Opinion
- Editorial
STCIC:
Ensuring local ownership of Mirant’s stake
Recent announcement by Mirant of its intention to
sell its 39 per cent stake in PowerGen presents
an opportunity for the involvement of local equity
participation in the T&T power generation sector
and, by extension, the energy sector. Mirant is
also selling its shares in power companies in Jamaica,
Bahamas, Curacao and the Philippines.
Mirant’s ownership interest
in the Caribbean includes:
80 per cent interest in Jamaica
Public Service Company Ltd
55 per cent interest in Grand Bahama
Power Company
39 per cent interest in PowerGen
25.5 per cent interest in Curacao
Utilities Company.
PowerGen was established on December
1994 as a joint venture company created out of the
partial divestment of T&TEC.
Mirant (then Southern Electric)
owns 39 per cent of PowerGen with BP owning ten
per cent and T&TEC retaining the majority 51
per cent.
In 2005, Mirant’s Caribbean
businesses contributed US$156 million in adjusted
EBITDA (Earnings before Interest, Tax, Depreciation
and Amortisation).
Over the last three years, Mirant
has experienced financial difficulties resulting
in its filing for bankruptcy in 2003.
In July 2003, Mirant and most of
its North American wholly-owned and non-wholly owned
affiliates filed voluntary petitions for relief
under Chapter 11 of the Bankruptcy Code. The company
incurred a net loss of US$3.1 billion during the
fiscal year 2003. In its 2005 annual report, Mirant
declared a net loss of US$ 1.3 billion.
In light of this situation, Mirant’s
plan to sell its assets in the Caribbean and the
Philippines is part of a wider strategy to enhance
shareholder value and to restructure the company.
Mirant expects the sales to close
by mid-2007. Mirant’s financial adviser for
the sale of its Caribbean assets will be JP Morgan.
The decision by Mirant to exit the
Caribbean has implications for T&T, Jamaica,
the Bahamas and Curacao.
In 2001, Mirant purchased an 80
per cent stake in the Jamaica Public Service (JPS)
Company which was then valued at US$201 million.
In April of this year the Jamaican Government announced
that it would sell its 20 per cent stake in the
Jamaica Public Service Company. Speculation in Jamaica
is that the sale of this 20 per cent would be made
through a public offering on the stock exchange.
The sale of Mirant’s 80 per
cent stake in JPS has been the source of rigorous
parliamentary debate in Jamaica. This is, however,
not the case in T&T where Parliament has been
recessed until mid-August. The Jamaican Government
has since announced that Mirant cannot sell its
shares without first consulting with it.
Here in T&T there has not been
any official statement from the Government.
Last week in a press release, the
Regulatory Industries Commission expressed its concern
over the proposed sale in the context of the fact
that PowerGen had planned a 208 MW expansion of
its generating capacity with Mirant expected to
invest US$39 million in the project. Given Mirant’s
proposed departure from T&T, the status of this
much needed expansion is unsure.
Whatever the outcome, it is clear
that T&T’s power generation capacity has
to be increased in the short term. Interestingly,
the proposed Alcoa smelter project will have its
own generating plant and will sell its excess capacity
into the T&T grid.
Globally demand for electricity
will increase by an average of 2.4 per cent a year
for the period 2006-2025. In T&T, however, the
demand scenario for the same period is much higher
than the global average. Demand for electricity
in T&T will increase by an average of 4.5 per
cent over the same period, due to our planned industrial
expansion. In light of this, increasing capacity
becomes a critical national issue.
Power generation is a relatively
low-risk investment and one that can bring attractive
returns. Its attractiveness as a low-risk investment
has its basis in long-term power purchase agreements.
The opportunity therefore presents itself to offer
Mirant’s 39 per cent to the local private
sector or to make an offering on the local stock
exchange.
Calls have been made for the Government
to reacquire the 49 per cent in PowerGen and have
PowerGen reincorporated into T&TEC.
Given the current state of T&TEC
with respect to its financial position and its plan
to focus on upgrading its distribution and transmission
infrastructure such a policy is questionable.
The unbundling of power generation
from transmission and distribution has long been
acknowledged as best practice as unbundling promotes
greater economic efficiency across all sectors by
making each individual entity its own profit centre.
In the last two years a number of
energy funds have been launched in T&T.
It remains a source of great concern
that although ours is an economy where 41 per cent
of GDP comes from energy there is only one oil company
listed on the local stock exchange.
The departure of Mirant from the
Caribbean presents an opportunity for a regional
private sector approach to the purchase of these
assets or for them to be offered on the stock exchanges
of the region.
There
has been talk for some time now of a submarine cable
to supply electricity from T&T to Grenada and
St Vincent. As part of a wider policy initiative,
Caricom should look at the regional power generation
sector with the view of encouraging regional private
sector participation and ownership in power generation
across the single market.
STCIC
is South Trinidad Chamber of Industry and Commerce.
Petroleumworld not necessarily share these views.
Editor's
Note: This commentary was published by The
Trinidad Guardian,
on
July 27th 2006 , Petroleumworld reprint this article
in the interest of our readers.
All
comments posted and published on Petroleumworld,
do not reflect either for or against the opinion
expressed in the comment as an endorsement of Petroleumworld.
All comments expressed are private comments and
do not necessary reflect the view of this website.
All comments are posted and published without liability
to Petroleumworld.
Petroleumworld encourages persons to reproduce,
reprint, or broadcast Petroleumworld Editorial articles
provided that any such reproduction identify the
original source, http://www.petroleumworld.com and
it is done within the fair use as provided for in
section 107 of the US Copyright Law
Internet web links to http://www.petroleumworld.com
are appreciated.
Petroleumworld
07 30 06
Copyright
© 2006 STCIC/The
Trinidad Guardian.
All rights reserved
