The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A former Bahamas Electricity Corporation (BEC) director yesterday blasted the first Christie administration for the basic tariff reduction that caused “$100 million of equity to pour out” of the utility, arguing that it had never recovered from this.

Warning that the monopoly electricity supplier was “steadily imploding”, Dionisio D’Aguilar told Tribune Business that while BEC required “significant structural and traumatic reform”, this was unlikely to happen due to constant “meddling” by the main political parties.

Spreading the blame for BEC’s current financial plight evenly, the outspoken former Chamber of Commerce president also described as “madness” the Ingraham administration’s decision to allow struggling customers to pay off their arrears over a three-year period.

Noting that nothing was done to provide for the “huge drain” this caused on BEC’s cash flow, Mr D’Aguilar nevertheless pronounced himself “stunned” at the scale of the Corporation’s losses since the Board he was part of stepped down following the May 2012 general election.

Leslie Miller, BEC’s current executive chairman, told the House of Assembly on Monday that BEC had suffered a $12.7 million net loss for the first quarter of its 2013 financial year - the three months from October 1 to year-end.

That, Mr Miller said, meant the Corporation was on pace to generate a $40-$50 million net loss for the full year - the worst financial performance in its history.

Mr D’Aguilar, though, said the former Board had been projecting “nowhere near” those figures when it stepped down eight-nine months ago, hinting that it may have even been looking at a profit.

He described the implications of the figures unveiled by Mr Miller as “frightening” for the private sector and ordinary Bahamians, as it meant BEC might have to hit “tapped out” consumers with another increase in its basic rate.

“As a former [BEC] director up until May, I’m a little stunned, and interested to learn, why the loss is as significant as it is,” Mr D’Aguilar told Tribune Business.

“I left that Board eight-nine months ago, and we were looking at making nowhere near that loss, if a loss at all. I’m not saying he’s not correct; I’m just shocked that it’s so significant. But BEC is in a terrible condition.”

BEC’s dire financial straits could not come at a worse time for the Government, which is itself cash-strapped by a projected fiscal deficit of $530 million-plus for 2012-2013, and a national debt moving towards $5 billion.

The current Christie administration recently obtained Parliamentary approval for the Government to guarantee a $250 million bond issue, which will be placed in the international capital markets and used to replace BEC’s short-term bank debt with longer-term, cheaper financing.

This was billed as the first step in getting BEC’s finances back on a sustainable path, but Mr D’Aguilar yesterday said the Government was simply unable to subsidise BEC to the extent required.

“If the Government is not in a position, then we need to come back to the consumer, and that’s frightening,” he told Tribune Business.

“The Government is between a rock and a hard place. They’ve got an electricity monopoly that is haemorrhaging money, and consumers are tapped out.”

Mr D’Aguilar suggested that the Government was likely paying at least a portion of BEC’s fuel bill, which currently totals around $350 million annually, warning that without it doing so most of the Bahamas would be without electricity.

Mr Miller has hinted at such a situation recently, noting that a $35 million loan from CIBC FirstCaribbean last summer was taken out to pay BEC’s fuel bill. And he disclosed on Monday that BEC’s supplier, Shell Western, has been pushing for a government guarantee of payment.

“BEC needs such significant structural and transformative changes that the politicians are afraid to make them,” Mr D’Aguilar added.

“Mr Miller has, to his credit, brought to life a lot of the problems at BEC, and I commend him for it. Maybe he’s not doing it in the most diplomatic way, but possibly you need a bit of shock and awe.

“The situation clearly demonstrates that the currency business model is not working at BEC, and it’s such a vital component of our economy that we do need to get this right. BEC is too vital a utility to continue as business as usual.”

The Bahamas’ relatively high electricity costs continue to be a major impediment to the private sector’s, and overall economy’s, competitiveness.

However, the Superwash president argued that all too often, “politicians are not interested in whether BEC runs right”.

Pointing to the former Ingraham administration’s plan to bring relief to distressed electricity consumers, introduced just prior to the general election, as an example, Mr D’Aguilar told Tribune Business: “It was madness for the previous administration to step into BEC and say: ‘Give everyone three years to pay off their bills’, then provide no cash flow to cover this huge drain on the cash reserves of BEC.”

The ‘three years to pay off arrears’ plan, he added, created an imbalance with BEC’s needs to pay its fuel bill every 90 days.

Describing this as “an example of political meddling”, Mr D’Aguilar also blasted the Board headed by the late Al Jarrett, who reported to now-PLP chairman Bradley Roberts, for the 2003 base tariff reduction that he identified as the root causes for all BEC’s woes over the past decade.

The base tariff is where BEC earns all its profits, and Mr D’Aguilar told Tribune Business: “This all goes back to 2004 and 2005, when the Board of the day reduced the rates and allowed $100 million of equity to pour out of BEC, and it’s just never been able to recover.”

Unable to generate enough revenue and cash flow, BEC plunged into ‘red ink’, sparking a downward spiral where it was unable to finance scheduled repairs and maintenance to generation and other equipment. To prevent ‘blackouts’, temporary generators had to be imported to the Bahamas - adding further costs.

“It’s just compounded itself over and over again,” Mr D’Aguilar added. “The status quo cannot be continued. The Corporation is slowly imploding, and it’s a pity because up until 2004 it never made a loss.”

A review of BEC’s financial performance over the four years between 2006 to 2009 shows that the Corporation lost a collective $72 million over that time period.