Raphael John-Lall

Two lead­ing econ­o­mists are di­vid­ed on the elec­tric­i­ty rate hike rec­om­mend­ed by the Reg­u­lat­ed In­dus­tries Com­mis­sion.

Uni­ver­si­ty of the West In­dies (UWI) fi­nance lec­tur­er, Dr Vaalmik­ki Ar­joon, ar­gues the rise in util­i­ty bills such as elec­tric­i­ty and ad­di­tion­al tax­es like the prop­er­ty tax will add a bur­den not on­ly on busi­ness­es but the en­tire so­ci­ety.

But Dr Ronald Ramkissoon, who chairs the Fair Trad­ing Com­mis­sion said that it is not in­evitable that re­tail­ers and man­u­fac­tur­ers will in­crease their prices, if the Gov­ern­ment ac­cepts the rec­om­mend­ed in­creas­es.

In an in­ter­veiw with the Busi­ness Guardian, Ar­joon said the in­creas­es are not jus­ti­fied.

“The fact re­mains that prices are gen­er­al­ly still high – in the last five years, prices rose by ap­prox­i­mate­ly 15 per­cent with food prices in­creas­ing by a stag­ger­ing 31 per­cent. If and when these new elec­tric­i­ty rates are adopt­ed, we will find the in­fla­tion rate in­creas­ing yet again, as it com­pounds the cost of do­ing busi­ness which will be passed on­to the con­sumer. In­deed, hav­ing to pay high­er elec­tric­i­ty rates to­geth­er with forth­com­ing price in­creas­es al­so means that part of the added pur­chas­ing pow­er com­ing from the in­crease in the min­i­mum wage for those in the low­er in­come brack­et will be erod­ed.

This comes as cit­i­zens are be­ing faced with a slew of new tax­es and util­i­ty in­creas­es.

On Oc­to­ber 20, the Reg­u­lat­ed In­dus­tries Com­mis­sion (RIC) an­nounced an in­crease in its max­i­mum elec­tric­i­ty rates that T&T Elec­tric­i­ty Com­mis­sion (T&TEC) is al­lowed to charge cus­tomers for the pe­ri­od 2023-2024. The new rates are be­tween a 15 and 64 per cent in­crease for res­i­den­tial cus­tomers and be­tween ten and 126 per cent for com­mer­cial and in­dus­tri­al cus­tomers.

Speak­ing at a post Cab­i­net press con­fer­ence last week, Prime Min­is­ter Dr Kei­th Row­ley jus­ti­fied state agen­cies like T&TEC rais­ing their rates.

“The price of gas has gone up and is go­ing up, and if T&TEC is to keep pro­vid­ing us with a re­li­able ser­vice...we don’t want black­outs...All over this coun­try, peo­ple are be­ing pro­vid­ed with what I con­sid­er to be a good ser­vice from T&TEC, but the cir­cum­stances are that T&TEC is not able to pay for the gas that it is burn­ing. The Min­is­ter of Fi­nance pays it...but the abil­i­ty of the Min­is­ter of Fi­nance to pay it is al­so be­ing re­duced,” he said.

Dur­ing his bud­get pre­sen­ta­tion the Fi­nance Min­is­ter Colm im­bert ad­vised the pub­lic that prop­er­ty own­ers will be­gin to pay Prop­er­ty Tax in the 2024 fi­nan­cial year.

Ar­joon al­so spoke about the im­pact on busi­ness­es and the in­dus­tri­al sec­tor.

“Let’s con­sid­er man­u­fac­tur­ers op­er­at­ing 24/7 in the in­dus­tri­al sec­tor. Un­der the pro­posed new rates by the RIC, an en­er­gy-in­ten­sive D3 in­dus­tri­al man­u­fac­tur­er with four plants, col­lec­tive­ly con­sum­ing over 2 mil­lion kWh, will face a sub­stan­tial elec­tric­i­ty cost in­crease ex­ceed­ing $596,200. Sim­i­lar­ly, a D2 in­dus­tri­al man­u­fac­tur­er us­ing 1 mil­lion kWh will see a rise by over $208,000. Even a much small­er D2 in­dus­tri­al man­u­fac­tur­er con­sum­ing 57,000 kWh will ex­pe­ri­ence a bill in­crease of more than $18,200. These height­ened ex­pens­es will im­pose ad­di­tion­al fi­nan­cial bur­dens on man­u­fac­tur­ers.”

He said it is nat­ur­al that not on­ly man­u­fac­tur­ers, but all busi­ness­es will pass on this added cost to con­sumers in the form of high­er prices.

“This will com­pound the cost of liv­ing for all house­holds, as con­sumers will face these in­creased prices plus their own high­er res­i­den­tial elec­tric­i­ty charges. In the short term, in­fla­tion will wors­en. High­er elec­tric­i­ty costs will al­so put pres­sure on busi­ness prof­itabil­i­ty, com­pound­ing their fi­nan­cial stress from the pan­dem­ic. The ris­ing prices will en­cour­age more work­ers to clam­our for high­er wages – 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 and in­equal­i­ty lev­els. The forth­com­ing prop­er­ty tax will fur­ther com­pound these cost-of-liv­ing woes.”

Pay up now

Econ­o­mist Dr Ronald Ramkissoon told the Busi­ness Guardian that the Gov­ern­ment can no longer con­tin­ue to put off the in­evitable and cit­i­zens must be­gin pay­ing mar­ket prices for goods and ser­vices.

Ramkissoon urged the pol­i­cy mak­ers to take ac­tion be­fore it is too late.

“I don’t know if any time is the right time for do­ing the right thing. We ought to have been, long be­fore now, ac­cus­tomed to what are the true prices of ser­vices, util­i­ties, im­ports. The best way to live is in a sit­u­a­tion where you are pay­ing the true price of what this good or ser­vice is. If the pop­u­la­tion was pay­ing mar­ket prices be­fore, those things would not have been an is­sue now or if the sub­si­dies were not so large. We lived as if there would be no to­mor­row.”

He added that all sec­tors have ben­e­fit­ted from times when en­er­gy rev­enues were high and these sec­tors in­clude the busi­ness­peo­ple, the Gov­ern­ments and the pop­u­la­tion at large in the ar­eas of sub­sidised elec­tric­i­ty, wa­ter and oth­er goods and ser­vices.

Com­ment­ing on busi­ness lead­ers who have said that rais­ing uti­tl­i­ty rates will cause the prices of their goods and ser­vices to rise there­fore lead­ing to in­fla­tion, Ramkissoon said this is not nec­es­sar­liy in­evitable.

“It is not prac­ti­cal in a mar­ket econ­o­my that all busi­ness are go­ing to pass on all the in­creas­es. If they do, they will not be com­pet­i­tive in a mar­ket econ­o­my. Busi­ness­es are not all earn­ing the same prof­it, nei­ther do they have the same cost struc­ture. So in a com­pet­i­tive econ­o­my, the T&T Fair Trad­ing Com­mis­sion is look­ing at how prices are go­ing to be in­creased. In a mar­ket econ­o­my, some com­pa­nies may be forced, based on their prof­it mar­gin, to have a big­ger in­crease to cov­er the elec­tric­i­ty. Some will pass on 50 per­cent of the cost, oth­ers will pass on 25 per­cent of the cost and some will pass on no part of it and ab­sorb it. From a prac­ti­cal stand­point, com­pe­ti­tion in the var­i­ous mar­kets, they will be aware that they have to com­pete with the next busi­ness next door. The con­sumer can con­sid­er not to buy. Con­sumers must make smart choic­es.”

Fi­nal­ly, he said the Gov­ern­ment should start to re­move sub­si­dies but on a phased ba­sis.

“Sub­si­dies should be re­moved on a phased ba­sis. If you don’t take the pain in small dos­es to cor­rect a sit­u­a­tion, then the time will soon come where you will have to take dras­tic ac­tion.”

Eco­nom­ic re­struc­tur­ing need­ed

For­mer plan­ning min­is­ter un­der the Peo­ple’s Part­ner­ship Gov­ern­ment and a for­mer prin­ci­pal of the Uni­ver­si­ty of the West In­dies (UWI) Dr Bhoe Tewarie in an in­ter­view with the Busi­ness Guardian ex­plained how the coun­try has reached this stage.

“Gov­ern­ments over the course of the in­de­pen­dent his­to­ry of T&T have opt­ed for a de­mo­c­ra­t­ic so­cial­ist ap­proach to gov­er­nance and pol­i­cy in a sit­u­a­tion in which the en­tire coun­try was liv­ing on oil and en­er­gy rents pro­vid­ed by the multi­na­tion­als. This led to the sys­tem­at­ic growth of sub­si­dies and trans­fers over the years by a large and ever ex­pand­ing the State in terms of eco­nom­ic own­er­ship, in terms of a large pub­lic ser­vice bu­reau­cra­cy, in terms of make-work pro­grammes for pa­tron­age as well as un­em­ploy­ment re­lief, and a sig­nif­i­cant wel­fare ca­pac­i­ty by the state.”

He said cer­tain pub­lic ser­vices were heav­i­ly sub­sidised like ed­u­ca­tion and health­care from which evey­one ben­e­fit­ted. More­over, es­sen­tial goods such as wa­ter and elec­tric­i­ty, were al­so sub­sidised by the State and the ben­e­fi­cia­ries were the na­tion­al pop­u­la­tion at large in­clud­ing busi­ness­es and cor­po­rate cit­i­zens.

How­ev­er, Tewarie said that the coun­try has reached a point in its his­to­ry where it is no longer pos­si­ble for these subi­si­dies to con­tin­ue.

“The bunch­ing of the prob­lems now-- in­creased fu­el prices, a hike in elec­tric­i­ty rates, prop­er­ty tax­es, wages un­able to keep up with prices, cost of liv­ing and in­fla­tion, is be­cause the gov­ern­ment, and in­deed the coun­try, is seek­ing to solve one prob­lem at a time, when what we need is a com­pre­hen­sive struc­tur­al over­haul of econ­o­my and gov­er­nance arrange­ments.”

He ad­vis­es the Gov­ern­ment to re­struc­ture the econ­o­my and find more ways to earn mon­ey.

“The Gov­ern­ment needs to deal with re­struc­tur­ing of the econ­o­my to fo­cus on as much self suf­fi­cien­cy as pos­si­ble to save forex and to ex­port more non-en­er­gy goods and se­vices through ex­ist­ing and new busi­ness in­vest­ment to earn forex to make up for loss­es from en­er­gy. The Gov­ern­ment needs to free it­self from the bur­den of so many state en­ter­pris­es that are los­ing mon­ey and cost­ing the tax­pay­er who is pay­ing many times in tax­es, sub­si­dies and wasteage and cor­rup­tion.

“The Gov­ern­ment needs to ra­tio­nalise the pub­lic ser­vice, make the coun­try more com­pet­i­tive, se­cure in­vest­ments and grow the econ­o­my. And it needs to pur­sue en­er­gy gains and tran­si­tions at home and with Venezuela.”