The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The principal behind a $700 million power plant proposal has described the project as “the most important investment ever made in the history of the Bahamas”.

Citing the thousands of full-time jobs, and potentially millions of dollars in private sector investment, that it would stimulate, Taylor Cheek, head of the Caribbean Power Partners consortium, said their proposal had the potential to reduce current consumer bills by 50-60 per cent.

Asserting that the group’s proposal “takes care of a lot of issues”, Mr Cheek said the plant’s planned 300 Mega Watt (MW) capacity would 100 per cent cover New Providence’s energy needs and go “way beyond” anything BEC was capable of.

Expressing doubt as to whether BEC “can handle” the extra demand Baha Mar’s $2.6 billion Cable Beach project will provide come late 2014, Mr Cheek said his group’s proposal offered 30 per cent fuel efficiency savings on power generation alone.

And, while acknowledging that the Government was struggling with the “flood” of power plant and renewable energy proposals covering its desk, Mr Cheek said that given the Bahamas’ energy woes it was “pretty critical” that it came to a decision on the way forward soon.

Caribbean Power Partners is effectively offering the Government, and New Providence energy consumers, a ‘one time, one-stop shop’ solution to the island’s exorbitant energy needs/costs - something that has had a crippling effect on many household and business budgets.

Like the rival project proposed by BISX-listed FOCOL Holdings, and its partners Emera (the majority owner of Grand Bahama Power Company) and Wartsila, the Caribbean Power Partners group is offering to construct the power plant under a build/own/operate arrangement.

It would then sign a Power Purchase Agreement (PPA) with BEC to sell the energy it produced to the state-owned provider, which would retain responsibility for transmission/distribution to end users.

In common with the FOCOL-led consortium, Caribbean Power Partners also has its plant construction and operations partners. The former is Fluor Corporation, the Texas-based Fortune 500 company, which will offer a ‘turnkey’ engineering, procurement, construction and management solution.

The group has also secured ProEnergy Services as the plant operator and maintenance provider. Both companies have committed to taking equity stakes in the project, something that will encourage the Government to believe they will retain a long-term - rather than overnight - presence in the Bahamas.

And, in an effort to further stand out from the competition, Caribbean Power Partners is also pledging that the project will be majority-owned by Bahamians.

Promising that Bahamians would own at least 51 per cent of the plant, Mr Cheek said this would initially be done via a private placement - possibly preference shares or bonds - targeting institutional investors, such as pension funds and insurance companies.

Given these institutions’ numerous beneficiaries, 60,000 Bahamians could effectively become owners/investors in the project. And ownership will ultimately be even more widely dispersed via an eventual initial public offering (IPO) involving retail investors.

Caribbean Power Partners is also offering to sell the plant to the Government/BEC for $1 at the end of the power purchase agreement, and promising to leave it in better operating condition than ‘day one’.

“We have the best technical solution,” Mr Cheek, who has built 8,000 MW worth of power projects worldwide, told Tribune Business. “Number two, I don’t know how anybody can have a better price than we do. I don’t see how.

“Number three, I’m willing to bet that we’re the only ones allowing majority Bahamian ownership. Not just management, but widespread ownership, not held in the hands of a couple of companies.

“And, last but perhaps most important, it’s the wherewithal of the team. You’d better make sure you’ve got the best and most experienced group you can get, and I don’t think anyone comes close to us.

“We are better all around, and that’s the most important thing there is - how much expertise does your group have?”

Caribbean Power Partners is proposing a multi-fuel plant that can use either propane, liquefied natural gas (LNG) or diesel as the generation fuel, depending on which is most economical at any given time.

The consortium is aiming to generate power much more cheaply, and efficiently, via reduced fuel and production costs, coupled with lower maintenance charges.

An economic impact assessment by Oxford Economics, which has conducted similar studies for Bahamian resort developers such as Baha Mar, projected that the project could boost this nation’s gross economic output by $10.1 billion over a 25-year period if it employed diesel fuel.

Over the same period, the reduction in energy costs would generate $2.7 billion in additional income within the Bahamian economy, and create between 1,700 to 6,200 full-time jobs annually.

But the Oxford Economics analysis suggested the economic impact for the Bahamas would be much greater if LNG was Caribbean Power Partners’ fuel of choice.

It forecast that the economy’s total gross output would increase by $15.4 billion over a 25-year period, with an extra $4.1 billion in income earned by Bahamian workers over that period.

And the analysis projected that between 2,500-3,100 full-time jobs would be created during the power plant’s construction, with a further 7,800-8,800 jobs generated every year over the plant’s 25-year life cycle.

Acknowledging that Caribbean Power Partners’ proposal did not represent the single largest dollar amount ever invested in the Bahamas, Mr Cheek said its economic impact - if approved - might still be the greatest.

“This is not the largest capital investment in the Bahamas, but if you look at jobs created and the economic impact, this is probably the most important investment ever made in the history of the Bahamas.

“Between having a lower capacity (base rate) charge, and lower heat rate and fuel costs, we’re looking at a 60 per cent reduction in the cost of electricity.”

The impact from an energy cost reduction will touch every corner of Bahamian society - ranging from the Government to the private sector, households to individuals.

Reduced energy bills will lower household and business costs. In the case of the former, it will free up disposable income and spending power, while for companies it may provide dollars for investment, expansion and job creation.

In a perfect example of ‘trickle down’ economics, lower costs should also boost household savings and reduce consumer prices, with the ripple effect resulting in increased consumption, profits and economic activity.

And, with hotels citing energy as their second greatest cost factor, reduced electricity bills should also improve the tourism industry’s international competitiveness and that of the wider Bahamian economy.

Mr Cheek agreed that the Government needed to put an appropriate legislative and regulatory framework for the Bahamian energy sector in place to facilitate Caribbean Power Partners’ project.

Suggesting that this could be done parallel to the Government selecting the energy projects it wanted to move forward with, he added: “Before the contract is signed and they let us go, the rules need to be put in place.

“From the time they say ‘Go’ it probably takes six months to even be able to start construction. We can bring the initial units online, generating power by six months into the cycle, but it’s almost two years to complete the [construction] cycle. We start backing into it, it will take a long time. Every day is critical to people’s savings.”

Mr Cheek warned that interest rates and construction costs were likely to rise. His consortium’s Oxford Economics study suggested that out of all Caribbean countries, only Jamaica had higher energy costs than the Bahamas.

Questioning whether BEC could handle the extra demand anticipated from Baha Mar, Mr Cheek told Tribune Business: “You have those big buildings on Cable Beach coming up out of the ground, and that’s going to be a big addition to BEC’s system that I don’t think it can really handle today.

“They’ve got units that are not as reliable as they should be, and cost a tremendous amount of money to maintain and burn fuel.”

Caribbean Power Partners is pegging the power plant construction costs at $375 million. It is proposing to construct its 300 MW plant on land close to BEC’s existing generation assets at Clifton Pier.

The balance of its investment consists of a $100 million LNG regasification and storage facility, complete with fuel berthing and distribution system, plus a $20 million propane and diesel fuel storage facility.

The consortium is also planning to invest $10 million in an environmental clean-up of the Clifton Bay area, especially BEC’s properties. It also wants to set up a College of the Bahamas (COB) endowment, which would “better prepare [Bahamians] to compete in a technological and rapidly growing global village”.

Finally, Caribbean Power Partners is also proposing to offer a $10 million subsidy to international and Bahamian-owned light manufacturers, creating incentives to revive the sector.

Backing the consortium’s financial wherewithal, Kenwood Kerr, chief executive of Providence Advisors, which is structuring its Bahamian ownership component, confirmed that it already had the necessary monies in place.

“They came with all their money,” he said. Mr Cheek added: “We have guarantees from US banks as a fallback position as we need it. It looks like we will be able to get a US Export-Import Bank guarantee.”

“Government has been supportive of it,” Mr Cheek said of the Christie administration’s response to the project. “They seem to like the ownership composition, and seem to really like the strength of the team

“They’re struggling with being flooded with all these proposals. These proposals are all different, and it’s a case of: ‘What do we do?’ How do we make this decision?

“This is something they’ve never done, and they’re having a lot thrown at them all at once, but it is something pretty critical to get on with. Every day you delay, you delay those jobs.

“We really believe from what we’re just seeing and hearing that they are getting much closer to making this decision. There’s too much at stake for everybody not to make a decision quickly, and they want to get it done. We’re still here, and plan on being here for the next 25-27 years.”