marshalls energy companydevpolicy.org/events/2016/pacific update/1 a soe reform...18-19 july 2016...
TRANSCRIPT
Pacific Update Conference
18-19 July 2016
Suva, Fiji
Marshalls Energy Company Recovery and Reform Efforts since 2008
Outline
1. the Company: overview of MEC
2. the Context: MEC situation before 2008
3. the Crisis: the 2008 energy crisis
4. the CRP: comprehensive recovery plan
5. the Challenges: met and unmet
6. the Course: actions to sustain progress
7. Conclusion2
1. Company: overview of MEC
Main Corporate Principle – Is to provide an
affordable and reliable energy services to
the People of the Marshall Island.
Company Motto: Efficiency Today
Profitability Tomorrow.
3
1. Company: overview of MEC
MEC was incorporated in 1985 under the
laws of the RMI. It is governed by a 7
member board of directors.
MEC Provides electricity (thru diesel power
generation as well as Solar) to the whole of
RMI.
MEC is in the Petroleum and Gas business 4
2. Context: MEC before 2008
Financial and operating conditions already
critical leading up to 2008
Generators in poor condition, major losses
and inefficiencies throughout system
Steady decline in assets, little reinvestment
$2.4m average losses FY2003-FY2007
5
2. Context: MEC before 2008
By 2007
– $18m total debt, much of it high interest
– $2m in annual debt servicing
– $5m in accounts receivable built up
– Fuel sales no longer providing cushion
Bottom line: MEC basically insolvent
And then came the crisis…6
3. Crisis: the 2008 energy crisis
Fuel prices increasing since 2004, spiked
2008
A tipping point for MEC; major operating
shortfall projected by end 2008
Austerity measures taken
Emergency support requests to Government
and development partners7
3. Crisis: the 2008 energy crisis
High fuel/food prices hit economy hard
Fiscal system already stressed, facing a
structural deficit
First State of Economic Emergency declared
8
3. Crisis: the 2008 energy crisis
3. Crisis: the 2008 energy crisis
Short, medium and long term measures to adjust and adapt
Target energy, food, fiscal security
National task force managed response measures
Social and economic impacts clear: by end 2008 CPI had jumped nearly 15% and 1,500 people (3% of pop) migrated to US
10
4. CRP: comprehensive recovery plan
Late 2009, New Board of Directors and
Management took over MEC – CRP was
implemented in 2010
Two Main Pillars of the CRP – 2 Cs (Cost
and Culture)
11
4. CRP: comprehensive recovery plan
Cost reduction measures were adopted:
I. Operational cost reduction
a. Increase fuel efficiency for the generators
II. Restructuring of long term debt
a. Bank of Guam - $9.5M (7% Interest 5 years to 1.5%
interest 30 years with ADB)
b. RUS debt service deferment – a 2 year deferment
12
5. Challenges: met and unmet
I. Operational Reform:
a. Refurbishment of Generators – Complete
II. Institutional Reform:
a. Implementation of New Procurement Policy
b. Implementation of New Employee Manual
c. Implementation of Board Governance Manual
13
5. Challenges: met and unmet
I. Rolling out of New Business Strategy:
a. Negotiate a new fuel supply agreement
b. High grading of all accounts for LPG sales
c. Convert fuel sales from a margin to volume business
d. Introduction of cash power meters
14
5. Challenges: met and unmet
Ongoing Challenges:
1. 30% System Loss
2. System Reliability
3. Fuel Terminal needs upgrade
15
6. Course: actions to sustain progress
Secure financing for the refurbishment of Fuel
Terminal
Finalizing TOR with ADB on formulation of Strategic
and Investment Plan for the next 10 years
Secure funding/financing for reduction of system
losses
16
17
$(600,736)
$(1,378,809)
$(3,209,725)
$(3,894,280)
$(2,895,538)$(2,943,881)
$(1,076,710)
$(1,660,957)
$(768,637)
$(451,994)
$2,197,693
$89,401
$1,193,902
$(5,000,000)
$(4,000,000)
$(3,000,000)
$(2,000,000)
$(1,000,000)
$-
$1,000,000
$2,000,000
$3,000,000
FY2003 FY2005 FY2007 FY2009 FY2011 FY2013 FY2015(Prelim)
Total Net Operating Income (Loss)
18
-3.3%
-7.8%
-19.8%
-21.9%
-14.0%
-15.9%
-5.4%
-10.3%
-3.2%-2.6%
10.4%
0.4%
5.5%
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
FY2003 FY2005 FY2007 FY2009 FY2011 FY2013 FY2015(Prelim)
Total Return on Assets
19
$2,934,062
$1,743,841
$1,953,031 $2,022,622
$963,722
$1,191,779
$655,968
$1,063,186
$1,468,986 $1,468,986
$-
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014FY2015(Prelim)
Debt Servicing Forecast
Balance due within one year (as of FY year-end)
Impact
of ADB loanImpact of
RUS
deferment
7. Conclusion
All in all, reforming an organization that has
been under the same management structure
since its formation was a monumental task.
The corporate culture in place that was the
bedrock for almost 4 decades was one of the
main reasons why reform was no easy task.
20
KOMMOOL TATA
21