooting itself in the foot, or, even worse, had set out to sabotage its own programme. It is not to be believed that Mr Ram would knowingly have set out to sow such seeds. No, it is not a trivial matter. And, Stabroek News should be concerned.
Big multiplication
Further, as was argued, moving from a small part to the whole inevitably entails a large percentage increase of the small part. In 1976, following the pronouncement of Mr Forbes Burnham, the cost-recovery tariff was calculated to be G$1.00 per kWh, whilst consumers were being charged 2 cents per kWh. After some months of contentious discussions, a first step was implemented, moving the charge from 2 cents to 40 cents per kwH, still only 40% of what was required but a twenty-fold, 2,000% increase in one step.
Even the ‘sweet, reasonable’ proposal of Mr Ram of an increase of 6% every six months, from 1992 to now, 40 increases – even if it was accepted – would have brought us to about G$25 per kWh now, still needing a further, about 2.5-fold, 250% increase to clear costs. It is against such a background that Mr Ram should position his criticism of the new billings.
The PUC’s mandate is to ensure a viable service, and Mr Ram’s reference to the PUC is unfortunate, as it panders to, and propagates, a misleading view that a PUC is there to ensure that the prices set are those which people could afford. Far from it; the mandate of a PUC is to set the lowest price which ought to sustain the service, including the attraction of capital for the expansion and development of that service, including its modernization. Such would be the price to be determined by a PUC, not an “affordable” price. A community may be unhappy in paying the sustaining price for a service, but the community will be much worse off with a poor, or no, service.
The government wants to get to a lowest service-sustaining price in reasonable steps as soon as possible, taking account of the total Guyana situation, and then to bring electricity prices in Linden under the PUC, thereby relieving itself of the suspicion that Linden tariffs are being set in a totally arbitrary way. Integrating the Linden area into the national grid is probably the best way to bring Linden under the PUC.
Breaking even
It is difficult to understand Mr Ram holding on to the historically small sums of surplus, net of deficits reported by BOSAI Minerals Guyana Services Inc, the electricity-generating company in Linden, and presenting them as profits exploiting the subsidy and the tariff paid by Lindeners. An ongoing, monthly calculation procedure that, over a three-year period, keeps power costs and power receipts within 0.1% of each other, is something that demonstrates that the provision of electricity is intended to break even, without loss or profit. Mr Ram seems to have failed to recognize that the electricity-generating company is a separate company. Indeed, OMAI before, Bosai now, and the nationalized bauxite company even earlier, would have preferred to be freed of any requirements to produce electricity, always retaining the right to self supply, if more advantageous. Indeed, the policy in the mid-1970s was for the then nationalized bauxite company to transfer electricity generation to the national utility, the Guyana Electricity Corporation (GEC).
Bauxite levy
Editor, readers, what are we to think of someone who keeps longing for the production levy and royalty of the 1970s and 1980s, when they were waived even then for the then nationalized companies, even as there was further need for large subsidies from the nation’s treasury to prevent the company from collapsing! Today, Guyana’s government is freed of any need or any obligation, for subsidies to the bauxite operations. We need to be happy about that and to nurture the corporate tax and the dividends from a 30% equity position from which we benefit.
Leap
It would have been only fair if Mr Ram were to acknowledge that after MINPROC declared, in 1994, that they could not see how to make bauxite profitable, this government fought for a third intervention in bauxite, which became LEAP, intended to prepare and transform bauxite people and communities for life beyond bauxite. Mr Ram may not know that the first draft of LEAP was for more than 20 million euros. The government fought for the inclusion of a number of infrastructure projects, such as the upgrade of the Linden-Ituni-Kwakwani-Aroaima road, and upgrade of the Linden to Kimbia road, which were removed at subsequent stages. The view eventually prevailed in the corridors of power in the European Union, at the time, that LEAP should be kept sharply focused on changing the people from seeing themselves as employees of a bauxite company in a company town, to seeing themselves as entrepreneurs, founding and running a wide range of small and medium-sized businesses in an open town. On the question of failure or success of LEAP, readers should know that the consultants posited as a big risk factor, the readiness of the Linden community to transform itself into a community of entrepreneurs.
The government had to struggle against any possibility of this perceived, big risk factor scuttling LEAP altogether. Mr Ram should hold such a background in mind, as he proceeds to critique LEAP.
Natural resources
Mr Ram should be careful as he proceeds on to “The economic resources of Region 10” and “Region 10 is the bauxite capital of Guyana.” He should recall the history of the nationalized bauxite operations during the 1970s and 1980s, up until 1992. The PNC was in office then, and there were no differences of race, or political affiliation between Linden and the ‘powers that be’ at central government, nor in the public service and all the agencies of government, but yet there were huge losses accompanied by deep suspicion, acrimony and bitterness. Both sides (Linden and Georgetown) started from the assumption that Guyana had the best bauxite in the world, and so, even with both hands tied behind one’s back and all sorts of distraction, lots and lots of money should be easily made. To the people in Linden, knowing how hard they worked and what little they had to make do with, it appeared that the central government of that day was somehow exploiting them. To the people in Georgetown, aware that Linden was once the dream community of Guyana, enjoying wages and salaries twice those of Georgetown, and of the large subsidies that had to be provided to the bauxite company, it appeared that the people in bauxite had to be doing everything wrong, and were just not caring. Strong feelings, based on questionable assumptions, have long been a feature of the bauxite sector.
The depth of acrimony and bitterness that was reached between groups with no difference in race and political persuasion is illustrated in an instance of obtaining vulcanizing materials for the long conveyors.
At that time, in the 1980s, the shelf life of the vulcanizing materials was just three weeks, so one ordered when it was needed. At that time of zero working capital, it was mostly when the conveyor belt was burst and the stripping system was sitting idle. Enough money would be scraped together. The materials would be flown in, but the Customs and other government agencies involved would put the company through all the hoops, dotting all the i’s and crossing all t’s, and the shelf life would be expired by the time the materials reached the conveyor!
The truth is that easy-money days for bauxite had ended by the 1960s, and already, at the time of nationalization in July ’71, it was a real challenge for our bauxite to pay its way in competition with other bauxites around the world and other materials, but no one wanted to come to terms with this new, challenging situation of natural disadvantage. A Billiton executive put it very eloquently, about 1989: “It is true that you have most amazingly pure bauxite, but you have to go to great depths to get it; the question is whether customers are able and willing to pay you the premium you need to make it worthwhile.”
The fact that Billiton did not pursue the acquisition of the bauxite resources is an indication of what they thought. This government has persevered in seeking better for bauxite and bauxite communities and, with a more reasonable understanding of our bauxite resources in competition with others, has been able to reach accord with OMAI, then with BOSAI, to invest in the Demerara River operations, and with RUSAL for the Berbice operations.
Yes, the number of direct employees is greatly reduced and, if there is need for it to be said again, the reduction started with the figure of 1,800 to 2,000, in 1983. And, should there be need to argue with Mr Ram that bauxite today is doing better than it ever did since nationalization?
There is reasonable concern that Mr Ram is setting up to lead Lindeners and many Guyanese down that road again, of us having the best bauxite in the world, and should, therefore, be making lots of money, regardless; somebody, therefore, is exploiting us! Let us not go down that road again.
In these modern times, natural resources remain important, but are much less than before, a guarantee of prosperity. The modern saying that ‘people are the most important resource’ is true, not in the sense that offerings are to be made to the people, but in the sense that if there is no prosperity, then look to the people. Natural resources these days should be thought of as providing opportunity for people to work, for people to show what they can do with their hands and heads, individually and working together in concert.
Transformation
Editor, the situation of Linden has been repeated many times, at many locations around the world. About ten years ago, there was a visit of a team of United Kingdom (UK) Parliamentarians, led by a Labour Member of Parliament. Labour was then in government. He was from what was, earlier, a coal town, a company town.
He acknowledged that by the time that Mrs Margaret Thatcher came along, the UK was no longer competitive in coal, with lots of losses and subsidies. He acknowledged that those coal operations had to be closed, but wished that it could have been done in a less “bloody” way.
He went on to further acknowledge that the town was now enjoying greater employment and prosperity, better than its best days as a coal town, but that one couldn’t easily grasp what the economy was now based on. There was no big, one thing, like coal before, but many little things.
Editor, this government understands that someone who still has a company town with its apparent order, deliberativeness and certainty as his point of reference, may well be filled with terror at the prospect of an open town having its last historical subsidy removed. Mr Ram and many other commentators would better serve the Linden community, and all of Guyana, by helping to soothe the anxiety of this necessary, but inevitably frightening, last step.
Yours faithfully,
Samuel AA Hinds
Prime Minister
