The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas Electricity Corporation’s (BEC) split into two separate companies is not yet a 100 per cent certainty, Tribune Business was told yesterday, as the Government will give “priority to a single provider”.

Kenred Dorsett, minister of the environment, told Tribune Business that with BEC’s distribution costs sometimes being triple the global average, this area of its business required different expertise from power generation.

This, he indicated, drove the Government’s thinking in splitting its recently-issued Request for Proposal (RFP) into two, and seeking separate bidders for to take over BEC’s power generation and transmission/distribution operations.

However, Mr Dorsett told this newspaper that the tender document was structured to let bidders know that the Government was “giving priority in our scorecard” to entities who offered to do both - take over power production and distribution.

This would effectively ensure that BEC remains a single, whole entity after its total, or partial - privatisation - something its immediate past executive chairman, Michael Moss, had recommended last week.

Mr Moss had urged the Government “not to decimate” BEC by splitting its generation assets from the transmission and distribution functions, arguing that this would prevent the achievement of economies of scale - particularly in the Family Islands.

The former chairman said ‘breaking up’ the state-run incumbent would prevent the interconnection of multiple islands, which could all be supplied by one generation plant.

But Mr Dorsett indicated yesterday that the Government was alive to such interconnection possibilities, showing that the current administration and its immediate predecessor are not that far apart in their thinking.

Asked by Tribune Business why the Government had decided to ‘split’ BEC in two as the platform for its energy sector reforms, Mr Dorsett said the decision was based on an assessment of global industry models plus advice from its primary consultants, KPMG Advisory.

“We have looked at a different model, and I think throughout the Caribbean and the world, based on the advice we received from KPMG, we thought it would be prudent to split transmission and distribution from the generation side,” the Minister told Tribune Business.

“Transmission and distribution the world over is known to be a separate business model with specialist expertise, unlike the generation of power.

“Generating power, and reducing the cost of producing power, is one half of the dynamic of reducing the cost of electricity,” Mr Dorsett told this newspaper.

“We understand the cost of transmission and distribution in the Bahamas is in excess of 10 cents per kilowatt hour (KWh). The information provided by BEC shows it is anywhere from 10 cents up to 15 cents per KWh in some places.

“In other jurisdictions, the transmission and distribution costs are as low as five cents per KWh; they range from five to eight cents per KWh.”

Based on these figures, BEC’s transmission and distribution costs are generally double to triple those of most other countries. And, at best, they are still 25 per cent higher.

Mr Dorsett’s comments also imply the Government, and its advisers, believe there is significant scope for cost savings in BEC’s transmission and distribution business alone.

Hence the decision to split the Corporation into two, and seek a management partner who will take over the operation, maintenance and expansion of BEC’s transmission and distribution business, while also handling billing, collection and customer service.

“We wanted to make sure we are getting proper proposals on both the generation side and the transmission and distribution side,” Mr Dorsett emphasised. “We appreciate, based on the technical advice received, that they are two different businesses.”

Mr Moss, though, had argued last week that with 80 per cent of BEC’s costs stemming from power generation, there was minimal scope for extracting savings from the transmission and distribution business.

This, he added, was why BEC needed to be privatised as a single entity.

Mr Dorsett yesterday indicated that the Government was alive to such thinking, telling Tribune Business that the nature of the bids received would weigh heavily on the energy reform direction ultimately taken.

Indicating that the Christie administration was open to keeping BEC intact, Mr Dorsett told this newspaper: “That’s exactly how the RFP was framed.

“In the score card, we indicated we may give priority to one company providing both to avoid the integration issues we may get with separate companies.”

And he reiterated: “This is one of the reasons we indicated priority in our score card will be given to single provider.

“We feel the same way as he [Mr Moss] does. As an archipelagic nation, there may be some justification for linking different islands. If the former chairman reads the RFP properly, he’d understand that is exactly what the RFP gives priority for.”

Mr Dorsett added: “At the end of the day we’ve got expert advice on this matter. The models we are advancing have taken the best options available, taking into account the failures other nations have experienced.

“Our archipelago nation means our model has to be a little different. KPMG has provided sage advice. This process is a healthy one. We’re really looking forward to advancing it, and hopefully it will result in giving the Bahamian people relief from high energy costs.

“Our overall objective is to get the best position for the Bahamian people. If it means having two separate companies, and if that results in lower energy costs and brings about the efficiencies we want to see, so be it.”

BEC’s remaining transmission/distribution business would still be 100 per cent owned by the Government, under the RFP .

True privatisation, under the Government’s plan, will only occur on the power generation side, where it is seeking a joint venture partner to take over, finance and manage BEC’s existing power plants and meet future demand via new facilities.