The Government of Grenada, in close coordination with international consultants engaged under the World Bank-sponsored ECERA Project, conducted a comprehensive review of the electricity sector on the island.
The result of 2 years’ worth of consultations with leading figures in the industry is the new Electricity Supply Act of 2016. Focusing on Grenada’s potential for renewable energy and alternative energy generation, that Act brings much-needed liberalisation to the sector.
Among several other things, the Act mandates that all electricity network providers should contribute 5% of pre-tax profits to a social fund for the benefit of the Grenadian people. Grenlec is currently the sole network provider on the island. While Grenlec laments the contribution to this social fund — and is even seeking to sue the government over the constitutionality of this requirement — the fact remains that this is an ordinary exercise of the government’s regulatory powers.
The 2017 Amendment to the Act, which removed other categories of electricity providers (such as generating entities) from the 5% contribution, was made based on the recommendation of the expert consultants. They concluded that if all categories of electricity providers were to charge an additional 5% which will be passed through to the consumers, the net charge to the consumer would become unreasonably high, defeating one of the main goals of the act — lower electricity rates.
Moreover, Grenlec’s public statements do not account for the fact the entire 5% contribution is passed through directly to the consumer. Under the Act (and the Public Utilities Regulatory Commission Act) rate setting mechanism, all costs relating to activities outside the production of electricity such as the Social Fund, the Environmental Levy, the so-called ‘Grenlec Community Partnership Initiative (GCPI)’ are passed through to the consumer, just as Grenlec passes through any increases in fuel cost to the consumer as well. This rate setting mechanism guarantees Grenlec its profits as prescribed in the regulated environment.
Grenlec also neglects that the new act only puts into legislation what Grenlec is already required to do under its current contractual arrangement. The 1994 Share Purchase Agreement signed with the government requires Grenlec to contribute the same 5% of pre-tax profits to local charities but allows Grenlec to avoid the contribution if its board determines that a charitable contribution would have an adverse effect on the company. The new act will bring Grenlec’s profits into line with other regional utilities. Note Grenlec’s immediate cessation of contributing to the fund — a situation that was considered, even anticipated by the experts. The amendment will prevent the company from avoiding contribution to the social fund simply because its profits have not been as high as in years past.
Grenlec’s insinuation that the social fund will be mismanaged because it is no longer controlled by the company is similarly baseless. The government reiterates that the entire amount of Grenlec’s contribution is being passed through directly to and paid by the Grenadian people. This 5% contribution is mandated both by contract and now by legislation. So, while Grenlec may be collecting the money, it does not belong to the company and in no way does the company have rights over its management.
The committee set up under the new act will ensure the continuance of social projects provided for by the fund, regardless of Grenlec’s corporate decision-making process. Of course, as a corporate citizen, Grenlec remains free to continue its own community outreach as it sees fit.
The government strongly believes that the new arrangement provided for in the 2017 amendment is more beneficial to the country as a whole, as it ensures that various social projects will continue despite Grenlec’s lack of participation because of reduced profits.
The government continues to express a willingness to meet with Grenlec to discuss the new act and its operation. Alternatively, we look forward to defending the Act in court, as we believe that it is a small price to pay in the interest of protecting and serving the people of Grenada.
Office of the Prime Minister
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