The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The FNM’s deputy leader yesterday slammed the structure of BEC’s $600 million refinancing arrangements as “not fair” to the Bahamian people, due to the imposition of extra charges and a seeming lack of regulatory oversight.

K P Turnquest told Tribune Business that the Rate Reduction Bonds (RRB), which will refinance the Bahamas Electricity Corporation’s (BEC) legacy liabilities, allowed the administrator collecting monies to service this debt to charge a fee for its work.

The FNM deputy said this was “inconsistent” with established Bahamian practice, as the private sector never received a ‘rebate’ or ‘fee’ for the work it did in administering, and collecting, the Government’s Value-Added Tax (VAT).

The RRBs will be financed from a portion of customers’ electricity bill payments, as will the administrator, or ‘Servicer’s’ fee, leading Mr Turnquest to suggest the latter was a ‘charge upon a charge’ and yet another burden for business and residential customers.

And he expressed concern that the special purpose vehicle (SPV), which will be responsible for issuing the RRBs, appeared to be able to adjust the fee customers must pay without first requiring approval from the energy sector’s new independent regulator, the Utilities Regulation and Competition Authority (URCA).

The Electricity Rate Reduction Bond Bill, which has been reviewed by Tribune Business, allows for the bond servicing fee paid by customers to be “adjusted at a minimum semi-annually”.

While the Bill requires that the SPV inform URCA and the minister responsible for the energy sector 60 days before an RRB servicing fee increase takes effect, it appears their approval of such an action is not required. And the Minister can even approve the increase date being brought forward.

The Electricity Bill 2015, meanwhile, permits Bahamas Power & Light (BPL), the successor entity to BEC, to impose on each customer “a rate reduction bond fee to be included in the tariff rate” billed to customers.

And it confirms that the fee can be “periodically adjusted” to ensure RRB bondholders are paid due compensation, and that associated costs are met.

The Bill allows BPL to act as the Servicer, or administrator, of the RRBs, taking on the responsibility for billing and collecting the bond servicing fee, keeping the records and remitting payment to the SPV. It also permits BPL to contract with a third party to perform this job, including its management company, PowerSecure.

“Presumably, BPL will be that Servicer to collect the RRB fee and hand it over to the issuer and bondholders,” Mr Turnquest told Tribune Business. “The Servicer will receive a fee for collecting that money and turning it over.

“Here’s where I have an issue. If you look at the aviation industry, we collect the Government’s taxes, landing fees and security fees, and pay them over to the Government. We get no commission for that.

“Every business collecting VAT for the Government does the administration and collection taxes, and hands them over to the Government. They get no rebate for that,” the FNM deputy leader said.

“Why are we making provisions for this foreign management company [PowerSecure] to get more profit by collecting this RRB fee?

“It is inconsistent with all the other taxes collected for the Government, and amounts to an additional charge on the Bahamian people. That’s not fair.”

The RRBs are a debt security that has to be serviced to ensure bondholders receive their due interest and principal payments, rather than Government taxes. And such ‘Servicer’ arrangements are common in the global capital markets.

However, Mr Turnquest also expressed concern about the ability of the issuing SPV to adjust the RRB rate “without regard to anybody”.

“They can adjust it, and I don’t see in that Bill where there was any oversight on that calculation,” he told Tribune Business. “I would have expected that would be something also approved by URCA as the regulator. Somebody ought to look at that.”

The Electricity Rate Reduction Bond Bill says a “mathematical formula” will be developed to calculate adjustments to the RRB fee, although this has yet to be specified.

Factors influencing any changes include “customer defaults and delays”, plus “billing lags”, taxes, write-offs and what is described vaguely as “other factors”.

Historical and “reasonably foreseen” variations in BEC’s billings and revenues, relating to the hurricane season, outages, the loss and gain of customers and economic factors will also come into the RRB calculations.