The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Grand Bahama Port Authority (GBPA) receives around $2 million per year from the Grand Bahama Power Company (GBPC) through various fees and “contributions”, Tribune Business can reveal.

Apart from the annual $500,000 licence fee that has been paid since 1996, Grand Bahama Power also pays the same yearly amount to the GBPA for “promotion” of the island’s economic development.

And, up until July 1 last year, the GBPA levied a $2 per barrel fee on all the fuel purchased by Grand Bahama Power Company - a sum that totalled another $1 million per annum on average. But, as part of GBPC’s tariff restructuring, the per barrel throughput fee was dropped in 2012 in favour of imposing a $0.0031 (less than one cent) per kilowatt hour (KWh) levy on electricity sold.

The details of how much the GBPA earns from Grand Bahama Power Company are contained in the latter’s 2011 and year-to-August 2012 financial statments, which have been issued to select investors as part of its $32 million private placement preference share issue.

The accounts, which for 2011 were audited by Ernst & Young (Bahamas), provide information that many Bahamians - including Freeport residents - likely have no knowledge of, and raise a number of issues/questions.

Under the heading ‘Port Authority contributions’, both sets of financial statements say: “The company [Grand Bahama Power Company] has agreed to contribute annually to the Port Authority, effective from January 1, 1996, the sum of $500,000 to promote the economic development of Freeport.”

The same heading notes that the annual $500,000 licence fee is to be “used for infrastructural maintenance”, with both charges included in the Grand Bahama Power Company’s administrative expenses.

Among the questions asked by several Freeport business contacts, when these details were disclosed to them by Tribune Business, was what the $500,000 annual ‘development contribution’ had been used for. This newspaper’s calculations suggest Grand Bahama Power Company has paid a total of $8.5 million in such contributions over the past 17 years, but given the seeming lack of promotional initiatives by the GBPA - especially since 2004-2005 - it is uncertain what these dollars have obtained.

As for the throughput fee, Grand Bahama Power Company’s accounts show the GBPA earning $909,000 and $1.142 million in its 2011 and 2010 financial years, respectively, from the $2 per barrel throughput charge on all oil purchased by the electricity utility.

But the financial statements for the year to August 2012 noted: “After rate negotiations and effective July 1, 2012, the Port Authority ceased the throughput charge and replaced the charge with a levy in the amount of $0.0031 per kWh billed.

“For the year, the company [Grand Bahama Power] incurred charges of $389,000 in throughput charges under the original agreement and $178,000 in levies under the current agreement.”

Like the oil throughput fee, the per kWh levy is a burden that falls directly on Grand Bahama Power’s customers. It appears that this is designed to be ‘neutral’, in that it will still generate around $1 million in revenue per annum for the GBPA.

Although the impact would likely have been minimal, some Freeport and Grand Bahama residents are likely to ask whether the GBPA could have brought them some relief when power bills peaked by waiving the throughput fee and ‘development contribution’.

And another question raised by Tribune Business’s Freeport contacts was whether the Grand Bahama Power Company’s status as one of the GBPA’s biggest revenue contributors (setting aside Port Group Ltd) could influence the latter’s approach, and ability, to regulate it.

But the offering document for Grand Bahama Power Company’s $32 million private placement emphasises that it operates “at arm’s length” from the GBPA. It adds that the two are working together to determine a rate structure for the utility that will enable it to supply “reliable electricity and the lowest long-term cost” to consumers.

The document also pledges the two parties will develop “an open and transparent rate setting process” for consumers; seek to create “price stability”; and ensure Grand Bahama Power Company is “financially healthy” and earning an “appropriate rate of return for all capital investors”.

Meanwhile, the financial statements also show that during the 20 months to end-August 2012, Grand Bahama Power Company’s 80.4 per cent majority shareholder, Canadian utility Emera, extracted $7.37 million from its Bahamian asset via “advisory services and project management fees”.

Some $4.796 million of that sum was paid to Emera in 2011, with the $2.574 million balance handed over during the eight months to end-August 2012.

Much of this sum likely relates to the construction of Grand Bahama Power Company’s new $72 million, 52 Mega Watt (MW) West Sunrise Plant.

It is unclear whether Emera’s fees will be maintained at this level going forward, although prior to last week’s $32 million preference share issue, Grand Bahama Power Company owed its majority shareholder $54.831 million as at end-August 2012 - the majority of which was financing/loans for West Sunrise.

The 2011 year-end accounts, which were audited, said Emera had at that point advanced $47.461 million to Grand Bahama Power Company “in respect of loans for capital expenditures (new plant) and working capital”.

Majority shareholders earning such management-type fees is not uncommon in the corporate world. They are often justified as reasonable compensation for that investor providing the company with the necessary expertise and technical knowledge, especially given that it does not receive 100 per cent of any dividend payments in return for the fruits of its labour.

Indeed, Cable & Wireless Communications (CWC)), the Bahamas Telecommunications Company’s (BTC) majority shareholder, receives an annual management fee calculated as a percentage of gross revenues in return for the services it provides BTC.

Still, Emera’s various fees may ‘grate’ a bit with some of the 19.6 per cent Bahamian minority shareholders in Grand Bahama Power Company. Their investment is held through BISX-listed ICD Utilities, and while they have, seen no capital returns in recent years, the dividend payments being suspended, the Canadian utility seems to have fared quite nicely via its fee earnings.

Grand Bahama Power Company also disclosed in the offering document for its private placement that renewal of the agreements that allow it to ‘exclusively’ supply electricity to east and west Grand Bahama are at its “discretion”.

The initial 25-year agreements are set to expire in June and August 2018, respectively, but these are renewable at the company’s “option”. As a result, Grand Bahama Power Company said it was “further insulated from sovereign and/or competitive threats”.

The East and West Grand Bahama agreements also prevent any person or company from installing their own generators with a capacity greater tha 25 Kilowatts (KW). And Grand Bahama Power Company is also exempt from any Customs duties and Stamp Tax on materials imported for construction and maintenance of its electrical systems.