PHILIPSBURG:--- Utility costs directly impact every household and business, making transparency and fair practices essential. A recent evaluation casts light on the way electricity tariffs are structured in Sint Maarten, specifically focusing on the fuel clause and the Turnover Tax (TOT) exemption for fuels used in electricity generation. This article dives into the report’s findings, highlighting the purpose and calculation of the fuel clause, the nuances of the TOT exemption, and the regulatory challenges standing in the way of a more efficient and accountable system.
The Fuel Clause for Electricity
What Is the Fuel Clause and Why Does It Matter?
The fuel clause is a variable component of electricity tariffs that adjusts monthly to account for changes in the cost of the fuels (Light Fuel Oil (LFO) and Heavy Fuel Oil (HFO)) used in electricity generation. Sint Maarten relies heavily on these fuels, making the fuel clause critical in covering the volatile costs of international fuel markets and their direct impact on energy production costs.
Without the fuel clause, Sint Maarten’s sole electricity provider, GEBE, could struggle to manage fluctuating global fuel prices. However, the implementation of this clause has left room for improvement in both transparency and calculation fairness.
How is the Fuel Clause Calculated?
Every month, GEBE calculates the fuel clause using fuel and electricity production data from the previous month (referred to as month N-1). This approach feeds into a formula that includes the costs of fuels, lubricants, and supplies used in electricity generation. The total costs are divided by the net electricity delivered to consumers in that same prior period.
For example, between March 2022 and December 2024, GEBE’s calculation of the fuel clause led to an overall surplus of USD 6.9 million, indicating that consumers paid more than the operational fuel costs required during this period. The report notes that a key reason for this surplus is the lack of a correction mechanism to address mismatches in cost recovery between one month and the next.
Another problematic detail in the formula is how electricity used to produce potable water (supplied to the water production company Seven Seas) is excluded from the divisor. This anomaly shifts water-related electricity costs onto general electricity consumers, violating the principle of cost causality.
The formula also applies to a fixed rate of 8.5% as Non-Revenue Electricity (NRE) to account for energy losses like transmission inefficiencies and theft. The report criticizes this static percentage, suggesting it should instead reflect actual monthly changes in distribution and operational efficiency.
Key Observations from the Report
- Consumers were charged at a higher rate for energy production than necessary, resulting in an annual surplus for the fuel clause, including:
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- $2.4 million in 2022 (March–December).
- $6.2 million in 2024.
- The methodology lacks oversight or a feedback mechanism to reconcile these surpluses with future tariffs, leaving GEBE as both the calculator and implementation authority.
Recommendations for Improvement
To address these issues, the report proposes revising the formula by:
- Introducing a correction mechanism to address monthly cost-revenue imbalances.
- Including electricity supplied to Seven Seas in the calculation to properly allocate water production costs.
- Dynamically calculating NRE each month based on actual operations, rather than relying on a fixed rate.
The Role of Turnover Tax (TOT) in Electricity Fuel Costs
TOT Exemption on Fuels
Fuels used for electricity generation in Sint Maarten are exempt from the 5% Turnover Tax (TOT), ensuring that this tax does not inflate the cost of energy production. While this policy avoids adding to tariff burdens, the lack of independent oversight in fuel pricing raises other issues.
Under the current pricing system, GEBE purchases fuels from SOL, a monopolistic distributor, at rates determined by an international benchmark known as the Caribbean Posted Price (CPP). The final cost includes a long list of add-ons, such as premiums, shipping, insurance, port fees, and marketing differentials. These components, while TOT-free, still result in higher costs for end-users.
Price Transparency Concerns
Although GEBE’s fuel procurement closely follows international market trends, administrative and transportation surcharges significantly inflate total costs. For instance, the average price difference per unit paid by GEBE compared to international benchmarks grew from $0.23 in 2022 to $0.26 in 2024 for LFO and showed similar increases for HFO.
One concerning factor is that these extra costs are not currently regulated, meaning that both GEBE and SOL operate without independent oversight protecting public interest and ensuring affordability.
Regulatory Recommendations
The report advises that the government step in to regulate LFO and HFO pricing under the Prijzenverordening (Price Ordinance). This would align regulation with what already exists for other fuels like gasoline and LPG. Further, assigning an independent oversight body—such as the Bureau Telecommunication and Post Sint Maarten (BTP SXM)—could introduce accountability and establish a clearer link between tariffs and actual costs.
Building Public Trust Through Reform
The findings in the report reveal systemic issues in calculating and regulating tariffs, from the fuel clause mechanism to the TOT-exempt fuel pricing. Reforming these processes is about more than cost control; it is about restoring trust in the energy sector, which is monopolistic by nature in Sint Maarten.
By implementing recommendations from the report, including:
- Transparent oversight of fuel pricing,
- Corrective mechanisms for surpluses and deficits in the fuel clause, and
- Dynamic adjustments based on real-time data,
the energy sector could take significant strides toward cost efficiency and equity. Public utilities work best when they are both sustainable and accountable. Now is an opportune moment for Sint Maarten to implement these reforms and foster confidence in its tariff-setting systems.
Energy costs often dominate household budgets and business expenses, making the insights from this report both timely and essential. A more transparent, regulated, and public-focused approach to tariff-setting can help secure a balanced and efficient energy future for Sint Maarten. By addressing these challenges head-on, policymakers can reduce utility costs, ensure fairness, and build stronger public trust in essential services.