Monday, May 11, 2015

The electricity distribution companies’ dividend policy: Adding insult to injury!

Jordan’s electricity grid losses problem continued to deteriorate in 2014. In the grids of Jordan Electricity Company and Irbid Electricity Company, total grid losses in 2014 reached 1870 GWH, 14.22% of total power pumped into their grids. Grid losses monetary value in 2014 exceeded 224 million JDs, and reached 1.12 billion JDs between 2009 and 2014.  

Jordan’s energy crisis is deep and long lasting. NEPCO, the government owned company that transmits electrical power from the generation companies to the three grid distribution companies, has accumulated over 4 billion JDs in debt by end of 2014, roughly equal to its accumulated losses stemming from selling power below cost.

A big part of the problem is the issue of electricity grid losses. These are the difference between electricity pumped through the grids and electricity billed. The losses are a combination of “technical” losses that are related to the networks themselves and “non technical” losses that are basically theft of power through illegal connections.

In Amman and central Jordan, where Jordan Electrical Power Company (ASE symbol JOEP) operates, grid losses peaked in 2014 reaching 15%. In 2010, the losses rate was 12.9%. Losses in 2014 reached 1550 GWH up from 1124 GWH in 2010, a rise of 38%. The problem of grid losses was so bad in 2014 that the marginal losses in the grid stood at 43% of the marginal power in the grid: I.e. of every extra 10 KWH that the company distributed in its grid, over the level in 2013, 4.3 KWH were lost.

The grid losses problem in Irbid Electricity Company (ASE IREL), which distributes electrical power in the North of Jordan, also worsened in the past 5 years. The utility’s grid losses rate was 11.3% in 2014, up from 9.9% in 2010.  Losses in 2014 reached 319 GWH up from 217 GWH in 2010, a rise of 47%.

Spiraling grid losses are far from irreversible. Investments in network upgrades and technological solutions will reduce both technical losses and theft. Globally acceptable grid losses rates hover around 5%. Reducing Jordan’s grid losses by a third saves the economy more than 100 million JDs a year. 

With funds needed to upgrade networks and reduce grid losses, the dividend policy of the JOEP and IREL is both ill-advised and shameful. Both companies insist on distributing profits instead of investing in their infrastructure to reduce the grid losses problem. In the last three years, the two companies distributed dividends totaling 37 million JDs. Investing this money in upgrading their grids, would have contributed to reducing grid losses and enhancing profitability. It would have also remained as shareholders rights. Instead, JOEP actually borrowed from the legal reserves to pay all of 2013 dividends and some of 2014 dividends. In total JOEP borrowed 9 million JDs from its statuary reserves to pay dividends (i.e. it paid profits it did not actually generate that year). IREL too dipped into the legal reserves to partially pay for 2014 dividends!

1 comment:

Haitham Jafar said...

"instead of investing in their infrastructure to reduce the grid losses problem" <-- a sad summary of the situation??

Government should act its role in such case (take over) but that is an alternative which we know the outcome of! A control mechanism by the government is equally flawed option (in my book)