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Saturday, 11 May 2013
Nation Burned while Government played the Fool
Topic: Strategic Planning

William Saunders, Energy Consultant, penned an article titled: More Lessons from the Past – Missed Energy Opportunities in Jamaica’s Sunday Gleaner, dated 21 April 2013.  In it, he outlined Jamaica’s failure to act upon initiates to diversify its energy mix and promote development of indigenous sources of energy: beginning in 1978, when Jamaica first formulated its energy plan.  He ends the article with the statement:

“Can you imagine where we would be today had a small fraction of these (available) funds been used to finance the hydro power development, waste-to-energy, as well as wind energy?  Furthermore, since the fuel they would have replaced is US $-denominated, loans for renewable energy projects are essentially devaluation risk free.”

The dollar devalued by an average annual rate of 212.6% from 1970-2005.  Devaluation in a globally competitive economy normally boosts exports and increase GDP growth, but not in Jamaica.  Dr. Michael Witter documented his assessment of Jamaica’s exchange rate policy from 1962 onward in an academic paper titled: “Exchange Rate Policy in Jamaica: A Critical Assessment”.  He concluded that devaluation had the effect of inflating the value of imports significantly over that of exports.    From 1990-2006, GDP grew 1.1% on average while energy use grew 2.5% per annum.  In 2006, the value of oil imports amounted to 87% of export earnings.

Zia Mian, a retired senior World Bank official and international energy consultant, states in an article entitled “Jamaica’s Energy Challenge – part III”, in the Sunday Gleaner dated 30 March 2008, that: “Jamaica’s economy is relatively energy intensive.  Per capita energy consumption is estimated at over 10 barrels of oil equivalent (boe)”.  Jamaica has one of the highest rates of energy consumption in Latin America and the Caribbean region.  This is mainly due to the heavy usage of the bauxite/alumina sector.  The oil consumption per sector from 2004-2011 is shown in table 1.  It should be noted that there was a marked decline in total oil consumption in 2009, more in 2010, and an increase in 2011: the exact pattern of the bauxite/alumina sector.

Table 1: Jamaica's Oil Consumption per Sector (‘000BBLS)

         
                 

SECTOR:

2004

2005

2006

2007

2008

2009

2010

2011

Transport

6,076

6,248

6,373

6,080

5,835

6,403

5,648

6,012

Electricity

6,226

6,555

6,390

6,654

6,275

6,662

6,578

6,529

Bauxite/Alumina

9,444

9,799

9,552

8,808

9,392

3,494

2,885

3,753

Shipping/Aviation

2,161

3,203

5,224

5,904

4,404

3,882

3,768

3,514

Other

1,629

1,521

1,625

1,281

1,212

1,157

1,139

1,195

TOTAL =

25,536

27,326

29,164

28,727

27,118

21,598

20,019

21,003

Source: Data derived from Ministry of Science, Technology, Energy and Mining

Carlton Davis, former Cabinet Secretary and chairman of the Jamaica Bauxite Institute, stated in an article entitled: “Energy Cost and our Economic Future – Future of Alumina Sector Hinges on Energy Cost”, in the Mona School of Business Nov/Dec 2011 issue, that:

 “Given the importance of the cost of energy in the production of alumina and the consensus that oil will be more expensive over the long-term than natural gas or coal it is incumbent that oil is replaced by one of these two fuels.  However, it is necessary for the industry to increase the efficiency of whatever fuel is used.  Given what is at stake the Government has a lead role in affecting this transformation.”

However, the volume of oil consumed by each sector is not commensurate with their actual energy cost.  In 2008, the transportation sector used 21.52% of oil by volume, but this represented 40% by cost, because it uses a more refined product which is more expensive.  The cost to import fuel into Jamaica between 2008 and 2011 is shown in table 2.  Fuel is by far the largest expenditure on imported goods.  With the exception of 2009 and 2010, the cost of importing fuels was greater than half of the returns from exports.

Table 2: Trade in Goods  & Services [J$’000]

     
         

Year:

2008

2009

2010

2011

Exports:

418,360,800

367,316,800

361,232,600

383,865,600

Goods

180,630,391

116,355,584

116,449,101

139,533,852

Services

237,730,409

250,961,216

244,783,499

244,331,748

 

 

     

Imports:

714,509,600

558,285,200

571,607,900

668,087,200

Fuels

226,802,098

124,996,495

147,081,190

209,816,388

Other Goods

361,461,471

161,141,521

174,444,804

312,036,055

Services

126,246,031

272,147,184

250,081,906

146,234,757

Source: Data derived from the Statistical Institute of Jamaica

Going forward, there are a number of promising signs in the electricity, bauxite/alumina, and transport sectors.  But, the shipping/aviation sector should not be overlooked.  Its consumption has risen through the years and prior to the global recession, which started in 2008, was almost on par with the transport sector by volume.  As the global economy recovers and Jamaica completes its logistical hub, in preparation for the widening of the Panama Canal, this sector could easily overtake the electricity sector in energy use.

The existence of relatively cheap oil imports as prevailed in the 1950s through to the OPEC action in 1973 factored in Jamaica’s economic growth.  But, the international oil market has changed.  Oil prices have hovered around US$100 per barrel since the end of the last decade and prices of US$150 – US$200 per barrel are projected on recovery from the global recession.  Table 2 shows that Jamaica has a serious trade deficit, and oil is a major contributor to this.  As in the case of the bauxite/alumina sector, the economy has become uncompetitive significantly due to the high cost of energy.  So, promising signs seen on the horizon need to produce tangible results.  Otherwise, foreign governments and merchants who have profited from trade with the nation shall stand at a distance to lament over its passing.


Posted by phcjam at 2:40 PM EDT
Updated: Wednesday, 29 May 2013 10:38 PM EDT

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