Business

JPS defends late payment fee

Says more people paying on time, disconnections cut in half

BY STEVEN JACKSON Business reporter jacksons@jamaicaobserver.com

Wednesday, August 06, 2014    

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The Jamaica Public Service Company (JPS) is defending its imposition of a $250 late payment fee plus general consumption tax on electricity bills, saying that it's similar to a credit card late payment fee which largely goes unchallenged.

"I have worked in many places, and Jamaica was the only place I worked that didn't have a late fee and interest for late payment," argued JPS President and CEO Kelly Tomblin in a phone interview with the Jamaica Observer.

The late payment charge was implemented on August 1 last year at the same time that the power provider started offering a $250 discount to customers for payment prior to the due date on their bills.

The fee was approved by the Office of Utilities Regulation without much public protest and was greeted with silence from usually vocal civil society groups.

On Monday, Tomblin described the initiative as a success because on-time payment, she said, jumped from "27 to 44 per cent".

"People are paying on time and disconnections have [been] cut in half," she said. "It's a win all around."

The increased early payment "unfortunately" only relates to residential customers as commercial customers are exempt from this initiative, she said. Widening it to all categories of customers would require regulatory approval.

According to Tomblin, JPS wants to reduce its over US$21 million ($2.3 b) in annualised foreign exchange losses by enticing early customer payment and reducing its US dollar loan portfolio.

Early payment, Tomblin said, lessens the effect of currency depreciation on its customer bills.

"It means that a $5,000 bill keeps more of its value [when converted]," she said.

It's a mounting problem, as FX losses jumped by nearly two-thirds to US$7.4 million in the June 2014 quarter alone, compared with US$4.6 million a year earlier. Over 12 months ending December 2013, FX losses totalled US$21 million or 40 per cent higher year on year.

JPS uses US dollars as its functional reporting currency. It's based in part on reflecting movements in US-denominated oil prices sourced for power generation.

JPS made US$1.7 million in net profit for its June 2014 quarter from US$1.5 million a year earlier, financials indicate. It was mainly due to a one-off insurance payout from its faulty plant in Bogue, Montego Bay, Tomblin explained. Its gross profit remained flat at US$67 million, but finance costs climbed nearly one-third to US$18 million over the quarter due in part to FX losses.

Over its 2013 financial year, net finance costs at US$62 million increased by US$9 million or 17 per cent relative to 2012, primarily due to the 14 per cent depreciation of the Jamaican dollar during 2013. Securing increased local currency loans would actually reverse the FX losses during periods of currency depreciation.

"We may be able to get some JA dollar-denominated loans for replacement debt. A lot of our borrowing is coming to an end and we have to find probably US$30 million this year. Our goal would be to have a portion of that in JA dollars," she explained, without revealing an amount. "I wouldn't say we have a percentage. It depends on the cost."

JPS wanted to start the process of getting more JA dollar loans from last year but "had difficulty" based on meeting its then debt ratios. During 2013, JPS completed negotiations with its lenders to amend its debt to earning before interest, taxation, depreciation and amortisation (EBITDA) ratio from 3.0:1 to 3.5:1. It thereby allowed the company to operate with a greater margin for debt at similar levels of earning. The amendment allowed the company to become fully compliant with all its loan covenant obligations in December 2013 compared with non-compliance of US$171 million in 2012, stated JPS in its June second quarter financials.

JPS is owned by Japanese firm Marubeni Corporation, which has a 40 per cent stake; South-Korean Korea East-West Power, 40 per cent; Government of Jamaica at 19.9 per cent; and some 3,000 shareholders holding the remaining 0.1 per cent of the shares.

"Our lenders that give us the most favourable rates are not going to lend to us in JA dollars," said Tomblin. "When you think about the people we usually borrow from, including the large multi-nationals, they are not going to lend us in JA dollars. But... we can borrow to supplement our US loans with JA dollar loans."

Last year, JPS secured US$30 million in loans with an additional option of US$15 million from the International Finance Corporation (IFC), the lending arm of the World Bank, in furtherance of its capital needs and its push away from fuel oil.

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