The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The proposed Bahamas Electricity Corporation (BEC) and wider energy sector reforms can have “the most revolutionary” impact on the economy, a Tax Coalition co-chair believes, offsetting the impact of Value-Added Tax (VAT) or any alternative.

Gowon Bowe told Tribune Business that the Bahamas would be “well ahead of the game” if the BEC restructuring process results in tangible reforms that significantly reduce energy costs.

Urging the Christie administration to ensure the process had full transparency, Mr Bowe, an accountant by profession, said: “That is one of the most revolutionary areas you can focus on, because the cost of energy, and how you reduce that, will have a massive impact on how you run a country.

“I hope that is an exercise that remains truly transparent and in the best interests of the wider population. I haven’t heard too much about it, and it’s a concern to me when things go quite.”

Tribune Business sources confirmed that while the report/recommendations from the BEC restructuring advisers had been reviewed by the full Cabinet, the Christie administration has sent the issue back to a Cabinet sub-committee for further assessment of what it believes are some core issues.

Among the issues to be decided, this newspaper understands, are whether to split BEC into separate generation and distribution businesses, as originally envisaged; how to deal with BEC’s $300 million-plus legacy debt; and the likes of net metering and net billing.

Explaining why transparency was vital on BEC’s quasi-privatisation, Mr Bowe said: “It has to be sufficient so that people judge you made the best choice based on the information available at the time.”

And he added: “I can only imagine what the Government’s expenditure on electricity is. If we think about the wider country, if we can get the costs down we’ll be well ahead of the game.”

The Government was supposed to have selected its preferred bidder(s) for BEC by year-end December 2013, with commercial negotiations concluded and a handover having taken place by May 1 this year.

The process is thus now almost five months behind the schedule set out in the original BEC tender released in August 2013, and some observers have begun to suggest privately to Tribune Business that the Government is stalling on making a decision, reviewing issues that should have already been decided.

Sources close to the BEC process, though, have told Tribune Business that the Government is still aiming to make an announcement by the time the Budget is presented to Parliament next Wednesday.

“There’s been a bit of back and forth, and my understanding is that they’ll be moving forward very soon with the next steps,” one source said.

“There’s a lot of moving parts. The resolve is there to make something happen. The feedback we’ve had from government is that they should be moving forward relatively soon.”

The five remaining bidders in the BEC process are understood to have largely adopted a ‘call us when you need us’ approach, having become weary waiting for a decision and second-guessing what the Government will do.

Among the five are the US-focused Caribbean Power Partners, featuring Fluor Corporation and ProEnergy Services. Also involved on the generation side are understood to be Cayman-based Inter-Energy and Genting, with PowerSecure the only bidder on the transmission and distribution management contract.

The Government has yet to decide whether to split BEC into separate generation and transmission entities, but one source said: “They’d get more out of it by separating it, but either way it’s going to be better than it is today.”

That’s if the Government goes through with involving the private sector with BEC, with Deputy Prime Minister Philip Davis indicating several times that retaining the status quo and rejecting all bids remained an option.

One source familiar with BEC’s current financial predicament told Tribune Business that the Government could simply not afford for the status quo to remain, estimating that between its existing debt, unfunded pension liabilities, environmental liabilities and other balance sheet issues, the Corporation’s total liabilities amount to $545 million.

And another source added: “The Government is at its wits end right now, The global economy is in a slow pace recovery, we rely on foreign direct investment, and it’s not coming in.

“Any number of new taxes are coming in, you have high unemployment and job losses in the private sector every day. They are riddled with debt. What can we expect in the Budget?”

The source said much was riding on VAT and fiscal reform, better collection of existing taxes and the Baha Mar project.

“If none of that happens, what do we do? We are sinking,” they added.

Suggesting that reforming BEC, and lowering energy costs for businesses and households, could help offset this, the source said the tender document had asked the bidders to pick up “many things outside the normal”.

“The RFP asks you to deal with liabilities that should be the responsibility of the Government,” the source added.

“BEC is responsible for at least $50 million in environmental damage. There are unfunded pension liabilities of $100 million, and government has responsibility for $300 million-plus of bank and bond debt.

“You’ve got someone taking care of all that, giving you new plant, dealing with the Family Island issues, solving the pension deficit, bringing water production costs down by 40 per cent and electricity cost by 50-60 per cent.”

From a fiscal perspective, the source said that transferring BEC’s debt liability to the private sector could reduce the Bahamas’ debt-to-GDP ratio by several percentage points and make the Christie administration “look like a genius”.