The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government ultimately received nine proposals to take over the Bahamas Electricity Corporation (BEC), a key player in the process saying: “We’ve got some strong bids, and we’re on track.”

Simon Townend, a KPMG (Bahamas) partner and managing director of its corporate finance arm in the Caribbean, told Tribune Business the accounting firm was now evaluating all the bids to see who had qualified for the next round on October 1.

Disclosing that 13 groups had paid the $25,000 fee to register for the process, and obtain the Request for Proposal (RFP) document, Mr Townend said just over two-thirds of this number came through with completed ‘technical bids’ by the September 13 deadline.

“I think we’re on track,” he told Tribune Business. “There’s some strong bids, and a number of parties going through to the next round.

“We had 13 registrants, and ultimately we got nine completed proposals which were received on September 13. We’re in the process of evaluating them all.”

Conceding that lowering energy costs and improving power reliability was “fundamental” to the Bahamas’ economic competitiveness, the KPMG partner conceded: “We have to get it right, and get a good result.”

Mr Townend declined to identify those behind the nine submitted proposals. However, among those considered likely to bid were Genting’s energy arm and the consortium featuring BISX-listed FOCOL Holdings and its partners, Grand Bahama Power Company majority shareholder, Emera, and generation plant manufacturer, Wartsila.

Another strong contender understood to have bid, and be in the mix, is the Caribbean Power Partners consortium headed by Texas-based investor, Taylor Cheek.

That group includes Fluor Corporation, which has extensive Bahamian and Caribbean experience, as the developer of its planned new power plant, plus ProEnergy Services as the operator and maintenance provider.

KPMG Advisory Services was hired by the Government to structure and oversee the tender process for BEC reform, plus evaluate the bidders and provide recommendations to the Government.

It is working alongside DNV Kema – “one of the leading” energy, technical, and business consultants; and Hogan Lovells

There have been several calls for more transparency over the Government’s plans to reform BEC, which could see the electricity monopoly split into two. A joint venture partner is being sought for its generation assets, along with a management contract with a private sector firm for its transmission and distribution assets.

Those who qualify from the initial ‘technical’ stage will then enter a ‘pricing’ stage, with bid deadlines set for mid-November. Once that is completed, Tribune Business understands the Government will select its preferred bidders (bidders), with negotiations targeted for completion before year-end.

The necessary legislative and regulatory reforms are supposed to be completed by March 2014, with the ‘hand over’ of BEC’s assets to the respective (or single) bid winner occurring on May 1.

Mr Townend, in an interview with Tribune Business, shed more light on the evaluation process and what the Government is seeking from potential bidders.

On the transmission and distribution side, he revealed that the management partner will “absolutely not” be allowed to charge its fees based on top-line revenues.

While this practice is the norm in industries such as the hotel sector, Mr Townend explained that it could act as an incentive to keep consumer prices high – defeating the Government’s key objective.

He described the major issue with the ‘pricing proposal RFP’ round on the transmission and distribution side as: “What will their fees be?”

“We’re focusing on a structure that is targeted on cost reduction, as well as reliability and performance matrixes that you find in any transmission and distribution,” Mr Townend said, “transitioning BEC from the status quo to best practices.

“The whole objective is to make the transmission and distribution system as effective as possible.” Mr Townend said incentive payments, and the achievement of reliability and performance targets, would be included.

And, while pricing by both generation and transmission/distribution bidders was “critical”, other factors were also vital to the Government’s assessment.

“It’s not just price,” Mr Townend explained, pointing out that fuel type and technical “feasibility” were also vital.

“There’s a lot of other factors like reliability, efficiency, training of staff, environmental remediation and responsibility,” he added. “A fuel management plan built in that makes sense. There’s a lot of factors to look at and understand how these entities are arriving at their prices.”

Some bidders were focusing solely on the generation or transmission and distribution sides, while others were looking at both. Kenred Dorsett, minister for the environment, previously told Tribune Business that the Government would favour bidders who could provide solutions for the two businesses.

However, Mr Townend said “whatever makes the most sense” would determine whether BEC remained as one entity or was split in two. He acknowledged that keeping BEC ‘intact’ would make the transition easier.

Tribune Business had also been informed that the tender document indicated the Government would view favourably bidders with experience in other Caribbean nations.

Mr Townend confirmed that the tender had asked for details about experience in other small island nations, given the issues presented by the Bahamian archipelago and the Family Islands.

“A lot of emphasis was placed on the Family Islands as part of the overall solution,” he told Tribune Business. “The economics lie more in New Providence in terms of scale, but the Family Islands are absolutely critical. That will be reinforced in the next round as well.”

Mr Townend said the now-completed ‘technical’ stage had two main goals – getting to know the bidders and who they were, plus what they were proposing and how they would handle “the transition” from the ‘old BEC’ to the new arrangements.

Among the information sought in the first round were details on the make-up of the various consortia; the identities of the principals involved; and their financial details.

“It’s the introduction to the group,” Mr Townend explained, adding that questions were asked about “the controlling interests”, and whether bid groups involved public and private companies.

If it was the latter, information was sought on beneficial ownership plus financial wherewithal. Other details requested were information on any Bahamian partners or participation; a bidding group’s specific areas of expertise and technology it could “bring to the table”; the geographic areas they already operated in; and existing relationships with regulators and consumers.

“Then we asked the bidders to also talk to how they would propose to approach the restructuring, the transition of BEC into the new entities – Newco, the new generation company, and the transmission and distribution entity,” Mr Townend said.

“There’s two segments to it. First, the transition stage, and then the ongoing operational stage. They were provided with a list of steps we were looking for them to manage. It was an approach and vision stage, as to how they go about making this happen.”

Once the transition stage was complete, Mr Townend said the focus would shift immediately to bringing the legacy operations inherited from the old BEC “up to par”.

“On the generation side, one of the issues we have is BEC has existing equipment,” he explained. “Some of which is old, some of which is new. Some of which is well maintained, some of which is not.

“So we asked how they would transition over from the existing equipment to new, and what type of plant and fuel capacity they would bring in over a certain period of time.”

Agreeing that lower energy costs were “fundamental” to both Bahamian citizens and the overall economy, Mr Townend said: “If you are a manufacturing company and want to set up here, labour costs aside, the main expense is electricity.

“If you had to choose between here and somewhere with 20-30 cents per kilowatt hour, that’s where you’d go. It’s a major issue. For the hotels it’s not just an expense, but the fuel charge. They’re taking bookings six months in advance, and are completely [at the mercy] of fuel prices. Hotels want lower prices and certainty as to what the costs will be.”