The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government yesterday revealed a $246 million energy reform ‘windfall’ that will temporarily arrest the national debt’s increase, amid new revelations about BEC’s dire financial straits.

Deputy Prime Minister Philip Davis told the House of Assembly that the refinancing of BEC’s legacy debt through the issuance of Rate Reduction Bonds (RRBs) would automatically eliminate government guarantees that secure current borrowings.

These guarantees currently show up in the Government’s so-called ‘contingent liabilities’ or indirect debt, and form part of the ever-growing $6.4 billion national debt. Their elimination would thus prove a short-term reprieve for the Christie administration in its efforts to bring this under control.

“By virtue of this legislation and the structure of the Rate Reduction Bonds, and on repayment of the existing debt of BEC with the proceeds of the bonds, the current $246 million Government guarantee will be removed from the Government’s balance sheet,” Mr Davis explained to the House yesterday.

He also tabled BEC’s annual report for 2013, which provided further evidence that Bahamian energy industry reform becomes more urgent with each passing day.

The report, for the year to end-September 2013, is the first audited financial data on BEC’s financial performance that the Bahamian people will have seen for five years.

The last annual report and financials to be publicly disclosed were for the 2010 financial year, when the former Ingraham administration was in office. The report for 2013 was signed off by BEC’s then-Board in April 2014, and it has taken the Government more than 18 months to disclose it.

Given that it makes for grim reading, it is likely that the Government only decided to release it now with the energy reform ‘end game’ in sight.

BEC, a utility monopoly, saw its net loss soar by 60 per cent year-over-year in 2013, jumping to $36.075 million compared to $22.558 million the year before.

“Already in the red from the year prior, the Corporation’s financial position worsened in the face of economic and socio-economic parameters,” the 2013 annual report said.

“High energy costs resulting from high fuel prices, declining sales as consumers are forced to control consumption, increasing receivable balances, high bad debt expense and reduced cash flow levels have all led to the Corporation’s ballooning debt.”

Mr Davis yesterday suggested that electricity was “fast becoming a luxury item” when the Christie administration took office, with more than 5,000 BEC customers disconnected in February 2012 because they were unable to pay their bill.

Yet Leslie Miller, BEC’s now-former executive chairman, wrote in the 2013 annual report that the number of disconnections had risen to 6,500.

“BEC also has more than 90 per cent of its customers with arrears more than 90 days old,” Mr Miller wrote then. “[Private sector] receivables also hovered in the area of $86 million.”

He added that BEC’s “aggressive plan” to reduce its receivables and bring disconnected customers back on-line had only met with “moderate success”.

“The sustainability of incentives like these are not feasible to the bottom line, and BEC must now become more aggressive with its collections strategies while realising the economic position of many of its customers,” Mr Miller warned.

While not ‘qualifying’ their audit, the Grant Thornton (Bahamas) accounting firm warned that BEC’s current liabilities at end-September 2013 exceeded current assets by a staggering $154.578 million.

This represented an increase on 2012’s $122.63 million, and the auditors wrote: “Although management has taken steps concerning the going concern matters, these conditions, along with other matters, indicate the existence of a material uncertainty which may cast significant doubt about the Corporation’s ability to continue as a going concern without the continued financial support of its sole shareholder, the Government.”

Warning that BEC’s “negative cash flow trend” was about to collide with the maturing of more than $200 million in bank loans, Grant Thornton said the Corporation was “unlikely to meet these obligations at the due date”.

Amid the “significant cash flow shortages” and liquidity crunch, Grant Thornton added: “The debt obligations have caused management to consider whether they are in a position to repay debt without seeking adequate sources of replacement financing.”

BEC’s accounts revealed that the critical piece of maturing debt, a $211 million syndicated loan organised by CIBC FirstCaribbean International Bank (Bahamas), was ultimately extended or ‘rolled over’ to early November 2014.

Had that not occurred, BEC would have been faced with $242.456 million of its $293 million outstanding bank debt maturing during its 2013-2014 financial year.

That also illustrates the size of the task to refinance BEC’s legacy debt. When $100 million worth of bonds are added in, the Corporation’s combined debt is near $400 million.

On top of that is the near-$49 million BEC employee pension fund deficit, which must be closed, and all the environmental liabilities that need tackling. Already, $450-$500 million is required.