June 2, 2010

FEA in Danger of Insolvency: Reddy

Fiji’s Commerce Commission says the Fiji Electricity Authority (FEA) could become insolvent if tariff rates are not above the unit cost of generating electricity.

Announcing the realignment of electricity tariff rates yesterday, commission chairman Dr Mahendra Reddy said the position of FEA at this stage was quite a worrying factual reality.

“The implications from this scenario on Fiji at the micro and macro level are numerous as the consequences of such a scenario will be disastrous,” he said.

Reddy indicated that rising fuel costs and the increasing use of diesel generators to produce electricity will also severely impact Fiji’s foreign reserve position.

“Power shutdowns and rationing will affect the commercial and industrial sector and thus economic growth in Fiji,” he added.

Reddy said after receiving a submission by FEA to implement an average 8.82 cents per unit tariff increase, the commission proceeded to examine the submission on its own merit.

According to the commission’s analysis, Fiji’s electricity tariff rates are much lower than comparator economies such as American Samoa, Kiribati, Palau, PNG, Tuvalu, Tonga, New Zealand and Australia.

“The commission noted that the current tariff rates do not reflect the scarcity of the single most important input, water, that it utilised in electricity production,” he stated.

He also indicated that FEA’s effort to encourage conservation of electricity by users has not led to significant gains on electricity savings.

“The unproductive and luxury usage of electricity continues to take place in the domestic, commercial, institutions and church group and the street light user groups.”

Reddy said FEA’s heavy borrowings to build a new hydro dam and power plant at Nadarivatu in the interior of Viti Levu was taken into consideration.

The new tariff rate alignment will see high end domestic users paying 8.82 cents more while the commercial sector will have to pay between 2.2 cents to 11.8 cents more depending on their usage. 

Households that consume 130 kWh monthly will be paying 16.4 percent less.

The decision is phase one of the tariff alignment and the Commerce Commission has asked FEA to provide detailed information to undertake phase two of the alignment, expected to take place next year.

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