The Tribune

By NATARIO McKENZIE


Tribune Business Reporter


nmckenzie@tribunemedia.net

and NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government has reduced the bidding field for the Bahamas Electricity Corporation (BEC) restructuring to three groups, Tribune Business was told yesterday, and is seeking to complete the process by November 1, 2014.

Confirming these details, the head of BEC’s line staff union also urged the Government to “get going” and select a preferred bidder(s) for BEC’s generation and transmission and distribution (T&D) businesses, charging that the process has moved “much too slow”.
 Paul Maynard, president of the Bahamas Electrical Workers Union (BEWU), speaking to Tribune Business following a meeting with KPMG, the Government’s advisers, said the union had been informed that the process was now 95 per cent complete, with the field having been narrowed to three bidders - confirming reports by this newspaper yesterday.
 “It’s at a place where they are 95 per cent completed. They have narrowed it down to three firms. The Government has to say who the three firms are, but they hope to have the whole process wrapped up by November 1,” said Mr Maynard.

It was initially proposed that the Government would select the preferred bidders in the process by November 2013, undertake contract negotiations in November/December and execute contracts by January this year. The winning bidders would then have taken over BEC’s generation and T&D businesses by May 2014.

Mr Maynard said yesterday: “The process is much too slow. The main thing is that it needs to get going. This is very important because the country is about to tank. There has to be relief; this current situation can not continue. This process has to bring meaningful change. The Bahamian people are not going to accept anything else.”

The Government’s advisers, in a statement issued last night, said the bidder field had been narrowed from the previous five, although they did not say how many remained in the running.

Simon Townend, a KPMG (Bahamas ) partner and head of its corporate advisory arm in the Caribbean, also declined to reveal the number and identity of the remaining bidders.

However, sources familiar with the process confirmed that three bidders remain. They are likely to include China State Construction and PowerSecure International, plus either Caribbean-based Inter-Energy and, possibly, Genting. The US group, Caribbean Power Partners, is understood to be out of the running.

Mr Townend, meanwhile, confirmed that the Government hoped to have identified the preferred bidder(s) and finalised “detailed negotiating terms” by end-October 2014.

Site visits to the bidders’ existing facilities will be undertaken by the Government and its advisers over the next two months, and once the winner(s) are selected talks will begin on final contract terms.

The Government has adjusted its BEC restructuring plans slightly. Rather than create two new companies from the get-go, a single entity, wholly-owned by BEC, will be established.

This entity will then hold BEC’s generation and T&D assets as separate divisions, although the former may be split out into a new company - and equity offered to the winning bidder - once new power plants/generation assets are invested in and constructed.

At the start, though, both the generation and T&D winners will be given management contracts. “The intention is to have fees that provide them with a serious incentive to reduce costs, and increase reliability and returns in other performance-related targets,” Mr Townend told Tribune Business.

“There’ll be an incentive fee, and then related bonuses.”

The statement also confirmed Tribune Business’s previous revelation that the Government and its advisers plan to refinance BEC’s existing debt and other liabilities via an ‘off balance sheet’ bond issue.

Mr Townend said the sum to be raised had not been determined yet, this newspaper having previously pegged it at $450 million.

He did, though, tell Tribune Business that the ‘rate reduction bonds’, issued by a Special Purpose Vehicle (SPV), would not go to market until the BEC restructuring was complete and the bidders had taken over management control.

Once this was completed, Mr Townend said the bond issue could “move very quickly”, as the proposal was “very advanced”.

KPMG, in its statement on the Government’s behalf, said: “Over the last several months, the Government has been pursuing the refinancing of BEC’s entire ‘legacy debt’ (as well as required funding for restructuring, environmental remediation, pension deficit replenishment, short-term capital requirements and working capital) through a ‘Rate Reduction Bond’.

“Based on very strong and credible investment bank indications, it is expected this ‘legacy debt’ can be refinanced via bonds issued on the capital markets.”

Tribune Business understands that the Government has decided to take on this refinancing itself after none of the bidders’ proposals met its satisfaction.

This SPV would refinance the $450 million via a debt issue to private investors.

These bonds, which would have a principal maturity around 25 years later, would see interest payments to investors serviced from a portion of the revenues generated by BEC customer payments. Investors’ capital would be secured through the SPV having a ‘first charge’ or lien over BEC’s tariff.

Tribune Business was told that, from the Government’s perspective, the main benefits of this proposal are that no government guarantee is needed for the bond issue.

And, by shifting the $450 million into the SPV, BEC’s existing government guaranteed debt will be removed from the Christie administration’s balance sheet, thereby reducing the Bahamian national debt at the perfect time.

From the BEC bidders’ perspective, this solution would lift the considerable burden of refinancing the legacy debt from their shoulders.

KPMG’s statement said the remaining areas to be determined are agreements on transitioning arrangements from BEC to the new entity, and the management agreement.

The latter will focus on the “ongoing operations, including immediate refurbishment and optimisation of existing assets; finalising the strategy for implementing new dual fuel equipment (capable of running on natural gas and fuel oil) and related fuel receiving facilities; securing fuel supply agreements and finalising financing for new equipment”.

The Government also plans to finalise the legislative and regulatory overhaul for the energy sector; move on renewable energy generation in the Family Islands with independent power producers (IPPs); and push the Residential Energy Self Generation programme.