Hall bats for long-term utility development projects
BUSINESS leader Jeffrey Hall wants utility watchdog Office of Utilities Regulation (OUR) to engage in a rigorous discourse with utility operators on the path forward to attracting sustained, long-term capital — a move he says will not only get projects off the ground faster but will also bolster Jamaica’s ability to compete with rapidly expanding economies such as Panama.
“A central theme for all of the sectors is: ‘How do we attract long-term capital?’ That’s the question from my perspective as a consumer who is experiencing service issues, many of which have to do with capital.
“But I also ask it from the standpoint of a business person who uses telecoms service and, importantly, as someone looking forward at a world in which we will need a lot more than what we have now,” Hall said.
The financing of infrastructure development projects to minimise service issues across the energy, telecommunications and water sectors was a central part of the discussions during the OUR’s 10th Annual Director General’s Stakeholders’ Engagement on Tuesday, March 26 under the topic: ‘Regulating Utilities to Impact Productivity and Investment’.
In the energy sector, data from the OUR showed that in 2023 there were 136,552 recorded system outage events, marking a notable 26.8 per cent increase compared to 2022. Among these events, 4,326 were categorised as “planned outages” while the majority, totalling 132,226, were classified as forced outage events, causing unexpected interruptions in service to customers. The data show a significant rise of about 59.3 per cent in planned outages and 26.0 per cent in forced outages compared with 2022.
The topic of project financing was delved into further after Hall detailed the challenges with raising private capital for the construction of a US$77-million ($11.9-billion) water treatment plant in Content, St Catherine. The project is expected to be completed in two years and will provide NWC customers in Kingston and St Andrew, Portmore, and Spanish Town with an additional 15 million imperial gallons of water daily.
The contract for the project was signed in 2022 between National Water Commission (NWC) and Rio Cobre Water Limited.
“We expected to find local capital to fund the development of the water solution. We thought that that would be a relatively easy ask because we figured that locals would say, ‘Of course we are going to…The OUR is going to make sure that the rate at which the NWC can charge for water is going to be adequate to compensate us, and we know that our people can be very demanding for water if they are not getting it,’ “ Hall, who is CEO of the Pan Jamaica Group said.
“We found that the deal needed to attract global capital to happen, and global capital had very precise expectations. I think you will see it also repeated, to some extent, in telecoms and power,” he continued.
Hall is proposing that the OUR and utility operators huddle and develop a road map on how capital will be sourced across the sector over a 10- to 15-year period. The plan should also speak to the allowance for market returns on capital deployed.
“There is a temptation to put proposals on the table, and people say ‘That’s idealistics’, ‘It’s far-fetched’, ‘It’s too far in the future, why are we worried about that?’ And then on the other hand people will say, ‘It’s too incremental; it’s not gonna change anything or move the needle.’
“I’m not the expert but I do deploy capital, and I would say that we ought to hold OUR accountable to clarifying what the structure ought to look like with a 10-to-15-year window,” he said.
Hall wants utility operators to find more ways to introduce private capital into the sectors, a move that would put Jamaica on the path of the Government’s trajectory of reduced debt-to-GDP ratio.
“To attract private capital, we have to take a view on the cost of capital that’s realistic and we have to say it quickly. We have to take a view that if private capital can provide water at less than the current marginal cost, then we must say to the private players in connection with the NWC rapidly, ‘Get on with it!’”
As for the Rio Cobre project, Hall hailed this as a positive example of what is possible for the application of private enterprise within the water business. He recommended the exploration of other similar private projects rather than a wholesale privatization of the water sector.
“Rio Cobre has taken a long time. I think it will represent, when completed, a watershed moment because it will allow others to see that template and rinse and repeat and solve our problems. And again, except the cost of capital, ask yourself whether the tax policy is regressive and if it could be done more efficiently,” he said.