The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The winning generation bidder on the Bahamas Electricity Corporation (BEC) restructuring must supply power at $0.22 kilowatts per hour or less, a private sector body is urging, while again slamming the process’s “secretive” nature.

Robert Myers, the Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC)chairman, told Tribune Business that the generation bidder chosen by the Government must at least match the pricing projected in a study conducted for it by Oxford Economics.

And, while urging greater transparency and accountability from the Christie administration, Mr Myers warned that failure to deliver energy sector reform that produced more reliable, cheaper power was “unsustainable” and could plunge the Bahamas into “greater economic hardship”.

He expressed particular concern over the changed structure post-reform, which now leaves the Government - through BEC- as 100 per cent owner of both the generation and transmission and distribution (T&D) businesses, at least in the short-term.

Mr Myers said this could still give the Government direct control and influence of all BEC-related decision-making, despite the presence of private sector management companies running both businesses, a development that would inspire little confidence in the private sector and Bahamian public.

“What we can do is remain vigilant on transparency and the need for it, and hold them accountable to measure the performance of whoever they do select against our Oxford Economics study,” Mr Myers told Tribune Business.

“If the power price is $0.32 per kilowatt hour, we’re going to have to ask some questions.”

The Oxford Economics study found that the $0.22 per kilowatt hour generation price would be achieved if BEC used natural gas piped from Florida as its primary fuel source. This was forecast to raise the increased economic output from energy reform by 150 per cent.

While the Bahamian economy’s gross economic output was projected to increase by $10.1 billion over a 25-year period using diesel fuel, the Oxford Economics report projected this would rise to $13.2 billion employing LNG, and by some 150 per cent to $25.2 billion using piped gas.

The income earned by Bahamian workers over the same period would increase by $2.8 billion over the same period using diesel fuel, according to Oxford Economics, and by $3.4 billion and $6.5 billion using LNG and pipeline gas, respectively.

And, the report predicted, full-time job creation would jump from 1,700-6,200 per year using diesel fuel to 12,400-13,500 under pipeline gas, as it was a much cheaper source of fuel.

Mr Myers, meanwhile, expressed concern that the Government appeared to have abandoned its plans to split BEC into two and part-privatise power generation.

The initial tender, released last August, called for the Corporation to be split between its generation and T&D bidders. While a private sector company would have been given a pure management contract for the latter, the winning bidder on the generation side would have been given an equity stake in the business.

By creating a new company, wholly-owned by BEC, which will contain both the generation and T&D businesses, the Government now seems to be going for a structure similar to that implemented for Lynden Pindling International Airport (LPIA).

There, Nassau Airport Development Company (NAD), was created as a 100 per cent, fully-owned subsidiary of the Airport Authority, allowing the Government to retain control. The then-Vancouver Airport Services (YVRAS) was brought in as NAD’s manager, but with no equity stake.

That arrangement, by and large, appears to have worked well over the past seven years, with little to no apparent interference by the Government, and YVRAS given relatively free rein to manage despite oversight from the Airport Authority.

The Government is looking to replicate that with BEC, but Mr Myers expressed concern that it could still enable Government interference when it came to selecting ‘who did what’ in relation to BEC’s new and existing generation assets.

Warning that Bahamian consumers and taxpayers “end up ultimately paying the price” for government waste and inefficiency, in terms of higher costs and poorer services, the BCCEC chairman said more information was needed on the proposed structure for BEC.

“It doesn’t give me any assurance that the Government isn’t managing the process,” he added. “Let’s see the details on the new entity that we’re creating, understand what the intent is.

“It depends on how that’s structured, and what they’re going to do. What is the new entity going to be changed to, and what are the parameters they will be working with? How long is it going to take to set up, who will be in charge, and who will be on its Board?

“My concern is that the Government doesn’t turn around and say: ‘We’re going to deal with this one on turbines, this one on construction’, and create a disaster. They should not start trying to micro manage it. They haven’t managed the current situation well, so why should we have confidence they will manage this one?”

Mr Myers said last week’s release on the BEC restructuring process, issued by the Government’s main advisers, KPMG, “leaves as many questions as answers” and told the Bahamian people relatively little.

While it gave a proposed completion date for the process, and detailed the new structure and the criteria shortlisted bidders will be assessed by, no mention was made in the statement of who the remaining three-four contenders are.

Tribune Business understands that still in the race are China State Construction; Power Secure International; and one of Inter-Energy and, possibly, Genting. Out is the US-based Caribbean Partners.

The BCCEC criticised the absence of such details in a press statement, expressing disappointment that the Government “continues to remain so secretive with regard to the information obtained and the decisions being made on behalf of the people”.

It added: “The KPMG press release provides little clarity to the public or the private sector, and leaves as many questions unanswered as it answers. To be clear, the private sector and many others are interested in a transparent process that clearly articulates what the ultimate cost of electricity will be to the consumer; that electricity will be provided on a more reliable basis than it has been in the past; that environmental issues are addressed; that Bahamians will be involved in the construction and operation of the facility; that Bahamians have the opportunity to invest in any new venture; and that Governmen-owned monopolies that are not competitive, efficient and/or profitable are sold to companies that are experienced in running them in this fashion.

“Anything less is unsustainable long-term, and risks pushing the country, businesses and citizens into greater economic hardship. The country, nor its businesses or people, are in any financial position to get this process wrong. It is imperative that competitive electrical prices are attained in the very near future in order to foster GDP growth, reduce unemployment and reduce our national debt.”

Calling for the generation side to be granted to a bidder “with an impeccable track record in the industry”, the BCCEC warned the Government that “failing to do so will likely result in a lack of accountability, a significant blame game between all parties involved, huge cost over runs and massive litigation.

“While the concept of generating power is relatively simple, the coordination by and between vendors, sub-contractors and technologies is highly complex, and therefore, making sure that someone is accountable to deliver a system on time, on budget and that works as intended would be prudent governance.”

It added: “The BCCEC encourages the Government to negotiate with a respected and highly-experienced company that will own the entire process from design to operations, one who has built and continues to operate numerous plants successfully, and with whom it can demand accountability and a lower costs of electricity, as benchmarked in the BCCEC Oxford Economic Study ($0.22 per kilowatt hour). The people of the Bahamas deserve a detailed explanation by the Government for any price higher than this benchmark.”

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.”

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.