The Tribune

By NATARIO McKENZIE

Tribune Business Reporter

nmckenzie@tribunemedia.net

Bahamas Power & Light (BPL) plans to raise $100 million in new debt financing during the 2017-2018 fiscal year, it was revealed yesterday, and is working on a new tariff structure and customer debt forgiveness.

Philip Davis, the Deputy Prime Minister, used his contribution to the Budget debate to hold out the prospect that much-needed improvements to BPL’s supply reliability and costs is on the way.

He said 80 Mega Watts (MW) of rental generation capacity was set to be installed at BPL’s Blue Hills power station, in a bid to deal with the power outages and load shedding caused chiefly by the inability of its existing turbines to meet New Providence’s demand.

And, reiterating that BPL planned to roll-out prepaid electricity meters, Mr Davis also suggested that the ‘arrears forgiveness’ initiative would result in customers having their power restored.

However, without actually saying so, Mr Davis’s presentation confirmed that BPL, and its manager, PowerSecure International, effectively have their hands tied financially - and are unable to effect real improvements - until the Government refinances the $600 million in legacy debts and liabilities left behind by the Bahamas Electricity Corporation (BEC).

A ‘Rate Reduction Bond’ (RRB) will be placed with a mixture of international and Bahamas-based investors to refinance BEC’s old bank and bond debt, pension and environmental liabilities, and potential redundancy pay via a special purpose vehicle (SPV) arrangement that removes the debts from BPL’s balance sheet.

Tribune Business previously revealed that the Government had found much more work is required than previously thought to successfully place the RRB, given BEC/BPL’s financial challenges and history as an energy monopoly that loses $20-$30 million annually.

This newspaper’s contacts have suggested that a consortium of banks, featuring Bank of America, Credit Suisse and CIBC FirstCaribbean, heads the field of contenders to place the RRB’s international component. Some $100-$150 million will likely be issued to Bahamian investors.

The RRB will only be placed late in the 2016 second half at earliest, though. And until it is, BPL and PowerSecure will be unable to raise any new financing to upgrade the aged, poorly maintained and inefficient generation and transmission and distribution infrastructure they have inherited.

Mr Davis reaffirmed yesterday that the RRB’s placement would reduce the $6.6 billion national debt, ultimately freeing the Government from the guarantee it has given to underwrite a previous $250 million loan to BEC.

Despite BPL’s lack of a proven track record, Mr Davis expressed confidence that the $600 million RRB could be placed in the capital markets without a government guarantee.  

“BPL is finalising its mandate with world-class banks who will take it to the market,” the Deputy Prime Minister said. “The business plan will position BPL as a fully stand-alone, self-sustainable entity. 

“The Rate Reduction Bond will allow BPL to start life debt free, and will further remove the $240 million guarantee from the Government’s debt burden.”

A successful placement, Mr Davis said, would give BPL and PowerSecure the financial freedom to raise new capital and fund the necessary infrastructure upgrades.

“BPL plans to seek an additional $100 million of debt financing in fiscal year 2017-2018 to fund subsequent phases of its plan, and anticipates that BPL will be able to realise favourable terms due to its significantly improved creditworthiness, with a target rating of at least BBB (S&P) and A (Fitch),” Mr Davis said.

“BPL expects to be able to fund all other operations and initiatives through cash flows, and meet about half of the capital expenditure from the profitability.”

Mr Davis said that based on BPL’s business plan, further savings are expected “from more efficient generating assets, improved maintenance of existing assets, economic dispatch initiatives, fuel mix optimisation, more favourable fuel rates, and the divesting of BEC’s legacy debt”.

He added: “Discussions are now being held to develop a new tariff structure; to avoid reductions in staff; institutionalise a system of ‘pay as you go’; and to forgive customer debts and to put lights back on.”

Prepaid meters, Mr Davis said, are expected to substantially reduce bad debt expense, while providing customers with greater control over the timing and frequency of payments as well as energy usage.

“PowerSecure’s generation plan for New Providence centres on improving reliability, lowering generation cost, and upgrading the transmission and distribution system, particularly to improve operations at Clifton Pier, which is much less expensive in terms of fuels and repairs,” Mr Davis said.

“As BPL moves toward its objective, 80 MW of temporary rental units will be deployed to Blue Hills to meet interim needs while Clifton Pier assets are upgraded and new capacity is installed. Given the frequent and inconvenient power outages in New Providence, this is an urgent requirement.”

As for the Family Islands, he added: “PowerSecure’s plan expands to replacing inefficient generators with high-efficiency generators, enhancing the capacity for emergency preparedness, and introducing solar capacity, beginning at Long Cay, Crooked Island and Salina Point, Acklins. PowerSecure plans a gradual approach to the Government’s renewable energy self-generation (RESG) initiative, with a pilot programme ahead of full devolution.”