The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamians will have to swallow “a very bitter pill” after the upcoming general election, a former Cabinet Minister yesterday warning consumers to brace for electricity cost hikes and more Bahamas Power & Light (BPL) blackouts.

Phenton Neymour, who had ministerial responsibility for BPL’s predecessor, the Bahamas Electricity Corporation (BEC), told Tribune Business that energy cost increases were unavoidable if the utility was to be rescued.

He suggested that Bahamians might be hit with a ‘double whammy’ in terms of energy price rises - an increase in BPL’s base tariff and, on top of that, a fee to help the company repay the bond that will refinance its $650 million legacy liabilities.

“The Bahamian people need to brace themselves for next year,” Mr Neymour told Tribune Business. “They must prepare for a rate increase after the general election, both from the bond fee and the base rate they will be charging.

“We cannot expect any real progress at BPL for the next two to three years. It’s a reality. The Bahamian people are going to be faced with a very bitter pill in terms of what is necessary to improve BPL, and it’s going to happen after the next election.”

Cash-strapped BPL and its manager, PowerSecure, are unable to implement their plans for turning around the struggling energy monopoly until its existing bank debt and bond, plus pension and environmental liabilities, are refinanced.

This will be achieved by the issuance of a rate reduction bond (RRB) to investors, which is intended to both repay BEC’s legacy debts and move the new ones off its - and the Government’s - balance sheet.

“The entire business plan for BPL is somewhat depending on the bond,” one source intimately familiar with the proposed financial restructuring, and speaking on condition of anonymity, told Tribune Business.

However, the RRB will have to be repaid from a portion of BPL customers’ electricity bills that is specifically set aside for the purpose.

This raises the likelihood that an additional charge will be added to already-high Bahamian electricity bills to repay the RRB, and at a time when global oil prices are set to increase as a result of the recent Organisation of Petroleum Exporting Countries (OPEC) agreement.

However, Tribune Business sources have suggested that the RRB may not be placed with local and international capital markets investors until 2018 - further hindering efforts to save BPL.

This newspaper was told that the delays are tied to efforts to obtain a ‘rating’ for the RRB from international credit rating agencies - something essential to fostering investor confidence in the bonds it will issue, and in obtaining the best possible price (interest) rate from the markets.

Tribune Business understands that the rating agencies want the special purpose vehicle (SPV) that will issue the bonds to establish some credibility/history behind it before they will rate it.

Establishing such credibility will, crucially, require the SPV to collect the portion of customer tariffs assigned to it to service repayment of the interest to investors.

Deputy Prime Minister Philip Davis, who has ministerial responsibility for BPL/BEC, could not be contacted by Tribune Business for comment yesterday.

However, the Government, together with BPL’s Board and PowerSecure, are understood to be in talks with CIBC FirstCaribbean International Bank and Credit Suisse to obtain a ‘bridge financing’ facility to ensure the utility has sufficient capital prior to the RRB’s placement.

The two named institutions are understood to be the front-runners to place the RRB, which was created by legislation passed by Parliament as part of efforts to reform the Bahamian energy sector.

Tribune Business sources, speaking on condition of anonymity, said BPL is seeking $250 million in ‘bridge financing’, but that CIBC and Credit Suisse were currently only prepared to extend $75 million.

Although that latter figure might be increased based on certain terms and conditions, this newspaper was made to understand it will come nowhere near BPL’s target $250 million.

“It’s all fluid. I don’t know if anything’s been fixed,” one source told Tribune Business of BPL’s proposed interim financing solution.

Energy utilities are capital intensive, and BPL requires huge multi-million dollar sums to overhaul its aged, inefficient and failing infrastructure - including both its generation capacity, much of which is obsolete, and its transmission and distribution (T&D) network.

New generation plant, in particular, is a top priority, but the Government has either rejected or not responded to numerous proposals by private investors to build, own, operate and, ultimately, transfer a $200 million power plant for New Providence.

Mr Neymour, meanwhile, suggested that the sums BPL is seeking are “insufficient” to effect a proper turnaround, and that any facility would have to be guaranteed by the Government - thereby adding $6.695 billion to the Bahamas’ national debt.

He also suggested that the Government was deliberately delaying any rate increases, including the RRB, until after the general election due to the negative impact it will have on voters.

“The bond [RRB] that was created and passed in the House of Assembly goes against the promise of the PLP, which was to reduce the cost of electricity,” Mr Neymour told Tribune Business.

“The bond is an additional cost on top of VAT, so it goes against the promise to the Bahamian people. In addition to that, we’re in election season, and I go with the view that the Government will not proceed with the bond placement and increased costs until after the election.”

Mr Neymour also took issue with the Deputy Prime Minister’s assertion that electricity prices have come down because of the Government’s work, instead attributing this to lower global oil prices.

He agreed that BPL was selling electricity to customers ‘below cost, causing its annual $20-$30 million losses, and that its woes could be traced back to the decision by then-minister of works, Bradley Roberts, and BEC’s chairman, the late Al Jarratt, to cut the ‘base tariff’ from which it derived its cash flow and profits.

“The electricity rates today are those of 20 years ago,” Mr Neymour told Tribune Business, pointing out that high global oil prices meant the FNM could only restore the base rate “to where it was” between 2007-2012.

The former minister also warned Bahamians to expect a 2017 summer eerily similar to this past one in terms of blackouts, pointing out that six to 12 months ordering cycles implied it was too late to purchase new generation capacity in time.

“The bottom line is that the Government has to come forward and provide the funding and support for BPL. That’s the bottom line,” Mr Neymour told Tribune Business.