Electricity of Haiti (EDH): The Case of a Failed Finance and Budgeting Management

Electricity of Haiti: The Case of a Failed Finance and Budgeting Management

Leontes Dorzilme

Walden University

August 2014

According to World Bank report, only 25% of the Haitian general population has electricity supply in Haiti (World Bank, 2012). The case of the Electricity of Haiti, a public entity managed by the Ministry of Public Transport and Communication failed to meet its objective which is being “responsible for generation, transmission and sale of electricity in the country (MTPC, 2013). This company will serve as a case study to understand the importance of finance and budgeting in the public sector in Haiti. To understand the role of the Electricity of Haiti, we could refer here to Florida Power Light (FPL) which has the responsibility to produce, manage, distribute, sell, collect revenues, create capital investments, and generate profit in order to keep being efficient. If this operation seems to be a smooth process when thinking about it from the private perspective, in Haiti, the Electricity of Haiti has struggled to produce electricity, manage the network and infrastructures, distribute energy, collect revenues, and satisfy the needs of the customers. Manny factors may explain this struggle when we’ll analyze the ambiguity surrounding the nature and the structure of the organization. In addition we may consider the organizational culture from the social perception to better understand the deficit that is a result both of poor management and social issues linked to poverty and electricity fraud. Moreover, the electricity of Haiti is on life support with a huge subvention either from the government or the international funding in order to regenerate a too old and inefficient system that cannot stand anymore by itself, a system that should declare bankruptcy in any normal economic environment. Generally speaking, public managers consider the national budget as a framework for fiscal discipline and control, a tool to facilitate allocation of public resources towards the greatest strategic priorities; and a recipe to boost efficiency and effective use of resources by the public entities in implementing program that can satisfy the citizens’ needs (Mikesell, 2014). Based on the Electricity of Haiti case, it may be interesting to analyze if the use of the public funds in this sector has the effect of efficiency and effectiveness in terms of managing public funds. This paper is aimed at analyzing the case of Electricity of Haiti as a model of Public entity use of funds and resources to produce results either positive or negative.

Mission and Goals of the Organization

The Electricity of Haiti has been created by official act on August 9, 1971, following the decision in Haiti to nationalize the private company called "Company Lighting" that was managed at that time by the American firm Stone and Webster Corporation, report the website of Electricity of Haiti (edh.ht).  Based on the decree of August 20, 1989, the national company has the mission to produce, distribute, and sell the electric energy to the population throughout the national territory.  With the inauguration of the main Haitian central of Electricity in Peligre (central Part of Haiti) in 1971, it led a turning point in the history of the organization with a high level of electricity production for a far less population than today. The Cental of Peligre’s inauguration took place on July 22, 1971 and the national electric network knew a sustainable productivity rate. The EDH fell confident to manage the monopoly of electricity production, distribution, and commercialization in Haiti. The Electricity of Haiti, at that time, counted about 2,300 employees. Four workers unions were created totaling 864 workers after the departure of the dictator Jean Claude Duvalier in 1986, including 763 men and 101 women.

The governmental department supervising the activity of the Electricity of Haiti is the Ministry of Public Transport and Communication (TPTC) which describe the mission of the company as being responsible for generation, transmission and sale of electricity in Haiti (mtptc.ht). On its website, the organization states that it has the industrial vocation to produce electricity through various thermal and hydro power plants and ensure the distribution of the energy through its national network to reach public places and private homes. It has also the mission to meet its business mission by selling the energy that it produces. Beside its mission, the Electricity of Haiti, from what is written on its website; carry the objective to be a national company of electric energy. It envision to provides customer satisfaction through services requested by the population such as meters installation, electric transformers, private line building, private and public distribution of energy, take care of customers’ connections, rapid recovery of damaged lines of energy. It also promises a quality customer service while working to expand its network all around the country.

According to Bryson (2011), the mission statement is a powerful tool of the organization because it is a declaration of the organizational goal and purpose.  The mission statement of the Electricity of Haiti has become mere words since 1896 with the obvious decline in providing energy to the country. The distribution of the electricity in the Haitian Capital has dropped from 24 hours before 1986 to 15 to 18 hours in 1990 to 1994, then to 7 to 13 hours of energy from 2007 to 2013.  Actually the public demonstrations in Cayes (Southside of Haiti) to condemn the poor level of service provide by the Electricity of Haiti has been the main headline during the entire week. It has been the same in two other main regions of the country (Artibonite and Nippes). The population has blocked roads, obstructing public and private vehicles traffic in order to claim better distribution of electric energy in the aforementioned region. In sum, the strategic planning of the organization has failed to be aligned with its objectives, and the results are so poor that the organization is relying on governmental financial support to meet a very low level of energy production. Another surprising aspect added to the protestors’ public demonstration is the request to oversee the contract existing between the Haitian Government and the private company Haitian Tractor producing the energy to sell to the Haitian government that is responsible to take care of the distribution and the commercialization by reselling it to the population. After several months with no electricity, the population of the Southside of the country not only is claiming the right to have electricity, but also wants to develop a more responsible local leadership in energy production and management. They offer to be part of a new contract with the government so that the electric energy may be produced by local investors and distributed to the population 24 hours a day and seven days a week. The failure for the electricity of Haiti to produce the electric energy is now at the center of a new debate on the need to privatize the company.

To face the multifaceted problem of the Electricity of Haiti, the Ministry of Public Transport and Communication (TPTC) had published a plan covering from 2007 to 2017 and was offering a wide range of measures to reinstate the normal production, distribution and commercialization of the electric energy in Haiti. The document recognized that the energy sector faced a crisis characterized by many factors including: the burden to import the petroleum and fuel used to produce the energy, the very low revenue per capita, the slow development of the industrial sector (only 19% of total energy consumption) compared to the high level of energy consumption in residential sector (65% of consumption), the lack of alternative sources of energy causing deforestation etc….

Why Not Privatize?

The debate on either the Electricity of Haiti should be privatized or no is back in the news. In order to reverse the administrative and commercial failure, it was decided that the government will buy, as part of the government purchase (Mikesell, 2014), the energy produced by three private companies created specifically to sell the energy to the public sector. The government purchase in this context may be understood as agreement between private entities to product government services under contract (Mikesell, 2014, p. 40). Unfortunately, even though the energy produced should be simply commercialized by the Electricity of Haiti, the organization is still on deficit and the government is providing the substantial annual grant of 200 million USD to support the EDH deficit while the company collects only 50 million USD.

(Table of produced electricity, revenue, expenses and deficit for EDH by the Ministry of Finance)

               Statistics from the  département of commercialisation  EDH de 1998-1999 to 2002-2003

Loss and comparison with other countries (%)

Source: IEA, World Energy Outlook 2002, Chapter 13 - Energy and Poverty. (from energy Plan 2007-2017)

The fraudulent connections stay the main cause of the deficit that the Electricity of Haiti has not found a way to manage until now. The majority of the population connects directly to the poles constituting the network for electricity transportation instead of having a meter. This situation has also caused many big damages to the system causing the company to spend millions in repair or in installing new transformers and replacing destroyed lines. The World Bank has also noted that there is a new campaign in Haiti aiming at explaining to the population that “the electricity is sold, not given”. In fact there is a culture within the population that the electricity is produced by the government. Therefore the common culture and mentality wants what is produced by the government should be free. In addition, the mentality of the former armed regimen of the Jean Claude Duvalier where in each block a chief of “macoute”  (Voluntary of the National Security) used to have free connection and to collect money from any other people living in the block by distributing the electric energy on personal fixed rate has become a problem since then. After the departure of Jean Claude Duvalier many of the block chief Macoute (VSN) have been replaced by anyone in the population who felt the courage and the audacity to become the auto declared seller of the electricity for own purposes because that money never go to the company. Generally speaking, the auto declared chief of the electricity in the block connect for the amount of 5 to 10 US dollars per  month about 25 to 50 people in his block (they are mostly male). The fraudulent connections have caused a deficit of $ 18 million each month, says the head of EDH production. In fact the company produces 97 megawatts of electricity when demand is around 200 megawatts. Only 19 of the 32 circuits of the metropolitan area are fed because of rationing due mainly to scarcity of fuel. In addition, the newspaper Le Matin (2013, has report that the national electric company needs 12 million a month to buy privately generated energy.

 The new director of the Electricity of Haiti, Jean Enol Monrose, has recently announced the use of prepaid meters to reduce the heavy financial losses due to the refusal of some customers to pay their bills. But also to facilitate people who think they may be charged too much if legally connected to the Electricity lines. This new strategy will be also supported by a new campaign to offer prepaid meters to the illegally connected (Radio Metropole, 2013). It is also important to note here that many of the illegally connected are people who have the legal line but seek to lessen their electric bill. Therefore, they also have illegal connection for heavy electric equipments and use the legal line for light equipments. The model of the prepaid meter will be replicating the actual method of phone payment which is very successful until now and free of fraud.  

The privatization is on its way despite many left sided organizations have voiced against it. In the 80s, the main productive industries were created by the government such as the Electricity of Haiti, the National cement company, the national Telecommunication system. For now, only the Electricity of Haiti is not fully privatized because of its strategic role in the national defense, said previous governments. The mix system implying three private companies in the production of the energy sold to the public company to be administered constitutes a new trend and may encourage the full privatization of the electric sector. But, the left sided political groups continue to criticize the overly capitalized Republic. According to Le Matin (2013), in August 2007, the Coalition of Organizations fighting against the privatization of public enterprises had sent a letter to the Parliament qualifying as evil any initiative to privatize the Electricity of Haiti. To them it is immoral and part of the capitalism plan to control everything. However, the media has several times reminded to the opinion that the other privatized companies such as the old public phone company and the old public cement company seem to become profitable as the government kept 1/3 or more of the shares. In sum, the main problem is a wide segment of the population is having fraudulent connection and pays nothing for the electricity. These people know that once it is privatized, it will be a better control. In addition, the private sector has found not appealing to them the wounded failure that we call Electricity of Haiti.

Capital Investments and International Funding

In its report on the actual electricity level of production and distribution in Haiti, the World Bank confirmed that only 25% of the population in Haiti is provided with electricity (World Bank, 2012). Same as International Monetary Fund and Inter American Bank of International Development, the World Bank worked on a project with local partners and the government to improve the Haitian population’s access to electric energy and strengthen the national provider two years after the earthquake. However, it has been noted that many challenges stand across the path of the financial organizations. Let us analyze some of the factors.

Since 2006, the World Bank has financed the project called Project Reducing Losses Electrical Sector (PREPSEL) to initiate a better production and management of the electric network in Haiti. The main goal of the project should be to strengthen the energy sector by limiting the loss created by the fraudulent connections. Even though energy is part of the five “E" stated in the government strategic plan to get the country out of the poverty and the bottom line, (focus on Environment, Employment, Education and the Rule of law), the PREPSEL wanted to implement better business management by generating more return on investment by developing a new model of capital investment in a specific geographic area. A new Business Management System (BMS) has taken place in 2011 using a customer-centric approach.

With this program, the use of technology of Information and Communication (TCI) is also playing a key role to facilitate communication among customers and the company and also among employees through internet in order to improve the service to the customers. This strategy was aimed at reducing long lines at the EDH registers at the end of the month.  This project was the start point of what a modern customer service should be when we compare it to the high quality and fast pace services available online on FPL website. As a result of the new system installed by the World Bank, the Electricity of Haiti has now the opportunity to produce regular monthly invoices contrary to the previous system generating them every three months. But, the organization needs also to implement its organizational learning and development system by installing a computer learning system. This may also help employees to learn better customer service techniques to stop treating customers like negligible entities and to know how to deal with the stakeholders as integral part of the organizational strategic planning and success (Bryson, 2011).

This capital investments, as part of the managerial strategic decision making, (Chung, 1993) should add real values to the organization or create a competitive advantage. Alessandri (2002) stated that capital investments decision are classified among the most difficult and critical decision making for management. Funds and other resources are needed for the success of capital investments and may impact the organization both in short term and long range because of the market evaluation and reaction to the quality of the firm’s capital investments and the opportunity that may be generated in long range.

The PRESELL projected to reduce losses and to generate revenues in the energy sector by using reengineering process of the Sales Department. But, no clear results in that area. And finally, the project was aimed at designing a new commercial customer oriented approach. That means, the whole capital investments process, as indicated by the Electricity of Haiti, should allow the improvement of the quality of service and increase revenue ED'H by strengthening a better execution, control, and monitoring (edh.com). Unfortunately people are complaining about the maters that are not read right, the bills are too high. Many say they feel like the company is punishing them for being legal, because they are likely charged higher to compensate for the illegal connections that are beyond control by the company. Indeed, World Bank (2012) pointed out the need for the field workers to undergo continuing education because the field works are time consuming.

 Analyzing this investment, its main advantage will be to solve the energy shortage in the commercial areas of the Haitian capital. However, if the blocks announced in the project seem to be reasonable Rue de la Réunion, Pacot, Martin Luther King, Bois Verna), the downtown central part (Grand-rue) should not be excluded from the project. This major investment based on capital investments analysis should rather be a focus on the principal commercial area. A new thermal electric should be installed with the purpose of providing electric energy 24-7 to the customers with the purpose of evaluating the real saving for the businesses that are running on generator and gas. In addition, that could help to reduce the environmental pollution in the metropolitan area, and will also allow the electricity of Haiti to create a regular pool of meter reading techniques, customer service around the clock, specialized network management experiment, and also a start point to expand the project in other business and residential areas.

Maintenance, Legal Framework, and International Funding

This project objective was to rehabilitate the principal hydroelectric energy generator in Peligre that was built in 1971. The IDB (Interamerican Development Bank) signed a funding agreement to provide equipment for a period of twenty five (25) years. By mid 2009, a notice was published on the launch of this project. The Research Project was conducted and being finalized with the agreement for a total budget of 40 million USD. Since then, there is no news about the future of the project and the results obtained from the first phase. In addition in 2013, about 4 years later, the Haiti Reconstruction Fund planned a project for USD 21 million starting October 2013. The total amount for the project was $ 44 million in total, including many other financing sources. The project aimed at bringing fresh money totaling USD $3 million for institutional modernization of the energy sector and the development of clean energy (with the Ministry of Economy and Finance and the Office of the Prime Minister). Additionally, USD $ 2 million should be invested in providing technical cooperation in support of the Haitian Government for the development of a sustainable energy matrix using renewable energy sources in regions and deep rural areas. IDB was also a partner in this project. Indeed, on 13 September 2013, the Committee directing the project approved $ 16 million for the work of rehabilitating the Peligre system. The project promoted the institutional transformation and modernization of the energy sector in Haiti in the perspective to meet the needs of the population in Haiti. They should support the government support which is covering the deficit of the Electricity of Haiti. In the same vein, the amount USD 15 million non- repayable resources should support the reform by allowing to the Haitian Parliament to vote and update laws capable to serve as deterrent tool to fight fraudulent connections. The electricity theft should be legally considered and integrate in the Haitian laws to discourage this illegal practice. The inexistence of laws in Haiti to act against the electricity fraud has been a serious matter in fighting the fraudulent connections.

Internal Factors Affecting Strategic Planning

The capital investment PREPSEL is a test of the project and should be expand based on success. But, the goals to contribute to the continuous and sustainable improvement of consumer service and to strengthening its operational and financial performance have not become a reality.  The 20 million funding from the World Bank (edh.2014), same as many other experiences with International Monetary Fund and the Inter American Bank of International Development have brought very little or no results because of lack of management skills, capital investment appropriate analysis, and inconsiderate approach of the stakeholders’ role in the organizational management. To sustain the aforementioned analysis, the recent public demonstration in Cayes (Southside of Haiti) where the private investors are asking to be part of the funding and the management process of the organization justify the need to revise the close archaic organizational structure led by a board of 8 members: the General Director, the Deputy General Director, the Administrative Director, the Finance Director, the planning Director, the  Commercial Director, the Production Director, the Network Director, and the Director of Regions Lines. In fact, based on the mission of each of these directions within an organization, they all have failed to provide the efficient input necessary for the efficiency of the organization. The planning director should be the one to articulate a well craft plan in conjunction with the other departments to create effectiveness and efficiency.

(EDH Organizational Structure posted on edh.ht)

This three levels linear organizational structure with very little interaction between the components of the management has proved to be inefficient. However, the fact that the General Director is designated directly by The President same as all General Directors in the public sector make this institution a much politicized one. In the same vein, based on number of years working for the company and the political relations in the government, the General Director may not be the most powerful individual or may not be able to undertake the needed reform to save the organization. The obstacles are both internal and external. The toxic work environment is resistant to change and claim the old way to do things.  Instead of a quick and efficient service as suggested by the World Bank, the relationship with a highly paced individual inside the company may be the avenue to obtain a new meter. For example my request is still pending after three years while another individual may have obtained a meter in three days.

Conclusion

The finance and budgeting crisis at the electricity of Haiti needs a drastic intervention to revamp the organization. The process of the privatization launched by the Government Laurent Lamothe who claim that test will be done in Southeast and Northwest regions in order to evaluate if better results can be reached from the privatization is a political way to face the resistance to privatization and change. Financial measures must be adopted for the Electricity of Haiti to get on tracks same as in the 70s. However, the problem is so serious that the first question that is coming to mind is: Where to start. The problem is mainly a planning issue before being a budget problem. Even with the regular substantial grant of the government, the organization has not been able to create sustainable revenue to support its expenses. By constantly running on deficit, management is sending a signal of fatigue and routinely not trying to revise the organizational structure, requiring the accountability of everyone for decisions that have been made, teaching the public servant and customer services skills to the employees (Cooper, 2012), succeed a pilot project that can be serve as model to be replicated, implying the stakeholders more in the future of the organization, plan a strategy to integrate the fraudulent connection to the normal list of customers, activate the process in the Parliament to vote new laws to fight fraudulent concoctions; all may be part of the planning that will succeed overtime. If not, the bankruptcy has been consumed even though not declared. It is time to privatize.

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