Friday, March 09, 2012

Oil: an example of our inaction

ONE of the things, it seems, that governance is famous for in Jamaica, is doing nothing. We have heard the many expressions that we love to study everything, and seem to do nothing. Hence we have many reports from commissions of inquiry, and other committees, just sitting down and gathering dust. We also have a tendency to call for studies on things we have already studied. It would be interesting if an investigative reporter did a piece on all the commissions of inquiry we have had, and compared the recommendations against what has been implemented.

The success of anything I can think of, even academic studies, is to be found in the practical use, or put another way — the implementation. This is one reason why we have not been able to move forward as a country, as we are caught up in too much rhetoric and arguments as to why something can't happen. This is a characteristic of our bureaucracy, which does not encourage risk and reward, but rather encourages inaction for fear of the consequences.

This is also a characteristic of our business environment, where if someone fails in an attempt to start a business, he/she is faced with ridicule and punishment, rather than encouragement. Because of that consequence, persons will hold on unrealistically to a failing business, incurring debt and more inefficiency, rather than admit failure. And this ridicule is not only in our social arena, but also our legislation (like our bankruptcy laws), which does not encourage innovation and reinvention like in the US. So failure is not accepted as a route to success, and so many persons either do not take risks and innovate, or incur more losses than necessary in order to avoid failure.

One example of our inaction which as a result has cost us significantly, is our energy use, and more specifically oil. We have had an oil crisis since the 1970s, and have failed to do anything about it. More recently it has threatened, since the turn of the century, to destroy our economy, and is winning the battle.

I did a search on "oil" on my blog, and saw where articles I wrote about the threat of oil were as follows:

* July 2006 - "Oil: Jamaica's main external threat";

* Feb 2008 - "Oil: still Jamaica's main external threat";

* March 2008 - "Where will oil go?";

* August 2008 - "What price for oil?";

* June 2009 - "Jamaica's balance of payment challenge";

* March 2011 - "Oil and food price threats";

* March 2011 - "Energy again"; and

* July 2011 - "Jamaica's continuing energy crisis".

All these articles referred to the major threat oil prices pose to the Jamaican economy. Yet the amount of oil we consume today is the same as we did ten years ago, which is approximately 98 per cent of our energy needs. In fact, the last time that any significant effort was made to improve our energy efficiency was the establishment of Wigton Wind Farm in Manchester.

This is why I am 110 per cent behind the energy minister in his effort to reduce energy costs by 40 to 60 per cent, and to also bring competition to the distribution of energy. The only action that will cause sustainable reduction in energy costs is competition. No goodwill effort from any company, while still a monopoly, will help.

One of the things that we must do is create a vision of where we want to go, and so I was surprised at those who said that the minister's idea about reducing the energy cost to consumers by 40 to 60 per cent in four years is unrealistic. This is especially as I have seen this sort of reduction in my consumption since using solar equipment at home. I guess the DNA of some is just to oppose. My argument with the minister's proposition would be that four years is too long and that consumers can start seeing that sort of reduction in six months, not based on a hypothetical argument but on my own experience.

The other argument, which is really just another example of our inability to think long term and outside of the box, is that it is too expensive to install a renewable energy solution. So the result of that thinking is to continue paying the current cost. The fact that I am an accountant tells me that if you intend to use electricity for the rest of your life, then it makes sense to borrow the money and make the capital investment, which has a payback during your lifetime, and certainly within seven to eight years. Some people would prefer to go borrow money to buy an expensive car, which increases costs instead of reducing them.

It would even suit you to pay an amount of $10,000 per month forever, if it reduces your living cost by $12,000 per month, as you would really be saving $2,000 per month.

My own view is that it would be to the medium-term benefit of the government accounts and economy, if the government were to assist persons with establishing renewable energy solutions with the money from the GCT on electricity.

There are other solutions that can take effect in six months, with the proper will and implementation, that could significantly reduce our oil import bill, which would also assist in stimulating the economy. The irony of this is that it does not actually require any new funding to come into the economy. All it requires is a deliberate will to implement certain structures and discipline.

At 37 per cent of our import bill, oil certainly remains the most significant external threat to our economy, even more than when I wrote the first article in July 2006.

Will we still be discussing this issue in another six years? If we rally behind the initiatives of the minister and ensure that they are pushed through, we could see the long needed relief. If, however, we adopt the approach of someone who told me last year that I was wrong that oil prices were going back up, but would go back down under US$80 per barrel, then I may be able to resubmit this article for printing in six years' time.

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