ECONOMIC vs. FINANCIAL VIABILTY

ECONOMIC vs. FINANCIAL VIABILTY – BASIL SPRINGER COLUMN TO APPEAR IN THE BARBADOS ADVOCATE’S BUSINESS MONDAY ON 25 FEBRUARY 2008

“If ye abide in me, and my words abide in you, ye shall ask what ye will, and it shall be done unto you” – John 15:7

Last week I was on the 10th floor of the Central Bank of Barbados looking down on the roof tops of Bridgetown. I was awaiting the start of a meeting, when I remarked to the other person in the room that I anxiously anticipated the day when those roof tops, basking in the glory of the free solar insolation, would be part of the Barbados electricity production system. As we looked out we could see several solar water heaters dotted on these roof tops as part of the widespread solar thermal system to meet the domestic, commercial and industrial needs of the occupants of the buildings. This was an extremely successful project which blossomed in an environment of Government incentives. Covering the tops of these roofs with photovoltaic modules would capture that much more of the incident solar energy, this time for the production of “solaricity” which would be fed into the national electricity grid.

At a recent seminar at UWI, I was reminded of an analysis done by the late Honourable Professor Oliver Headley to the effect that the solar energy collectively incident on each square metre of Barbados in a single day, if efficiently converted, was equivalent to the energy required to meet the Barbados electricity demand for an entire year. An opportunity waiting to happen!

My colleague quickly engaged me in dialogue and asked the question – but is it economically feasible? Assuming that this was a leading question, I immediately concurred and continued the dialogue. It gave me an opportunity to express regret that many investment assessments in the private sector are based on financial feasibility only and are rejected if not deemed financially viable. My contention is that each project should be assessed for economic feasibility as well and, if economically feasible, a partnership with the public sector, acting on behalf of the people of Barbados, should be sought so that the country may benefit from the successful implementation of a business opportunity. Each such successful business opportunity will contribute to economic growth.

Let us consider photovoltaic electricity production in Barbados to be fed into the national grid which is controlled by the Barbados Light & Power company. If the financial feasibility determined that the cost per kWh of the solaricity is higher than the fossil fuel source then to do business at the higher price will be a bad decision by the company since it will be detrimental to its shareholders.

If, however, the economic feasibility was viable and determined that the use of the free solar source of energy included the following macro-economic benefits: (1) job creation through the assembly of photovoltaic modules, (2) savings in foreign exchange because of a reduction of fossil fuel imports, (3) a desirable level of energy security, (4) an enhancement of the carbon credit economy, stimulated by the Kyoto protocol, which is an action linked with the reduction of the atmospheric concentration of Carbon Dioxide and (5) environmental cleanliness, then the company should seek a partnership with government and other private sector interests so that the country will benefit. If the country does well then we all do well.

In Barbados, there should be a clear delineation of the roles of the primary social partners in support of optimal advancement of the Social Compact and these, in my opinion, should be stated as: (1) the role of the private sector is to do business in an efficient and competitive manner towards the end of achieving sustainable profitability, employment and net foreign exchange gains; (2) the role of government is to provide regulatory and service functions towards a user friendly enabling environment; and (3) the role of the trade union is to induce employer/employee harmony in the interest of enhancing productivity for fair compensation.

In the case of solaricity production, the financial feasibility will be more and more attractive as the price of fossil fuel rises and the photovoltaic technology becomes more and more efficient. Even if the financial feasibility is deemed to be marginal, my view is that the economic feasibility will be viable and this will require government to play its role as a regulator and service provider in the interests of the consumers in Barbados. As a regulator Government must harmonise private sector and consumer interests with those of the BL&P Company and as a service provider Government must inject financial capital, the return on which would be the macro-economic benefits stated above. This economic feasibility must now be confirmed scientifically.

In the agricultural sector led by import substitution, exotic exports and backward linkages to agriculture from other sectors e.g. tourism, condiments and bio-diesel, similar arguments apply. This time the macro-economic benefits are (1) job creation through greater farmer activity, (2) savings in foreign exchange because of import displacement, (3) a desirable level of food security, (4) earnings of foreign exchange from exotic exports and condiments, (5) optimal use of land and water resources towards protection against soil erosion and of watersheds and (6) plant absorption of carbon.

Let us move ahead in partnership with a mutual confidence in each other and it shall be done unto you.

(Dr. Basil Springer GCM is Change-Engine Consultant, Caribbean Business
Enterprise Trust Inc. – www.cbetmodel.org)

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