CUC deal delayed

The Cayman Islands Government has a new timeframe for completing its negotiations with Caribbean Utility Company for renewing its licence agreement.

Minister of Works Arden McLean said there has been some progress with the negotiations.

‘We think we can complete [the negotiations] by the 31st of August,’ he said. ‘We were hoping we could have completed them by the 31st of July.’

The current round of negotiations has been going on since November 2005. Earlier negotiations were abandoned after Hurricane Ivan for 14 months, a time period that saw a change in government.

Mr. McLean said in Finance Committee in late March that the government did not anticipate the negotiations would have taken so long. He put a three-month deadline on concluding negotiations at the time.

However the negotiations broke down in May. CUC President and CEO Richard Hew said at the time CUC had reached an impasse with the proposal it had submitted to the government’s negotiation team.

CUC representatives were then called into a meeting with Cabinet on 15 May to discuss a way forward.

The result of the meeting was an agreement for CUC to prepare a new proposal. Speaking about the matter in Legislative Assembly the next day, Leader of Government Business Kurt Tibbetts said CUC would have to rework ‘all that has been done this far’.

Mr. Tibbetts said he expected a resolution of the issue within 90 days.

During a Cabinet press briefing on 6 July, Mr. Tibbetts acknowledged CUC had submitted the new proposal.

Mr. McLean said Wednesday that he believes the new proposal is workable, although there are still some issues to be worked out.

‘They came back to us with a proposal, and there are still some minor details to work out,’ he said. ‘It’s just a couple of things we’re looking at.’

A main objective of the government in the negotiations is to secure a decrease in consumer’s electricity costs, which have risen sharply over the past two years because of the increased costs of oil. All of CUC’s electricity is produced by diesel or gasoline-powered generators. As allowed by its current licence agreement, CUC passes on to the consumer fuel costs over a specified threshold that is based on the cost of fuel when the agreement was signed in 1986.

CUC hasn’t permanently raised its base electricity rate since 2002. In 2003 it increased rates by three per cent in August, but rolled back the entire rate increase in November after the government of the day pressured it to do so.

Negotiations for its licence renewal started shortly after it rolled back the rate increase. The negotiations were only expected to take six weeks.

In July of 2004, a Heads of Agreement was reached between the government and CUC on a new licence agreement. However, before the formal agreement could be concluded, Hurricane Ivan hit Grand Cayman and CUC rethought its stance as a result of the damage and cost inflicted by Hurricane Ivan.

To help mitigate its Hurricane Ivan losses, CUC negotiated with government for a three-year, 4.7 per cent cost recovery surcharge that is expected to run through August of next year. As part of that pact, CUC agreed not to implement any further increases to its base rate for the duration of the cost recovery surcharge.

According to the terms of its current licence agreement, CUC would have been entitled to a 4.5 rate increase this August and a two per cent increase last year; however both increases were deferred because of the cost recovery surcharge agreement.

During the Budget Session in Legislative Assembly in May, Mr. Tibbetts suggested some ways CUC could bring electricity rates down.

He pointed out that CUC currently has to bear all the risk on certain uninsurable parts of its infrastructure. Mr. Tibbetts said that if government could help with some of those risks it could assist CUC in brining down electricity rates.

CUC’s licence runs through January 2011. It has an exclusive licence, but the previous government said it would not issue any more exclusive licences and this government stuck to that position.

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