InnCogen decision returns to haunt us

Information in the public domain is that TTEC will shortly be approaching the Regulated Industries Commission requesting a grant of a rate increase for the electricity services it provides. This was an entirely predictable development. The Commission’s finances are in a deplorable state occasioned in large part by the set of circumstances that led ultimately to the establishment of the InnCogen power generation plant. Readers are reminded that the 225 mw capacity InnCogen plant came on stream at the start of October 1999, and that the Commission from that date was contractually committed to purchasing or paying for each day 195 mw of the plant’s output. An examination of the attached table, in particular column(6), showing excess purchases by TTEC over contracted quantities, demonstrates the very serious implications for TTEC’s finances inherent in the InnCogen decision.

Whereas TTEC for the first nine months of 1999 was purchasing daily excess electrical power ranging between four and 34 mega watts with the coming on stream of InnCogen those quantities rose precipitously to excess purchases each day ranging between 199 and 229 mega watts. This means that in a heartbeat so to speak, TTEC found itself having to purchase daily massive quantities of power that given the peak and average quantities-column (5)-then prevailing it had absolutely no hope of selling. The effect on the Commission’s finances was immediate and disastrous. Though it managed to return a favourable operating deficit $47m (see column 7) in 1999, and this because of the salutary effect of the relatively small excess power purchases made in the first nine months of the year, the full impact was felt in 2000 and subsequent years when TTEC recorded operating deficits amounting close to $400m.

The full extent of the deterioration in the state of the Commission’s finances that flowed from the InnCogen decision can be gleaned when comparisons are made between certain selected items taken from balance sheets and income statements as at December 1999 and September 2003. Monies owned to trade and sundry creditors, which at December 31, 1999 stood at $146 million, had by September 30, 2003 risen to $473 million. TTEC as at September 30, 2003 owed the VAT Authority $49 million, nearly double the $25 million VAT outstandings shown in its December 31, 1999 balance sheet. NGC is owed as at September 30, 2003 $522 million for natural gas purchases — $319 million more than the $203 million which was reported owing to NGC at December 31, 1999. This massive indebtedness to NGC has grown steadily over the years, not only because of credit purchases of natural gas that were never paid for, but because of interest being charged on outstanding obligations relating to natural gas purchases which interest charges for the period January to September 2003 amounted to $32 million.

Working capital deficit, that is the excess of current liabilities over current assets by September 30, 2003 stood at $600 million — the corresponding figure for December 31, 1999 was $197 million. This negative working capital the result of short term debt of $1.1 billion being more than twice the current assets of $505 million is stark proof of TTEC’s financial insolvency and its inability to discharge its short term obligations — that is to pay its trade and other creditors. The Commission’s capital base has over the years been steadily eroded by recurring annual operating deficits that have accumulated as at September 30, 2003 to $956 million. The corresponding accumulated deficit at December 31, 1999 was $565 million. The Commission, in order to discharge some of its ever expanding short-term or current liabilities and to provide the cash desperately needed to carry out its day-to-day operations has, with the help of a Government guarantee, borrowed $600 million on the long term capital market. The outstanding long term debt as at September 30, 2003 was $593 million. The fact is TTEC’s present financial situation could not be any worse. It is truly a great tragedy and all the more so because TTEC’s present predicament was entirely avoidable.

If in the middle and late nineties it was determined that TTEC needed additional power it could have used its tenders rules to identify a genuine power production company with which to negotiate a usage-based power purchase arrangement. In this way, it could have attempted to match the increments of power it would purchase to increases in its consumers’ demands for additional power. In addition, TTEC could have sought to exercise the option of purchasing small increments of additional power from its subsidiary company Powergen. Readers must recall that TTEC had then and still has now a take or pay power purchase agreement with Powergen of 819 mw.

Under this agreement, Powergen must maintain and have available at all times 919 mw that is an additional 100 mw of power over and above the contracted 819 mw. In addition, Powergen still has another 169 mw of uncommitted plant that could have been pressed into service incrementally through a negotiated contractual arrangement or even establish entirely new plants based on TTEC’s need for additional power. Instead, TTEC was pushed, prodded and coerced into the lumpy InnCogen investment arrangement where it had to purchase substantial quantities of electrical power that it could not sell and with the disastrous consequences as shown. Soon, we will all have to pay for the InnCogen decision. It has been said that the price of political corruption is high, well now we know exactly how high, and who ultimately pays.