Dr Vaalmikki Arjoon______use-new

UWI economist: Dr Vaalmikki Arjoon

AN ECONOMIST from the St Augustine campus of The University of the West Indies believes higher electricity prices can cause both local and foreign investors to relocate to other countries such as Suriname and Guyana.

Weighing in on the debate over electricity rates, Dr Vaalmikki Arjoon said these electricity price increases will yet again compound overall price increases locally for almost all commodities and services.

“So far, a myriad of factors has exacerbated prices including higher fuel prices and transport costs, increased prices from international suppliers, and concomitant higher taxes paid on these imports due to higher prices, Customs overtime, and inefficiencies especially at the Port of Port of Spain causing higher rent and demurrage charges for businesses, among a host of other obstacles in the business environment,” Arjoon detailed.

He said all these drive-up business costs which are then passed onto the consumer as higher prices, and higher electricity charges will also undoubtedly be passed on. “Some operations such as manufacturing activities may sometimes run 24/7. For instance, if a manufacturer operates several plants using a total of two million kWh and 10,000 kVA demand charge, their monthly electricity expense will increase by over $686,000, causing them to push up the prices of the commodities they produce. Consumers are therefore faced with these increased prices plus their own higher residential electricity charges, thereby compounding the cost of living for all households,” Arjoon explained.

In the short term, he indicated that inflation will increase, as higher electricity costs such as this will also lower some of their profitability, compounding their financial stress from the pandemic.

Moreover, Arjoon hinted that this increase could cause T&T to lose some investors, both local and foreign—with the deepening of the energy sector in Guyana and Suriname.

“Higher electricity prices locally together with the other problematic factors in doing business could encourage some businesses, especially those in the industrial sector to relocate to these countries, in the very likely event they lower their electricity prices,” he stressed.

Arjoon opined that the rising prices will also encourage more workers to clamour for higher wages, as over 220,000 employees in the registered labour force earn less than $6,000 per month and these higher electricity prices will lower their purchasing power further and contribute to exacerbated poverty levels.

Proper supply needed

As a result of these rate increases, he said it could suggest that the consumer is paying the price for the inefficiencies of T&TEC.

“Going forward, it is integral that T&TEC mitigate their inefficient practices and lower their cost structure, as this has exacerbated their operating costs and restricted their profitability for years, leaving the State with little choice but to spend hundreds of millions each year to subsidise them,” said Arjoon.

He added: “Lower costs could have meant reduced subsidies to be paid and less need for these higher rates. It also necessities that they are more reliable with their power supply to the country and avoid periodic cuts in their service which seems to be happening regularly in several parts of the country.”

Further, he said it was useful to compare T&T’s prices to other economies with a similar Gross Domestic Product (GDP) per capita to this country—Bulgaria’s, Uruguay’s and Chile’s prices per kWh are approximately US$0.13, US$0.17, and US$0.16—again, all substantially higher than the public pays.

However, Arjoon indicated that this country’s economy centres around natural gas and this forms the basis for electricity generation as 2021 data shows that some other natural gas-producing economies charge cheaper or almost equivalent residential prices to T&T, including Angola (US$0.02), Algeria (US$0.04), Argentina (US$0.05) and Oman (US$0.05) to name a few.

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