The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

An initial public offering (IPO) of shares in the Bahamas Electricity Corporation’s (BEC) generation business will occur “within 36 months” of its part-privatisation, Tribune Business can disclose.

The Government’s plan to offer an as-yet unknown equity stake to Bahamian institutional and retail investors by 2017 is just one of the details contained in the tender documents for BEC’s restructuring, which have been obtained by this newspaper.

The document, which bidders had to pay $25,000 to obtain, also discloses that:

• The former BEC generation business (JVCo), which will be part-owned by both the Government and winning bidder via a joint venture, must complete all “environmental remediation” efforts by 2015, beginning with the Clifton Pier Power Plant.

• The Government will not transfer any land to BEC’s former transmission and distribution business (NewCo).

This entity, which the Government will continue to own 100 per cent, and hand to a private utility to operate under a management agreement, will have to lease any land it needs from the Government.

• BEC’s net loss for the year ended September 30, 2012, was confirmed at $22.558 million, more than eight times’ the previous year’s loss of just $2.683 million.

• BEC’s accounts payables, which totalled a massive $136.288 million at end-September 2012, consisted largely of sums owed to fuel suppliers and unpaid Stamp Tax/Customs duties owed to the Treasury.

• The Corporation’s accounts receivables at end-September 2012 stood at just over $104 million, some $84.101 million of which were owed by the private sector - businesses and residential consumers.

With the Government seeking to hand over control at the two post-BEC entities by May 2014, its IPO timetable means that Bahamians will be offered shares in the JVCo generation business - which presumably will be more efficient and profitable - by mid-2017.

“It is the Government’s intention for as share of the equity of JVCo to be offered to the public through a public offering of its shares within 36 months of the contract being finalised with the preferred bidder,” the BEC tender document states.

The size of the equity stake to be offered via IPO was not specified, and is likely one of the issues that will be determined in negotiations between the Government and the winning generation bidder.

The two parties will have much to discuss, as the tender document shows that while the winning bidder will have management and operational control at JVCo, their respective equity (ownership) stakes will have to be negotiated via a shareholders’ agreement.

The tender documents show JVCo, or the part-privatised generation business, will be required to enter into a 20-25 year Power Purchase Agreement to sell electricity to the transmission and distribution (NewCo) entity it has just split from.

Yet the winning bidder for NewCo will, according to the tender, be given a much shorter management contract of 10 year. And, while it will have seats on NewCo’s Board, the Government is “retaining a majority of seats”.

This is despite the winning bidder having to “provide the financing/capital for performance improvement (both infrastructure and operational in nature”, and cover any costs associated with reorganising NewCo.

The transmission and distribution partner will also have to refinance the legacy BEC debt attached to NewCo without the support of any government guarantee.

When it came to the winning NewCo bidder’s management contract compensation, the tender document said “incentive payments and the sharing of cost savings” are among the options.

“The overriding objectives are to reduce costs to the consumer through performance improvement, and to absorb legacy and restructuring costs, while incentivising the transmission and distribution provider to drive these cost reductions,” the document said.

Other demands made of the winning NewCo bidder are that it set energy efficiency and demand response targets “to help offset increasing demand in the Bahamas”.

Apart from facilitating renewable energy providers to interconnect with its grid in the Family Islands, the winning NewCo bidder is also being charged with rolling out a smart grid, smart metering and net billing.

“NewCo will be responsible for sourcing sufficient power generation for the Bahamas for the next 30 years,” the tender says.

“In order to estimate these requirements, the preferred proposer will commission an independent study of forecast power consumption for the Bahamas.”

On the generation side, the BEC tender is seeking details on proposed new power plant facilities, including associated storage and fuel berthing facilities.

As for BEC’s existing 29 power plants, generation bidders have been asked to “provide a [fair value] valuation” for these assets prior to their transfer to JVCo.

“JVCo will also be responsible for managing the operation of BEC’s existing plant and the wind down of this equipment over time as new plant is brought online,” the tender said.

“The JVCo will be expected to optimise BEC’s current generation plant until it is replaced over a period of years to be determined.”

Bidders were asked to submit timelines for operating and winding down BEC’s existing power plants, and how they would manage their decommissioning and removal.

The tender confirms that “additional credit” will be given to bidders who submit proposals for both the generation and transmission/distribution contracts.

And there is heavy emphasis on involving Bahamians, with the tender wanting details on “the opportunities” for them to participate in bid groups.

On the transmission and distribution side, the tender asks bidders how they would “maximise Bahamian participation in senior management”, the extent to which they would use Bahamian sub-contractors.

Once the winning bidders for the generation and transmission/distribution contracts are selected pre-year-end, they will enter into an transition services and operating agreements with the Government in January-February 2014.

The transitions will start in April 2014, with all parties agreeing to be bound by their agreements that month.