The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas’ 2015 oil import bill will be slashed in half due to the decline in global prices, it was projected yesterday, saving this nation roughly $240-$250 million.

The International Monetary Fund’s (IMF) forecast that the Bahamas’ oil import bill will be cut by a sum equivalent to 2.5 per cent of its gross domestic product (GDP) is the first attempt to quantify the economic benefits provided by the temporary respite in global oil prices.

The Fund’s forecast, contained in its full Article IV report on the Bahamas, warns that the country needs to take full advantage of this ‘breathing space’ to complete its restructuring plans for the Bahamas Electricity Corporation (BEC) and embrace renewable energy sources.

It added that the “inefficient” structure of the Bahamas’ energy sector continued to erode the competitiveness of both the tourism industry and the wider economy, with this nation “slow to recognise” the potential benefits from sustainable/renewable sources.

“The Bahamian economy is extremely reliant on petroleum-based energy, in part a reflection of its geographic peculiarities, leaving it vulnerable to volatile price developments,” the IMF’s Article IV report said.

“As a result, the nation’s domestic oil import bill is substantial, totalling almost $500 million in recent years, equivalent to 5-6 per cent of GDP.

“However, with the recent oil price collapse, the oil import bill is projected to be almost halved in 2015, saving a projected 2.5 per cent of GDP.”

This is likely to be a mere temporary reprieve, and the IMF noted that the Bahamas’ per capita electricity consumption was the highest in the Caribbean at 5,700 kilowatt hours (kWh) per year.

It quickly qualified this assessment, though, saying the Bahamas’ relatively high energy consumption reflected its greater living standards and upscale nature of the resort/tourism product.

“The Bahamian economy’s per capita energy consumption is easily the highest in the Caribbean, but this is mitigated once allowance is made for its high per capita income,” the IMF conceded.

“The Bahamas’ energy consumption averaged 185 million BTU per capita over 2000–11, [which] is almost three times’ the average of tourism-based Caribbean economies, and over 350 percent of the average for commodity exporting Caribbean economies (excluding energy-based Trinidad and Tobago).

“However, this reflects the economy’s high average standard of living, as well as the relatively upscale nature of its tourism product. In fact, energy consumption in the Bahamas per unit of GDP is at about the average for tourism-based Caribbean economies, and well below the average of commodity-based economies.”

The IMF report said the Bahamas’ energy grid suffers “substantial transmission and distribution losses”, equivalent to 9 per cent of the total energy generated by BEC and Grand Bahama Power Company, due to a combination of its oil dependency and multi-island layout.

While the level of losses was “on par with other Caribbean economies”, the IMF warned that they drove Bahamian electricity prices “substantially above” the US prices that mega resort competitors to the likes of Atlantis enjoy.

“As in other Caribbean economies, the structure of the nation’s electricity sector is inefficient, worsening the overall economy’s and the tourism industry’s competitiveness,” the IMF said of the Bahamas.

“This is due in part to technical reasons, and the country has been slow to recognise the potential from renewable energy sources.

“As a result, electricity accounts for a substantial component of total expenses in the tourism industry, and therefore has a significant bearing on the sector’s external competitiveness.”

The IMF report credited the Government for “recognising the importance of addressing these shortcomings”, adding that recent initiatives should ultimately reduce energy costs, boost efficiency and lower the Bahamas’ dependence on oil imports.

Besides the negotiations with PowerSecure to take over BEC’s management, the IMF also noted the National Energy Policy’s completion and release; the Electricity Act amendments to allow for grid-tied renewable energy generation; and participation in the Carbon War Room’s ‘10 Island Challenge’.

Looking ahead to PowerSecure’s eventual BEC takeover, the Fund added: “It is anticipated that the operating company, whose compensation would be largely based on achieving service level targets relating to improved fuel efficiency, reductions in costs and enhanced reliability, would be able to reduce electricity production costs by some one-third (to about $0.30 per KwH).

“In addition, BEC’s liabilities would be taken over and financed by a ‘rate reduction’ bond, which would also fund new investments in more efficient electrical generators.”