THE HAGUE–The financial position of St. Maarten’s electricity and water supply company NV GEBE is alarming: the company has been making a monthly loss of some NAf. 2 million and the reserves have dwindled considerably. GEBE’s income has been reduced by 22.3 per cent since Hurricane Irma.
The Netherlands General Audit Chamber painted a grim picture of GEBE’s finances in its report on St. Maarten’s recovery published on Thursday. The Committee for Financial Supervision CFT had already mentioned GEBE’s worrisome financial position, named one of the risk factors for St. Maarten’s national budget, but the General Audit Chamber went a step further and provided figures and background information.
The Dutch Audit Chamber, which has no jurisdiction on the autonomous country St. Maarten, investigated the manner in which the Dutch government’s sizable financial contribution is being spent, after receiving several complaints about the slow pace of St. Maarten’s recovery from the destruction caused by Hurricane Irma in September 2017.
The report was presented to the Dutch Parliament on Thursday. The main conclusion: the St. Maarten government’s lack of capacity and expertise are big contributing factors to the slow recovery.
GEBE managed to restore power to some parts of the island within 48 hours after the hurricane. Other areas remained without power for weeks, and some even for months. Many of GEBE’s water storage tanks were destroyed, as was the company’s headquarters. While GEBE did start the repair works to its facilities, it has insufficient financial means to complete these works.
“As a result, the electricity supply remains vulnerable,” stated the Audit Chamber, based on findings of the World Bank which manages the St. Maarten Trust Fund for which the Dutch government has reserved 470 million euros.
GEBE has indicated that 94 per cent of its high-voltage and 84 per cent of its low-voltage cables are already underground. The remaining cables can be damaged in a next hurricane. Eight of the 14 water storage tanks were severely damaged or destroyed by Hurricane Irma. Four new water tanks still need to be built to reach the desired water storage capacity of two to four days of the daily water consumption on the island.
The Audit Chamber repeated the findings of the World Bank that GEBE’s financial position is “alarming.” “Large hotels and resorts are not all operational and are not consuming any electricity and water.” GEBE’s revenues have decreased by 22.3 per cent since the hurricane. In 2018, the utilities company on a monthly basis spends 0.9 million euros, or NAf. 2 million, more than it receives.
The cash reserves, which GEBE usually keeps for mishaps and disasters, have dwindled considerably. And this already happened from before Hurricane Irma. In 2014, GEBE had a cash reserve of 30.2 million euros, or NAf. 67 million. In April 2018, only 10.8 million euros or NAf. 24 million was left.
Unpaid govt bills
GEBE had to make NAf. 10 million in concession payments in 2017 and 2018, while the St. Maarten government had GEBE pay NAf. 8 million in dividend in 2017. The government also owed GEBE 3.9 million euros, or NAf. 8.6 million, in payments arrears.
“The St. Maarten government, GEBE’s sole shareholder, has allowed itself to be paid millions in dividend by the utilities company, while the St. Maarten government doesn’t pay its own water and electricity bills, or pays them too late,” stated the Audit Chamber.
The St. Maarten government, the Dutch government and the World Bank have decided to allot 9.7 million euros to GEBE for the restoration and improvement of the electricity and water supply network. Of this amount, 2.6 million euros will be used to put the remaining electricity cables underground and 6.6 million euros will go towards the purchasing of new water storage tanks. These amounts include repair works that have been carried out thus far.
Within this agreement, 0.5 million euros have been reserved for technical assistance to revamp GEBE’s business plan to improve the company’s efficiency and capital position.
To safeguard transparency and proper use of the money, the World Bank has tied conditions to the spending of the money from the Trust Fund. GEBE is not allowed to have the trenching works for the underground cabling project carried out by its regular contractors without a public tender. The company may also not order the water storage tanks from the earlier supplier without a public tender.
The 9.7 million euros assigned to GEBE has not been used as yet, according to the Dutch Audit Chamber. Aside from the requirement of arranging public tenders, the World Bank has set additional conditions: the St. Maarten government has to pay its water and electricity bills on time and not allow the payment arrears to GEBE of 3.9 million euros to further increase.
The World Bank further wants the St. Maarten government to defer the dividend payment from GEBE in 2018 to the tune of 3.6 million euros, and that GEBE does not have to pay concession rights over 2017 and 2018 for an amount of 4.5 million euros.
“GEBE has to carry out risk analyses and give a picture of external financiers. Also, large hotels and resorts have to pay cost-covering tariffs instead of the special tariffs that were based on individual agreements,” stated the Audit Chamber in relation to the World Bank demands.
GEBE indicated to the Dutch Audit Chamber team that visited St. Maarten that it finds the cooperation with the World Bank difficult. The requirement to issue public tenders slows down the repair works, according to GEBE. In the company’s opinion, the project can be completed more quickly if it can work with the regular, trusted market parties.
“According to GEBE, the World Bank only wants to transfer the money if external financiers have shown interest in granting the company a loan. GEBE says the external financiers in their turn are waiting for the money from the Trust Fund to be transferred. The demands of the World Bank to work more efficiently are meeting resistance at GEBE.”
Addressing the future perspective, the Audit Chamber noted that GEBE wants to replace its diesel generators on the middle-long term. “The St. Maarten government is leading in making strategic future plans for energy policy, considering that the tariffs will directly affect St. Maarten’s residents.”
The Trust Fund Steering Group, in which the World Bank, the Netherlands and St. Maarten are represented, has discussed whether the exercise for GEBE to produce greener, sustainable energy can be financed through the Trust Fund. However, these talks did not result in a concrete proposal because the financing conditions have not been met and because it is not clear whether this concerns a recovery project.
The Dutch Audit Chamber concluded that GEBE’s financial problems started before Hurricane Irma. The company has not received money from the Trust Fund because it has not complied with the demands of the World Bank. As a result, GEBE’s repair works are at a standstill. GEBE needs more money in the long term, but it will first have to find potential external financiers.
Source: The Daily Herald https://www.thedailyherald.sx/islands/83672-audit-chamber-confirms-alarming-gebe-finances