The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Moody’s believes the Bahamian economy will experience “major improvement” if the Government successfully executes energy reform, adding that this could also “offset” Value-Added Tax’s (VAT) cost impact.

Robert Myers, the Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC) chairman, yesterday told Tribune Business that the Wall Street credit rating agency’s report represented a “serious validation” of the private sector’s demands for immediate progress on energy reform.

Moody’s, in its full September 12 analysis of the Bahamian economy, said reforming the Bahamas Electricity Corporation (BEC) and the wider energy sector, and reducing electricity costs, would reduce the impact of VAT and wider fiscal reform on the Bahamian economy.

“While the Government will likely seek to reduce the overall impact of tax reform on the tourism sector, a major improvement could happen if the Government pursues an energy reform over the coming years,” Moody’s said.

“Energy costs in the Bahamas tend to be high by regional standards because of the wide dispersion of the islands. Authorities are currently considering opening the energy sector to private investors.

“In our view, the positive economic impact would come from higher investment in the sector and in job creation, and reduced costs for firms and households, which could in turn offset some of the additional costs from the VAT.”

This is the message that the Bahamian private sector, via the BCCEC and its Coalition for Responsible Taxation, have been attempting to ram home for the past several months, as the BEC reform process has dragged on for more than one year.

“It sounds like they wrote that right out of our playbook,” Mr Myers told Tribune Business, when informed by this newspaper about the contents of the latest Moody’s report.

“It’s great to hear we’re making sense. They’ve embraced our views. That’s a serious validation of our position. This report is a serious validation of our views and own report, and needs to be acted on immeediately.”

Most Bahamian businesses and households would be grateful for any improvement at BEC, even just the provision of reliable, consistent power following a summer of blackouts. Yet reducing energy costs is seen as perhaps providing the greatest-ever boost to the Bahamian economy, its competitiveness and job creation.

Tribune Business last month revealed how the Government had narrowed the BEC bidders down to just three-four contenders, eliminating the US-led Caribbean Power Partners consortium.

Those remaining are understood to include China State Construction and PowerSecure International, plus either Caribbean-based Inter-Energy and, possibly, Genting.

The Government now hopes to have identified the preferred bidder(s) and finalised “detailed negotiating terms” by end-October 2014.

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 transmission and distribution (T&D) businesses by May 2014.

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.

Drawing on an Oxford Economics study for the Caribbean Power Partners group, the BCCEC previously said using gas piped from Florida as BEC’s primary fuel source would boost 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 said then that energy reform should be “our number one priority right now”, and given the same treatment as VAT, the Gaming Bills and constitutional referendum.