Setting Priorities in the Electricity Sector

Jordan’s struggling electricity companies should be more concerned with upgrading their grids than dishing out juicy dividends.

By Jawad J. Abbassi

Jordan’s electricity grid losses problem continued to mount in 2014. In the grids of Jordan Electricity Company and Irbid Electricity Company, total losses in 2014 reached 1870 GWh, 14.22 percent of total power pumped into their grids. Grid losses in 2014 exceeded JD224 million, and reached JD1.12 billion between 2009 and 2014.

Jordan’s energy crisis has been decades in the making. NEPCO, the government owned company that transmits electrical power from the generation companies to the three grid distribution companies, has accumulated debts of over JD4 billion by the 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 at 15 percent. In 2010, the loss rate was 12.9 percent. Losses in 2014 reached 1550 GWh, up 38 percent from 1124 GWh in 2010.

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

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 percent. Reducing Jordan’s grid losses by a third saves the economy more than JD100 million 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.

Over the past three years, the two companies distributed dividends totaling JD37 million. 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 JD9 million from its statuary reserves to pay dividends (i.e. it paid profits it didn’t actually generate that year). IREL too dipped into the legal reserves to partially pay for 2014 dividends. Both companies need to get their priorities in order.