On April 15, the Private Sector Organisation of Jamaica (PSOJ) called on the Government to act decisively and immediately to shield consumers and businesses from the impact of a looming energy crisis.

Noting that the world has been here before, it observed that disruptions in the Strait of Hormuz and related export restrictions have pushed oil prices to near US$100 per barrel, and the International Monetary Fund (IMF) has warned that the Middle East war could slow global growth to 3.1 per cent in 2026 and increase inflation.

Therefore, the key question is: How should Jamaica respond to the current price spike and the associated supply risks?

The first suggestion by the PSOJ is that the Government should publish a 2024-2050 Energy Policy (even as a draft) and launch inclusive public consultations immediately to give clear signals to investors and households. I strongly agree.

Before the election last year, consultation was promised by Minister of Energy Daryl Vaz to past PSOJ President Metry Seaga, who, in this case, was representing the wider private sector and civil society. Minister Vaz, as noted by minister of state in the Ministry of Industry, Investment and Commerce Delano Seiveright at yesterday’s Jamaica Chamber of Commerce (JCC) Business and Consumer Confidence Indices Release, has been busy on the phone every day to get electricity and other utilities restored to areas without since the passage of Hurricane Melissa last October.

Seiveright observed that Jamaica’s recovery performance compares favourably with that of Puerto Rico, which got hit by a Category 4 storm, and although part of the United States took 11 months to get back power.

Regardless, as the PSOJ notes, it is now critical that a new draft Energy Policy be released as the key part of a real consultative process over Jamaica’s energy future.

Last week, in a Jamaica Observer article entitled ‘The key to Jamaica’s growth agenda’, I outlined the critical issue of direct contracting and unsolicited bids compared with the normal tender process. The process adopted by the Government for renewal (or not) of the Jamaica Public Service (JPS) licence in July 2027 is of extreme importance to every Jamaican, and the clock is ticking.

The Government, rightly, in my view, lent US$150 million at 5.5 per cent to JPS (without subsidy, as it was in line with government borrowing costs) which was successful in financing the early restoration of electricity. It is difficult to understand the objections to this, particularly when JPS has apparently spent US$350 million (and counting) to restore electricity to Jamaica in a commendably quick time compared to other disasters of this nature, and the loan is almost certainly going to be soon refinanced by one of the multilaterals.

The reference to direct contracting is, therefore, a question of how this effort by JPS should be taken into account when looking at the renewal of the licence. My view is that a partnership approach needs to be adopted, and the conversation needs to shift from a zero-sum negotiation to a win-win.

What does a partnership approach really mean? The second recommendation by the PSOJ was to fast-track residential and commercial net-billing reforms through cutting red tape, reducing costs, raising net-billing thresholds, and mandating battery installation with new systems. These reforms are even more urgent than before, and if they had been in place would have helped reduce the numbers suffering without light.

JPS has had understandable concerns about dispatchable or baseload power and who pays for it. Nevertheless, there has to be a way, as Barbados has done, to properly encourage the use of renewables, such as solar water heaters, and net billing without impacting the viability of JPS. In addition, these same issues are relevant to resolving the delays in the 100 MW renewable bid, and need to be urgently applied as lessons to the current 200 MW request for proposals to accelerate renewable deployment.

We need to think creatively about the baseload issue, perhaps combining it with water resilience by looking at solutions such as pumped storage, (water pumped up a hill using sunlight effectively becomes a giant battery) as Jamaica needs to find a way to quickly become an “electric State” on the China model rather than continuing its reliance on fossil fuels, which it doesn’t have, rather than sunlight, of which we have an abundance.

As the PSOJ noted, this will require the Government to consult broadly on the new electricity licence to make this a key part of the economic transformation required to lower tariffs and attract investment. It has long been known that energy costs are one of the biggest barriers to growth after our long-standing macroeconomic instability (now fixed) and ridiculously high crime rate (now falling sharply). We, therefore, cannot let this reform moment pass.

The final suggestion of the PSOJ is to temporarily reduce or eliminate import duties on all electric vehicles (EV) for up to two years and partner with the private sector on a public education campaign to speed EV adoption. Over 50 per cent of the vehicles sold in China are now EVs and adoption for a small island like Jamaica would be even easier as the EV range issue has been pretty much fixed.

As the PSOJ suggested, a participatory approach to energy is required to achieve the goal of 50 per cent renewables by 2030 and lower electricity prices (an audacious goal would be to target the halving prices and then work backwards), with the overall objective of achieving energy security.

Allowing this moment to pass without action would be another missed national opportunity, of which Jamaica has had many, to transform our present challenges into a foundation for long-term growth.

Finally, tax policy will be a crucial element of any potential new problem-solving social partnership (as the PSOJ and JCC had worked on in 2003), and energy taxation is now its ground zero. We need to think about the use (and split) between the fixed dollar amount of the Special Consumption Tax (SCT) and the ad-valorem tax (a percentage of the import value of fuel) which amplifies price increases when global oil prices rise. Moreover, we should also look closely at The Bahamas, which, with the help of the Inter-American Development Bank (IDB), implemented an oil price hedge at the end of last year that successfully locked in a price of US$70.

More anon.

Keith Collister

Daryl Vaz (Photo: Joseph Wellington)